Legal tender

A new report warns that lawyers’ salaries are set to soar by as much as 25% this year, leading to higher fees for property advice. Richard Gerrard of EGi investigates With the furore over company directors’ salaries comes the news that lawyers are cashing in on the current demand for property advice. A report published last week by headhunters Longbridge has revealed that City lawyers’ salaries are set to rise by as much as 25% this year. According to Longbridge, a solicitor with three years’ post-qualification experience at a City firm now commands a salary of between £38,000 and £49,500. This year’s review is expected to boost that to between £45,000 and £51,000. In the regions, pay is markedly lower. A solicitor in Birmingham, Manchester, Bristol or Leeds would expect to see a more modest increase from a current salary of £24,000 to £32,000 to between £28,000 and £36,000. The differentials are more marked for experienced solicitors. Six years after qualification, a solicitor in the regions would be earning £40,000 or more. But in the City, lawyers with such experience are now earning double that rate, raking in between £60,000 and £85,000, and can expect a 25% pay rise. The top earners at this level can expect to make £90,000 pa. The reason for the huge hike in salaries is the current shortage of experienced solicitors to cope with an increased workload from busy construction and development clients. And the talent shortage will inevitably mean higher fees. In response, many purchasers of legal services have been looking carefully at how they select law firms to act in large-scale property transactions, and how they can save money on the legal fees. An obvious option is to bypass the London firms and instruct one of the larger regional practices. One director with a well-known property consultant says: “For an average sale or purchase of, say, 464-929m2 (5,000-10,000 sq ft) of West End space, you’re probably better off with a partner in a regional firm than paying the same price for a trainee solicitor at one of the big six in the City.” Developers are also eager to escape the escalating fees of the City firms. The managing director of a major property investor says: “In one recent deal, we said very explicitly that we wanted to instruct our usual lawyers, who have acted for us on some very large acquisitions and know very well what we want. But the bank involved in the deal insisted on one of the big six City firms. It is almost as if there is a self-sustaining clique. It makes it much more expensive and it is very difficult for the smaller, more workmanlike firms to break in.” Evidence suggests that regional firms are significantly cheaper, at least when one compares the hourly rates charged by property partners. John Temple of Shoosmiths & Harrison, which has offices in Northampton, Nottingham and Reading, says that the difference can be dramatic: “Our rates vary because of the geographical diversity of our offices, and overheads are an important factor. But a ballpark figure would be £150-£160 an hour, some £80-£100 an hour cheaper than an equivalent fee-earner in the City.” Expanded departments Small wonder that several regional firms have expanded their property departments markedly over the past year. Bristol’s Burges Salmon has seen its property group grow by 15% to 57 lawyers on the back of a local boom, while in April, Birmingham’s Wragge & Co recorded 31% annual growth in turnover for property work. Both firms have their eyes set on work formerly carried out by their rivals in London. Penny Hubbard, head of property at Cambridge practice Mills & Reeve, is also explicit about being in competition with London. Formerly a partner with City firm Macfarlanes, she has succeeded in taking work from major City firms, including work for such institutions as Oxford and Cambridge colleges. “Fees are important. My charge-out rate at Mills & Reeve is around £100 an hour lower than it was in the City. But clients won’t move just because we’re cheaper. We have to give the same quality of service,” she says. The larger regional firms are keen to stress that they offer the “strength-in-depth” so often associated with the City. Following high-profile mergers and strategic geographical expansion, firms like Dibb Lupton Alsop, Hammond Suddards and Addleshaw Booth & Co now rank among the 20 largest firms in the country. Also, they can attract quality staff and big hitters from the City – as was shown last month when highly regarded property specialist David Gidney joined Burges Salmon after 16 years as a partner at Rowe & Maw. Steep overheads So if an equivalent service is available in the regions at such an attractive price, why should anyone continue to instruct City firms? This is a question that Catherine Usher, a partner at the London office of regionally based firm Dibb Lupton Alsop, is well qualified to answer. “The rate for a partner in London would be £200-£250 an hour, higher than at our regional offices and reflecting steeper overheads. But we still get work in London,” she says. “The reason people come to City offices is because that’s where the lawyers are. It helps the speed of a transaction if meetings can be arranged easily with one’s counterparts.” One City firm with a pre-eminent reputation in property work has been turning the tables on the regional firms. While Pinsent Curtis, Hammond Suddards and most recently Bevan Ashford have been opening London offices, Nabarro Nathanson has been expanding from the City to the regions. Spokesman Chris Hinze explains the strategy: “We now have a 200-strong office in Sheffield competing directly with Dibb Lupton Alsop and Hammond Suddards. We can service clients on a national basis from there. “Indeed, it is from that office that we are now doing work for English Partnerships at London Docklands. The hourly rate is 15-25% cheaper and we can use this to our clients’ advantage on non-transactional work, such as the day-to-day management of shopping centres. At the same time, the client can still get specialist advice from London.” As the biggest practice in the country, with 180 partners and 1,044 lawyers in the capital alone, prime-billing City giant Clifford Chance argues that the cost advantage of going to the regions has been overstated. Property partner Robert MacGregor says: “I’m not sure if I agree that they can offer a cheaper service. The leading City firms’ IT, our systems of precedents and our information retrieval allow us to compete on price. What is more, for a number of transactions, hourly rates are becoming less relevant, as there are other ways of pricing deals.” Jonathan Glass of Longbridge confirms this view and feels that the top City firms should not feel overly threatened: “A lot of work is done now on a percentage basis, related to the value of a deal. There are success fees involved, and property transactions are rarely charged on an hourly basis. Although there is no doubt that the regional firms have made an impact over the past five years, even a major player like Hammond Suddards would have to admit that it is not challenging Linklaters, Freshfields and Clifford Chance. They are competing in the First Division certainly, but not the Premier League.” Estimated Average Hourly Rates*, £s, June 1998 Regions W End City Head of dept 200+ 230+ 260+ Equity partner 160 225 250 Salaried partner 140 200 225 Assistant 100 180 200 *The rise in lawyers’ salaries this year could force hourly rates up by 10-15% High City legal fees are prompting property firms to look to the regions In-House Property Lawyers Salaries, £’000s, 1997 Qualification level (years pqe) Minimum Maximum Average Regional London 1-3 26 36 28 33 3-5 29 43 34 39 5-10 38 58 43 49 10+ 45 70 58 64 SOURCE=LONGBRIDGE Regional lawyers can expect to earn less than their London-based peers Lawyers’ Salaries