"Tesco" law

It's just come into force, which means big changes are afoot for the UK's law firms. Hannah Langworth explains

The Legal Services Act 2007 (the Act), one of the most significant changes to the UK's legal marketplace in recent years, came into force in early October. This piece of legislation will allow lawyers to organise themselves, and work with other professionals, in radical new ways.

Step up

The key provisions of the Act concern new kinds of law firm. Up until now, lawyers have only been allowed to go into partnership with other lawyers, and law firms could not be owned by other entities.

However, in the future lawyers will be able form partnership structures where up to 25 per cent of other stakeholders are non-lawyers. These new kinds of law firm will be known as "legal disciplinary practices" or LDPs. They must still only provide legal services but, under the new rules, could extend partnerships to, say, their finance directors, or heads of marketing.

Lawyers who want to take things a step further will be able to organise themselves into "alternative business structures" or ABSs, which will be able to provide a range of professional services, not just legal ones. ABSs will also be permitted to become parts of larger organisations, for example, professional services firms. It's even been suggested that supermarkets might become active in this area, as they have done in retail banking services - hence the Act's nickname,"Tesco law". However, to date only the Co-operative is the only major retail group to confirm it intends to start offering legal advice.

The way in which ABSs will be open to outside investment and ownership could even see some firms raising funds by listing their shares for sale on stock exchanges. As The Gateway went to press, a handful had already expressed an intention to do so.

Edge ahead

Many believe that these new freedoms will encourage innovation in the legal sector. In addition, the UK is just about the only legal marketplace in the world to allow law firms to operate in the kind of ways proposed by the "Tesco law" provisions, so many in the industry hope the changes will enable UK firms to gain an edge over their European and US competitors. And high-street organisations such as the Co-operative think that "Tesco law" will enable more people to access legal advice at an affordable price, which will be particularly beneficial to many consumers, given recent significant cuts to legal aid.

However, some in the industry are concerned that the changes could result in substandard legal advice being provided. As lawyers could find themselves joined to much larger commercial organisations, a lack of independence is also a potential problem.

Flying high

As the keenness of organisations like the Co-operative to get involved has shown, the new business structures proposed are perhaps best suited to lawyers on the high street providing high volume commoditised legal services, like processing insurance claims, or conveyancing work. At the moment, only the relatively small number of law firms which are licensed conveyancers are able to take advantage of the new structures. The Solicitors' Regulation Authority, however, is expected to become licensed to regulate LDPs and ABSs in January, from which point all UK law firms will be able to convert, if they wish to do so.

Few big City firms have yet expressed an interest in the new possibilities open to them. The five largest City law firms, known as the "Magic Circle" - Allen & Overy, Clifford Chance, Freshfields, Linklaters and Slaughter and May - have all said that they will not be looking for outside investment. However, among the country's other big firms, personal injury experts Irwin & Mitchell and Pannone have announced an intention to take advantage of the Act to explore new business models.

Going through changes

"Tesco law" should be seen in the context of a wider pattern of change in the legal market. Other changes occuring include an increased use of the fixed fee rather than the billable hour model, which has the advantages of both certainty for the client, and also of incentivising lawyers to work quickly. Virtual law firms are another big trend. At these firms, a brand name and support services are franchised to lawyers who then work on a freelance project-by-project basis from home.

But law is still a conservative industry so don't expect big changes overnight, or even in the next few years. But, as they say, every little helps.

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