Estate Agency blog

From the 1 October 2008 consumers have extended rights to cancel contracts for the sale of goods and services.  1987 Regulations gave consumers rights to cancel contracts entered into with people who made unsolicited calls to their home.  New regulations, the Cancellation of Contracts Made in a Consumer’s Home or Place of Work etc. Regulations 2008, extend this right to cancel if the contract is entered into anywhere other than the service providers own premises, including the consumer’s home, even if the call was requested by the consumer.

For residential estate agents (or letting agents) this means that if clients come to the estate agent’s office and sign a contract for the estate agent to sell (or let) their property there will be no right to cancel.  If however, the signing of the contract takes place elsewhere, either at the consumer’s home, or at a viewing of a property they wish to buy, or anywhere else other than the estate agent’s own office, the consumer will have a right to cancel within 7 days of signing.  Cancellation must be in writing (this includes email)

Estate agency contracts that are signed by consumers in their own homes or away from the estate agent’s business premises must now also incorporate

• a notice of the right to cancel (Schedule 4 Part I) and
• a form of cancellation notice able to be filled in (Schedule 4 Part II)

The Department for Business, Enterprise and Regulatory Reform (BERR) have issued a guidance note related to these regulations which is also attached to the usual explanatory memorandum published with the Statutory Instrument.

Local trading standards departments will administer and police the regulations and will have similar powers of investigation and entry to those under the PMA.  An estate agency as well as the member of staff breaching the regulations will be liable to prosecution.  There is also a defence of due diligence for estate agencies (Regulation 18) similar to the PMA.

Failure to give notice of the right to cancel is an offence.  If found guilty, the penalty is a fine not exceeding level 5 on the standard scale.  Currently this is a maximum of £5,000.

This will undoubtedly have an impact on the way that residential estate agencies (and letting agencies) take instructions from clients and when and how they start to implement the instructions to sell.  An estate agency is likely to have three options

• start immediate marketing and write off any expenses if the client cancels
• delay marketing until the 7 day period has passed
• insist that all contracts for estate agency work are signed in the agent’s office

A further possibility allowed by the Regulations (Regulation 9) is for the client to request in writing that the estate agency start to perform the contract immediately or before the 7 day period has expired.  If they subsequently cancel within the 7 day period allowed they would then be responsible for paying the ‘reasonable’ costs of the service up to the point of cancellation.  ‘Reasonable’ is not defined in the regulations.

This latter point could cause some problems in an active market where a buyer could be introduced within a few days, the contract could be cancelled within the 7 day period allowed and the introduced party could continue to buy the property.  Normally an estate agent would claim a commission in such circumstances but it is not clear how the courts would interpret the regulations in such an instance.

The Office of Fair Trading has reminded residential estate agents that, from October, they must be members of a redress scheme.

Office of Fair Trading research has shown that there is a high level of consumer dissatisfaction with estate agents and consumers find it difficult to complain and obtain redress when problems occur.  Although the majority of estate agents now voluntarily belong to an ombudsman scheme, there are still many that do not.

The new requirements introduced by the Consumers, Estate Agents and Redress Act 2007 mean that all persons who engage in estate agency work in relation to residential properties in the UK must join a redress scheme with effect from 1^st October 2008.

Actual and potential buyers and sellers of residential property with complaints about estate agency work will then be able to use a free, easily accessible and fair estate agents redress scheme, which will have the power to make a range of awards, including requiring a member to pay compensation.

The OFT has approved two schemes, operated by the Ombudsman for Estate Agents Company Ltd and the Surveyors Ombudsman Service.  If an estate agent is not a member of a scheme, Trading Standards Officers have the power to impose a penalty charge notice for failure to comply with the new requirements.  The OFT may consider enforcement action which could include making a prohibition order banning the agent from practicing as an estate agent in the future.

Stamp Duty Land Tax – Latest News

From early September 2008, and for a limited period of 12 months, property transactions up to £175,000 will be exempt from Stamp Duty Land Tax (SDLT). The move was unveiled by Chancellor Alistair Darling in a bid to help homeowners through the current credit crunch. By increasing the threshold from £125,000 to £175,000 the move will save buyers up to £1,750 when they purchase a property.

The government predicted half of property transactions over the coming 12 months would be exempt from SDLT – a significant increase from when the stamp duty was previously raised to £125,000. Prime Minister Gordon Brown was quoted during an interview with BBC News as saying, “Home owners need to know that we will do everything we can to keep the housing market moving.” Figures released by the CML indicate that in September 2008, 51% of buyers did not have to pay SDLT compared with only 22% in September 2007.

However, not everyone is convinced that increasing the threshold level to £175,000 will have a significant impact on the struggling property market. Again speaking to BBC News, Liz Peace, chief executive of the British Property Federation said, “This won’t help much, as anyone who cannot afford to pay 1% tax on a property should not be buying a house in the first place, as their resources are clearly too stretched.”

This further raises the question of whether tweaking tax rates is simply a short term fix to the long term problems facing the struggling housing market. During the previous housing crisis, in 1991, Chancellor Norman Lamont sanctioned a SDLT holiday period in a similar attempt to revive the floundering housing market – the result, house sales and prices continued to fall. NFOPP have released a statement asking for SDLT to be suspended until the housing market recovers.