Free legal fees misleading

NST-PROP 14/09/2001 By Nicholas Mun

PROPERTY development is a competitive game and unfortunately for the industry, it can no longer just build and wait for the buyers to come like they did in the past.

Choice is in abundance now and the buying process has as a result slowed, tying up developers' cash in the bricks and mortar of their projects. To stimulate sales, industry players are adopting strategies to make the buying process as financially painless as possible for prospective buyers.

One such strategy that has emerged is where developers proclaim free or subsidised legal fees for those who purchase their properties. The question is: are buyers really enjoying a waiver of such fees?

According to Bar Council chairman Mah Weng Kwai, such a strategy may be a gimmick to generate sales. "Such an offer of `free' or `subsidised legal fees' is misleading as it may not represent the actual situation," said Mah.

"The solicitors on the developer's panel may be acting for it (the developer) and not the buyer. So the fees due are to be paid by the developer and not the purchaser. Therefore there is nothing free about it as far as the buyer is concerned. It can only be considered free if the buyer receives legal representation and does not have to pay for it."

The concern of the Bar Council is not misplaced. An industry source who wished to remain anonymous admitted that such strategies are indeed gimmicks to entice buyers.

"The solicitors on the developer's panel do not represent the buyers and the fees involved is a matter to be resolved between them and the developer. In fact, buyers are often required by such solicitors to sign a document stating that he or she (the solicitor) is acting for the developer," he explained.

Such documents may in fact be an attempt by solicitors to come within the proviso of section 84 of the Legal Profession Act, 1976. "The general rule (of section 84) is that the developer and purchaser should each engage their own solicitors," Mah said.

"But where the purchaser is unrepresented, the solicitor in question should secure a written certificate from the buyer confirming the fact that he or she does not intend to engage a solicitor to scrutinise the agreement," he explained of the proviso.

Mah said when a developer assembles a panel of solicitors for the convenience of its buyers, it should be made clear at the outset that the solicitor will be representing the buyer though the fees will be paid by the developer. However, this is rarely the case.

"In most cases, panel solicitors have represented the developer in other matters. Some may even have represented the developer in the acquisition of the land upon which the development is being conducted, its conversion and payment of the relevant premiums and maybe even the eviction of  squatters as well," Mah said.

The industry source confirmed that it is a norm for panel solicitors to have represented the developer in other matters. Mah explained that for the offer of "free legal fees" to be really that and nothing else, the solicitor in question must be prepared to give the purchaser written confirmation that he or she is indeed acting for the purchaser.

This need for legal representation is understandably downplayed in the industry. The industry source said off-the-plan sales of residential properties come within the standard sale and purchase agreements of the Housing Developers (Control and Licensing) Act, 1996, which neither party is entitled to depart from. Under such circumstances, the industry quite obviously takes the view that such arrangements represent a cost-saving to the purchaser.

However, Mah explained that the rationale for alerting prospective buyers about this is not to make purchasing more difficult or expensive.

"Prospective buyers need to be made aware of the fact that an offer of free legal fees may not be a true reflection of the situation. So that which is touted as free may not be so after all as the buyer receives no legal representation.

"Purchasing a house is a big investment and buyers should make a provision for legal fees so that they receive legal advice on the transaction," he added.

Buyers who appoint their own solicitors also avoid problems of conflict of interest that usually arise when there is only one solicitor for the transaction. The initial cost-savings of buyers may well be offset by problems that could arise due to conflict of interest.

Mah highlighted the seriousness of the problem in the profession where lawyers will be subject to a conflict of interest provision in their insurance coverage as of next year. This could as much as triple the policy's excess in the event of conflict of interest claims. The new provision is being introduced due to the high number of such claims, which make up 40 per cent of the total claims made against lawyers.