In one of a blizzard of initiatives launched as its supposed demise approaches as part of the Coalition’s bonfire of the quangos, the Office of Fair Trading has published guidance for estate agents on how to avoid breaches of unfair commercial practices regulations in their advertising. Hannah Willson reports.
Topic: Misleading advertising
Who: Estate agents and property developers
When: September 2011
Law stated as at: October 2011
The Office of Fair Trading (OFT) has opened a consultation on draft guidance for estate agents and property developers (Guidance) on how they can ensure they comply with two key pieces of legislation: the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) and the Business Protection from Misleading Marketing Regulations 2008 (BPRs).
The background to the Guidance is the OFT's Home Buying and Selling market study in 2010 which highlighted that the industry's understanding of the CPRs may be limited; causing concern in a market where consumers are making the biggest purchase of their lives and unfair business practices could cause substantial consumer harm.
The consultation period is now open for stakeholders to respond on the content of the Guidance as well as inviting consultees to respond to a list of 11 questions in Annex D, with by 9 December this year.
Who the Guidance applies to:
Traditional high street estate agents, property auctioneers, buyers' agents, online estate agents, solicitors, online property sites which offer services that count as estate agency work and property developers that market and sell their own developments all come within the remit of the CPRs and BPRs within the estate agency industry and the Guidance is aimed at them.
However some of the Guidance may also be helpful for business that provide services to the estate agent industry, but who are not agents themselves.
Not all the Guidance is intended to apply to each of the categories set out above, and it is not intended to be exhaustive. The intention is to aid in clarifying the law; it is not going to substitute or add to any existing laws, although the Property Ombudsman, Christopher Hamer, has commented that the CPRs are 'open to differing interpretations' and he suggested that 'if the consultation identifies problems that can be solved through better laws, or better application of existing laws, then such moves should be made'.
What might cause a breach:
The following areas have been identified by the OFT as giving rise to breaches of the CPRs and BPRs by estate agents:
Giving misleading information to consumers (CPR)
Estate agents must ensure that they do not mislead consumers in the information given to prospective clients, either verbally, in writing or visually. Therefore estate agents must, amongst other things, ensure that property particulars do not include misleading details and photographs are accurate and up to date.
Examples given of misleading actions are using selling points such as 'secluded garden' when there is a public right of way through the garden; using words such as 'new instruction' for an unreasonable period of time; and mis-describing the main characteristics of the properly for sale, e.g. its price, location, number and size of rooms, length of lease, level of service charge and restrictive covenants.
Giving insufficient information to consumers (CPR)
Consumers must be provided with sufficient information to make an informed decision, examples given of when this might occur is if the estate agent fails to provide full information on the services that it provides or omitting important information on the property particulars.
A past example of where an estate agent is the advert for West Beach Cottage, described as an 'exceptional fisherman's cottage' but failed to mention that it was next door to a nuclear power station, that hit the headlines in 2009.
Acting aggressively (CPR)
An estate agent must not engage in practices that intimidates or exploits consumers, restricting their conduct or ability to make free or informed choices and may cause the consumer to make a different decision. What is considered aggressive will depend on the situation, but estate agents should be wary of pressurising the consumer in any way into making a decision.
Banned practices (CPR)
Some practices are considered unfair in all circumstances and are prohibited (set out in Schedule 1 of the CPRs). Some examples of the practices that could apply to an estate agent are: displaying a trust mark without authorisation, using bait advertising – e.g. advertising new build properties for sale at a certain price when the only ones available are at a higher price or falsely stating a limited time frame for an offer or encouraging the consumer to make an immediate decision.
Failing to act in accordance with reasonable expectations of acceptable trading practice (CPR)
An estate agent must show 'professional diligence' in its dealings with consumers, i.e. it must act in accordance with honest market practice or in good faith. If it can be shown that this requirement is knowingly or recklessly breached it is a criminal offence. An example of poor professional diligence is to falsely create the impression that the business is selling properties by displaying 'Sold' signs in the window and the OFT highlighted that it is no defence that poor practice is widespread in the industry.
Using Misleading advertisements aimed at businesses (BPR)
An advertisement can be deceptive if it contains a false statement of fact, conceals or leaves out important facts, promises to do something when there is no intention of carrying it out, or creates a false impression (even when the information itself is literally true) – for example 'flyboarding' (putting up for sale signs where no property is for sale) or putting up 'Sold' boards outside properties that the estate agent has not sold itself.
Making unfair comparisons with competitors (BPR)
To ensure there is no breach of this requirement, conditions relating the comparison not being misleading and being fair will apply and are similar to the requirements set out in the Committee for Advertising Practice Code (CAP Code) but also address further areas such as oral representations.
How to achieve compliance
The OFT has set out the different stages in which an estate agent must consider how they comply with the CPRs and BPRs. These are:
a) Advertising for new business;
b) Taking instructions from new clients;
c) Marketing a property;
d) Negotiating and making a sale; and
e) Dealing with complaints.
The OFT advises estate agents to consider what reasonable precautions, systems and safeguards are in place to ensure compliance and to evaluate what staff training that is required.
The overarching principle is to ensure that all dealings are fair and honest; recognising that the purchase/sale of a house is a stressful undertaking for consumers.
Why this matters:
Although the Guidance does not appear to make a substantial difference in clarifying the CPRs and BPRs it does achieve the purpose of bringing these regulations to the forefront of estate agents minds and reminds them of the compliance requirement – and what happens when they don’t.
There are civil and criminal penalties for not complying with the CPRs and BPRs, enforced by the OFT, local authority Trading Standards Services and the Department of Enterprise, Trade and Investment in Northern Ireland, as well as reputational risk.
Although the enforcement authorities have a duty to enforce the regulations there is an onus on promoting compliance by the most appropriate means as opposed to automatic enforcement action. Factors such as the relevance and weight of evidence, mitigating factors, and whether the breach would cause or is likely to cause the consumer to take a different decision will be taking into account in deciding on the most appropriate course of action.
Civil sanctions may be an injunction to stop the unfair practice; however the criminal sanctions vary from a fine of up to £5,000 in the Magistrates Court up to an unlimited fine and up to two years imprisonment in the Crown Court. These sanctions can also be imposed on a variety of people, from the business owner to an employee. These wide-ranging implications should certainly catch the attention of the industry and ensure that the guidance is well-considered and applied.
In addition to the penalties set out above the OFT has the authority to issue a prohibition order banning an estate agent or agency from engaging in estate agency work (under the Estate Agents Act 1979) and/or it can refuse to issue a credit licence or revoke, vary or suspend an existing one (under the Consumer Credit Act 1974).