Property: residential CPRS/BPRS

Mind what you don't say

28 March 2014

Peter Bolton King reviews recent changes affecting residential and commercial agents


The period since September 2012 has been full of legal, regulatory and other changes that often require fundamental alterations to the business practices of sales and lettings agents in the residential and commercial sector. A brief resumé therefore might be useful.

CPRs and BPRs

The Consumer Protection from Unfair Trading Regulations (CPRs) and Business Protection from Misleading Marketing Regulations (BPRs) have been in force since 2008, but until recently, there had been numerous questions as to how they applied to property sales and lettings.

In autumn 2012, the Office of Fair Trading (OFT) published guidance on these regulations aimed at sales agents, although RICS put a robust case forward suggesting that information for the entire sector should be published at the same time. OFT did listen to its advice on how to make the guidance more practical.

These regulations fundamentally changed the traditional relationship between agents and their seller/landlord client. No longer is the maxim 'if I am not asked I do not have to say anything' applicable, nor can agents rely any longer on compliance with the Property Misdescriptions Act 1991 (PMA91) or caveat emptor (let the buyer beware) to protect them from prosecution. The OFT guidance highlights the fact that the CPRs introduce concepts such as 'average consumer', 'the transactional decision' and 'material information'.

CPRs and BPRs apply when businesses are dealing with a consumer, but not in business to business transactions. However, what might be defined as a business is a grey area. They would still apply if you were selling or letting a corner shop, for instance.

New duties

Sales agents must now give 'necessary information' to any consumer with whom they might be dealing. This goes much further than the duty not to make false or misleading statements in the PMA91.

The new offence introduced under the CPRs regarding 'misleading omission' focuses on what an agent has 'not' said. Omitting or hiding important information will cause greatest risk to the agent because they will be failing to give necessary information to consumers' to enable them to make an 'informed transactional decision'. The CPRs define 'necessary information' as 'material information'.

The OFT Guidance and comprehensive RICS Guidance to members can be accessed at http://bit.ly/1m4NmYF or visit www.rics.org and search for 'consumer protection'.

In my view, these are the important elements:

  • read and understand the key changes introduced by the OFT guidance in terms of relationship between agent and other parties. Section 5 gives specific information on compliance. The concepts are the same whether you are selling or letting residential or commercial property
  • examine the associated RICS advice giving particular attention to the risk assessment framework (annex 1 of the RICS technical advice note)
  • conduct a robust review of your business procedures and understanding of the due diligence processes required to help ensure protection from prosecution
  • be able to demonstrate that you have updated staff and carried out training where appropriate
  • have a system to record examples of good practice.

Proposed OFT guidance

As previously mentioned, RICS tried to persuade OFT to produce guidance on CPRs/BPRs for lettings and sales agents at the same time. At the time of writing (January 2014), RICS has seen a draft of the proposed letting guidance and is again working with OFT to try and make it reasonable and practical; OFT's stated intention is to clarify current relevant consumer protection law in the private rented sector. Once OFT publishes the final guidance, RICS will give further advice. For now, members are strongly encouraged to apply the existing RICS advice on compliance with the CPRs and BPRs for sales agents to all aspects of their residential and commercial agency businesses, including letting band block management.

Demise of the PMA91

RICS accepted that the introduction of the CPRs meant that the PMA91 was redundant because everything in it was now covered under the more principle-based CPRs. However, RICS and most of the industry suggested to the Department for Business, Innovation and Skills that the Act should remain on the statute book because agents were familiar with how to apply its prescriptive requirements to their sales businesses. This suggestion was not accepted, although the OFT has included helpful cross-references in its CPRs guidance for sales agents.

Estate agents redefined

On 1 October 2013 changes to the Estate Agents Act 1979 came into force; in particular, the definition of an estate agent was altered to exclude 'passive intermediaries'. This change applies to residential and commercial sales but not rental, which remains outside the Act.

The OFT guidance on CPRs and property sales states that Section 1 contains the legal definition of estate agency work. Subject to certain limited exceptions, you will be engaging in estate agency work if, in the course of business and acting on instructions from a third party (your client) who wishes to either buy or sell property (an interest in land), you do either (or both) of the following:

  • anything for the purpose of, or with a view to, effecting the introduction to your client, or someone who wishes to buy or sell property
  • anything after such an introduction has been made by you to secure the sale or purchase of the property
  • For you to be acting as an estate agent, the law only requires you to do anything for the purpose of, or with a view to, introducing your client to a buyer or seller. It is not necessary for you to actually introduce your client to a buyer or seller to fall within the legal definition of estate agency work.

According to the OFT, if you do any of the following, you will be, or are likely to be, engaging in estate agency work:

  • sending out property particulars and arranging viewings
  • dealing with queries from potential sellers or buyers on behalf of your clients.

The OFT guidance sets out clearly defined exceptions, the most important change being that the scope of the exemption was extended from 1 October 2013 to include intermediaries, such as internet portals for private sales, which merely enable private sellers to advertise their properties and provide a means for sellers and buyers to contact and communicate with one another. The exemption will apply provided that a business does nothing else covered by the general definition.

It is therefore likely that the exemption for intermediary businesses will apply if:

  • you only provide a means for the seller and prospective buyer to contact one another directly, for example, online
  • you provide a branded 'For Sale' board to the seller to assist in this process (although if the board contains your contact details and you deal with potential buyers on behalf of the seller the exemption is unlikely to apply)
  • you only pass on to a prospective buyer, by whatever channel of communication, the information provided by the seller in their advertisement.

However, if you offer any personal advice to a seller or a buyer, or other ancillary services, such as preparing property particulars or photographs or an Energy Performance Certificate, you will be outside the scope of the exemption and bound by the Act.

If the exemption applies, you will not be obliged to comply with requirements that are relevant to full service estate agency businesses, such as disclosure of any self-interest in a property transaction and membership of a redress scheme for residential estate agents.

It will be interesting to see what impact these changes will make in reality. The OFT was convinced they were necessary to open up ways of selling property. Time will tell.

Advertising ruling

On 6 March 2013 the Advertising Standards Authority (ASA) issued a ruling against estate and lettings agent Your Move:

"To ensure that their advertisements make clear when non-optional fees and charges, which could not be calculated in advance, were excluded from quoted prices, and to provide enough information to allow the consumer to establish easily how further charges would be calculated."

Following representations from RICS and other stakeholders to ensure that any advice would work in practice, the committee of Advertising Practice, which writes and enforces the UK code of non-broadcast advertising, sales promotion and direct marketing, issued guidance last September about that ASA ruling, which has important ramifications for the advertising of all rental properties. It is clear and gives useful examples related to various media. Any advertising material in hard copy and online should now be meeting the ASA ruling; most residential lettings agents must make changes to their websites and advertisements placed on property portals and in other media.

2014 and beyond

2014 is set to be as busy as last year. It includes the devolved administrations, with Housing Bills being taken through the Scottish Parliament and Welsh Assembly that have potential implications for property professionals in the private rented sector. There is no doubt that in the run-up to the general election scheduled for 2015 housing across all tenures will remain a political hot potato.

RICS Residential Professional Group will keep members informed of developments and the implications for their businesses. It will also continue to find opportunities to influence and persuade policy-makers and opinion-formers to develop a joined-up regulatory framework based around legislation/standards, enforcement, and redress, which is long overdue in the UK residential property sector.

Peter Bolton King FRICS is RICS Global Residential Director

Further information

Related competencies include: Conduct rules, ethics and professional practice, Leasing/letting, Purchase and sale