Dabbling – have you set your firm up for a fall?

The stamp duty holiday might have prompted some law firms to begin offering conveyancing services. If so, did they make necessary arrangements to ensure PII cover and SRA regulatory compliance? Brian Rogers, regulatory director at Access Legal, provides insights backed by the company’s recent report on conveyancing data trends.

As a consequence of the 2008 banking crisis, we saw many conveyancing firms dabbling in other areas of law to try and make up for the dramatic near-immediate loss of income from the property sector.

Fast forward to 2020/21 and the economic impact of the Covid lockdowns had many firms struggling to survive, particularly in the conveyancing sector. But the introduction of the stamp duty holiday reinvigorated the market to record levels giving conveyancers a much-needed boost.

With opportunity, comes risk

Looking back, the response to the stamp duty holidays came as a real, but welcome, surprise as it created a huge pipeline of work for conveyancing firms, This allowed firms to continue trading but left many conveyancers exhausted and with mental health issues, some of whom have since left the sector.

Many historically non-conveyancing firms saw the fees that could be generated by the property boom, but how many of these firms were really capable of handling such work, and were in effect just dabbling while the opportunity remained in place?

Were law firms dabbling with conveyancing during the stamp duty land tax (SDLT) holidays?

Our recent report looking at conveyancing data trends suggests that dabbling may have been going on, for example:

• The year 2022 saw a return to normality after the hiatuses of the Covid fuelled 2021, which saw residential purchase cases exceed 1 million. In 2022, there was a 23% decrease in the number of transactions compared to the previous year.
• A comparison of the two years by month shows the clear impact of the three SDLT deadlines in March, June and September.

In 2022, the new market entrants, who entered the market in 2021 to take advantage of the large volumes of demand, retreated. Across England & Wales, the number of active conveyancing firms dropped by 5% year-on-year.

Impacts of dabbling on professional indemnity insurance

Conveyancing work is regarded as high risk by professional indemnity insurers and premiums are loaded accordingly, especially with the ‘long claims tail’ such work has. But did the dabbling firms actually notify their insurers that they had started to act on property transactions for the period during which they handled them? if they didn’t, they have clearly set themselves up for a fall should negligence be alleged on transactions they handled, as any claims would have to be met by the firms themselves. Insurers will only pay claims for areas of work they have been previously notified of.

Potential SRA breaches from dabbling

But not only will firms that did dabble have to contend with potential future claims for negligence being made, they will also need to consider whether they have breached their regulatory obligations, and will be pursued by their regulator for this in due course.

Implement an effective risk management strategy

When a crisis occurs firms should be prepared, and this is normally achieved by implementing an effective risk management strategy and business continuity plan. However, some crises and their consequences, like Covid, can never be planned for. Nevertheless, making knee-jerk decisions to get through short-term crises can come back to haunt them in the long-term.

“The more you dabble with darkness, the more darkness will dabble with you!”

You can download our free Conveyancing Insight Report and find out more about the trends in the conveyancing market here.