Property in Practice, September 2011
We live in interesting times. Change is all around – not only regulatory and competitive change, but developments in property case law and legislation, too. Brian Chrystal gives a personal perspective on uncertainty and its place in legal practice
"What do lawyers do? The central thesis ... is that business lawyers are engaged in managing uncertainty for both their clients and themselves. Managing uncertainty is accomplished through interaction, rather than appeals to the law."
This extract, from a 1991 article by John Flood, of the University of Miami's School of Law, is just one of over eight million hits Google throws up for "lawyer uncertainty". It summarises perfectly one of the major problems which still confront real estate lawyers, and it defines the most challenging area for insurers of the ownership and use of land.
The law, in any field, is not a fixed institution. Law changes by evolution – as the courts gnaw over the existing corpus – and by revolution – when the only perceived solution is legislation to enact new laws or codify what is already, in effect, in practice. In either case, the unintended short-term outcome for lawyers may actually be greater uncertainty. There are two obvious examples in the current property law of England and Wales. One is a highly topical issue – rights of light – while the other is a familiar part of the landscape – easements, restrictive covenants and profits à prendre.
Rights of light is a hot topic, because the consequences of getting it wrong can be disastrously expensive. It is an area which mixes ancient law with modern means of assessing the physical effects (or, as one commentator put, "It's part ritual and part pseudo-science"). Given the increasing trend for courts to look not only at bare law and facts, including assessments by surveyors, but also at the conduct of the parties, the lawyer now has to advise the client about tactics and risk management as much as about the law. The task is not made easier when the most recent evolutionary change is a case (Heaney) which was settled before it could reach the reasonably authoritative level of the Court of Appeal. If it, or another like it, ever does get that far, perhaps the judges will give force to the view that rights of light should be dealt with by way of the planning process, and not through the courts. Until then, it cannot be easy for a real estate lawyer to give clear advice without wanting to be able to transfer, in some way, the inevitable risk away from his (or her) client and the firm's professional indemnity insurance policy.
The Heaney type of uncertainty will eventually be resolved by a senior court, and relative clarity will return. For most lawyers, the uncertainty which the Law Commission's proposals about easements and so on will create should be of much greater practical concern.
The proposed reforms are, to my mind, eminently sensible, and they are most lucidly presented (and explained) in the commission's report. But however sensible they may be, the process of change itself will cause problems for lawyers for years to come. Substantial real estate transactions take a long time to complete; the actual development takes even longer. Developers, lenders and investors want some certainty that any legal conditions which affect how they can use the land, and any mechanisms they put in place to control how others may act, will be legally valid and readily enforceable when it matters. Major changes in basic law (the "grammar" of property law, as the commission puts it) cloud that view.
Major recodification causes three kinds of uncertainty. First come parliamentary acceptability and management: will the proposals ever become new law, and will the new law be well enough drafted not to confuse things even further? Second is timing: how long will enactment and implementation take, and could a development be caught by an intervening change in direction? Third, and most important, is effect and enforceability: will the interpretation a lawyer makes before the new law is enacted or brought into force, or while it is in its infancy, prove correct, and how will any challenges to a new law be resolved by the courts? No prudent lawyer wants to give his client the costly privilege of being a high-profile test case.
The Law Commission's report mentions Scottish law in passing, then moves quickly on. In fact, the practical results of very similar changes brought about by the Title Conditions (Scotland) Act 2003 are well worth an English or Welsh lawyer's examination, even though basic property law in the two jurisdictions is fundamentally different. The changes the commission proposes are, in many parts, strikingly similar to the Scottish reappraisal. While the new law enacted many simplifying (and needed) changes to Scottish property law, the period between enactment and implementation threw up many examples of real uncertainty about practical outcomes (and those, not the elegant juridical opinions, are the ones clients care about). Problems with interpretation persist still.
In these circumstances, it is more than ever important for risk – and uncertainty is a kind of risk – to be properly identified, stated and transferred. As insurers, we believe we can help lawyers and their clients to achieve this, and find firmer ground. It's also the most interesting part of the job.
Brian Chrystal
Underwriting Director
CLS Ltd
[email protected]
