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Safe as houses

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.

 

For more information or advice, please contact Fiona or Nina.

 

The content of this bulletin is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.