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April 2009

Why do estate agents think they are so different?

By DAVID PERKINS

WHY is is that estate agents think they are so different from any other business activity and therefore exempt from any law they dislike?

It strikes me that whenever new Orders or Regulations come out, unless they say ‘estate agents’ in the title and several times in the text, many estate agents assume it has nothing whatsoever to do with them!

Presently, I am thinking of Regulations which came into force in October 2008 – in other words, six months ago – which a surprising number of estate agents are simply ignoring completely despite very real penalties. No playing with £200 fixed tickets here — breaches are criminal offences carrying fines of up to £5,000.

I refer to the Cancellation of Contracts Made in a Consumer’s Home or Place of Work Etc Regulations 2008.

They basically say that whenever consumers sign any contract with a trader or professional firm – which includes service agreements, credit agreements, or whatever else they may be called – in their own home or workplace they must be told about a statutory seven-day cooling-off period during which time they can change their minds without incurring any cost or obligation.

Now I am not stupid and can immediately see why this new provision is so unwelcome. You spend ages explaining why you and your agency are the bee’s knees and why your agency is worth such a high commission rate despite their property being worth far less than they had hoped!

Then you go round another circuit introducing them to the joys, benefits and expense of Home Information Packs.

Eventually they accept all your suggestions and you feel that was another job well done.

All that is left is to produce your agency terms setting out the financial implications in a pretty basic fashion, plus, of course, the statutory form of words comprising the ‘sole agency’ warning notice, and collect a signature to confirm they are happy with all you have said and agree to your suggestions.

But such a signature is no longer final. The CCCR now requires you to provide an additional written notice using specified statutory wording. This effectively puts the contract on hold for seven days.

Regardless of how tightly drafted and carefully explained your sole agency arrangements may be, the sellers can just walk away, no explanation is needed save a written notice – which you are supposed to provide – telling you they have changed their mind!

No thought has been given to the latest requirements for estate agents to have secured a HIP before any form of marketing or promotion is allowed.

So odds are you will have already commissioned one complete with an Energy Performance Certificate and the new Property Information Questionnaire but, if they do avail themselves of this let-out facility there is nothing you can do. Not even charge them for the abortive costs!

Perhaps it is misleading to say you are totally stymied. There are two ways round it. The best option is for the prospective clients to call into your office to sign the agency agreement.

Technically, that gets you out of the CCCR obligations so no warning need be included. But, be warned, if you do not explain the safeguard that they were voluntarily foregoing you could be committing yet another offence.

Misleading people in any way is caught by another recent EU-initiated gem, the Consumer Protection from Unfair Trading Regulations 2008, a wide-ranging measure which came into force on May 26, 2008. Any evasion could be an offence – so ‘pretending’ to have forgotten the forms is not on.

The second option is to explain to the sellers that you cannot actually start doing anything – such as commissioning a HIP, preparation of an Energy Performance Certificate, or ordering up searches – within that seven days unless they have specifically instructed you to do so in writing.

The CCCR adds that even then any charges incurred during that period must be ‘fair and reasonable’ but as you are unlikely to get to exchange of contracts within that time I think the cost of the HIP could well be seen as fair and reasonable, providing it was all set out in writing in your agency agreement.

If a cancellation note arrives, most likely another agent will have popped in to see them and persuaded them to change horses – probably with a promise of a lower fee, or a free HIP, or perhaps simply his charm.

What do you do? You could call round and try to get the other agency removed but one complaint I am already hearing is that this second agent has cheated.

Not only has he persuaded them to send you the cancellation notice so conveniently provided, but he has then quietly forgotten to include the same provision in his own contract!

Some prominent agency groups say they are not going to comply with the CCCR having apparently taken legal advice on the point. If they act on it, this may well result in a test case which, in my considered opinion, the agents will lose.

Even the House of Lords – save by then it will be the new Supreme Court – will endorse these obligations unless there is an overriding argument or impediment to doing so. And the commercial inconvenience of one type of trader will not rate strongly against the overall policy of harmonisation of consumer protection across the EU.

In support of my contention I would cite the Office of Fair Trading which, since the Enterprise Act 2002, has a totally rewritten constitution.

In fact the name is about the only aspect not to have changed: for all practical purposes it is an FBI in sheep’s clothing, a powerful commercial police force with the trading standards officers as its eyes and ears! Furthermore the OFT Board is now totally autonomous – more so than the Bank of England – and can issue Orders and make further Regulations.

The OFT believes that the CCCR applies to estate agents. However if estate agents were to be excluded by the highest court – which, as I have said, is highly unlikely – it could immediately make it an Estate Agents ‘Undesirable Practice’ not to comply with the CCCR and block the loophole in that way.

Secondly, were estate agents to claim an exemption this could well be regarded as an unfair trading practice and therefore caught by the new Consumer Protection Regulations which basically drags a heavy roller across all business playing fields including the homes market.

Anything unfair is ruled out. Even sticking a ‘sold’ sticker across a withdrawn property is now illegal. Previously, you could have argued that it was ‘sold’, albeit by another agent.

Today such a misleading implication could breach the CPUTR and you would risk prosecution and fine under Part 8 of the aforementioned Enterprise Act 2002.

The CPUTR is a catch-all and adds that TSOs need no longer disclose who they are: fishing is now legal. And do the reinvigorated TSOs believe the CCCR applies to estate agents? You bet they do!

The draft wording with which I have been supplied for estate agency use was vetted and amended by a Chief Trading Standards Officer with one of the largest authorities in the country and one hot on compliance with the CCCR by all traders.

Lastly, a Schedule to the CCCR excludes contracts relating to “the construction, sale or rental of immovable property” which is the loophole apparently being cited as the let-out. When a person signs a contract to buy or lease a house, they are bound by the agreement immediately on exchange. Clearly it would be impossible to have an automatic seven days to reconsider! Chains could not work – it would create an unworkable scenario.

It really would be stretching that wording too far to suggest this provision was also intended to allow a contract for the supply of a service in relation to an immoveable property – the EU definition of land – to opt out when any other service provided to the property owner would be caught. If estate agents were to be excluded it would say so much more specifically.

I know estate agents think they are unique but, in law, they are not. Any agency agreement only covers an agency, and agents are not and cannot be principals.

My advice is to stop looking for loopholes and accept the CCCR and what it says. I guess that means many Terms of Business need urgent amendment – at least you know where I am.

n Incredibly, the fuss and bother over Home Information Packs has now rumbled on for over a decade! ‘The Key to Easier Home Buying and Selling’, which first outlined Government thinking, was published back in December 1998 with the eventual legislation passed in 2004 prescribing simplified enforcement procedures.

Though thoroughly embrangled by successive Ministers – few of whom really had a clue what they were doing – the final version of the Regulations at last came into force this month.

Not that Ministers ever contribute much! I remember meeting with a Minister, years ago, when he waffled on incomprehensively, as many do when out of their depth. Once he paused for breath, an unassuming civil servant piped up to say, “What the Minister was trying to say is ...” and out came the Departmental position. It was pure ‘Yes Minister’.

Well, despite gallant efforts by a few stalwarts, HIPs are here – at least until a change of administration, but even then do not hold your breath. Just one small matter remains outstanding – a so-called ‘drop dead date’ for providing HIPs for any remaining old chestnuts still on the market.

If you have any left, my suggestion is to get them a HIP sooner rather than later.

If you tell any switched-on prospective buyer that a property did not need a HIP, their reaction will be, “Good gracious, has it been on the market that long? What on earth is wrong with it?”

So, either get a HIP quickly – there are a number of ridiculously cheap offers around – or recommend the owners try a rival agency for a change – assuming that is you have any rivals left! Joke.

As remarked, breaches of the HIP Regulations could attract a £200 fixed penalty but I have yet to hear of anyone getting caught. This is probably because Trading Standards Officers are as confused by the system as estate agents. Incidentally, if any reader knows of a penalty being levied please drop me an e-mail with the details.

David Perkins can be contacted
at PO Box 333, Carterton,
Oxon, OX18 3WZ,
on 0870 350 1865 or at:
david@david perkins.co.uk.