Best in 10 years: Property surge proving lucrative for Auckland law firms

Yesterday saw the Reserve Bank cut the Official Cash Rate, with banks promptly following suit with mortgage rates - suggesting Auckland’s property boom isn’t slowing any time soon.

And while the surge might have residents aflutter, it is proving a great time to be a lawyer.

Transactional work resulting from the city’s buoyant property market - including work around the unitary plan, resource management and environment requirements - has helped Auckland legal businesses improve profitability over the past few years, according to survey results released yesterday by accountancy firm Moore Stephens Markhams Auckland.

The firm surveyed 20 Auckland small-to-medium sized firms and found firms are experiencing the highest level of profits in nearly a decade, Moore Stephens Markhams director Sam Bassett told NZLawyer.

Auckland equity partner net incomes have increased significantly across the board, the survey found; with the top five most profitable firms reporting net equity partner incomes ranging from $624,000 to $1.07m (compared to between $487,000 to $613,000 in 2013), a nearly half reporting incomes of over half a million dollars.

A growing trend of firms having non-equity partners was also helping drive profitability, Bassett said.

“Over the last few years we have seen, from our work with legal firms and reinforced by this survey, that the lock step partnership formula is still a popular choice not only for succession planning but also expanding the business.”

Nine participants had increased their total number of partners (including non-equity partners) from 33 to 40 since 2011.

“Successful firms in terms of profitability, appear to be getting their succession planning right with keen younger members responding to the carrot of profit sharing and helping to increase the size of the cake overall. 

“It seems to be rejuvenating firms.”

But perhaps the most fascinating aspect of the results for Bassett was the location of profitable firms.

“I think the interesting thing was that the city firms have been doing better than the suburban firms, and that really surprised me.

“Thinking it through, I think it is probably because during the recession, the suburban firms had that lower overheads are that were able to get their house in order – they weathered the storm better than some of the central city firms.

“Obviously, now the city firms have bounced back – particularly the boutique litigation firms that have their structure right.

Larger is not always better, Bassett said.

“The smaller firms – the two to six partner firms – can do extremely well if they get the formula right.”

Bassett identified some common characteristics shared by profitable law firms surveyed.

Characteristics of a profitable legal firm

•    Average gross fees per equity partner in excess of $1.2m
•    Partner charge out rates of $400 plus
•    Staff salaries to gross fees generally 30 to 35 percent
•    Partnership of two or more equity partners with at least one non-equity partner
•    Overheads (excluding interest and salaries) to gross fees of 25 percent or less