The changing face of the property world brings with it ever more complex deals and sophisticated funding techniques. But there are still relatively few in-house teams among the sector’s biggest players. Camilla Hardwick takes a look at the in-house lawyers working in the market
The property market did not escape unscathed from the recession of the early 1990s. But in recent years the sector has not only boomed with the economy, but has also evolved.
As property prices rocketed, property investment entered a new era in terms of value and sophistication.
Factors contributing to the change include investment money piling in from the US and the big financial institutions directly investing in the property market.
Over the last couple of years, the sector has also faced increased stamp duty, major urban regeneration and under valuation of property companies on the stock market. The latter has forced so many take-privates that Canary Wharf Group and Land Securities are now the only two property companies in the Ftse 100.
The result of all these factors has been a move away from traditional property deals to ever more complex transactions.
Sophisticated funding techniques and the formation of new financial vehicles for property purchases have given property transactions a sharp corporate edge.
Buying, selling, leasing and building have involved new and varied forms of financing. And securitisation in particular has hit the property sector in a big way.
East London docklands developer, the Canary Wharf Group, is flush from the number of pre-lets agreed over the past year. Clifford Chance, which handles the group’s property work along with Ashurst Morris Crisp, has been instructed on leases covering more than four million square feet of office space in the last 12 months.
These are good times for the Canary Wharf Group and it is still raising finance for new ventures. Recent financing transactions brought in £2bn and in June, the group raised a further £875m through securitisation.
The adoption of corporate finance techniques in property transactions means property lawyers need to develop a comprehensive understanding of tax and finance. And this goes as much for in-house lawyer as much as for his counterpart in private practice.
If the in-house property lawyer shows corporate knowledge and a nose for commercial direction it is not only the company that benefits, says Ashurst Morris Crisp property partner Ian Nisse.
“An in-house lawyer is pivotal between external adviser and client company,” he says. “If he or she has commercial knowledge everyone benefits.”
Engineering, construction and services group Balfour Beatty operates a decentralised team with lawyers split between the group’s different operating divisions. The structure means the lawyers work closely with the management of their division on commercial as well as legal issues.
Head of legal services, Frank McCormack, says: “We are interested in the company finding the right approach. Commercially aware lawyers are working with management providing added benefits to the operating units other than pure legal skills.”
McCormack likens the team to the one at construction and engineering group Amec that was named top in-house team in the property sector at the inaugural Bluechip in-house awards held on 14 June.
Like McCormack, Amec ‘s head of group legal services John Fenwick prides himself on the team’s commercial talents. He says: “We manage our affairs carefully. We are lawyers first but take pride in our commercial approach.”
Corporate and commercial awareness aside, the general skills demanded of the in-house lawyers depend greatly on the nature of the company employing them. There are few industries that encompass such a variety of businesses under one umbrella as property.
The main players are a mix of house builders, commercial property developers, construction companies, mechanical and engineering specialists, building material providers – the list goes on.
Property matters are also at the fore for companies with major property portfolios. The high street retailers have hundreds of outlets to manage as do the big hotel and leisure businesses.
There are also those groups that do not readily spring to mind – such as the oil giants. Shell for example has a property division to deal with, among other things, transactional work for its petrol stations.
The different businesses obviously have different demands from their legal services providers. Construction companies need specialist construction lawyers with intimate knowledge of JCT contracts. Lawyers for developers must understand development agreements and finance. Those looking after the large property portfolios need to be part of a strong transaction team exuding keen organisational skills.
Whatever the type of advice needed, the legal spend for the big companies can be huge.
Property giant Rotch Group has more than £2.2bn worth of property under management. With an estimated legal spend of £5m per year, is one of the UK’s largest consumers of legal work.
The group has just completed the first phase of setting up a formal panel of external advisers and on completion of the second phase in July will have a panel of 12 firms. It then plans to set up an international panel. Despite the size of the group and the level of its legal spend, it has no in-house legal function.
Last year Rotch appointed external consultant Meena Heath to advise it on the procurement of external legal services and help set up the panel and co-ordinate the outsourcing.
The Rotch situation (pre Heath’s arrival) is not uncommon within the industry; an in-house lawyer in the property sector is a relatively rare animal.
Giants such as MEPC and Hammerson have no in-house resources and rely solely on external advisers. Equally, Ftse 100 listed Land Securities has no internal lawyers although the group has a team of nine non-legally qualified people to handle standard legal documentation.
Heath says it is not surprising that many of the larger groups opt not to have an in-house legal capacity given the complexity of the high-end transactional work.
“On a practical level it is very expensive for a group to take
on the quality and breadth of team required to advise on these sorts of deals,” she says. “It makes more sense to instruct external law firms.”
At the other end of the scale Heath says the routine property work has brought with it standardisation of documents and can easily be outsourced to law firms.
One managing director of a property development company, which does not have an in-house lawyer, agrees.
“Work required for sales and leases can often be routine
and infrequent,” he says. “In that situation there is no need for
an in-house team.”
The teams that do exist are mainly concentrated in the house building and construction divisions. The house builders – Redrow Group, Persimmon, Wimpey Homes – all have internal lawyers.
Amec and Balfour Beatty are two of the few teams with more than 10 lawyers.
Developer and business park manager Akeler Developments relies on the counsel of one internal lawyer, Jayne Walters.
Akeler’s managing director Trevor Silver says the need for a lawyer at all arises from the particular nature of the group, namely that the parent company is based in Luxembourg. He says: “Because of the complex corporate structure we need someone in-house to deal with the different jurisdictions.”
He adds: “If we were based solely in the UK we probably would not need anyone in-house. Equally if we were purely merchant developers we would probably rely on external lawyers only”.
Before its merger with house builder Bovis, Australian-owned Lend Lease only had two lawyers in the UK. The merger has introduced a new issue for the two teams – integration. While the intention is that both will be brought together geographically, to date no decisions have been disclosed.
The company is not alone in having to deal with the uncertainty that arises from amalgamation.
Lawyers for the house builders and
construction companies are facing new challenges and uncertainties arising from
the current trend for consolidation within both sectors.
Persimmon’s takeover of Beazer Homes has resulted in the redundancies of at least three senior lawyers from Beazer, including head of Beazer’s group legal adviser Brian Armstrong, as the company is streamlined.
The Beazer situation looks set to be repeated. The five lawyers at building materials giant Blue Circle have been told to expect redundancies following its takeover by France’s Lafarge. Lafarge intends to close Blue Circle’s legal department by the end of the year.
Any lawyers that do leave may find competition for in-house vacancies. Unlike some other sectors, supply is greater than demand. Lee May of recruitment consultants Hughes-Castell says there is a high demand for in-house jobs in the sector.
“There are always more candidates looking to move in-house than there are jobs,” he says. “Lawyers want to be more involved with a business and the chance to make a difference.”
Fenwick at Amec supports this view. “I have had no problem with recruitment, there is always a ready supply,” he says.
Amec has grown gradually over the past five years; Fenwick joined the £1bn international support services group 13 years ago as its sole in-house lawyer. He has since built up the decentralised legal function of 10 lawyers in the UK.
Generally, movement within the sector has been fairly static over the past few years. One reason put forward by the legal directors in the sector is the seemingly high level of contentment within the teams.
Acting head of the Shell UK property team Julia Busby says: “We are a good, settled team with high quality of work.”
McCormack at Balfour Beatty echoes Busby’s sentiments. He says his team members work well together and have a good quality of life.
Salary levels have no sector specific idiosyncrasies and are subject to the same issues that arise throughout industry.
A senior or sole in-house lawyer can expect £90,000 to £100,000; but much depends on location as property lawyers are often based outside London and so subject to regional differences.
What is clear is that an in-house property lawyer is no longer required to have simple property skills. The sector raises more issues than building and investing. The in-house lawyers that shine will be the ones that can offer their employer commercial acumen and corporate skills.
And as the property market continues to evolve so will the legal demands of the players that dominate it.
