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Conflict of interest

"Agreements, valuations and a conflict of interest – be careful where you stand when you are caught in the middle", says Katrine Sporle, The Property Ombudsman.

Katrine Sporle

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COMPLAINT

This complaint came from a buyer concerning conflicts of interest and the misrepresentation of the buyer’s position to the seller. The complainant and the seller had a previous private agreement for the property to be sold for £800,000. The agreement had not gone further as the complainant was waiting for the outcome of planning permission applications to build additional homes on the land.

The seller asked the agent to provide an up-to-date valuation of the property and then instructed them for the sale of the property, whether that was to the complainant or another party. The agent said that they advised the complainant of their instruction and their intention to market the property to other buyers, however, the complainant denied this. The complainant told the agent that he would pay whatever figure they valued the property at. However, the seller decided to sell the property to another buyer who had been introduced by the agent.

The complainant and his builder had, between them, lost potential profit of £900,000. An award of £500 was made.

The complainant stated that in accepting the instruction from the seller, the agent caused a conflict of interest as he had previously approached them with a view to them selling the homes he intended to build on the land. A further conflict of interest was alleged by the buyer due to the new buyer being an existing client of the agent and the likelihood that they had financially benefitted from the sale.

INVESTIGATION

Conflict of interest in the sale of the property to an existing client of the agent

Katrine Sporle image

Katrine Sporle

Paragraph 2b of the TPO Code of Practice, states that the agent was obliged to disclose in writing and at the earliest opportunity any existing conflict of interest or any circumstances which could give rise to a conflict of interest. A conflict of interest is defined by the Estate Agents Act 1979 and there are two broad sets of circumstances in which a conflict of interest could arise.

  • An agent or a connected person has a personal interest in the property to be sold or purchased.
  • An agent or connected person provides, or financially benefits from, the provision of services to a prospective purchaser.

The Ombudsman did not see any evidence to suggest that the eventual buyer was connected to the agent. The fact that the buyer was an existing client of the agent did not constitute a conflict of interest. There was also no evidence to support the complainant’s allegation that the agent financially benefitted from the sale of the property. This part of the complaint was not supported.

Conflict of interest in accepting instructions from the seller when the buyer was already a client

As he had intended to instruct the agent in the sale of the homes he was planning to build at the property, the complainant considered that he was a client of the agent and said that their acceptance of the seller’s instruction constituted a conflict of interest. This was acknowledged by the agent, but they denied that this gave rise to a client relationship with the buyer in respect of the property. The Ombudsman agreed with the agent and did not support this part of the complaint.

MISREPRESENTATION OF THE BUYER’S POSITION TO THE SELLER

In accordance with Paragraph 2a of the Code, the agent was obligated to treat the buyer fairly and (Paragraph 9a of the Code) they were obligated to accurately convey to the seller any offer made for the property.

Records showed that the seller instructed the agent not only to market the property, but also to deal with the agreed private sale between the seller and complainant. Taking this into account, the Ombudsman would have expected the agent to proceed in the manner that they would have done if the sale had been agreed through them.

The complainant should have been informed of another offer being accepted but there was no evidence to indicate that this had happened. The Ombudsman therefore concluded that the complainant was not made aware of any additional interest and therefore denied the opportunity to make an increased offer of his own. It was the Ombudsman’s view that the agent did not treat the complainant buyer fairly.

OUTCOME

The complainant referenced potential losses of £500,000 for him and £400,000 for his builder, linked to the lost opportunity to build and subsequently sell homes on the property’s land. The complainant would have been disappointed that his intended purchase did not proceed, but the seller was under no obligation to sell to him. In any event, the Ombudsman does not make awards for supposed or speculative losses; there was no evidence that the buyer, had he bought the property and land, would have made a profit of this amount.

The Ombudsman supported the complaint to the extent that:

  • The agent did not inform the buyer that the seller had accepted another offer.
  • The agent did not inform the seller of the buyer’s position

Accordingly, an award of £500 in compensation was made for the aggravation caused by these supported issues. This was in full and final settlement.

March 10, 2018

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