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Are you part of a cartel?

money in envelope imageMicheal Dean imageEstate agents have so far avoided the scrutiny from the authorities and public that hit some aspects of the property industry following the financial crisis, but they could be next in line for close attention from regulators if they do not take measures to make clear they are keeping their own house in order.

As regulatory scrutiny tightens, firms should ensure that all staff are aware of the law and consider compliance measures.

As readers will recall, the Competition and Markets Authority (CMA) recently penned an open letter to all estate agents following a case in which three estate agents and their local association, as well as a newspaper publisher, were fined more than £735,000 after admitting that they had agreed to restrict the advertising of fees and discounts.

On the face of it this sounds surprising, but similar arrangements could easily come about unwittingly through the relatively cosy relationships that may be formed in the industry in a provincial setting. Indeed, the local newspaper compromised itself even though it had nothing obvious to gain from the arrangement.

The risks

Regardless of the specifics of the CMA case, the fact is that where there are close commercial and personal relationships, even among competitors, it is easy to gravitate to arrangements intended to benefit that little group – but that is where danger lies.

In a typical regional estate agency sector, many staff at competing agencies will know each other – especially Senior Partners whose paths will have crossed many times over the years. In many cases, there is a local association to facilitate this, as well as other trade bodies and events. In others, the common ground may just be the golf club or a local bar. But few in the estate agency business realise that communication of informal relationships enjoyed with competitors on the local or regional scene could be in breach of competition laws, especially if they relate to pricing or other aspects of competition.

The breach that recently led that trio of agencies and their association to a substantial fine was not related directly to pricing, but the CMA took the view that these arrangements had the object and potential effect of reducing competitive pressure on estate and lettings agents’ fees in the local area. In addition, they may have made it harder for potential competitors to enter the market by using the level of their fees to attract new customers. These practices potentially limited consumers’ choice and ability to compare prices and assess value for money.

An agreement that constitutes price-fixing, such as agreeing minimum rates, would be considerably more serious and would likely see criminal charges brought. Perhaps such an obvious attempt to cheat the market would set more alarm bells ringing, but firms would be well advised to ensure all staff know where to draw the line in a conversation with a competitor or other outside party involved in the property trade.

Bribery

Beyond competition issues, another area of potential regulatory zeal is likely to be around the recent Bribery Act. Though few estate agents would consider taking an outright bribe, an example of where firms can fall foul of the Act is if they offer advantageous terms or information to regular buyers and sellers to the prejudice of the client they are acting for.

The Act defines a bribe as a financial or other advantage. So, for example, a promise by a builder or developer to give future business to an agent in exchange for either information on the appropriate level at which to pip the top bid received or for the agent to persuade a client to accept a builder’s offer where it is not in the client’s interest would be a breach of the Bribery Act by both parties.

The risks and the regulatory scrutiny may lead to blowing the whistle on such arrangements by employers or competitors. Not so long ago, the financial sector was largely left to its own devices, but in the face of public anger, firms are now under such pressure to disclose any breaches that whistle-blowers abound. That is leading to yet more breaches being exposed, and even more regulation and regulatory activity.

Be aware

It would appear that the CMA believes the kind of practices it recently acted on in the property sector may be relatively commonplace. As well as enforcement, the authority’s role is one of education and the open letter looks designed to give the sector a warning. As regulatory scrutiny tightens, firms should ensure that all staff are aware of the law and consider putting in place straightforward compliance measures, because the next time a case comes up, the fines will likely be higher.

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