When Britain’s third-largest listed property company announced a pre-tax profit of £203.1m last week, it did so amid growing market concern about the strength of demand for office space. Its shares fell by 2 per cent, despite news of a larger than expected special dividend of £375m to shareholders.
But like Canary Wharf Group’s management, its head of legal Michael Ashley-Brown is bullish about the future. “I think 2003 will be another bumper year for lettings. There’s lots of pent-up demand,” he explains.
After 12 years at Canary Wharf, the holding company that builds and owns the Docklands estate, Ashley-Brown still oozes enthusiasm for the job and the product. So too, it seems, does his principal law firm Clifford Chance, which will move to the estate next year.
Ashley-Brown recalls his negotiations for space with the firm with a wry smile. “They’re tough negotiators,” he says. “They really made me work hard.” Clifford Chance instructed Freshfields Bruckhaus Deringer partner Geoff Le Pard, but it was London managing partner Peter Charlton who led the negotiations. “He’s a tough cookie. He’s not going to give way merely because you happen to be a client,” says Ashley-Brown, who instructed longstanding adviser Martin Wright at Ashurst Morris Crisp on the deal.
Ashley-Brown’s most hands-on role as Canary Wharf’s in-house counsel is in office leasing. His gregarious personality is ideally suited to running negotiations and his success has earned him a sterling reputation in the City. “I’m more of a deal manager than a straightforward lawyer. It’s shaped itself that way because it works,” he says.
Co-head Christopher Henderson, on the other hand, is absorbed in the details of planning and work relating to infrastructure. “That takes a discipline I don’t possess,” concedes Ashley-Brown.
The duo are part of a seven-strong legal team at head office. “It’s a real democracy here. The only reason I have the title of head of legal is that, when it becomes important, I’m the one who has to present himself before the chief executive, not because I’m the most able of lawyers,” says the ever-modest Ashley-Brown.
A separate team of 12 construction lawyers is based elsewhere on the estate. Ashley-Brown sings its praises. “They’re the stars of the show,” he says. “Every single contract placed for the construction of every nut and bolt is dealt with by the construction law department.” At head office, the in-house legal roles span compliance, office leasing, retail and housekeeping matters.
With the exception of housekeeping, the vast bulk of Canary Wharf’s legal work is outsourced, while its in-house lawyers act as the ‘gamekeepers’. “They keep an eye on the performance of our external lawyers and give them the instructions they need to push things forward,” explains Ashley-Brown. “Canary Wharf is the absolute peak of commercial property development. That’s the reason why the quality of the lawyers we’ve attracted here is quite exceptional. They start out pretty good, but they grow because of the intensity. You can’t get that in private practice.”
Externally, Clifford Chance has the main role, acting on corporate, London Stock Exchange and securitisation matters, and taking a 50 per cent share in lettings work. Real estate partner Robert McGregor manages the relationship. The rest of the lettings work goes to Ashursts, where Wright is Ashley-Brown’s key contact. “You have to have more than one lawyer, but you have to be careful not to have too many,” Ashley-Brown says.
Canary Wharf has used Ashursts and Clifford Chance for more than 10 years, apart from a brief spell when administrators Ernst & Young brought in Allen & Overy (A&O). A&O still gets follow-on work from matters it handled in those days, but it is not instructed on brand-new work. “It’s not that I don’t think very highly of A&O, but because it acts almost exclusively for the banks, there’d be conflicts,” explains Ashley-Brown.
He also uses Linklaters, but purely for rent review work, something that does not make him popular at Ashursts and Clifford Chance. His logic is clear: “I don’t want them hiding any mistakes that they might have made. I was in private practice for 15 years. I know every trick.” In fact, Ashley-Brown uses his old firm BD Laddie for personnel work. “Why pay City rates when you really don’t have to?” he asks.
His other main supplier is Morgan Cole, where Canary Wharf’s retail work has followed former in-house lawyer Nigel Griffiths.
All firms are kept under constant review, but beauty parades are certainly not a tool that Ashley-Brown uses. He would sooner leave them to “unsophisticated” buyers of legal services, who think that the acid test is the hourly rate they can agree in the beauty parade. “But we all know that a top property lawyer such as Robert Macgregor, who may charge £400, can do three times as much as a lawyer charging £200,” says Ashley-Brown. The company gets a cheaper deal by picking the right person and it gets better quality work. But you need experience and expertise to be able to know who the right person is for any given job.”
Ashley-Brown’s formula is clear: “I don’t follow practices, I follow lawyers. If one of our firms lost all the solicitors who did our work, why wouldn’t I follow the people who know the company intimately?”
With an annual legal spend ranging from £2m to well in excess of £5m, Ashley-Brown is well placed to get what he wants. But keeping costs under control is like trying to keep your arms around a litter of puppies, he says. His in-house team closely monitors billing for non-transactional work. “That’s not the same as saying we agree a fixed fee. That doesn’t fit with getting the best quality service,” he says.
Inevitably, transactional costs are far less predictable. “I have to approach that with each transaction,” he says. “I keep an eye on how many lawyers are at a meeting, the amount of time they spend on the work and so on.”
Legal costs for 2001 ran above the £5m mark after high-profile lettings, including A&O, Barclays, Clifford Chance, Lehman Brothers, McGraw Hill, Northern Trust and Waitrose.
While cost control is a problem any in-house counsel will recognise, Canary Wharf is clearly a unique experience for all involved. “If you’re working for Freshfields, or wherever, you’ll do a job in the City, then one in Brighton, then one somewhere else, and so on,” says Ashley-Brown. “Here, everything’s a jigsaw puzzle. It has to fit together. If it doesn’t dovetail, it doesn’t work.
“Everything we own is in a ringfence. Tenants want to be part of the Canary Wharf experience. They want to know about the retail and so on, or that something else is going to be built. We can do that because we control everything within the ringfence. That doesn’t occur in the City,” he adds.
Despite the market’s doom and gloom, this unique offering is still giving Ashley-Brown plenty of scope for optimism.
Canary Wharf Group
|Organisation||Canary Wharf Group|
|Annual legal spend||£2m-£5m|
|Group legal counsel||Michael Ashley-Brown (property) and Christopher Henderson (planning and infrastructure)|
|Reporting to||Chief executive George Ianobescu|
|Main law firms||Allen & Overy, Ashurst Morris Crisp, BD Laddie (personnel), Clifford Chance and Morgan Cole (retail)|