Property sales: regulations
Is your business compliant?
31 May 2013
David Hart outlines what the latest trading and marketing laws mean to the duties of property sales businesses
The Consumer Protection from Unfair Trading Regulations (CPRs) and the Business Protection from Misleading Marketing Regulations (BPRs), which came into force in May 2008, seem to have caught much of the property sales industry unawares. However, with the Office of Fair Trading (OFT) publishing industry guidance in September 2012 and professional bodies such as RICS hitting the road to educate their members, the message is hopefully sinking in: these laws apply to property sales businesses and place important duties on them.
If further encouragement is needed to brush up on the 'new' regulations, the industry need look no further than the expected repeal this autumn of the Property Misdescriptions Act (PMA) 1991. In future, enforcers are likely to take action against property misdescriptions under the CPRs and BPRs. So what do businesses need to know?
First, it is important to grasp that the CPRs and BPRs impose much broader requirements than the PMA. They place duties across customer-facing activities, for example when canvassing for new business, giving pre-agreement advice to clients, interacting with potential buyers and handling consumer complaints. And the duties are owed not just to clients but to potential clients, viewers and buyers, actual buyers and business competitors.
Secondly, the regulations, especially the CPRs, introduce a number of important concepts, such as 'average consumer' and 'transactional decision', which a business will need to understand fully in order to comply.
The CPRs define the average consumer as a reasonably well-informed, observant and circumspect person – the OFT guidance offers some thoughts on how such a person might be expected to act in relation to property sales. A transactional decision is defined widely, so it is not just a client deciding whether or not to use a business’s services or a consumer deciding whether or not to buy or sell. It could include, for example, a decision to end an agreement, to make or accept an offer (and on what terms), to view a property, or to instruct a solicitor or a surveyor.
The CPRs protect consumers from the unfair commercial practices of businesses. Unfairness may arise from:
- giving false or misleading information to consumers ('misleading actions')
- hiding or failing to provide material information to consumers ('misleading omissions')
- exerting undue pressure on consumers ('aggressive practices')
- not acting with the standard of special care and skill in accordance with honest market practice and the general principle of good faith (failing to show professional diligence)
- engaging in one of 31 'banned practices' (although only a few are expected to apply to the property sales industry).
Businesses familiar with the PMA will recognise how misleading actions deal with the concept of unfairness. The CPRs' requirements here are similar to the PMA’s prohibition on making false or misleading statements but set out slightly different requirements for the effects of the misleading action. To be in breach, the business’s action must mislead and cause, or be likely to cause, the average consumer to take a different transactional decision.
Misleading omissions represent more of a step change for the property sales industry and so particular care may need to be taken to ensure compliance. Under the PMA, an omission offence may arise because of something left unsaid in a statement, for example where an agent describes a property as having views over open country but omits to mention the cement works next door. The CPRs, however, include pure omissions: whether the agent makes a statement or not, leaving information out may constitute a breach, as may hiding information, giving it at the wrong time or in a way that is unclear or cannot properly be understood.
Misleading omissions represent more of a step change for the property sales industry and so particular care may need to be taken to ensure compliance
This duty not to mislead by omission should not be overstated, though. First, it relates only to 'material information', meaning the 'information that the average consumer needs, according to the context, to take an informed transactional decision'. Second, as with misleading actions, there is an effects test: the omission must cause or be likely to cause the average consumer to take a different transactional decision.
What, then, is likely to count as material information? In its guidance, the OFT offers its view in three situations: before the client enters into an agreement with a property sales business, before someone commits to view a property, and further on in the buying process.
There has been some anxiety about details that must be supplied to prospective buyers given that if a business does not know a piece of material information, it could still be a misleading omission if undisclosed. However, some reassurance can be taken from the phrase 'according to the context' in the definition of material information. It means that, in determining liability, the circumstances and context of the commercial practice will be taken into account, for example what the business actually knew and, importantly, what it might be expected to know.
What a business ought to know will depend on what services it is providing. An estate agent, for example, would be expected to gather the information required to serve its client faithfully and to market a property professionally and in good faith. It would not be expected to do the work of a surveyor or a conveyancer (unless it had led consumers to believe otherwise). If, however, the agent became aware of (say) a structural defect or a problem with title, then the factual circumstances and the context will have changed. The new information cannot be ignored: if it is material information – for example if it is something that the average prospective buyer would need to know to make an informed decision on whether to submit an offer, what price to offer, and/or what sort of survey to commission – then it must be disclosed.
When a firm's commercial practice affects another business, rather than a consumer, then the BPRs apply. These prohibit businesses from engaging in misleading activities in their dealings with other businesses, for example when advertising services to potential clients or marketing property for sale. The BPRs also set out conditions under which firms can make comparisons with business competitors, whether marketing to businesses, consumers or both.
Businesses must decide for themselves how to keep on the right side of the law. However, in its guidance, the OFT sets out the practical steps that it considers would help a property sales business demonstrate compliance with the CPRs and BPRs.
Here are two things to keep in mind (although the OFT guidance, of course, has much more detail on how to approach compliance). First, there is a due diligence defence to some criminal offences under the CPRs and BPRs. Businesses that are familiar with the PMA should recognise the sorts of requirements that lead on from this, although there are more circumstances permitted under the CPRs and BPRs.
For example, a business might have a defence if it can show: (a) that it relied on information supplied by another person, and (b) that it took all reasonable precautions and exercised all due diligence to avoid committing an offence, for example that it asked the right questions at the right time.
Reasonable precautions would include operating an effective and appropriate system to check the accuracy and credibility of information supplied. 'Exercising all due diligence' means having a proper system in place and taking appropriate steps to make that system work.
Second, information should be kept under review. Where the property sales business learns, or is put on notice, that something has changed, for example where new information comes to light about the sales chain or the property being marketed, then it must consider whether previous advice to its client needs to be revised and/or its existing marketing materials (or statements) updated.
In such circumstances, the business should use its professional judgement to assess the new information, for example how credible it is, whether it needs exploring or further corroboration. The business should take proportionate and reasonable steps to check information. Where there is strong enough evidence to satisfy the business that there is material information, it must, as a matter of course, disclose that information.
The CPRs and BPRs should hold no fears for honest diligent businesses. However, the OFT advises all property sales businesses to read its guidance to make sure they are doing all they should to comply with the regulations. The guidance will help them to consider how the CPRs and BPRs apply to their business and to determine what changes (if any) need to be made to their business practices and what staff training is required.
The OFT website also has a short overview of the guidance and advice sheets for home buyers and sellers. Although these advice sheets have been written to raise consumers' awareness of the CPRs, sales staff in property sales businesses may also find them a useful introduction. The CPRs and BPRs apply to lettings too. An OFT report on the lettings market, which announces plans for CPRs and BPRs guidance, was published in February.
David Hart is a project leader at the Office of Fair Trading
- If you require more advice on the CPRs or BPRs, contact your local authority Trading Standards Service or your professional body, or seek independent legal advice. Consumer advice is available from the OFT.