Interview Not only is Lovells merging with a
Bob Kidby, who has been head of Lovells’ real estate practice for the past 15 years, has picked an interesting time to stand down. On 1 May, the day after his departure, Lovells will merge with
The move presents cross-border opportunities, of which Michael Stancombe, Kidby’s successor and colleague for 25 years, is poised to take advantage.
He will do so within a revised corporate structure: the firm’s four practice streams will increase to five a 12-strong board will replace the partnership council and an international management committee will take the place of the international executive. Nicholas Cheffings, head of Lovells’ real estate disputes group, will sit on the board.
Both Kidby and Stancombe are buoyed by the move, which the latter describes as “fantastic”, and have received an overwhelmingly positive reaction from their clients.
Overseas opportunities
Integral to this is the firm’s new capacity to service existing clients overseas. For Stancombe, “the big frustration in recent years has been seeing huge clients such as the Prudential, SEGRO and Munich Re say ‘we’re about to go into the
He also identifies an opportunity to develop the relationship with Hogan’s
Other territories have been targeted for development, including South America, where Hogan has an established presence, and the
Making waves
The new firm will face challenges, not least in establishing itself in
The system, which celebrated its 8,000th transaction at the end of January, enables Lovells to commoditise transactions and outsource the lower-value property work to three regional firms: Cripps Harries Hall, Knights and Kuit Steinart Levy. Its own lawyers can concentrate on high-value asset management work, while remaining the single point of contact for the client and, crucially, billing at a much reduced cost: see EG 21 May 2005, p252.
The scheme has evolved as clients’ needs have become more sophisticated and it is now used by a number of Lovells’ other clients. The time-recording facility on MexNet, the system that facilitates the process, has proved popular, particularly over the past 18 months. The client can view every six minutes of time recorded by the lawyer, thus providing a transparency that has helped to remove the “us and them” mentality. “Even clients who don’t want to go the whole hog in terms of their entire portfolio being handled on Mexican-Wave appreciate that feature,” says Stancombe.
The ability to provide time-transparency will remain important, despite an upturn in the economy. According to Kidby, “there’s been a change in mindset. People will continue to scrutinise lawyers’ fees and this is one way of keeping track of them.”
Stancombe agrees, and feels that this subject is “due for a renaissance” primarily because of the volume of sale-and-leaseback transactions that will come through as parties begin to release capital from their portfolios. There are also the distressed portfolios, where requirements are “passed to investment and asset managers. They want a robust system that can handle a huge transfer of information and the ability to run the portfolio in a cost-effective way.”
For Kidby, the philosophy is simple: “City firms should be doing City work. If you’re charging clients for work that could be done equally well by someone outside of the City. you should face up to that, otherwise you’re fooling yourself, your clients or both. We’ve addressed this issue and clients can see that we’re not fooling ourselves.”
Since Lovells was at the forefront of the legal industry’s insatiable appetite for outsourcing, how do the pair feel now that it has come of age? Can further cost savings be made in property-related legal work? “I don’t think so,” says Stancombe. “Indian firms in the market offer a sophisticated service and they will corner some work. However, we’re not in the same market as trial dispute work where there is huge discovery to be made.”
Virtual assignments
Kidby has been closely associated with outsourcing throughout his career. A decade ago, he became involved in the first outsourcing transaction for the Department of Social Security when working on PRIME, a major government property portfolio that was outsourced to Land Securities Trillium (as it then was).
It was a substantial project and “the first time that the government had considered disposing of its property on effectively a sale-and-leaseback basis,” says Kidby. It posed problems: how do you get 1,500-2,000 landlords to agree to the assignment of the lease on their property and, even if they all agreed, how do you get all assignments through on one day?
Kidby and his team reasoned that if an assignment was not possible, they would endeavour to render it unnecessary. This gave rise to the concept of virtual assignment: an arrangement under which the economic benefits and burdens of the relevant lease are transferred to a third party. The leasehold interest is not assigned and the occupancy of the premises remains unchanged: see EG 9 January 2010, p65.
The team was so confident in its use of the concept that it encouraged an industry-wide debate so as to develop it as a standard tool. By recognising the need to “put a capital V and a capital A on it,” says Kidby, it became “readily identifiable”. If the team had not marked out the arrangement as a new concept, “it would merely have been a technique that we used”.
Since then, virtual assignments have been used in a significant number of transactions, in both the public and private sector, and thousands of virtually assigned leases are in existence. Of these, only two – Abbey National plc v Commissioners of Revenue & Customs (formerly the Commissioners of Customs & Excise) [2006] EWCA Civ 886; [2006] 3 EGLR 153, a case relating to the VAT aspects of virtual assignments, and Clarence House Ltd v National Westminster Bank plc [2009] EWCA Civ 1311; [2010] 08 EG 106 (see p106) – have been tested in the courts.
The decision in Clarence House caused a stir. The court ruled that the virtual assignment failed on one of four grounds: that of sharing or parting with possession. However, it was found not to breach the covenants in the lease against assignment, underletting or creating declarations of trust without the landlord’s consent. “We already had confirmation that it worked,” says Kidby.
The Court of Appeal overturned that decision, finding that: “NatWest did not, by entering into this virtual assignment share possession or part with possession of the demised premises or any part thereof.” Kidby had expected to be vindicated and although he admits that virtual assignments have not been in widespread use over the past couple of years, Clarence House does “give efficacy to future transactions, when the government will inevitably have to sell off some of its assets” to raise cash and reduce debt.
The slippers can wait
With such a track record in innovation, it’s no surprise that Kidby will not be reaching for his pipe and slippers. On 1 May, he becomes an executive director at
He may also yet achieve his musical ambitions. After entertaining the property industry with his band, Clarence King and the Regents, he intends to devote time to a long-awaited solo album (“at least by me anyway”), which brings together material he has worked on for 40 years.
Kidby will be a hard act to follow. Stancombe, however, will have little time for reflection. “The merger has presented us with a massive toy-box of opportunities [and] I will be spending a lot of time trying to build on that I would be very disappointed if we weren’t regarded as number one in real estate within a very short time.”
