Transparency and Disclosure Requirements in respect of Referral Fees in Conveyancing Transactions

Following the Law Society pushing for a ban on all referral fees for all practice areas, after the ban on referral fees in respect of PI work was approved, the CLC made an application via consultation to the Legal Services Board (in April/May 2013) not to allow an outright ban in terms of referral fees in respect of conveyancing transactions.

The LSB during its research found that by allowing referral fees in conveyancing transactions will be an insignificant risk and there was no real detriment to the client.

However, in approving this, the LSB agreed with CLC in terms of additional disclosure and transparency requirements when dealing with referral fees in conveyancing transactions.

Previously law firms had to advise the client that there was a referral arrangement in place and the amount that would be paid to the referrer/introducer.

However, during its review, the CLC determined that the biggest threat to the consumer interest posed by referral arrangements was the level and timing of information given to consumers.

As a result, the new mandatory transparency and disclosure requirements are that:

  • Agreements with third-party referrers should be in writing and subject to periodic review (as determined by the firm);
  • Clients should be informed in writing of the arrangement’s existence no later than when accepting instructions, or when introducing a client to another person;
  • Clients should be advised they have a choice of provider; and
  • The client should be informed of the nature of the arrangement (including any payment made), with whom it is made, and any impact (including any legal costs they are charged).

So, what does the requirement of advising clients in terms of the fact that they have a choice of service provider actually entail and what obligations does a conveyance have in discharging this onus and fulfilling this requirement-

The Legal Services Board in making their final decision and whilst delivering their final verdict said :-“Clients must be told how they are affected in monetary and other terms by the arrangement”.They will also be told of “any restriction or limitation affecting the introduction” and of their right to shop around.”

So in other words, if a Firm has arrangements in place with a specific introducer/referrer that will say compel the use of a certain providers in relation to that specific conveyancing transaction, for example, to use a specific search company for instance, then that is part of the restrictions/limitations that the client must be made aware of in the CCL, at client instruction stages.

Ultimately, the client must be advised of any limitations/restrictions, in writing, at client take on stage, in terms of any specific limitations/restrictions/arrangements contained in written referral agreements between the Firm and any Introducer/Referrer, which will affect the client, in any manner whatsoever, during their conveyancing transaction.

For example, a conveyancing firm has an arrangement in place via a Panel Manager for the use of specific providers in a conveyancing transaction, eg, to use a specific search company, then the client must be advised that this is the case and by signing and returning the CCL for instance, the client is accepting this arrangement but the client must be told as they must have the choice whether they wish to go along with it or the client makes an informed decision. In this way the conveyancer will be complying with the mandatory outcome of “acting in the best interests of the client”

The Conveyancer does not have to give the client various options in terms of different providers (for eg, different search provider companies)- The obligation is just to advise the client in terms of any specific restrictions/limitations that will either directly/indirectly affect the client because of an already existing referral arrangement. Then the client can choose, after being informed if he/she still wants to go with the existing conveyance (having considered the limitations/restrictions) or if he/she wants to choose an alternative service provider.
Licensed conveyancers will now have three months to comply with the new arrangements.

Loschinee Naidoo – Legal Eye Ltd
12 August 2013

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