Redressing the lack of professional standards

The Consumers, Estate Agents and Redress Act 2007, which received Royal Assent on 19 July 2007, is intended to give consumers more protection against rogue traders and introduces powerful redress schemes. Consisting of more than 60 sections and 8 schedules the Act amends the Estate Agents Act 1979, establishes a new national consumer council and makes fresh provision in relation to doorstop selling.

Notwithstanding attempts to raise confidence in the estate agency business and provide some statutory regulation over the profession, such as the Estate Agents Act 1979 (EEA), the Property Misdescriptions Act 1991 (making it an offence to make a false or misleading statement) and the Housing Act 2004 (in relation to the estate agent's obligation to provide home information packs) there remains a real dissatisfaction and concern with the standard of service provided by a significant proportion of estate agents. That many estate agents act entirely properly and satisfactorily is not disputed, but in the absence of thorough regulation and control of the profession as a whole it is difficult to protect consumers against rogue traders in the business.

That there is no requirement on an estate agent to be a member of a trade body is in stark contrast to many other professions where membership of a trade body responsible for regulating entry and standards among other things is compulsory. This ensures that not only are high standards maintained but that they are seen to be actively maintained.

The EAA which was introduced to address some of the concerns over the lack of regulation of the estate agency profession, operated under a system of negative licensing. Other than bankrupts who could not engage in estate agency work other than as employees, (s23 of EAA) there was no restriction on those who could set themselves up as estate agents, consequently there was no requirement for a would-be estate agent to prove himself qualified or competent before setting up practice.

Although s22 of EAA gave the secretary of state power to make regulations for ensuring that persons engaged in estate agency work satisfied minimum standards of competence no regulations were forthcoming because of the government's policy of open access to the industry to prevent a closed shop approach where competition may be jeopardised. It was also said that consumers did not require a costly and cumbersome licensing machinery.

Office of Fair Trading

The powers of the Office of Fair Trading (OFT) in regulating estate agents (for example making an order declaring an estate agent unfit to practice or issuing a warning notice under ss3 and 4 of the EAA) only came into play when the OFT was satisfied that the estate agent's conduct fell foul of satisfactory practice. For those consumers adversely affected by a rogue estate agent, this was all too late.

The Consumers Estate Agents and Redress Act 2007 permits the secretary of state to require persons who engage in estate agency work in relation to residential property to belong to an approved redress scheme for dealing with complaints in connection with that work. However the duty to be a member of an approved redress scheme is on the employer and does not include a reference to persons who engage in estate agency work in the course of their employment.

No obligation

An employee carrying on the business of estate agency work is under no personal obligation to ensure that he or she is a member of the requisite redress scheme. The requirement to belong to an approved body is limited in its impact in that the body is concerned with redress alone; there remains no requirement on those carrying out estate agency work to belong to a body which regularly monitors standards within the profession.

Further there remains no requirement to meet specified criteria before setting up business as an estate agent, thus there is no way of regulating entrants to the profession and ensuring that they receive the requisite education and training prior to commencing work. That various training is available to conscientious would-be estate agents is insufficient in the absence of a requirement to meet prescribed standards prior to starting out work as an estate agent.

Returning to the new Act, in circumstances where an enforcement officer is of the view that a person has engaged or is engaging in estate agency work in the absence of membership of the redress scheme that person may receive a penalty charge notice not exceeding £1,000 (s23B and Schedule 4 of the Estate Agents Act 1979 as inserted by Schedule 6 of the 2007 Act).

It has been observed that in a profession where the average commission on a sale of a property is in the region of £3,183 (see the Which Briefing on the 2007 Act para 4.5) a penalty in the region of £1,000 is not a great disincentive particularly in the current climate of a buoyant property market with increasing property prices.

Keeping records

The new Act will require estate agents to keep records for up to six years which records must be available for inspection by an officer of an enforcement authority at all reasonable hours. Such an obligation may well have a positive impact on the standard of service offered by estate agents, with knowledge that records must be available for inspection on demand.

The measures in the 2007 Act go some way in raising standards in the estate agency business and perhaps more importantly safeguarding the interests of the consumer, who will invariably be involved in a significant transaction both in money and emotional terms.

However it may be thought that a great opportunity has been lost, an opportunity to introduce a proper system of monitoring those who enter the profession and those already established as estate agents. Continuing professional development being a familiar face among many professionals, it is inconceivable that the estate agency business should evade not only regular monitoring of those carrying out estate agency work, but perhaps more importantly those entering the business.

Compulsory education and training for those entering the business would inevitably raise standards and confidence in the profession. Requiring all estate agents to belong to an approved industrial body with competence standards to be satisfied at regular intervals would ensure the highest consumer protection.

There is a further serious limit on the scope of the new Act: it does not apply to regular lettings or to sales by housebuilders direct. As many houses are being built off- plan and sold by developers directly, it is unsatisfactory and arguably inexcusable that consumers in that situation cannot expect the same standards as those regulating estate agents. The obligations on estate agents under the new Act relate only to those engaged in estate agency work, the definition of which is to be found in s1 of the EAA, namely 'things done by any person in the course of a business (including a business in which he is employed) pursuant to instructions received from another person who wishes to dispose of or acquire an interest in land '“ (a) for the purposes of, or with a view to, effecting the introduction to the client of a third person who wishes to acquire or, as the case may be, dispose of such an interest; and (b) after such an introduction has been effected in the course of that business, for the purpose of securing the disposal or the acquisition of that interest.'

Lettings market

As far as the lettings market is concerned, the following example is illustrative of the cause for concern in this regard: the letting agent receiving sums from the tenant but failing to account to the landlord. While the wronged landlord may well be able to pursue the matter in court, this cannot amount to satisfactory consumer protection. The Royal Institution of Chartered Surveyers estimates that letting agents hold around £12bn in non- deposit client money alone. That such work is not governed by regulations similar to those imposed on estate agents under the new Act is of serious concern.

Further, it is well established that tenants themselves may be vulnerable and financially weaker than purchasers and therefore need protection from rogue traders much more than home owners. Having adopted the definition of estate agency work from the EAA, which did not apply to lettings, the new Act is severely constrained in its effect and impact.

Consumer protection being at the forefront of the new legislation, it may be thought that the Act does not go far enough in maintaining standards in the estate agency profession and ensuring that consumers are protected so far as possible against rogue traders. However, the measures introduced in the new Act are certainly a step in the right direction, and only time will tell how effective the Consumers Estate Agents and Redress Act 2007 will be in raising standards and confidence in the estate agency business.