February 2008

Are we soon to see the final demise of 'caveat emptor'?

As we work towards full up-front disclosure, it certainly seems so...

HOME Information Packs may be in a mess but I fear the new Money Laundering Regulations could be even worse!

There are a number of estate agents who, apparently, assume that HIPs do not apply to them. Seemingly, for the moment at least, they are getting away with it.

However the MLRs, and the possible situations these appear to envisage, are so far removed from everyday reality that I fear many more estate agents will be tempted to ignore them!

Partly, this is because the checks being suggested by the Office of Fair Trading are far too onerous, which begs the question of why there has been no meaningful consultation.

That said, who would listen? Bitter HIPs experience suggests this Administration is not into caring or sharing. With this Government, concessions involve substantial donations, which is not a route I would advocate.

The OFT’s Core Guidance – available from http://tinyurl.com/2d9xb6 – is effectively non-negotiable.

Admittedly, the OFT says that it is still assessing whether it needs to inaugurate a full register of UK-based estate agencies, but that has been a long-held ambition.

Apart from the Core Guidance, the OFT has also produced a short summary for estate agents ,but this is more of an overview for those with a delicate stomach or who already sponsor their local terrorists. For a copy go to http://tinyurl.com/3ak468 (please download the zip file first then open the pdf).

The Royal Institution of Chartered Surveyors has meanwhile produced guidance to the new MLR also adopted by the NAEA.

To be frank, I am not overly impressed. Basically they have assumed the OFT interpretation is right and taken things from there!

But I know exactly what will now happen — because this guidance carries the imprimatur of the two professional bodies, the OFT Compliance Inspectors and Trading Standards Officers will read it and expect every agency to be following the advice to the letter!

See what you think — go to http://tinyurl.com/2j7tqw (another zip file containing a pdf).

The basic message is that the OFT and Trading Standards Officers will share monitoring and enforcement powers aiming, and I quote: “to develop an effective compliance and monitoring regime which will be cost-effective and place as few burdens on business as possible. The emphasis of the regime will be on raising awareness and helping businesses reduce the risks of being used for money laundering”. Quite.

Moving on, Home Information Packs have not gone away despite some highly critical Parliamentary commentaries. The CLG Ministers dismiss them all and matters just trundle on.

As I write, another stack of paper has arrived on my desk: the shorter of the two items is a Good Practice Guide for Local Authorities and Personal Searchers.

As I have remarked before, the CLG has no control whatsoever over Local Authorities in this respect so I expect this Guide to make precious little difference.

Actually the 244-page document which comes with this Guide tacitly acknowledges my last point as it is a Consultation Paper on what to do about searches, thus conceding there is a problem.

Here is my answer to it: Yes, it requires a new law but it could honestly be three short sections long and passed within days.This approach would eliminate the need for personal searches – a growing industry in its own right!

In a nutshell, my new law would say that whenever a formal search is submitted, the applicant is entitled to assume it is clean, with no adverse aspects revealed, if it has not arrived within ten working days.

If, subsequently, the search proves otherwise, and the prospective buyer has suffered any financial loss as a result of the delayed notification, the Local Authority, or whatever the organisation, must refund their fees and pay for any contingent losses and out-of-pocket expenses incurred.

This full indemnity would apply to the prospective buyer and all others in the same chain of transactions if they were also adversely affected.

Such a provision would have two effects. Firstly, searches would soon be returned within nine days as standard. Secondly, the Local Authorities’ Public Indemnity insurance would be extended to cover the unlikelihood of a large claim for damages.

As I have remarked before, after 40 years’ experience in this industry I have never known a sale cancelled due solely to an adverse search so we are not talking about a big risk.

Incidentally, the third effect would be far more efficiency in Local Authorities’ search systems. For what it is worth, an almost identical recommendation was included in a Report on the Simplification of House Purchase which was accepted by the Cabinet in November 1985 although I expect I am now the only one around who remembers it.

For estate agents, this new Searches Consultation is not earth-shatteringly important but I have again amended my HIP Guidance Notes: ‘What every estate agent needs to know!’ which become Edition 12. Those who have purchased a copy will know where to obtain this latest update.

Even if you think you have HIPs sussed, there are stacks of ideas and suggestions here, some worth at least thinking about. For details go to http://tinyurl.com/2bntbp which tells you how to get hold of a copy and about a Model HIP Agreement and a Solicitor’s Instruction Letter which are also proving popular and useful.

Presently, HIPs are merely seen as a bit of a nuisance that we will just have to live with. In reality they are far more than that.

HIPs represent a quite fundamental change in practice and procedure and this will gradually dawn on people.

At some stage, we will see a major argument arise where an estate agent is accused of professional negligence for not adequately explaining the full implications of HIPs to a seller.

In a nutshell, we are working towards full up-front disclosure. And that means the final demise of caveat emptor. Or rather that was the intention.

For the moment, we remain minus Home Condition Reports. I say for the moment deliberately, as I am not of the school of thought which says HCRs have gone for good.

Whatever you may think of HIPs, they are only half there without HCRs and I think these mandatory condition assessments will still be brought in.

Over Christmas, I found time to put together another of my Estate Agency Updates. Covering all sorts of things, these are now available in e-mail format. This one includes automatic links to the various documents mentioned here and many more – around 20 in all. There is no charge, just go to http://tinyurl.com/23vosr and request a copy.

Clearly 2008 is going to be a busy year and already the Government is turning to the Consumers, Estate Agents and Redress Act 2007, where Part 3 and Schedule 6 deal with the estate agency issues.

These are now law and hence non-negotiable but the Department for Business Enterprise and Regulatory Reform (which is largely the DTI under a new name) has published the first consultation paper about the estate agency aspects.

This is asking some relevant questions which I hope to discuss next time.