Introduction

The days of Guernsey law firms having to charge a minimum fee based on a prescribed tariff are over. Firms are now charging at a level set not by professional rules, but by market forces.

History

Historically, law firms in Guernsey have had to charge a minimum fee to purchasers of real property. Whilst it is easy to be cynical about why this practice emerged, some say that the reason it was introduced in the first place was to ensure that a certain standard was maintained throughout the profession. Whatever the reason, it was introduced at a very different time and within a very different social landscape.

The Past Situation

The Guernsey Bar tariff was set at 0.75% of the purchase price of the “real property” in a conveyance transaction. The Guernsey Bar Rules of Professional Conduct (currently still) state that it is unprofessional for an Advocate to undertake work at a rate less than that tariff.

“Real property” is the legal term for the house itself (the physical structure, bricks and mortar) and the land, as opposed to “personal property”, which comprises everything you buy with the real property, including carpets, curtains, light fittings, kitchen appliances, etc. In simple terms “real property” is the house and “personal property” the contents.

As a practical example, if a purchaser pays £400,000 for a property, being the price negotiated with and agreed upon by the seller, it is accepted practice to apportion 5% of that value to the contents (unless it is patently clear that they are not worth anywhere near that figure, in which case a more realistic figure is apportioned).

Usually, therefore, the total price will be apportioned as £380,000 for the house, and £20,000 for the contents. The tariff was only payable on the house price, not the contents, and so would be £2,850, plus another £100 or so for incidentals.

Note that these are the legal fees. By far the largest cost is document duty, which is simply a tax payable by the purchaser to the States, and which many people wrongly believe is a fee charged by the Advocate. In this case this would amount to £11,400. There are also additional Jurats fees, and Greffe and registration charges.

The Competition Law

So why has all of this changed? Why now?

On 25 July this year The Competition (Guernsey) Ordinance, 2012 was passed. It came into force on 1 August. This legislation, amongst other things, prohibits anti-competitive behaviour, including anticompetitive agreements between businesses and the abuse of a dominant position in a market.

The fixed price conveyancing fee between law firms falls very much within the definition of an agreement between businesses that hinders or prevents competition, and is therefore prohibited (however, see below).

The reasoning for such legislation is clear, and is expounded by the Channel Islands Competition and Regulatory Authority (CICRA), the body set up to regulate such affairs, who say that “open and vigorous competition is good for consumers because it can result in lower prices, new products of a better quality and more choice. It is also good for fair-dealing businesses, which flourish when markets are competitive.” In other words, as a rule, competition is healthy and should, ultimately, benefit the consumer.

The Present Situation

As a matter of fact, the Guernsey Bar tariff is not yet prohibited. It is exempt until 1 February 2013. However, most law firms recognize that it is in the best interests of clients to deviate from tariff immediately, and are therefore charging on whatever basis they decide.

We have yet to see precisely what effect this will have on consumers. It will certainly give them an extra dimension of choice (they have always been free to choose whichever firm they wish) and it will undoubtedly drive down costs for some, but it may also drive costs up for others. For example it is often lower value properties which are more problematic in terms of boundaries, or complicated rights set up for flats and apartments.

There is also a concern that in order to cut prices, service quality will be cut. The problem with property transactions is that a conveyance and the legal research underpinning it are not tangible to the client. The vast majority of the work is behind the scenes. They cannot feel or see the quality of the legal research, expertize, and drafting. Therefore it may be many years, when they come to sell, before they discover that there are serious issues which should have been, but were not, addressed.

Our Advice

By all means shop around; but remember, as with anything, cheapest isn’t always best. Clearly a property purchase is a large capital outlay and people want to keep costs to a minimum. But it is precisely because it is the biggest purchase of most people’s lifetime that they should ensure the legal work is done properly and professionally.

Ask around. Word of mouth will give you a good idea of what a firm is like and the individuals concerned. Guernsey is, after all, a small place.

If you call a firm for a quote what was your first impression? Did they get back to you promptly? Were they friendly and approachable?

Remember: don’t cut corners or settle for second rate service. Property transactions are a serious business - you deserve the best.