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October 2009

A bit like buses — a long time waiting, then three come along at once...

A trio of schemes being floated as regulation gets ever tighter and the possible penalties ever stiffer

COMMENT by DAVID PERKINS

THE first attempt at creating a register of estate agents came with a Parliamentary Bill in 1888 or thereabouts, promoted by various professional bodies.

Estate agents were not actually named in the Bill which was intended to register engineers and surveyors. But back then, only surveyors sold houses and they fully intended to keep it that way.

That Private Members Bill failed — as did a dozen or so subsequent ones, all promoted by, or on behalf of, surveyors and all with a similar aim — to ensure property sales remained the preserve of surveyors.

The successful Bill was a Government measure introduced some 90 years later during the dying days of the Callaghan administration looking for uncontroversial proposals to fill time before an inevitable General Election.

It was based on a 1978 Private Members Bill promoted by Bryan Davies MP on behalf of an umbrella organisation, known as the Ten Societies’ Committee. I say based — it was substantially the same, even down to the spelling mistakes!

Since at least nine members of this Committee still wanted full registration, the Estate Agents Act 1979 was a feeble and ineffectual measure. It set out various ‘dos’ and ‘don’ts’ for estate agents but provided they complied with the subsequent Orders and Regulations there was no obligation to join any regulatory body.

And this is how it remains 30 years later. But the Ten Societies developed a merger mania and are now down to just two — the Royal Institution of Chartered Surveyors and National Federation of Property Professionals.

However a significant number of estate agents do not belong to either body though few are actually in the proverbial ‘cowboy’ category.

Considering the EAA is now 30 years old, it has not done badly. As evidence, look at the Consumer Estate Agent and Redress Act 2007, which amends and extends the EAA while leaving the Office of Fair Trading firmly in charge.

However, the CEARA does not include any provision for registration or licensing, just several more ‘dos’ and ‘don’ts’ — membership of an Ombudsman-type scheme being the main new ‘do’.

This legislation aside, the largest impact on estate agency practice and procedure this century has been the introduction of Energy Performance Certificates and Home Information Packs, which some think may yet go away again.

Perhaps, certainly EPCs are here to stay: it has even been suggested that the Government should set a minimum EPC rating below which homes may not lawfully be sold! Now that would be fun.

With no signs of statutory action from the Government or the Opposition, thought has returned to self-regulation with licensing of some sort being the preferred option.

Currently three are on the table. One is for a statutory register run by the OFT so that will win — no qualification there, you will all join and have no option. Read more later.

The next idea is from The Property Ombudsman Chairman Bill McClintock, which he envisages being compulsory registration for all the Ombudsman’s estate agency members. This is gaining a degree of momentum.

Thirdly comes news from the newly-established Property Standards Board, which was initially the idea of the NFoPP but is now supported by the RICS and OFT — and, reportedly, Bill McClintock.

The Independent Chairman is Dr Dianne Hayter who is preparing licensing proposals for both estate agents and the lettings side.

The PSB has picked up the proposal in the Government’s Rugg Report which advocated licensing lettings agents who are not covered by the EAA nor the more recent CEARA.

That must make sense and was broadly acceptable to the Government making it second favourite.

These various initiatives seem to overlap somewhat yet claim wide-ranging support.

The OFT strongly supports the TPO and endorses its Code. The NFoPP and the RICS have senior representatives on the TPO Board and Council. Yet this Board and Council, and therefore the NFoPP and RICS, also support the McClintock licensing scheme which sounds like mutual back scratching!

Any scheme could only be voluntary since there is nothing in either the EAA or the new CEARA to provide for direct Government recognition. New legislation would be needed.

If there were one well-organised arrangement available, no doubt 95 per cent of estate agents and letting agents would eventually subscribe.

But these would be the 95 per cent of estate agents who are basically honest, hard-working, and not causing any real problems. But knowing estate agents, a small minority would retain and strongly defend their independence.

The CEARA quickly made it mandatory for every estate agency to belong to an approved redress scheme although, anecdotally, a few firms are still not covered.

Next year, several more CEARA obligations come into force but there is no legislative provision enabling the OFT to impose licensing or strict self-regulation.

However the story does not end here. Today’s OFT is a powerful multi-faceted commercial regulator closely resembling the Federal Trade Commission in the US. And like the FTC it can, and does, put wayward business people in prison. As you read the rest of this article please bear that thought in mind.

The Anti-Money Laundering Regulations are part of an international operation backed by the UN and involving all EU Member States and the G20.

The first EU Directive came into force across the UK in December 2007, and was intended to detect, deter and disrupt criminal, drug trafficking and terrorist financing trading as superficially legitimate business.

Following the second and stronger directives, the Serious Organised Crimes Agency took responsibility over from the National Criminal Intelligence Service but this still proved to be an unworkable arrangement while SOCA remains equally under-resourced.

That said, anyone who attends one of the occasional presentations by SOCA about money laundering in the UK — well worth going incidentally — will have heard some quite amazing figures for the amount of money constantly being laundered through the residential property market!

Frankly, the figures are so great SOCA cannot imagine how estate agents could be unaware of this activity under their noses.

Hands up those of you who do not carry out know-your-client procedures! What did I say about OFT powers? We are not talking puny HIPs-style penalties here as fines can be immense.

The third directives saw responsibility taken over by the Bank of England with new regulatory bodies looking after the different business sectors.

Solicitors have long been regulated by their Law Society and estate agents — all estate agents — by the OFT, which for the last 30 years has effectively been the industry regulator.

While the OFT cannot create a Register of Estate Agents under any estate agency legislation, the Anti-Money Laundering Regulations are a different matter. With no register and no central records, nobody knows how many estate agents operate in this country — a number which has grown steadily until the last two years when a significant number of branches have closed as market volumes dwindled.

Both the RICS and the NFoPP stressed the value of their own membership records which they offered to make available to the OFT. However, these membership lists were of little help.

The RICS has a stable membership base but with estate agents in the minority while those from the NFoPP vary from year to year and there is still no way of accurately estimating how many estate agents are ‘unattached’.

I am not surprised the OFT ruled out voluntary registration as, being realistic, that idea is doomed before it starts.

Firstly, we have been here before. Some readers may recall the Estate Agents’ Council, latterly the Estate Agents’ Registration Council, which never came near attracting universal professional support. And that was then, as they say; today we have a different breed of HIP-hardened estate agents.

Secondly, look at the effort and exhortation expended over recent years in trying to cajole estate agents into joining the then Ombudsman for Estate Agents — from the Director General of Fair Trading (while we still had a real one), the Law Society, the RICS and the NAEA (while we still had a real one), plus various grades of Minister from the Secretaries of State downwards.

Under the latest Anti-Money Laundering Regulations, the OFT is required to identify every estate agency office in the country and then check on their procedures at least once every two years. Clearly, for the reasons just discussed, only a minority of estate agents were ever going to register voluntarily since emotive words like ‘sheep’ and ‘slaughter’ come too readily to mind!

The Inspectors may be specialist OFT staff or, more likely, Trading Standards Officers, but remember that shortly the rest of CEARA will be in force so these Inspectors will then be empowered and fully entitled to look at everything — not just the Anti-Money Laundering Policy and Compliance Records! Remember, you heard it here first.

So how far have we got? Well it is not panic time yet: the deadline date for registration is still over three months away — 31 January 2010.

The OFT wishes to hear from all estate agents — not just the few left who only sell houses.

Anyone doing ‘estate agency work’ as defined in the EAA must register so that includes those firms dealing with agricultural, business, commercial and industrial premises as well as other operators who advertise they are not estate agents but nevertheless get caught by the wide-ranging definition.

If you run a brokerage side which carries on any consumer credit activity you must also apply although you already hold a licence issued by the OFT.

Failure to register would allow the OFT to impose a civil penalty or prosecute any unregistered business which carries on selling property after February 1, 2010 which could result in a sentence of up to two years in prison and/or an unlimited fine. Note the ‘and’.

You can complete the registration form on-line which you then print out, sign and post. There are no prizes for guessing the next bit — you must enclose a cheque as there is no way the taxpayer is going to fund this exercise.

The Register of Estate Agents will be self-funding so an individual office must enclose £115 and the rate is the same for every additional branch office up to 20. If you have managed to maintain more than 20 branches through recent times, they must all be listed but the fee is capped at £2,300.

Every time you download a registration form it will carry a unique computer-generated reference number which then stays with you permanently. Different firms must use different forms but they would rather you didn’t download too many fresh copies as this will create multiple identities. Please copy your completed application form and make a note of your reference number which must be quoted whenever you contact the OFT on any MLR-related matter.

Assuming all is well and the information you have provided correlates with the checks that the OFT will carry out you will eventually receive confirmation that your anti-money laundering registration has been accepted. It may take longer if any information is missing so tick all the right boxes.

Finally, they seriously suggest you apply by the end of November to avoid getting embroiled in a last minute rush.

For good measure there is a Helpline on 020 7211 8200 between 9am and 5pm Monday-Friday. Most of you will probably be sick of hearing about all this from the OFT but there is no alternative.

Hopefully these links will work. Go to http://tinyurl.com/MLR-Forms for your individual copy and http://tinyurl.com/MLR-Guide for the guidance on completing the Forms. Good luck.

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