Whilst estate agents have long been obliged to tell the buyer the truth if asked a direct question, the difference is that now they should give information that they suspect may affect the buyer's opinion of a property–-even before the prospective buyer comes to view it.
Estate agents have been told by the OFT that they need to comply with the Consumer Protection from Unfair Trading Regulations 2008 (CPR) and the Business Protection from Misleading Marketing Regulations 2008 (BPR). And these are more powerful in terms of the protection afforded to the buyer than the current Property Misdescriptions Act, which will be repealed in October.
This new requirement may potentially impact conveyancing because CPR erodes the doctrine of ‘caveat emptor’, thus offering a new layer of protection to the buyer’s conveyancer. Already one agency, part of the Countrywide group in Wales, has been prosecuted by Trading Standards under CPRs, for omitting to tell a prospective purchaser about the existence of a mine shaft.
Perhaps the greatest irony in this story is that estate agents were vehemently against HIPs which, once abolished, resulted in CPR coming into sharper focus. Agents were somewhat protected via the Property Information Questionnaire that introduced the concept of caveat vendor. The abolition of HIPs has, therefore, resulted in greater exposure. It’s a classic case of ‘be careful what you wish for’.
Of course, it's the seller who ultimately pays the estate agent, and it's the agent's job to get the best price for the property. However, operating under CPR and BPR, the estate agent has to understand that the buyer is also a consumer in the process, so there is a tortious liability of a duty of care and a responsibility to tell the truth. The regulations state that it is the 'consumer' who must be treated fairly. Logically if the duty of care to make disclosures to the buyer is extended to the agent, then the duty of care to discover on the part of the buyer’s lawyers is diluted.
Stuart White, managing director of estate agent Century 21, said: "This is a fundamental change to the Property Misdescriptions Act 1991, under which an agent was only obliged to disclose something if asked. It has never been the case that an agent has had the ability to hide information, however the new rules change this status by ensuring that the consumer is treated fairly, which in essence means potentially adverse information should be disclosed."
In a potential erosion of ‘caveat emptor’, the new rules mean that agents need to be up front about problems. So if there is a sewerage plant at the end of the garden, the agent who deliberately crops this construction from a photo could be breaking the rules.
To complicate matters, the new regulations don't specify precisely how the legislation applies in individual scenarios. Instead, it is left open to interpretation by the agent, and according to the Property Ombudsman Christopher Hamer, agents should err on the side of caution by openly describing all aspects of the property.
Buyers should be told of the reasons behind previous abortive transactions if they were due to a problem that interfered with the sale.. This would typically be something that comes up during the survey, but it could also be a problem that has been highlighted during the conveyancing process--i.e. something the previous buyer’s solicitor has found. For example, if the survey highlighted a structural defect, the Ombudsman says this is something that the agent should make clear to all interested parties, not only if they are asked.
Agents should no longer hide material facts that might put off someone viewing or offering on a property. For example, according to the Ombudsman, if a motorway is 200 yards from the door, this should be clear on the picture and description it shouldn't be left to the buyer to notice it from the map alone.
He even reckons that it should be mentioned if a property is next door to a primary school, because some buyers would not want to travel a distance to view a property with potential noise.
However, Hamer does give an example where the agent would not be required to disclose a potential issue. He said that if a neighbor kept a large number of pets (in this case seven dogs and 14 cats), the agent wouldn't need to disclose this fact up front, although it should be mentioned if a potential buyer asks about the neighbors.
So what should conveyancers do in light of the above? First, familiarise yourself with the legislation and use it as a form of defense. If your client complains because something negative about the property was not picked up, you should consider whether CPR was applicable and whether the agent had a duty of care to make a disclosure. Secondly, you should carefully consider introducing a Property Information Questionnaire (PIQ) into your conveyancing process and sending it to the agent to complete. Would it be remiss of you not to extend the representations beyond that of the seller but also to their agent? It is conceivable that, in time, lenders via the CML Part 2s will require a PIQ to be completed by the agent (where there is any agent involved). I am starting to talk to lenders about the benefits to them of a specifically drafted PIQ. For an example of an agent-focused PIQ, please email your request to firstname.lastname@example.org.