The effect of the credit crunch on Conveyancing Solicitors' offices and their staff. Detailing the significant reduction in the number of new transactions, effect of run off insurance and the rapid downgrading of the value of a profession.
There was an interesting story on the radio the other day about the effect of the credit crunch on Estate Agents. The DJ then went on to say “Just to think, there are now thousands of Conveyancing Solicitors sat around twiddling their thumbs.” He then delivered the punch line “No change there.” What was surprising about this was that although it is common knowledge that the Credit Crunch is taking its toll on Estate Agents, its effect on Conveyancing Solicitorsis something we very rarely hear about.
The sad fact of the matter is that law firms can not afford to pay Conveyancing Solicitors or any other member of staff to be sat around twiddling their thumbs. Since the start of the Credit Crunch in September 2007 there are now less than half the number of conveyancing transactions and therefore less than half the amount of work for Conveyancers. Every conveyancing firm has been affected by this. Some firms have been able to transfer staff into other departments however many have had to make redundancies. Last month the Law Society Gazette reported that recruitment agencies were becoming inundated with Conveyancers and Conveyancing Solicitors who had been made redundant.
Up until August 2007 Conveyancers were in great demand which was reflected in their remuneration packages. However, many are now being made redundant, suffering pay cuts or faced with extremely poor job security. It is difficult to recall in recent times any other trade or profession to be devalued by so much in such a short period. It is not just the staff employed in the profession who are suffering but those who have spent years training to become Conveyancing Solicitors or Licensed Conveyancers, many now find the skills they have obtaining are practically worthless.
Many Conveyancing Solicitors Firms are in a fortunate position of being able to downsize. However, many smaller solicitors offices and sole practitioners who are entirely dependent on conveyancing work are unable to take such action. They now face a difficult decision as to whether or not it is worth carrying on or closing down. Very few Solicitors have closed down so far. The reason for this is that they have insurance until 30th September 2008. However the cost of insurance for conveyancing firms is set to increase considerably as it is predicted that the drop in house prices will cause more negligence claims against Conveyancing Solicitors.
Conveyancing Firms also face another obstacle from what is known as ‘run off’ insurance. This is an additional insurance premium that a Solicitors Office must pay if they close down without a successor practice. Nobody wants to buy or take over a conveyancing firm at the moment! The run off premium is usually between 200 – 225% of the initial premium. By way of an example:-
A Conveyancing Solicitors firm paid their indemnity insurance premium of £20,000 for October 2007 to September 2008. If they wish to close down before 30th September 2008 they will have to pay an additional ‘run off’ premium of £45,000. This would be quite an incentive not to close down but to continue trading. However, reports suggest that their insurance premium will increase by at least 25% which would mean that they would have to pay £25,000 to insure between October 2008 and September 2009. To compound matters nearly all predictions are for the housing market to continue to slow down and therefore increase the chances of them closing down next year. They would then have to pay a ‘run off’ premium of 225% of the higher premium. In this example the solicitors firm would have to pay an additional £56,250 ‘run off’ insurance premium on top of their £25,000 premium should they close down next year. A rather worrying £81,250 in total.
The true effect of the credit crunch on Conveyancing Solicitors is not yet known. On 1st October 2008 it will be interesting to see exactly how many have decided to run the risk of trading for another year and how many Solicitors Firms close down.
Wayne Roberts (Online Conveyancing Solicitors)
