THE REGULATORY LANDSCAPE
The overwhelming majority of people buying or selling residential property in the UK still use the services of traditional High Street agents. The Estate Agents Act 1979, the Consumer Protection from Unfair Trading Regulations 2008 (CPRs), and Business Protection from Misleading Marketing Regulations 2008 (BPRs) are the principal sources of regulation as well as various other rules and pieces of legislation such as theUnfair Terms in Consumer Credit Regulations 1999. However, the urgent need for consolidation, better interpretation and enforcement remains.
The Estate Agents Act seeks to ensure agents work in the best interests of their customers with all buyers and sellers treated honestly, fairly and promptly. It sets out minimum standards of behaviour including duties owed to clients and third parties, passing on offers, handling money, explaining charges, terms of business, conflicts or potential conflicts of interest and redress schemes.
The Act doesn’t cover lettings so best advice to agents working in the sector is to follow the same rules as those for sales agents as they’re likely to be judged similarly. For instance, all agents should ensure relevant information is recorded and can be audited with staff trained to use it appropriately and in a timely manner..
The doctrine of caveat emptor, or let the buyer beware, is now let the seller or agent beware!”
The obligation to handle information in this way goes much further than the duty not to make false or misleading statements under the Property Misdescriptions Act (PMA), which was repealed in October 2013. The doctrine of caveat emptor or let the buyer beware, has been replaced by “let the seller or agent beware!”
The strict liability, prescriptive nature of the PMA, where a single act or omission could amount to an offence irrespective of an agent’s intentions or impact on the consumer, has been superseded by a broader consideration of the effect on “average” customers or potential customers under the CPRs. Agents can no longer avoid prosecution by relying on silence to get them out of trouble.
The CPRs prohibit misleading actions, statements and omissions by estate agents when marketing property that cause or are likely to cause “average” consumers to take transactional decisions they would not have otherwise taken. A “misleading action” is defined as one containing false or “material” information, which deceives or is likely to deceive an “average” consumer. “Material” information is defined as information that the “average” consumer needs to take when making an informed transactional decision. This would include information which could potentially influence buying decisions, such as when deciding whether or not to view a property.
In practice, estate agents have to demonstrate extra care with descriptions about location, measurements, parking, neighbours, pricing and taking photographs of a property. Failing to disclose a serious or potential problem, for example with title deeds, flooding or describing a property as “for sale” when there’s a sale proceeding, may mean the agent is in trouble for “communicating information affecting a consumer’s decision to buy,”
When the PMA was repealed, section 1 of the Estate Agents Act was amended to open up estate agency to more competition and consumer choice. Online or “passive” intermediaries who provide property information via the internet for “private sellers and buyers to communicate with each other without giving advice or handling monies” were excluded.
It could be said this change gave an unfair market advantage to the portals as buyers may mistakenly believe they would be able to rely on valuation and other advice provided by portals.
The Business Protection from Misleading Marketing Regulations 2008 (BPRs) cover misleading practices when agents are dealing with businesses for instance, joint agency with other agents or marketing to business customers.
The CPRs and BPRs fundamentally changed the traditional relationship between agents and their clients. While both sets of regulations have been in force since 2008, their application to property
sales and lettings wasn’t fully appreciated until the OFT published practical guidance in the autumn of 2012. Tenancy agreements are not included but it applies to landlords operating as a business. Protection relates to acts, communications or omissions with the sale, letting or supply of a product or service to a consumer. For example, agents would be in trouble for falsely claiming to belong to the RICS Ombudsman Scheme, or passing on inaccurate information to induce someone to enter into a contract.
Breaches of CPRs constitute a criminal offence punishable in a Magistrates Court by a fine up to £5,000. There are no limits to fines for cases heard in the Crown Court with a possible two years prison sentence. Where the offence is by a limited company, the directors can be charged as individuals. Responsibility for enforcing CPRs passed from the Office of Fair Trading (OFT) to the Competition and Markets Authority (CMA) in April 2014. The CMA guidance is available at http://bit.ly/1prnbC1.
Enforcement of estate agency regulations and legislation remains the responsibility of local trading standards officers who often work with limited resources, so successful prosecutions can be few and far between.
The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 replaced the Cancellation of Contracts Made in a Consumer’s Home or Place of Work Regulations 2008 in June 2014. As a result, a contract for estate agency services involving the sale, purchase, letting or management of a property made away from the agents’ premises, without face-to-face contact or online must include a 14 day ‘cooling off’ period. If cancelling, the consumer could be liable for the agent’s reasonable costs which must not include a penalty for early cancellation. However, agents should not incur costs until the 14 days have passed unless expressly requested by the client to do so – in writing.
In a recent money laundering case three agents were fined a total of £246,000 by the OFT.”
Other rules add to letting agents’ costs and responsibilities particularly the identity checks required under the Immigration Act 2014; 85 per cent of illegal immigrants are said to live in the PRS. From November 2014, landlords and agents must carry out pre-letting checks on occupiers or they may be liable to fines of up to £3000 per illegal occupier in residence for at least 12 months.
Checks must be repeated if the proposed occupier has a temporary right to remain in the UK every 12 months or when the temporary right expires. If an agent carries out the checks on behalf of a landlord then responsibility must be transferred to (and accepted by) the agent in writing.
THE IMPORTANCE OF REDRESS
Since 2008, all UK estate agents carrying out residential estate agency work as defined in the Estate Agents Act are obliged to belong to an approved redress scheme and keep proper records of offers etc for six years under the provisions of the Estate Agents and Redress Consumer Act 2007.
By October 2014, all agents are supposed to have joined an Ombudsman Scheme as part of the Enterprise and Regulatory Reform Act 2013, i.e. either The Property Ombudsman, Ombudsman Services: Property or the Property Redress Scheme otherwise face a civil penalty of up to £5000.
The Ombudsman acts as an independent dispute resolution service which may cost an agent up to £25,000 if the case is lost but is free for consumers when a complaint such as about hidden or undisclosed charges, the level of fees, poor service etc has reached deadlock or has continued for at least eight weeks. The Ombudsman’s role is to investigate disputes between tenants, agents and landlords then make recommendations on what (if any) action might be taken. But, the Ombudsman is not a regulator so cannot take legal action against any agent – unlike the OFT and Trading Standards Officers. Their decision is not legally binding so the consumer can still seek redress via the Courts, although the decision of the Ombudsman is likely to be taken into account. Agents need to have their complaints’ procedures underwritten by the Ombudsman as well as abide by a code of conduct that covers transparency of charges and agreements , etc.
However, it is unclear what, if any, teeth the Ombudsman will have to actually obtain redress for the consumer. In my opinion, more resources should be directed towards rooting out rogue agents who are not part of any scheme rather than placing additional responsibilities on those already operating within the law.
But, can trying to deal with a problem after it has arisen rather than preventing it in the first place really help prospective tenants make better-informed decisions? Redress and regulation with defined standards of service are clearly different issues.
MONEY LAUNDERING LEGISLATION
On 15 December 2007 the Money Laundering Regulations 2007 were introduced to detect, deter and disrupt financial crime and terrorist financing.
In April 2014 it became an offence to trade as an estate agent without registering with HMRC. Compliance includes verification of clients’ identity before entering into a business relationship, monitoring those relationships, keeping transaction records and staff training.
Agents only carrying out lettings work don’t have to register but must still comply with the Proceeds of Crime Act 2002, including the reporting duties of nominated officers and disclosure of suspicious activity to the National Crimes Agency.
Obligations were brought into focus by recent high profile cases resulting in fining of three agents a total of £246,000 (subject to appeals) by the OFT for anti money laundering breaches. Agents now know they could face similar penalties even where no anti-money laundering activity has taken place – the potential risk of a problem arising would be enough!
TRANSPARENCY AND ACCOUNTABILITY ARE PARAMOUNT
Another very important part of the regulatory framework is the RICS Blue Book which has been endorsed by the National Association of Estate Agents, Association of Residential Letting Agents and Association of Residential Managing Agents.
Member firms and others can expect their actions to be judged against its contents if appearing before a tribunal or in Court.
Nevertheless unscrupulous agents are continuing to profit from the absence of effective regulation and enforcement so more consistency of interpretation is essential. Unfortunately, money can bring out the worst in people –with agents and their clients certainly no exception! Membership of recognised professional bodies demonstrates quality, accountability and the best possible assurance that agents will act in their clients’ best interests.
Regulated firms are legally obliged to submit ALL offers promptly and in writing, not to favour customers using their firm for a dependant sale or purchase or particular financial advisers must manage client accounts effectively using robust controls and systems nor make it unreasonably difficult for clients to withdraw from contracts.
Failure to disclose fees (when they’re payable and whether VAT is included), a conflict or potential conflict or even asking unnecessary questions about customers’ financial status is forbidden too.
THE WAY FORWARD
With apparently £23bn paid in rent each year and up to £10bn collected by agents on behalf of landlords – much of it in cash – still too few letting agents offer client money protection, professional indemnity insurance or are bound by codes of conduct of a professional or trade body.
A more professional approach doesn’t necessarily bring rewards. First-time buyers and sellers in particular are often under additional pressure to seek lowest possible costs when choosing an agent – irrespective of qualifications and reputation.
Successive governments have been reluctant to introduce compulsory licensing, probably fearing that adding to the regulatory burden could deter even lawabiding landlords and reduce standards
below minimum levels at a time when demand far exceeds supply in many places.
Agents need to appreciate that disclosing information should be regarded as much about protecting their interests as well as those of sellers, landlords and consumers..
At the very least, a more cautious approach by agents in their dealings with all customers, who may be contractual or potential clients, buyers/tenants or potential buyers/tenants, is inevitable. But, if in any doubt, agents should always disclose information.
Overall, better compliance should be viewed as helping agents avoid prosecution and bad publicity – and not just gaining more instructions!
Jeremy Leaf is a former President of the RICS, a frequent media commentator and a speaker at the forthcoming Negotiator Conference.