EU Executive to Shake up Notaries Services

Last week, the European Commission (EC) published a landmark study by the Centre of European Law and Politics at Bremen University. Legal fees are a small fraction – between 0.34% and 2.94%- of an average real estate transaction, but vary widely across EU member states.

Among other interesting results, this study shows that I would be paying three times more in legal fees in France than in the Netherlands for the same €250,000 house. Why would my French friends be willing to pay more for the same service?

The European Commission is not opposed to all regulation of professional services if there are legitimate arguments for it, e.g. consumer protection. But it requires a strict proportionality test to justify a more restrictive regulation. Not meeting this test could jeopardize the basics of the European single market.

The European Commission has adopted a step-by-step approach to find an appropriate and viable solution. It has identified the conveyancing services--services associated with buying and selling land and buildings--as a priority sector for reform because of its potential economic impact. The EU Real Estate Market is big. Its turnover is around €1,800 billion (2005), or 16% of EU27 GDP, and the corresponding turnover in legal services is around €16.7 billion (2005).

The study compares and evaluates the regulatory systems of conveyancing services for 21 countries from a juridical and economic perspective. They are divided into four categories: (a) the Latin notary system, the traditional highly regulated system in place in most of the EU countries such as Spain, Portugal, France, Italy, Belgium, Germany and Austria; (b) the Dutch notary system, the deregulated version of the previous model which reflects a “more modern vision of the notary”; (c) the Lawyer system, existing in the UK, Ireland, Czech Republic and Slovakia; (d) the Scandinavian licensed real estate agent system, under which real estate agents also provide legal services.

The economic part of the study shows that the highly regulated Latin notary system results in higher fees. There is nothing new in this first conclusion. Experts justify the monopoly that notaries enjoy to authenticate legal transactions and fixed fees on grounds of quality of service and legal certainty of the transaction.

However, the European Commission study finds that these arguments cannot be supported empirically. On the contrary, it points out that less regulated countries seem to perform better in terms of quality and legal certainty, with Germany being the exception. This second conclusion is striking. The methodology of this study will probably be contested, but the EU executive provides evidence to back its pro-reform arguments.

The EC study puts forward an overhaul of the Latin notary system because current regulation, especially the use of fixed fee scales and absolute restrictions on entry, e.g. numerous clauses, are having an overall negative effect on consumer welfare. The study also raises the question on whether the conveyancing market should be opened up to lawyers and other licensed professionals, including real estate agents.

These suggested reforms might have a positive impact on the Doing Business ranking of the countries that implement them by easing the process of registering property. The Doing Business Property team will be monitoring any initiative stemming from this study and invites everyone to send us related information.