Glenn Leung, Russell Benson, Beverly Ellingson, and Elizabeth Yip have set up Terra Law Corp., a boutique commercial real estate firm also based in Vancouver.
“Clients were starting to feel a bit squeezed,” says Leung, regarding McCarthys’ rates. He estimates fees have been rising by an average of five to 10 per cent a year since the firm changed its management structure in the early 2000s.
“We were starting to see some client erosion. We built up this great practice over 25 years and I just looked three to four years into my crystal ball and thought . . . we’re going to lose clients and it might get kind of ugly” to have diminishing books of business in a large law firm.
Real estate clients found they were able to negotiate rates with suppliers affected by the economic slowdown, and were starting to question the year-on-year legal fee increases, Leung explains.
“We started to see some long-term, loyal clients moving just a bit of their work, just to test us. And some new work we just wouldn’t get,” he says.
In a a statement to Legal Feeds, McCarthy Tétrault said it can confirm it has had modest annual increases in fees in past years, they "have been in line with the industry and remain far under what was suggested."
The Terra founders are also looking forward to the small firm environment giving them greater flexibility in their dealings with clients and staff, and a fun office atmosphere. They will also be able to make their own decisions regarding their business and operations, says Leung.
A number of clients have transferred with the former McCarthys partners, Leung says, including Anthem Properties Group, Appia Developments, AviSina Properties Group, Bosa Properties, Concert Properties Group, Embassy Developments, Holborn Group, Intergulf Group, Intracorp Group, Rize Alliance Group, Rykon Group, and Solterra Group.
Former McCarthys' income partner Greg Fabbro and associates Natalie Garton, and Jonathan Carter, and three paralegals have also moved over to Terra. Associate Gillian Piggott will be joining next Monday.
Leung says McCarthys’ remaining real estate practice will “likely focus on a different kind of client.”
“They won’t necessarily act for developers in the city. They will probably refocus to be acting for larger institutional clients working on bigger deals.”
Terra Law will advise clients on the purchase, sale, and financing of all commercial real estate asset classes, commercial, residential and mixed-use development, leasing, joint venture/partnership structuring, hospitality and clean energy and infrastructure projects.
McCarthys says real property development will continue to be a focus for the firm, with over 40 lawyers practising in this area across the country.
According to its web site, the new firm, which launched earlier this month, offers “the legal skill, industry knowledge and bench strength typically found at large commercial real estate law firms, with the personal service and value proposition more often associated with smaller practices.”
Lawyer and author Mitchell Kowalski, says the development reflects a wider trend being seen across Canada.
“There is a growing realization among many older partners that most of their day-to-day practice does not rely upon the expensive and inflexible infrastructure found in Big Law — they can do quite well without it,” he says.
“Add into the mix corporate clients pushing back on high fees and demanding more creative approaches, then sauté that in technology that is becoming better and less expensive, and it’s not hard for senior partners to do the same high calibre work in a smaller firm environment – and compete effectively against Big Law.”
Big Law is helpful to give partners credibility and contacts at the early stages of their careers, but can become too rigid and expensive, he adds.
Other senior departures from McCarthys’ Vancouver office this year include Paul Armitage, a former partner in McCarthys’ technology group and life sciences group, who moved in February to Gowling Lafleur Henderson LLP’s intellectual property group in Vancouver.
The previous month, Joseph Garcia, formerly leader of McCarthys’ life sciences group, left the Vancouver office to join Blake Cassels & Graydon as an equity partner.
Update July 23: Clarified and updated comments and numbers from Leung at his request.
Update July 24: Comments from McCarthys added.