Kent: clouds gather over the 'Garden of England'

It is the third time this week that one of Vanda James' clients has come back to her reporting that their buyer is threatening to pull out if the property price is not reduced.

James, a family lawyer at 18-partner firm Warners Solicitors in Tonbridge, says that, in the first tangible signs that the credit crunch is now clearly biting the legal profession beyond the strict confines of property work, people are starting to approach divorce differently.

Contrary to the assumption that family lawyers are usually immune from the economy's ups and downs, James says that the turmoil in the property market is having a very noticeable effect on divorce work.

Typically the parties agree a price for the sale of the matrimonial home which they have to sell as part of the divorce settlement but the buyer later turns around asking for so many thousands of pounds to be shaved off the agreed price.

By that stage the parties are unlikely to want to go back to court to apply for an order variation and are having to be very pragmatic about the situation.

In some cases couples are even putting separation on hold because they would not be able to afford it, though James also says that others are keen to rush the process for fear that property prices will drop further.

As to the property squeeze itself, it is not just about estate agents closing down. There are reports in certain parts of Kent of residential conveyancers seeing drops in business of up to 75 per cent and of redundancies.

Feeling the crunch

Jonathan Smithers, head of residential property at CooperBurnett, in Tunbridge Wells, puts a brave face on the situation.

'There is no doubt that it is getting tough, but in west Kent which has traditionally been wealthier, we have been lucky that the drop in property work has only been around 25 per cent,' he says.

Asked whether his firm is would consider redundancies, Smithers, said that property should not be treated any differently from other practice areas and that good staff in any department remained a key asset to secure the long term success of a business.

His own department consists of a handful of senior lawyers and a few support staff with more than 20 years' experience. 'If you have good people you should hold on to them,' he says. 'In this area, people are natural home-owners; they may be renting at the moment but they will want to come back into the property market at the earliest opportunity and the market will pick up again.'

Jonathan Denny, managing partner at 40-partner firm Cripps Harries Hall, takes a similar view. 'It is difficult to assemble the calibre of people that we have and we would rather find ways of keeping them all on board,' he says.

Unlike the late 1980s downturn this year's economic chill started off with a warning over commercial property 15 months ago, only affecting residential property earlier this year. 'Expectations in some sectors got out of line with reality and a correction was inevitable,' Denny continues, 'Now the yield on some commercial property projects might begin to look attractive again and the market could pick up.'

Much has been made of the government's housing plans as an engine for growth in the property sector, but Denny thinks the targets are unrealistic as builders and developers do not have the required capacity.

The growth in publicly-funded projects however, in particular those involving registered social landlords (RSLs), could be manna for property lawyers as instructions from mainstream developers continue to slow down.

Counter-cyclical dimension

The public sector as a whole has become an increasingly attractive market for law firms and Denny believes it will help sustain his through the turbulences. Cripps is on the government's property panel, which he says offers a level of reassurance because government bodies will continue to have a need for legal advice whether there is a downturn or an upswing.

Across at Brachers, the 21-partner Maidstone-based firm, managing partner John Sheath is equally confident that his firm's growing involvement with NHS bodies and statutory undertakers such as water companies and other utilities will be a key contributor to its ongoing solidity.

A health sector specialist himself, Sheath has been building up this side of the business for over 20 years and is pleased that his firm is on the South East coast procurement hub for property, construction, employment and general commercial work.

Brachers however is not the only firm to have spotted the potential in public sector and NHS work though, and the playground is national, rather than purely regional.

'Competition in this sector is immense,' says Sheath, 'but the more the NHS becomes like a business, the more we can compete with other firms with which we would not have been able to compete before.'

But public sector work is only one of the practice areas which give firms a counter-cyclical dimension enabling them to weather the economic storm. First on the list are the obvious suspects: 'It is likely that there will be more demand for commercial and property litigation as some deals get unscrambled,' says Denny.

Brachers too has been quite successful in construction litigation on the back of the numerous projects mushrooming around the Thames Gateway. 'Every motorway junction has a development plan and there is always going to be some contentious work arising out,' comments Sheath.

Brachers' managing partner also anticipates that his firm's debt recovery department, the largest in the South East, will generate greater volume of business.

The department, which incorporates a specialist insolvency team, was built over the past 15 years and, on the face of it, ought to perform particularly well in difficult times. But, according to Sheath, a severe economic downturn brings with it the possibility of negative equity and a greater risk that debtors are unable to meet their debts altogether. However lucrative they may look on paper, some of these claims may not be worth pursuing in practice.

In the same vein, at Buss Murton, senior partner Alan Williams expects to see a rise in instructions from liquidators and administrators, but more importantly, he believes that traditional firms which maintain a mix of commercial and private clients will be in a better position to withstand the economic troubles.

The right mix

For the likes of Cripps Harries Hall, Brachers, or Buss Murton, residential property work is just one of a broader range of services the firms offer to their affluent clients. The service is not commoditised and therefore unlikely to be directly hit by the sharp decline in property transactions '“ or by any kind of 'Tesco law', for that matter.

What these firms share is a common business approach where private client and commercial work feed off each other.

'We still see benefits in having business and private clients,' says Brachers' Sheath. 'We have not followed the mould of others which have relinquished private client work in favour of corporate and commercial work.'

More significantly, even larger players such as Cripps, which is close to being a top 100 firm, intend on remaining regional and see local SMEs as their primary market. According to Denny the firm is not seeking to secure City work and only maintains an office off Chancery Lane for convenience, as London is a more practical place to meet clients from outside Kent.

Similarly Sheath, whose firm is in the top 200, prefers to look after the local client base '“ aside from national public sector work '“ and says that although his firm is involved in large contracts it does not have the capability or any immediate intention to enter the City fray. The relationship with the London market is based on referrals, which Sheath says works well for Brachers and provides a good flow of work. 'Kent is very much our home and culture,' he adds.

And Buss Murton's Williams says that with the growing number of businesses setting up in the Vale of Kent the area is still a good hunting ground for firms like his, although many of the larger businesses in the industrial parts of north Kent tend to be subsidiaries of national organisations which centralise legal work at the head office elsewhere in the country, and are not the sort of client his firm would actively go after.

Further East, Girlings, a 26-partner firm with offices in towns such as Margate and Canterbury, is grappling with a wider, possibly less homogenous client base and has a different outlook on growth and sustainability.

Keeping an eye on Clementi

With original roots in Thanet the firm gradually moved west the organisation of its network of branches plays a central part in capturing local work of a particular type. Commercial work, for instance, is mostly carried out from Canterbury and Ashford. On the other hand, the firm remains keen on offering private client services in all its branch offices. 'Maintaining a retail presence in Thanet is a way of investing in the community', says partnership director Chris Argent, who explains that despite initial impressions east Kent has potential across all sectors. 'We expanded into Ashford because we see it as a growth area, and into Folkestone because it is a recovery area,' he says.

A former military man Argent is gradually re-organising the firm more strategically, looking at such issues as the ratio of senior lawyers to staff, allocation of work, and making sure economies of scale are achieved through the best use of technology.

Although critical of over-reliance on technology in some firms, Argent says it is vital for practices like his to invest in the best systems across all disciplines. 'We do not want to become a call centre,' he says. 'You have to invest in technology but you must continue to offer proper face to face service, otherwise clients don't come back.'

Interestingly, Girlings is also one of those rare firms that is 'keeping a very open mind' about the possibilities offered in the Legal Services Act. 'There may be other ways of doing business for pipeline work,' says Argent. 'We have no firm plan yet but we feel this the way the market is developing will require this kind of approach.'

Other firms do not discard the validity of this approach but most feel that it is not, at this stage, an option which they believe suits their market. Their preferences remain, on the whole, to grow the business by continuing to invest in traditional legal skills, whether through organic growth or lateral hires.

While there is no excessive optimism that the economic bad patch will end soon, the overall feeling seems to be one of relative confidence. There is a clear recognition that people are tightening their belt and that the upset at the lower end of the market will inevitably have a domino effect on the higher end, but nobody uttered the word 'recession'.

With a mixture of rural and urban areas, less privileged stretches and pockets of comfortable affluence, Kent is a good barometer of the state of the legal services sector in the early days of a downturn.

In a market with declining demand lawyers have already realised they will have to work a lot harder to get the referrals from their traditional sources '“ estate agents, accountants and financial advisers. But these are only the first sneezes and it remains to be seen whether the situation will develop into a full blown infection, as it did 20 years ago.