Lawyer Monthly - November 2021 Edition

31 NOV 2021 | WWW.LAWYER-MONTHLY.COM THE IMPORTANCE OF DUE DILIGENCE WHEN BUYING A LAW FIRM insurance vary greatly according to the type of work undertaken. For example, a small immigration solicitor will generally pay a lower premium than one dealing in conveyancing. This relates to due diligence on two levels. • Firstly, if you are buying a legal practice, you must ensure PII exists and that it is at the right level for the work being undertaken. Trading without adequate PII is a serious breach and a firm will be prevented from trading or closed down by the SRA. You cannot risk buying a legal practice that then cannot trade, so examining the PII cover must be part of your due diligence work. • Run-off cover is also something that needs to be considered as part of the sale. For a successor practice, it is imperative that you find out which party’s insurance will carry the run-off cover. Again, the detailed documentation and understanding of the cover, premiums and any conditions should be examined closely during due diligence to ensure no party is left exposed to future claims. Another area to consider is the bank of wills that family lawyers often build up and for conveyancing firms, it is the bank of deeds. Holding documents such as these in safe storage can add value to a sale because it brings clients back to do repeat business with a firm. But they only add value if they are accurate and accessible. There is no point in holding 5,000 wills if, for example, half of them relate to people who have already died or who have subsequently made revised wills elsewhere. There needs to be a disciplined approach to keeping these documents current and this should therefore be part of your due diligence checks. Financial diligence For service industries like solicitors, some still do not invoice until a job is completed, which gives rise to a few potential issues. You pay for a will when it is ready for signing and for conveyancing when your house sale or purchase completes. As a result, lawyers often have a large amount of ‘work in progress’ or WIP for which they have not yet been fully paid. If the due diligence process is carried out early on, it allows you to deal with any issues upfront or hidden liabilities which may not have been disclosed.