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Safe as houses
20 November 2007
Estate agents are often seen as a law unto themselves. However,
there is small but increasing body of law that regulates their
activities. This has been refocused recently with the introduction
of the new Consumer Estate Agents and Redress Act 2007 (the “CEAR”)
which was deemed necessary as the Office of Fair Trading (“OFT”)
found that there was a high degree of consumer dissatisfaction with
estate agency services.
Although formal implementation is not expected until spring
2008, all agents must begin to get to grips with the new
regulations so they are ready to go live when the Act comes into
force.
Subject to contract
Currently, estate agents must comply with the Estate Agents Act
1979 and the Property Misdescriptions Act 1991 when buying or
selling property for an individual.
Estate Agents Act 1979
Estate agents in the course of estate agency work are regulated
under this Act. The term “estate agent” is very widely defined.
The Act lays down the duties that agents owe to consumers. To
assist, the OFT has power to issue warning or prohibition notices
against those it considers to be unfit to carry on estate agency
work. A prohibition notice (a "banning order") does what it says;
it stops an estate agent practising.
Property Misdescriptions Act 1991
This Act makes it an offence to make false or misleading
statements about property offered for sale.
Home Information Packs (HIPs)
Despite the above, a perceived lack of regulations heralded the
arrival of the politically charged HIPs in August 2007 (which were
borne out of Part 5 of the Housing Act 2004). These regulations
brought with them a power for the Government to enact redress
provisions.
For properties with three or more bedrooms, estate agents in
England and Wales marketing a home with a HIP must now join an
approved redress scheme for HIP-related complaints. Estate agents
that do not comply with this requirement face penalty charges
(currently set at £200) and could be subject to a banning
order.
The purpose of an approved redress scheme is to give consumers
access to redress for HIP related complaints against estate
agents.
Coming soon…
Few will be surprised that the Government found that there was a
high degree of consumer dissatisfaction with Estate Agency
services. In particular, that consumers found it difficult to
complain and obtain redress, and that enforcers are restricted in
their ability to take action by limitations on their powers under
current law.
Particular recommendations came from the OFT and have
subsequently been implemented by the CEAR:
- A step towards the development of a compulsory redress scheme
for estate agents (the Secretary of State may by Order require
estate agents to become a member of an approved redress scheme for
dealing with complaints in connection with all estate agency
work)
- A duty on estate agents to keep records and enhanced powers
have been given to the OFT and Trading Standards officials to gain
access to records so that it is easier for them to obtain evidence
of breaches of legislation. If not volunteered, there are powers
available to require an estate agent to produce information
- The grounds for banning and warning orders have been extended.
Banning orders will now be available for example where an estate
agent has committed an act of fraud as opposed to having to be
convicted of such an act
Compliance
1. Agents must give consumers:
- Information on fees and charges
- Any services the agent intends to offer to potential buyers
(such as arranging mortgages, insurance or offering a removal
service)
- The agent’s terms of business
2. Agents must declare any personal interest they or a connected
person have in a transaction – a “connected person” is very widely
defined
3. Agents must handle negotiations so that everybody involved is
treated equally, fairly and promptly. This includes:
- Keeping the consumer informed about all offers received from
potential buyers
- Keeping the consumer informed as soon as the agent or a
connected person are asked to provide potential buyers with
services, or if the agent or a connected person receive benefit
from another person who provides services to a potential buyer
- Not misleading buyers or sellers in any way
- Not making a false or misleading statement about the
property
- Not discriminating against potential buyers because they do not
want or might refuse to take services from the agent or a connected
person
4. There are also specific rules in relation to handling
consumer’s money in the form of a deposit
… It all falls down
As noted, the OFT has the power to issue warning and banning
orders that can stop an agent working as an estate agent. Local
Authority Trading Standards departments are also enforcement
authorities.
If an agent breaks the law, the OFT/Trading Standards can ban
them from acting as an agent in the future. Further breaches of the
law will be taken as evidence that the agent is not fit to be an
estate agent and this may in turn lead to a banning order.
Breaches of the Estate Agents Act 1979 are also enforceable by
action under Part 8 of the Enterprise Act 2002. Consumer protection
is strengthened by giving enforcers powers to obtain Court Orders
against businesses that do not comply with their legal obligations
to consumers. Specified enforcers are able to apply to the Court
for an Enforcement Order to stop a business from breaching certain
legislation, where the breach harms the collective interests of
consumers.
There is also a list of further offences for which a banning
order may be issued. These range from false or misleading
advertisements to making false or misleading statements as to
services.
Avoiding collapse
There are voluntary codes of practice which can demonstrate to
consumers that the agent provides good standards of customer
service eg the OFT operates a Consumer Code Approval Scheme (CCAS).
This Scheme approves codes that meet certain criteria and provide
benefits to consumers above those required by law. The Scheme gives
consumers a way to identify businesses that have pledged to them to
treat them fairly if they have a problem and it encourages
businesses to deliver high standards of customer service.
Whilst estate agents have been regulated for nearly 30 years, it
is clear that the profession is under close scrutiny now more than
ever.
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