The truth will out know your obligations

Most recent figures available from the Property Ombudsman (“TPO”) show that in 2017 awards worth £1.36 million were made against estate agents, an increase of 11% from 2016. Many of the awards related to agents’ failure to comply with their obligations under the Consumer Protection from Unfair Trading Regulations 2008 (“the Regulations”).

In this article we set out the agents’ obligations under the Regulations and look at some recent cases which TPO have considered recently.

The Regulations

The Regulations came into effect in May 2008.

Under the Regulations unfair commercial practices are prohibited.

The Regulations set out the circumstances when a commercial practice will be unfair (subject to certain conditions) if it, inter alia:

• Contravenes the requirements of professional diligence;
• Materially distorts, or is likely to, the economic behaviour of the average consumer with regard to the product/service;
• Is a misleading action or omission; or
• Is aggressive.

TPO decisions

A basement bar –

The property was located in a disused warehouse which was in the process of being converted into residential apartments. The buyer complained that the agents had failed to disclose that the basement of the building had been used as a nightclub, access for which was via a telephone box. The buyer said the entrance to the nightclub had been concealed when she viewed the property and she was therefore unaware of the basement’s use until she received her mortgage valuation survey. Due to the commercial aspect of the building, funding from the buyer’s preferred lender was refused, although she was subsequently able to secure funding from an alternative lender. Nonetheless, TPO found the agents had an obligation to notify all prospective buyers of the existence of the bar before they were financially committed to the transaction. The agents were in breach of their obligations under the Regulations and they were ordered to pay the buyer £500.00 by way of compensation.

Neighbouring development –

Buyers had an offer in relation to the purchase of a property accepted. Several weeks into the conveyancing process they discovered by watching a TV programme that a large development of 1,200 houses and retail and waterside parks were planned in an area 200 metres from the property. Further research by them revealed that the draft proposal had been made public several months before they viewed the property. They decided to withdraw from the purchase and made a complaint contending that the agents had failed to disclose this information to them. Despite there being a dispute as to whether or not the buyers had asked the agents questions about development within the area at the time of the viewings, TPO found that the agents should have been aware of the proposal and disclosed the same to the buyers, this being material information which would have affected their transactional decision. An award of £225.00 was made.

Whilst these complaints had minor compensation awards, a more recent complaint highlights the financial risk of any breach of the Regulations.

A seaside property –

Despite having knowledge of the same agents failed to disclose to buyers that there was a proposal to stop maintenance of a sea wall defences at some time in the future. On discovering the proposal after completion of the purchase, the buyers made a complaint contending that they would not have bought the property had they known. TPO found that the proposal had already severely affected the value and marketing of local properties and continued to do so, resulting in property owners facing difficulties in selling their homes, the likelihood of substantial de-valuation of the properties in the future and potential loss to the sea over time. TPO supported a contention that disclosure of the proposal amounted to material information for a buyer in deciding whether to proceed with the purchase or not. The impact of the agents’ failure to disclose was life changing for the buyers. TPO upheld the complaint and awarded compensation to the buyers of £25,000.00, the highest single award in TPO’s history.
Material information and/or material omissions may also extend to matters that agents may normally consider to be outside of their remit as the following complaint demonstrates.

A leasehold property –

The buyer in this case complained that he had advised the agents he wanted to purchase freehold property. The agents maintained that providing information of this nature was the responsibility of the solicitors. However, they admitted that they had operated in the area for some 25 years and were aware that many of the local properties were long term leasehold. The buyer had not proceeded with the purchase having been advised by his solicitors of the true tenure of the property. However, by then he had incurred surveyor’s fees and legal costs. As all material information must be disclosed and no material omissions made, TPO upheld the complaint and made an award in the buyer’s favour of £1,300.00.

These complaints serve as a salutary reminder to all agents to disclose information that is within their knowledge and to make sure that no material omissions are made as well as ensuring that they trade with professional diligence. Whilst upholding the duty of truth and fairness may result in some cases in the agents losing a potential buyer, there is less likelihood of TPO making adverse findings against agents if they have acted in accordance with their obligations under the Regulations. This final complaint shows that in such circumstances TPO will support agents and dismiss complaints.

Divulging information –

A prospective buyer became aware that a property had been marketed by different agents. As a result he contacted the former agent to enquire why the property had been removed from the market for sale. The former agent discloses that at the time the property had subsidence. The seller complained maintaining that as they were no longer instructed the former agent should not have divulged such information. TPO found that under the Regulations an agent had to consider whether failure to disclose would affect a buyer’s transactional decision. Having found that it would have done so, TPO did not support the complaint. An agent should not be criticised for telling the truth.

Conclusion

All agents should be mindful of their obligations under the Regulations and give consideration to whether they are failing to disclose material information and/or making a material omission which would affect a consumer’s transactional decision. It is clear that TPO will be quick to enforce the provisions of the Regulations and bearing in mind the increase in awards agents should be very wary of any failure to comply. If in doubt legal advice should be sought.