With growth there is risk
Insurers are forecasting an increase in conveyancing claims in England & Wales as the volume of transactions increases. How can this be prevented in relation to the Master Policy?
The volume of conveyancing transactions is on the increase as the economy recovers, and claims frequency will inevitably increase again as a result.”
This forecast by Zurich refers to England & Wales rather than Scotland. While the adverse property/conveyancing claims experience of the past few years south of the border has been mirrored here, the challenge is to take steps to avoid Zurich’s prediction becoming a reality for the Scottish profession.
Claims relating to property/conveyancing transactions have dominated the Master Policy intimations record fairly consistently for many years. Since 2007-08, (alleged) breaches of the reporting requirements of the CML Handbook have been a significant component of the Master Policy experience. During the earlier part of this period, commercial property-related intimations were the most costly aspect of the claims experience, including claims arising out of major property deals and claims relating to commercial leases such as ineffective exercise of break options.
During this period, recurring or “attritional” claims arising out of property purchase and sale transactions have reduced to a lower frequency than prior to 2008. What is the explanation? Is this indicative of more effective management of risk since the crash, when activity was reduced? Or is it simply because of the significantly reduced level of turnover of properties during this period, meaning a correspondingly reduced level of problems coming to light?
Whatever the explanations for these various features of the claims experience, there is no doubt that an uptick in property market activity after such a prolonged period of reduced activity is very good news for the profession. At the same time, insurers may view increased activity as a possible risk factor. For that reason, it’s worthwhile reviewing areas of risk for property lawyers where management of risk can make a real difference in preventing claims.
Areas of risk
What areas of risk have impacted adversely on the experience of recurring or “attritional” claims? Title description and boundary issues are very much part of this experience. Claims arise in some cases because ransom strip situations prevent access to the property or because title restrictions prevent planned, or hoped for, future development.
Title examination and reporting is meat and drink to property lawyers, and yet problems relating to title boundaries continue to give rise to claims. Some problems can be readily resolved. Others have resulted in costly claims. Whatever the impact, there is no escaping the force of the adage “prevention is better than cure”.
In “Know your boundaries”, Journal, October 2005, 32, Tim Edward of Maclay Murray & Spens LLP suggested risk management controls which remain equally relevant now:
- Research the title/boundary properly. Check descriptions and plans with clients. Make sure there is a reliable record of all conversations/meetings and communicate this to the client.
- Record. Make a note of what the client wants to achieve, how this is to be achieved, problems that may have to be resolved and problems that cannot be resolved, along with the client’s further instructions in light of all of this.
- Review. As the transaction progresses, make sure the property being conveyed continues to “measure up” to the client’s expectations.
- Report. Make sure the client is kept informed – if there are problems, explain what these are and spell out in writing what the effect(s) may be on the client’s transaction.
- React. If there is a problem, consider what can be done to rectify this swiftly, perhaps with the help and guidance of insurers at an early stage.
- Define. Don’t take on responsibility for what properly requires a surveyor’s expertise. Don’t extend your liability by attempting to undertake the role of a site surveyor.
- Take care with plans. Ask the client to check plans/descriptions and sign the plan to signify approval. Beware when plans are photocopied – copying can distort the scale of a plan and result in colouring errors. Consider involving a surveyor where necessary and defining (the limitations on) your duties in regard to plans.
Claims still arise as a result of failure to obtain rights of access or servitude rights for services. These situations may arise because of a failure in examination of title documentation or because of a drafting error, but the cause might also be failure to establish the client’s requirement for these rights.
Many practices use questionnaires to ensure that comprehensive instructions are obtained from clients and that nothing material is overlooked. Variations of such questionnaires can be used for different types of property transaction.
“Fastest Scottish house price rise in six years” (Scotsman, 3 April 2014)
Statistics published by Registers of Scotland on 29 July reveal the number of residential properties sold in Scotland in the first quarter of 2014-15 was up 22.4% on the same period in 2013. From the perspective of the profession, these statistics and the prospect of now sustained improvement in business are very good news indeed. From the perspective of Zurich and other Master Policy insurers, the significant increase in volume of transactions and activity may be viewed as a risk factor. The transition from an extended sluggish market when properties took time to sell and when the market was depressed and flat, to market conditions in which closing dates, faster sales and rising property values are the norm is bound to make a difference in terms of resourcing and workload challenges. Does it also introduce or heighten risk for solicitors at the missives stage of property transactions? Heightened risk perhaps, but not necessarily increased claims.
Some points, important at any time, may be that bit more critical in a busier and faster moving property market:
- ensuring that clients are informed of the binding effect of concluded missives;
- addressing with clients the risks of concluding a binding purchase before having a binding sale, or vice versa.
The risk management points are equally relevant whatever the volume of transactions, for example:
- establishing, and documenting, from whom you will take instructions in the case of joint clients;
- ensuring clients are given a clear explanation of key missives provisions and their implications.
Important in all of these matters is having a record on file of both your reporting and explanations and also the client’s instructions.
In a future issue, consideration will be given to other areas of risk in property/conveyancing work; whether those risks are affected by increased transaction activity; and risk controls which might effectively avoid growth in activity resulting in growth in claims experience.
Alistair Sim and Marsh
Alistair Sim is a former solicitor in private practice, who works in the FinPro (Financial and Professional Risks) National Practice at Marsh, global leader in insurance broking and risk management. To contact Alistair, please email email@example.com
The information contained in this article provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisers regarding specific coverage issues.
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