THE NEW ACCOUNTS RULES- OPPORTUNITIES AND CHANGES

REGULATION REPORT

WRITTEN BY JAYNE WILLETTS, SOLICITOR ADVOCATE, JAYNE WILLETTS & CO SOLICITORS. THE NEW ACCOUNTS RULES –OPPORTUNITIES & CHANGES?

The SRA’s objective for the new Accounts Rules effective on 25 November 2019 was to introduce a shorter version of the Rules with a simpler definition of client money. The profession was also instructed that the Rules would provide more flexibility, trusting us to act in our clients’ best interests as well as reducing prescription and arbitrary timescales. It seems appropriate, five months in, for us to review whether these objectives have been achieved.

Let us start with the SRA’s aim of producing a shorter version of the Rules. It is true that there are only 13 Rules now as opposed to 52 Rules in the 2011 Rules. However, many of the Rules now appear elsewhere in other documents. Take as an example, residual client balances. The conditions for distributing balances under £500 to charity were set out in Rule 20.2 within the 2011 Rules – this old rule is now contained in a threepage SRA Mandatory Statement. In addition, there are six SRA guidance notes (so far) on Accounts Rules topics much of which was in the 2011 Rules. There is also a Warning Notice and Case Studies x 11 on using client account as a banking facility. The plethora of documents that need to be referred to in connection with the implementation of the new Rules makes the claim that “shorter is best” a somewhat unconvincing one.

Turning now to the aim of greater “flexibility” which is taken to refer to the ability to hold client money outside a client account. Leaving aside third-party managed accounts (Rule 11), the more innovative option (Rule 2.2) involves holding client money in the firm’s office or business account (as we are encouraged to call it now). There is no requirement presently for firms to notify the SRA that they are operating under Rule 2.2.

In order to qualify for this new procedure, the only client money that a firm holds must be restricted to advance payments for fees and unpaid disbursements such as counsel and expert fees. The other key condition is that the firm must ensure that the client is properly advised and knows that the money is not ringfenced and may be used as part of the firm’s money in their business account.

The SRA Guidance Note states that the key risk is that if the firm becomes insolvent then the money would be incorporated into the insolvent estate. In addition, the SRA recommends that the client is advised that if the firm becomes insolvent before the work is completed then the client would be treated like any other creditor and would have to find the money from elsewhere to pay another firm to complete the work. It is an astonishing conversation to have with a client to advise them to place their funds at your disposal and warn them that all will be lost if the firm goes under financially. There is no advantage to the client whatsoever. The financial advantage lies entirely with the firm. It is a classic “own interest conflict”. How the SRA can permit this arrangement which cannot ever be described as being in the public interest defies understanding.

Let us also examine the claim for less prescription and the removal of arbitrary timescales. In the 2011 Rules there were a few specified time limits. Under the new Rules firms are required to take certain steps “promptly” and to prescribe their own time limits within internal office procedures. My soundings reveal that most firms fearful of challenge by the SRA have merely adopted the same time limits as provided by the 2011 Rules.

The opportunities presented by the new Rules could therefore be described as illusory as opposed to real. The changes however are real and there are some practical day to day adjustments to bear in mind.

First, the reconciliations must be signed off by a COFA or a manager (Rule 8.3). This is a sensible requirement and gives the management a chance to head off any problems at any early stage. COFAs or managers should make sure that they understand the mechanics of reconciliations and that they can effectively monitor the correction of any unreconciled balances. Also note that client’s own accounts (Rule 10.1(b) now need to be included in the reconciliation.

On the disbursements front, there is a significant change (Rule 4.3) in that you must provide a bill of costs or written notification of costs before transferring funds from client to office account to pay disbursements. Rule 4.3 does not refer to “disbursements” but to “costs” which are defined in the SRA Glossay as “your fees and disbursements”. Rule 4.3 has been interpreted to mean that you cannot transfer funds to cover disbursements until those disbursements have already been paid out from office account. You are therefore reimbursing office account for monies already expended. You should also note that there is no longer a distinction between professional and non-professional disbursements.

And finally, COFAs now need to have a much greater understanding of the Accounts Rules and how the finances of the firm are managed. You should ensure that you understand how your accounting software works especially in a small firm so you could operate it if your bookkeeper is away for a prolonged period. There was a recent case in the SDT – SRA v Harmail Gill SDT 11914-2019 – where Mr Gill as COFA admitted in an SRA interview that he was not aware “of the intimate details of dealing with a client account”. The Tribunal accepted the SRA allegation that Mr Gill had acted with “manifest incompetence”. Don’t be like Mr Gill – make sure that you have a real grip on your firm’s finances.

OPINION

WILL COMMONHOLD BECOME COMMON?

The mere utterance of the word commonhold usually instils terror and panic into the heart of most right minded property lawyers. Understandable, since so only about 20 commonhold developments have been created since Trevor Aldridge's 2002 Commonhold and Leasehold Reform Act introduced the concept of freehold flats and community ownership of the common parts writes Mark Adcock, Solicitor and former lawyer with the Law Commission.

It never caught on because there was nothing beneficial to developers in it. The more traditional legal environment of granting long leases had the considerable advantage of an increasing reversionary interest, and an income through ground rent meantime. The arrangement results in flat owners owning the freehold of their flat and ownership of the common parts through a Commonhold Association.

The law as it stands is deficient. There are several weaknesses with it, most notably the problem that arises if the commonhold association enters into liquidation and the obligation for all owners to participate in the conversion process.

Set against a political background of aversion to leasehold ownership generally, the Government tasked the Law Commission to design a system that would ‘reinvigorate’ commonhold as a means of ownership and to address the current weaknesses. The result was a consultation paper published in December 2018 making proposals on how the system might be improved and expanded. It included:

• Proposals on how commonhold might be used for larger, mixed-use developments including residential properties shops, restaurants and leisure facilities • How existing leaseholders could convert to commonhold and gain greater control • What might improve mortgage lenders’ confidence in commonhold so as to increase the choice of financing available for home buyers

• And how it might provide homeowners with a greater say in how the costs of running their building are met

A final report is expected in the Spring. Given the increasing constitutional aversion for the traditional leasehold – freehold arrangement, it is highly likely that commonhold will be the compulsory means of ownership (whether it be wholly residential or mixed use) for all new build developments. It is also likely that the end product of collective enfranchisement will be compulsory commonhold ownership. After all, the current system resembles that model anyway. Only in this way, will commonhold become the preferred ownership model, thus removing the problem of the depreciating leasehold term and perceived imbalance between the lease parties.

Will it work? Only time will tell, but there are those who countenance that not everyone is so keen to be working with their neighbour on controversial issues surrounding property maintenance and management, and that the current scheme does provide some neutral involvement where either the freeholder or a separate management company is responsible. Further a law that prohibited the new grant of a leasehold flat for less than say 999 years at a nominal fixed rent (if any) would overcome the problem of a depreciating reversionary term and unrealistic future ground rents. Probably the central political issues with the current system.

The devil will be in the detail, but what is pretty certain is that property lawyers will soon have to bite their lip and get to grips with the culture of a third and widespread land tenure.

with any members who choose to contact the Committee with any concerns.

Tell us about some of the main events/activities that your committee has worked on in the last year?

The Committee has responded to several Government consultations over the past couple of years. As part of the Government consultation on “Making the home buying and selling process quicker, cheaper and less stressful” we arranged a meeting with The Right Hon Sajid Javid MP who at the time was the Secretary of State for Housing, Communities and Local Government to discuss with the Minister certain aspects of the consultation before returning our formal response. It is testament to BLS and the Property and Development committee that he was prepared to make time for such discussions.

The Committee have also been involved in a Government consultation on Leasehold Reform and Commonhold which looked at the nature and problems surrounding Leasehold properties and the matters flowing from this including challenges with Managing Agents. Some changes in the Leasehold process have now become law.

Birmingham Law Society has 14 professional committees, dealing with different areas of legal practice and/or areas of common interest to the profession. They are the engine room of the Society, undertaking work that keeps our members updated with developments in their areas of law, ensuring they are well connected with key stakeholders such the courts, police and other bodies and representing their interests, and those of their clients, to Government, regulators and others. All of our committees are made up of volunteers drawn from the Birmingham legal community.

In this issue we shine a spotlight on the work done by the Property and Development Committee chaired by Denise Watkins, Gordon Jones Solicitors.

A full list of Birmingham Law Society’s committees can be found on our website, along with contact details of the committee chairs. If you are interested in joining a committee, please do get in touch with the chair.

What is the role of your committee?

The Property and Development Committee has lawyer representatives from Residential and Commercial Property, Construction and Planning Law and a Barrister who provides updates on current case law dealing with all aspects of property. We respond to Government consultations, Law Society procedural changes and implementation.

All members of the Committee are actively involved and give monthly updates on their areas of Property Law. We seek to address ongoing issues of law and practice for all BLS members and are available to discuss matters where we can We have also responded to a consultation for Birmingham City Council on Statement of Community Involvement to give views on different aspect of planning. We were pleased to assist our local Council.

As Chair of the Committee I was involved in a Property Convention last year in conjunction with The Law Society and representatives from Land Registry to discuss topical issues with BLS members and to give an insight into the meetings of the Property and Development Committee. This was very well attended.

I have also attended Property Consultations on behalf of the BLS Property committee to give feedback on Land Registry updates and changes in practice and other areas of law and procedures. Experts are on occasions invited to Committee meetings to discuss topical issues.

What would you say will be the biggest issue in the area that your committee focusses on in the next 12 months?

We have continuing discussions regarding the amount of construction that is surrounding Birmingham which can only be good for the economy. With all the construction and the Government’s determination to build more than 1 million houses within the next 10 years, the Committee’s future focus will be how regeneration and development of brown and green field sites will impact on climate change such as flood risk and contaminated land on Commercial and Residential Conveyancing.

The Committee have also been discussing and will continue to discuss potential Reservation Agreements which are to attempt to reduce the number of abortive matters on residential properties, but which Agreements carry with them many advantages and disadvantages. We will liaise with The Law Society on the overall findings as requested recently when the new President attended the BLS Council meeting. Arguably however, one of the biggest “hot potato” discussions for the Second City’s property lawyers will be land acquisition for the ongoing development of HS2 and potential legal and environmental issues flowing from this.

OPINION

the windows a reality. Once the money was raised, work was able to start and the final installation is now housed inside Waterfall House, a state-of-the-art building, which is home to Birmingham Children’s Hospital’s world-class Children’s Cancer Centre and the UK’s first Rare Diseases Centre for children. The main window sits in the entrance to Waterfall House, while a series of nine smaller interior windows are situated along the building’s ground floor corridor. HOSPITAL WINDOWS GET ROYAL UNVEILING

Birmingham Children’s Hospital welcomed Her Royal Highness The Duchess of Cornwall to its hospital recently to unveil a unique stained-glass window installation, featuring some of Roald Dahl’s most iconic characters, specially designed by the world-famous children’s illustrator Sir Quentin Blake.

The charitably-funded project is the brainchild of Felicity Dahl, wife of the late author, who often used to visit the hospital as a child with her father Professor Alphonsus d’Abreu, then Dean of the Medical Faculty. She approached Sir Quentin Blake who was delighted to be involved and generously donated his original designs, which have now been transformed into a stunning series of stained-glass windows – the firsttime Sir Quentin’s work or Roald Dahl characters have ever been produced in stained-glass.

Birmingham Children’s Hospital Charity launched a campaign to raise the £234,000 needed to make HRH The Duchess of Cornwall was invited to the hospital to unveil the new installation and was able to get a closer look at all of the windows, which feature favourite Roald Dahl characters that every child and parent will instantly recognise, including The BFG, The Enormous Crocodile and The Giraffe and the Pelly and Me, plus Matilda and Charlie and The Chocolate Factory.

HRH The Duchess of Cornwall was also able to meet patients, project donors, as well as staff members, including Birmingham Children’s Hospital’s four Roald Dahl Nurses who specialise in rare diseases. These nurses are funded by Roald Dahl’s Marvellous Children’s Charity of which The Duchess is Patron. HRH The Duchess of Cornwall was then invited to unveil a commemorative plaque.

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Beautifully crafted from solid pine and finished in a contemporary shade of white, matching accessories including shelves and coat hooks can be added to accommodate all those little bits and bobs. All fabric add-ons from Nöa & Nani fully comply with UK fire regulations, ensuring they are safe for use. Designed to grow with the child, the tented canopy can be easily removed, leaving a stylish, classic sleeper, which can accommodate a slide and a desk or chest of drawers below.

OUT OF HOURS

Before, when I was going to the gym or staying on top of fitness, I’d do it for some sort of vanity reason; I’ve long since abandoned that and have accepted that I’m never going to look good. So the second half is about my reaction to that medical. My wife and I are very happily married but we’ve got to that point where we’re set in our ways a bit. That’s the nub of it.”

Romesh acknowledges that we live in interesting but testing times, with the terrain of stand-up comedy one where every utterance a comedian makes comes under extra scrutiny. “I don’t feel the need to agree with the person I’m watching to enjoy what they’re doing. In his last Netflix special, Dave Chappelle said a lot of stuff that I don’t agree with but it doesn’t stop me laughing about it.

ROMESH RANGANATHAN

On his last nationwide tour, the monstrously successful Irrational, Romesh Ranganathan was pondering whether he has an irrational viewpoint on the world or whether that can be attributed to absolutely everyone else. This time around, he’s putting together The Cynic’s Mixtape in which he offers perspectives on the world that are partly incredulous and wholly hilarious writes Brian Donaldson.

“I enjoy puncturing the common point of view,” admits Romesh. “Sometimes I agree with it but often the common acceptance of certain things is based on facts that I find irritating, so I undermine that and deliberately say things, not to simply be provocative but because I like the reaction to them.”

As well as taking his views on tour, Romesh’s recent TV credits include a second series of his Sky One sitcom, The Reluctant Landlord, presenting duties on The Ranganation, Judge Romesh, and The Misadventures Of Romesh Ranganathan. Away from the small screen, you can read his memoir, Straight Outta Crawley, or hear his award-winning podcast, Hip Hop Saved My Life, in which his most recent batch of guests have included rapper Kano, singer-songwriter Michael Kiwanuka and documentarymaker Louis Theroux.

And now, the man who was also recently voted by The Guardian as the 17th best comedian of the 21st century, is out and about across the UK with his barnstorming new live show which he explains is divided into two distinct parts. “The first is looking at different issues such as the environment, a bit about the Liam Neeson thing, and how people respond on social media to the deaths of celebrities which is something I find quite weird.

I remember sitting with a friend when Whitney Houston died and he was agonising about what he was going to post online. I said, ‘you don’t have to worry about that, it’s not your business; the world is not waiting to hear what you’re going to say.’ People end up making these events about themselves.”

In part two of The Cynic’s Mixtape, Romesh zeroes in on more personal material, focussing on the relationship he has with his wife and their three children, and fretting about his own existence. Which sounds heavier than it actually is. “I got a medical when I turned 40 as I started to worry about my own mortality not for myself but in terms of my kids.

Similarly, I’m a massive fan of Bill Burr and in his most recent show he’s pretty full on about feminism and how male feminism isn’t a thing. I follow the logic of what he’s saying and I do find it funny while not necessarily agreeing with him. We do seem to be living in hyper-reactive times now and people feel more ready to be offended than before. As an audience member myself, I don’t have that need to agree with everything the comic is saying.”

Romesh works from the standpoint that there will always be someone who doesn’t agree with what he’s trying to say in his comedy, but as long as he has worked hard on the material, can justify it from every angle and gets the big laughs, he knows he’s on the right road. “When I start performing material for the first time, that’s when I might offend people or push it too far, because I perhaps haven’t expressed what is definitely a good idea elegantly enough. So you play with it, and when the laugh for something is big enough you know that you’ve found an acceptable line through that way of thinking.

But I never write something and think I can’t do that because I don’t want to get into trouble for it; I tend to just write what I think. I am guided by the laughs.” As he takes his Cynic’s Mixtape around the country, those resounding laughs are following him wherever he goes.

At time of going to print, all dates have now sold out/ postponed. Visit www.romeshranganathan. co.uk for details of upcoming shows.

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THE NEW ACCOUNTS RULES – OPPORTUNITIES & CHANGES?