South East: dip or lift?

Just when you thought things were beginning to look a bit more promising, in come some bespectacled economists talking about a double-dip recession which will throttle the convalescing property market. But surely the wealthy South East is beyond the reach of the gloom mongers?

Not so. As people were just getting more confident about the future, the media talking up the possibility of a double dip is having “a negative influence on the market”, according to Jonathan Smithers, head of property a ten-partner firm CooperBurnett.

Concerns over repossessions have ebbed away, says Smithers, but now people have begun to worry about austerity. “If you’ve kept your job through the recession you’ll be feeling reasonably secure, but the spectre of a double dip, combined with public spending cuts, is having a noticeable effect”. The remortgage market, in particular, which took a pounding during the downturn would be first in line if property prices were to head downwards again.

Firms like CooperBurnett have strategically kept away from remortgaging and commoditisation generally, but no firm is totally immune. The trouble is, nobody really seems to know how healthy the market is.

“The market has been reasonably buoyant in the Tunbridge Wells corridor”, Smithers continues, “but some firms in the wider region are having a tough time, including legal aid firms battling with the pressure on fees” (see box ‘Legal aid in turmoil’).

“Everybody is keeping their heads down and trying to present a good front”, says Alan Williams, managing partner at five-partner firm Buss Murton. “Nobody says much about what they’re doing and tend to say that everything is fine – but maybe that’s just how it is.” Having said that, Williams adds: “We’re holding our breath a bit about the property market; it’s definitely not picked up on the lenders side.”

It’s the same reaction at Knights Solicitors, a five-partner niche country sports firm in Tunbridge Wells. “People say things have stabilised and that they’re doing better – at least that’s what they say when you ask them,” says partner Michael McNally.

But around the rolling hills of the Weald, lawyers are already preparing for radical changes in the market.

Flat-pack partners

Buss Murton is one of the pioneer – not just in the region but also in the country – in that it is among the first to have done a ‘pre-pack’, where some of the partners buy out their firm’s legacy business out of administration, and in appointing a non-lawyer as a partner under the LDP provisions that came into force last April.

There have been talks since the Legal Services Bill was first mooted, about non-lawyers becoming partners in law firms. It has often been taken as a reference to ‘Tesco law’ or to large volume firms. But even smaller firms should embrace the opportunity, according to managing partner Alan Williams.

“There have been non-lawyers in key roles for a long time, what’s new is the ability with LDPs - and in the near future with ABSs - to include them as part of the partnership structure,” Williams says.

But does it really make a difference to give them a share of the equity? “Absolutely,” Williams continues. “Once you reach a certain level, senior individuals will only give their commitment and add real value if they feel they own part of the business. This is what firms should be looking at: does this person think like an owner?”

At firm level, Williams says lawyers will inevitably have to change their outlook and take a leaf out of the large firms’ book: “When it comes to high street firms, there is a general feeling that clients expect a certain, traditional type of solicitor – but clients don’t really care who gives the advice, provided this advice meets their needs.”

The more forward-thinking firms have already positioned themselves away from the low-value commoditised work to focus on clients seeking a more tailored service or on niche markets.

Knights Solicitors does both, continuing to build on its key clients on the back of its specialisation on country sports such as hunting and shooting. Compliance with the Hunting Act, for instance, has provided the firm with an unusual counter-cyclical safety net, with complaints about alleged breaches leading to regular instructions – and opportunities for the firm to stay in touch with important clients.

“Work has continued much as before,” says Michael McNally. “Police regularly continue to investigate complaints of illegal hunting but usually there isn’t enough evidence. The burden of proof is on the prosecution to show that a defence of exempt hunting is not a genuine defence – and it makes it very difficult to prosecute.”

There are also ongoing issues of unlawful killing of birds of prey, which usually raises suspicions that the local shoot or grouse moor is involved.

But even the relative safety of niche practice shouldn’t be taken for granted these days. Knights’ position on the legal services spectrum looks at the opposite end to that occupied by Quality Solicitors. Yet, Michael McNally drops into the conversation that his firm had talks with the new high street brand only a few months ago.

In the end, the discussions did not lead to anything; the client base and service delivery structures were too far apart. But McNally is satisfied that they were worth having – a mindset that other firms possibly ought to embrace.

A safe haven but for how long

As it happens, Quality Solicitors have signed up a number of firms around Maidstone and further out in Kent. The Tunbridge Wells area is proving more difficult to break into, probably because of the nature of the client base. But according to Michael McNally their proposition is a valid one in the face of ‘Tesco law’, uniting the profession under a single solicitor brand which aims to be as user friendly as the likes of the AA and the Coop.

Already there are reports that several small firms are thinking about closing down, pushed by the expected hike inindemnity premiums. Those that will remain will undoubtedly need to face up to a new landscape.

“High street firms will have to become professional businesses or they will be marginalised,” says Alan Williams.

His firm, like quite a few others, have chosen to focus on personal service instead, targeting local high value clients.

This applies to commercial clients too. “Large commercial firms also take a commoditised approach, with standardised products operated by junior solicitors where senior solicitors are project managers. These firms will, for instance, have developed standard documentation for M&As for their large clients, which they will use for smaller transactions and which the client will have to pay for. Firms like ours are able to tailor the service and this is reflected in the price; a sort of out-of-house in-house service.”

Another scenario is for estate agents to buy into smaller firms. Solicitors expanding into estate agency work in the 1980s were not, in the main, successful, but Jonathan Smithers says that the conditions could now be right for estate agents to buy into law firms. The model may not be suited to all markets but Smithers says it could work well in rural areas where the chains don’t have a strong presence.

But it’s not all dark clouds over the horizon. After a year in business Williams is now on the look out for new recruits. If anything, he needs to bring in young blood before he and more senior partners can retire.

Jonathan Smithers’ firm, likewise, having battoned down the hatches in the past two year, is interested in talking to solicitors looking to move.

The recession has thrown many good lawyers on the street, but, rather unexpectedly, Smithers says it will be difficult to find suitably experienced conveyancers able to provide the level of service his firm wants to offer.

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Jean-Yves Gilg is editor of Solicitors Journal (jean-yves.gilg@solicitorsjournal.co.uk)