Checking out checklists

Some people don’t like checklists. They argue that there is a danger that checklists will become a substitute for thought. However checklists can be used to assist the required thought processes, not as a substitute for them, and can assist as an aide-mémoire to prompt consideration of critical issues that might otherwise be overlooked. With more complications and potential traps to contend with, there is far more to remember than ever before, and more that might be overlooked.

How often have you gone to a supermarket with a shopping list in your head and got home having forgotten to buy the very thing you went for in the first place? Memory and habit alone can be unreliable, and checklists, devised in a user-friendly way, can help reduce the risk of critical issues being overlooked.

This view of the potential value of checklists is arguably justified by referring to a number of recurring themes in the Master Policy claims experience where checklists have the potential to make a worthwhile difference to the record of claims arising as a result of oversight or omission.

Executry: agricultural tenancies

This column has previously drawn attention (Journal, March 2006, 36) to the trap for executry practitioners in relation to the administration of the estates of tenant farmers where the will contains a bequest of their farm tenancy in terms of the agricultural holdings legislation. There is a strict and extremely tight time limit for giving notice to the landlord under the tenancy.

While this may seem a relatively obscure time limit for executry practitioners to have to concern themselves with, the fact is that a number of claims have arisen on account of failure to give notice of the bequest within the very short time limit. These claims have a tendency to be costly, making this a trap well worth avoiding.

An awareness campaign in 2006 appeared to arrest the pronounced increase in the frequency of this category of claim in late 2005/early 2006. The marked reduction in claims seems unlikely to have been coincidental, as the risk itself had not gone away. For a period of time at least, the awareness campaign appears to have resulted in the risk being at the forefront of executry practitioners’ minds.

The impact of even the best awareness campaign is liable to be short-lived unless more permanent changes are introduced to address the continuing risk. Again, a checklist is at least one approach. It has the potential to prompt consideration of a number of preliminary risk issues that could otherwise be overlooked in the process of setting about other aspects of administering the estate.

Property: missed inhibition

A firm acted on behalf of a client in the purchase of a property. Owing to an oversight, the existence of an outstanding inhibition against the seller, albeit mentioned in the search report produced in advance of settlement, went unnoticed and was not addressed at or prior to settlement. The inhibitor raised an action for reduction of the disposition in favour of the purchaser and a standard security in favour of her lender.

This situation has featured in the Master Policy claims experience on a number of occasions and it seems reasonable to anticipate that it will continue to do so unless the risk of oversight or omission is addressed in a systematic and reliable way. Solicitors who overlook the existence of an inhibition or a security are often at a loss to explain how this occurred.

A variety of entirely practical controls could be equally effective in addressing this particular risk. One of them might be to adopt a simple form of pre-settlement checklist prompting consideration of points to be (double) checked prior to settlement.

Property: title discrepancy

Many property claims arise out of discrepancies in title descriptions/ boundaries. These problems may manifest themselves in the form of a house extension on ground that falls outside the client’s title; perhaps a ransom strip situation where part of the access to the client’s house, premises or site belongs to someone else who then seizes the opportunity to demand a premium for conveying the ransom strip or granting the essential rights of access.

How do these situations continue to arise? Sometimes the explanation is down to complexity of the site or the title, sometimes a misunderstanding or breakdown in communication, but equally often there is simply an oversight or omission in the process of reconciling the extent and description of what the client expects to acquire with the plans and descriptions.

Are these risks capable of being reduced? Bearing in mind the potential impact of a client being disadvantaged by a title discrepancy or ransom strip situation, it certainly seems worthwhile considering any practical and cost-effective means of minimising the risk. Anything that prompts or supports a systematic approach to having plans/descriptions checked, reconciled and verified by clients ought to make a positive difference and there is at least the potential for a checklist approach to achieve this.

Property: no servitude rights

A firm acted on behalf of builders in the acquisition of a plot of ground within larger subjects. The builders planned to build a house on the plot. While the firm secured a valid and effective right of access, by oversight they failed to secure the necessary servitudes for the supply of services such as gas, electricity, water and sewerage. This was only discovered once the house had been substantially built.

Was the requirement for servitude rights for services not appreciated? Was the geography of the plot and its surroundings confusing? Or was the requirement simply overlooked? Anything which prompts consideration of potentially relevant issues in a methodical and reliable way must be worthy of consideration with a view to minimising the risk of this sort of oversight.

Property: critical dates

Missed deadlines and critical dates continue to be a feature of the claims experience. These include critical dates in relation to property transactions and some of these situations involve costly claims.

A checklist approach has previously been suggested in relation to critical dates for exercising options for development land. The points that might usefully be incorporated into a checklist for property-related critical dates include:

• Have the terms of engagement and sign-off letter made it clear whether or not the firm is responsible for reminding the client about critical dates, including the deadline for exercising the option?
• Has the client been advised of the critical date (e.g. the deadline for exercising an option), and advised of the consequences of failing to comply with the critical dates?
• Has that been confirmed in writing?
• If the firm has assumed responsibility for flagging up the critical date, has the critical date been:
  • double checked before being entered in the diary system?
  • preceded in the diary system by a series of countdown warnings?

Property: post-completion issues

Claims have arisen because of failure to follow up implementation of outstanding undertakings, deal with funds consigned on joint deposit, etc.

Arguably this occurs because of failure in the file closing process – a checklist (or an audit of the file) could be adopted to prompt a systematic, consistent and timeous actioning of these loose ends, which might otherwise be overlooked.

Property: duties to lender

A firm of solicitors acted on behalf of both the purchaser and the purchaser’s lender in a residential property transaction. The price paid at settlement of the transaction was significantly lower than the price in terms of the missives. Following the borrower’s default and repossession and sale by the lender, it was alleged by the lender that they had not been made aware of the price actually being paid. The lender made a claim against the solicitors for their losses sustained.

While duties to lenders may be clearly enough stated and well enough understood, current claims experience indicates that the reporting of essential information to lenders is not always done. In part at least, the explanation may be down to omission or oversight, and again this may be a worthwhile case for a simple checklist to prompt consideration of issues that lenders require to have flagged up to them.

Mortgage fraud is very much a live risk issue for solicitors, and the Society’s guidance could be converted into the form of a set of points to be addressed either in a standalone checklist or incorporated into a more comprehensive purchase/ mortgage transaction checklist.

Property: delayed recording of deeds

Clearly there are risks for any client while their title to, or security over, property remains unrecorded. A recent increase in the number of claims has prompted introduction of a potential doubled self-insured amount in relation to claims arising out of failure to get deeds recorded promptly.

How does this situation arise? There could be a defect in the deed that prevented the deed being recorded/registered, or presented for recording/ registration. If the client failed to produce funds to cover the stamp duty land tax, that could also have been an obstacle. Or the deed has been presented, “bounced” by the Keeper on account of some defect and never re-submitted. In some cases, recording/registration has simply been overlooked following settlement.

To minimise the risk of oversight on their part, some solicitors have a checklist for each transaction file which prompts the responsible fee earner (a) to check, following settlement, that the deeds have been properly signed, completed and stamped; then (b) to despatch the deeds for recording or registration promptly thereafter; and (c) to diary to check for an acknowledgment from the Keeper.

Failures re critical information

Various types of claim arise as a consequence of failing to ask for/ verify critical information, e.g. date of accident, destination in title, identity of defender, unauthorised property alterations, spouse’s pension rights, correct address (including fax number) for sensitive/critical communications. The use of checklists/questionnaires could potentially assist in all these situations.

Get it right in advance

Whether your checklists are incorporated into case management/workflow software, or a simple printed document attached to the inside cover of the file, the principle is the same: spend some time getting the content of your checklists right, and ensure that they are adopted into working practices, and this may prove to be a useful tool in reducing the likelihood of claims.

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, 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.