Property transaction legal costs to be cut

The Kohen Rapoport Group has set up a company known as LCM (Legal Case Management) which is the U.K.’s first paralegal company. The idea is to reduce the legal costs associated with property purchase and management by up to 50%. Even though these headlines are obviously attention grabbing, we have been here before with various schemes targeting a reduction in legal costs. However, there is every chance that LCM could actually deliver a straightforward reduction in legal charges.

Legal case management

Many people may not be aware but there are actually two sides to a legal transaction known as the “mechanical”, document management, and the advisory role. At this moment in time many law firms take on both aspects thereby charging document management fees at legal executive rates. The simple idea is to use paralegals to do the manual work and leave lawyers to concentrate on the advisory side – makes sense?

When you bear in mind how many court cases have collapsed in years gone by because of inaccurate or missing documentation, it is easy to see how this may develop. Whether indeed a 50% fee reduction target is optimistic or a reality remains to be seen but any reduction in legal costs would be welcomed by property investors.

Could LCM shake up the industry?

As we touched on above, in many ways we have been here before with various schemes announced which ultimately fell flat on their face. The only main concern is that legal firms would reluctantly pass documentation management to an outside company when they are effectively managing the case. If there is such a difference between the document management costs of a legal firm and paralegal companies such as LCM then perhaps this may force the industry to think again?

At the end of the day you do get what you pay for therefore any reduction in the overall legal charge must be balanced against the quality of service. There is no point cutting corners with areas such as document management only for issues to occur further down the line which may be more costly. There is no reason to believe this is the case but it is something which property investors will need to be aware of if they go down this route?

Property industry margins under pressure

If this bid to set a precedent in the property legal sector is successful it will be yet another stage in a reduction of long-term property management, property sale and property purchase costs. We have already seen an increase in online competition with many companies now operating on relatively thin margins – nowhere near those available a decade ago. While it is all good and well cutting your costs, and using funds saved elsewhere, investors will need to be ensure the quality of overall service still compares well to traditional methods.

The Internet has changed the world for all investment markets and the property market in particular has shown great innovation. Quite how far costs can be cut before quality of advice and service is compromised is the next question to ask.


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