In recent years, the rise of ‘compensation culture’ in the UK has been the topic of much debate. Across many industries an increasing tendency to sue has been noted, while many have expressed concerns that claims are not only for real losses but often also for imagined, or at least exaggerated, ones. The trend has been so significant that in June alone the travel industry warned that Brits faced being barred from some resorts in Spain due to the rise in bogus food poisoning claims and the Queen’s Speech featured measures to clamp down on false whiplash claims.
Partly the rise in litigation has been linked to ‘no win, no fee’ claims firms that offer people the chance to cash in on the slightest inconvenience with no upfront cost. In this regard the property industry is as much a target as any other – google ‘sue estate agent’ or ‘sue letting agent’ and you’ll find plenty of firms offering to help do just that.
The ombudsman schemes offer up another alternative for aggrieved parties to pursue claims at no cost — to themselves that is, there’s a cost to the business involved — and a feature we ran last year on the redress schemes highlighted just how many of the claims the ombudsman providers were weeding out at an early stage as having no prospect of success. For example, The Property Ombudsman told us that of 16,265 enquiries from consumers in the previous year, only 3,304 progressed to its formal complaint stage.
HIGH VALUE CLAIMS ON THE RISE
Worryingly, however, some are reporting a rise in claims that exceed the £25,000 threshold of redress schemes and the £10,000 limit of the small claims court.
We’ve seen a large increase in claims from tenants against landlord or letting agent… with personal injury claims and consequential loss. Louisa Robbins, Clyde & Co.
Louisa Robbins, a partner specialising in professional negligence claims involving property at law firm Clyde & Co, says, “In the last couple of years we have seen a large increase in claims from tenants against their landlord and indeed the letting agent or the property managing agent for losses. Many of them are property damage but more often than not we are seeing personal injury claims on the back, so injury has been suffered by a tenant or a third party, where they say the managing agent has let them down in terms of the responsibility that they owed under the contract. With personal injury claims you will often see consequential loss claims as well so an inability to work, sickness, health issues.
“I’m not saying they are necessarily more meritorious but the value is going up. You are talking in the £10-100K category, which is obviously quite a substantial amount of money for any professional firm.”
Robbins, whose firm typically acts for agents after being instructed by their professional indemnity insurer, says it is mostly letting agents attracting claims. Jonathan DeSouza-Singh, commercial insurance broker at Hamilton Fraser, has a similar view. “The most common claims on professional indemnity policies are for breach of duty of care such as, if a tenant had alerted a managing agent to a loose floorboard but the agent failed to fix it, which then resulted in the tenant having an accident. In this instance, the agent would be liable.”
All of the above point to an increasing need for agents to have good professional indemnity insurance, but Dave Hadden, head of property at Endsleigh Insurance, says many letting agents are unaware of the risks. “A lot of agents are under the impression that because they use a third party provider for their referencing, rent guarantee and other services, this negates the need for professional indemnity cover.
However, letting agents do often offer advice to both their tenants and their landlords that could leave them open to legal action if this advice is deemed negligent.”
And while the risks may be greater for those letting property, they also apply to those selling property. “Where estate agents more often than not let themselves down is on the sales particulars that they produce or on representations that they may give to a prospective purchaser or third party,” says Robbins. “They may produce inaccurate acreage for land that attaches to a property; I’ve seen cases where they’ve relied on an earlier set of particulars.”
Valuations are another contentious area – disgruntled sellers will sometimes complain that an agent sold their property for say, £200,000 but their neighbour got £250,000 the week afterwards. For this reason, Kim O’Donnell, Director at insurance provider Rentguard, says, “We have a number of insurers and I know with one insurer that is the one thing they exclude, anything to do with valuations. Be mindful of your PI cover as it may exclude any advice provided in relation to valuation.”
Robbins, however, says these claims more often than not are unsuccessful. “There are always going to be disgruntled sellers and indeed disgruntled buyers — what I mean by that is under and over valuations in many instances — but where those cases tend to fall down is the legal threshold because you need to be able to show that actually a foreseeable loss has been sustained,” she explains. “With sales valuation work the legal thresholds are quite difficult to establish.”
One insurer excludes any claims about valuations. Be mindful of your PI cover as it might exclude any advice provided in relation to valuations.
And although there are more claims with lettings, Robbins says most of these also fail. “Most either are unproven or carry a nominal value. So much so that they tend to be resolved at a fraction of the sum that is being claimed and many go away altogether. We often find that when we start investigating, so we get hold of a copy of the lease or we get hold of a property agreement or we start digging into the evidence that is being produced, we usually find we can dispute the validity of them.”
It may be reassuring for agents to know they’re unlikely to be proven at fault, but many will be worried that their premiums could still skyrocket. “PI is one of those products that people don’t like to claim on even if they have done something wrong and I think that is possibly because PI insurers are quite draconian in their approach and if you put in a claim the following year it is very difficult to get cover or the price goes up very significantly,” says O’Donnell.
But as Stuart Mangion, partner in the financial lines group at insurance broker JLT Specialty, points out, a favourable marketplace could help counter this. “The professional indemnity insurance market has remained soft for several years with an abundance of capacity helping to keep rates low for the majority of professions. Estate agents and letting agents are one of the industries requiring PI that have benefited from this, with the only exception being those undertaking valuation activities where there will be greater scrutiny on their worksplit and claims history.
“In the absence of any significant claims activity the current market conditions look set to continue for the foreseeable future.”
With a rising claims trend and flat costs, it would seem professional indemnity insurance is something agents can afford to be without. But apart from valuations cover (if needed), what other inclusions and exclusions should agents look for in policies?
For a start, defence costs such as those provided by Robbins’ firm are a must, as well as compensation awards ordered by both courts and redress schemes. DeSouza-Singh adds, “It should also cover claims arising from defamation or infringement of intellectual property rights including copyright and trademark, as well as those arising from dishonesty of partners, directors, employees or self-employed freelancers. Some policies are also now including cyber liability, which is increasingly important to smaller businesses as they are at greatest risk of an IT hack.”
Firms would also be wise to get cover for reputational risk – if a disgruntled client spills all to the local paper the services of a professional firm that can help you mitigate the damage and give advice on dealing with the press could prove invaluable.
Reputation is, after all, what’s on the line if someone makes a claim – whether justified or not – against your business. While it’s undoubtedly the case that some firms may make a commercial decision to settle small claims without involving their insurer, if you find yourself up against a big one you’re going to need a good professional indemnity policy to help get you out of it with the least damage to your reputation, and therefore your business.
Examples of claims against estate and letting agents include:
- An allegation of employee fraud where cheques received were altered, enabling the individual to benefit from the proceeds.
- An agent failing to ensure that keys held for property viewings were kept secure and as a result a property was burgled.
- An agent received instructions to sell a property and adjoining land by auction. A subsequent allegation was made from the client suggesting that they could have achieved a higher price had the agent marketed the land and buildings separately.
- As part of the letting agents terms they were required to negotiate a rent review after 12 months however missed the deadline and as a result missed an opportunity to secure an increase for a further period.
- An agent intentionally undervalued a property and secured a quick sale but following completion it was alleged that a conflict of interest had arisen as the property had sold to a relation of an employee of the agent and could have sold for significantly more had a full marketing exercise been undertaken.
- A letting agent was retained to manage a residential property that was listed and arranged for various building works to be undertaken without securing the relevant planning permission. The local authority subsequently required various remedial works to be undertaken at significant cost to the owner. Source: JLT Specialty.