Clock watching
Succession to/bequest of agricultural tenancy
Recent Master Policy claims experience makes it appropriate to draw attention to the risk of the tenancy of an agricultural holding being lost in the event of omission to take action to have the tenancy transferred to the intended beneficiary/successor.
These are all potentially expensive claims. The landlord has quite unexpectedly obtained vacant possession and the intended successor has at the same time been denied security of tenure (for life) or the potential to secure a payment for surrendering the tenancy. Depending on the quality/acreage of the farm and the terms of the lease, claims could fairly easily run to six figures.
Recent claims in this area have tended to arise not from any error or omission in diarising the critical date but by virtue of lack of awareness of the action required, and the timescales involved, by the legislation to preserve the tenancy and transfer it to the intended beneficiary/successor.
Based on analysis of the recent claims, the appropriate risk management points for solicitors representing agricultural tenants, or acting in the administration of tenants’ estates, appear to be:
- Promptly research the requirements of the current legislation or take specialist advice on the requirements. Do not dabble!
- Create an aide-memoire prompting appropriate/timeous action in the event of the tenant’s death. Statutory time limits are often tight.
- Consider placing that aide-memoire with the tenant’s will and/or the tenant’s copy of the lease.
- Include a prompt in your checklists for the administration of both testate and intestate estates drawing attention to the course of action required where the estate includes the tenant’s interest in an agricultural tenancy.
- Action is required for the new-style limited duration and short limited duration tenancies as well as for 1991 Act tenancies.
Remember: Doing nothing is the wrong option.
A risk alert is being issued to all practices drawing attention to this area of risk.
Commercial property
Although a wide range of practice activities feature in the experience of higher value intimations, it is noticeable that there continues to be a relatively high incidence of high value intimations arising out of commercial property – over half (by number and by value) of all high value intimations in recent years. What accounts for this feature of the claims experience?
The types of error or omission certainly include many of the features which are common to the Master Policy claims experience as a whole, for example:
- ineffective communication – both internally and with clients;
- lack of clarity about instructions/terms of engagement;
- failure to follow instructions.
However, missed deadlines and critical dates continue to be a cause of these higher value commercial property claims. Claims have arisen where:
- suspensive missive conditions were not waived/purified timeously;
- documentation was issued after expiry of the contractual deadline;
- options for the purchase/sale of development land were not exercised;
- licensing application time limits were missed.
If a deadline or critical date is missed and the client is disadvantaged, the Master Policy claims experience demonstrates that clients will seek to point the finger of blame at the solicitor. This could be for failing to identify dates on or by which certain steps should be taken; for failing to alert the client to such approaching dates; or for failing to act upon such dates by, for example, serving appropriate notices or issuing other documentation.
Essential risk controls
The potential size of claims in the context of commercial property-related work is such that particular care needs to be taken in all aspects of the work, including those aspects that involve deadlines, time limits and critical dates:
effective diarying arrangements – include setting up a series of reminders in advance of final deadlines. Carried forward reminders are an integral part of good time (and therefore risk) management;
terms of engagement – ensure complete clarity as regards the scope of the work to be undertaken and matters which will not be the practice’s responsibility – that includes clarity about who is responsible for “watching the clock”;
delegation and supervision – where inexperienced colleagues are involved in complex or high value transactions, it is clearly particularly important to ensure that they are adequately supervised. Delegation should be of work, not responsibility;
workloads – in order to avoid fee earners becoming overloaded it is necessary to schedule new and transferred cases properly into the workload of suitably qualified fee earners.
Litigation time bar
Missed critical dates in litigation matters have been a significant cause of Master Policy claims. However most recently the claims experience in this area has shown a material improvement.
Over the course of the last three years, the number of intimations has decreased from 86 in 2002-03 to 73 in 2003-04 and 48 in 2004-05. That is a very encouraging trend. Has the prospect of a doubled (or even a trebled) self-insured amount been a factor in prompting further enhancement in firms’ risk controls in this area? For a five partner firm, the self-insured amount would be £30,000 in respect of a second time bar claim (in a rolling five year period); £45,000 in respect of third and subsequent claims.
The Master Policy experience indicates that time bar claims tend to be costly claims, certainly more costly than the average. As an example, in 2002-03, the average amount paid/reserved by the Master Policy insurers in respect of time bar intimations was £33,000. This compares with an overall average of £11,000 for all intimations in that year.
Although the recent trend is very encouraging, it is probably premature to say that the adverse time bar claims experience is a thing of the past. If we consider the three year rolling totals of the amounts paid/reserved by insurers in respect of time bar claims, the most recent totals are: 2002-03, £4.4m; 2003-04, £5.3m; and 2004-05, £4.5m.
Taken together, the potential for doubled or trebled self-insured amounts and the impact on future Master Policy premiums of what tend to be relatively high value claims amount to a compelling financial incentive for individual firms and the profession as a whole to continue to do as much as possible to minimise the risk of missed time limits.
Stamp duty land tax
On the subject of time limits and critical dates, procuring stamp duty land tax certificates within the appropriate timescale continues to present a significant challenge.
There have been no claims intimated to date involving delayed recording/registration attributable to delayed SDLT certificates. That can only be down to the diligence of the profession and the amount of time the profession is, very regrettably, having to commit to monitoring the progress of SDLT returns, chasing up delayed certificates and, ultimately, making personal applications at the Revenue’s offices where otherwise there would be a delay beyond the 21 day time limit.
The importance of complying with the time limit in letters of obligation and the apparent unpredictability of the Revenue’s response times is such that, for those involved, there must be a significant distraction and anxiety factor – additional risk factors which have been visited upon the profession.
Feedback from the profession regarding the SDLT process indicates that diarying and monitoring arrangements have been introduced, including logs to track the progress of deeds through the SDLT and registration process.
Whatever the area area of practice, watching the clock is an important aspect of effective risk management.
REFRESHING RISK QUIZ: ANSWERS
In January’s column, we issued a challenge to readers of this column to review the risk management issues which had been discussed during the course of 2005.
The answers to the quiz are as follows:
JANUARY
Q1: In discussing the challenge of compiling a risk management manual, three key areas of risk were focused on. What were they?
Engagement process
Diary systems
Learning from mistakes
FEBRUARY
Q2: From what date did the Master Policy cover for loss of documents become subject to a virus exclusion?
1 November 2003
MARCH
Q3: The newly appointed risk management contact’s first steps in devising a risk management plan consisted of gathering information on claims, complaints and what else?
‘Near misses’
APRIL
Q4: What is the maximum premium loading that can be imposed under the Society’s Master Policy discount and loading arrangements:
a) 100%? b) 250%? c) 275%?
(c) 275%
MAY
Q5: Name one of the practical risk controls suggested as an aid to addressing the risk of oversight.
Checklists
JUNE
Q6: In relation to the company reorganisation case study, who intimated the claim against the solicitors? On what ground?
Minority shareholders
Failure to protect their interests
JULY
Q7: In case study B, is any claim resulting from B’s legal advice likely to be covered by the Master Policy?
Yes
AUGUST
Q8: According to the August article, a lack of attendance notes may have what adverse consequence?
Claimant’s contrary version of events may be preferred
SEPTEMBER
Q9: Two aspects of risk management were mentioned as being difficult by the profession – one was file review: what was the other?
Supervision
OCTOBER
Q10: The article mentions five ways in which the land registration system provides potential solutions to risk management problems. These include the P16 report; the land certificate itself; section 9 rectification; and the Keeper’s indemnity. What is the fifth?
Section 19 agreements/ neighbouring proprietors can agree a common boundary and register an agreed plan
NOVEMBER
Q11: In the commercial lease case study, what deadline was missed?
Rent review
DECEMBER
Q12: If a contract for the provision of legal services requires all disputes and claims to be determined by reference to binding arbitration, that potentially conflicts with the insurers’ conduct and control of claims under the Master Policy. True or false?
True
Congratulations to Patricia Quigley for having the first correct entry drawn. A magnum of champagne is on its way to Patricia.
Alistair Sim is a Director in the FinPro (Financial and Professional Risks) Practice at Marsh, the world’s leading risk and insurance services firm. To contact Alistair, email: alistair.j.sim@marsh.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.
Marsh Ltd is authorised and regulated by the Financial Services Authority.
In this issue
- Mutual trust is the key
- Last man standing
- In the public eye
- The cost of succession (and who pays the price)
- MHTs: take another look
- The profit trend
- Getting a get in Scotland
- Appealing to charity
- It's not broken! So why fix it?
- Rolling back the years
- Clock watching
- Child support: lobby the review
- The ECJ: a growing sphere of competence?
- Bone of contention
- Asbestos: a nasty upset
- The form for selection
- Reshaping sexual offences
- Hunting down the pirates: part 2
- Better bargaining
- Website reviews
- Book reviews
- ARTL: your chance to be heard
- SDLT: new lost forms procedure