Have you ever noticed how close the word complaint is to the word compliant? One minor slip on the keyboard and everything changes.
Likewise, failures in the way in which a business operates can see it go from having everything in order, to having to deal with a gripe, a complaint, an investigation, financial redress, court appearances, fines, jail and reputational damage or disaster.
Nearly every business will say they aim to be compliant and I am sure that is true. However, many do not back that intention up with the appropriate culture and systems needed to go with it.
In this column, I will be looking to outline key aspects of regulatory compliance and good business practice in the residential property world and, in doing so, make the case that you can be commercially compliant, and that it is actually much more cost-effective to do so than not!
Michael Day MBA FRICS FNAEA
Integra Property Services
Consumer Protection Regulations
What we refer to as Consumer Protection Regulations (CPR) is actually an “umbrella term” for two sets of legislation namely the Consumer Protection against Unfair Trading Regulations and Business Protection from Misleading Marketing Regulations 2008.
The clue is in the title – consumer protection against unfair trading. Basically, the whole ethos is to ensure that the consumer has the appropriate and correct information, at the appropriate time, to make an informed decision.
The property industry (and everyone else) has been operating under these regulations since 2008 but they really came to the fore in October 2013 when the Property Misdescriptions Act (PMA) was repealed.
CPR are however much wider reaching than the PMA which was narrowly defined to just 33 “specified matters”. Also, the PMA only affected estate agents whereas CPR cover all businesses and so include lettings agents too.
In a nutshell, five forms of unfairness are identified and agents have a clear duty to ensure that they comply with all of them.
- Misleading actions
- Misleading omissions
- Aggressive practices
- Failing to show professional diligence
- Engaging in a banned practice
One of the key aspects of CPRs is that the old maxim of caveat emptor (let the buyer beware) can no longer be relied upon. The industry has lived by caveat emptor since Adam was a boy and, whilst it may not be dead, it is certainly terminally ill as it is no longer specifically up to a buyer (or tenant) to find out, but for the seller or landlord (or agent) to inform.
This necessitates an agent in being much more vigilant in seeking out and obtaining information than they may have been previously and, crucially, when aware of a fact that may affect a consumer’s decision making, must disclose it to them.
Christopher Hamer, the outgoing Property Ombudsman, said in his most recent report: “The emphasis has to be on a cautious approach and diligence: ‘If in doubt about whether a certain aspect relating to a property needs to be drawn to the consumer’s attention – disclose it anyway’.”
Failing to provide information that will affect a consumer’s decision making at the earliest opportunity is costing the industry thousands of pounds.
Fines can be as high as £5,000 per offence at the Magistrates Court or unlimited at the Crown Court where a prison term of up to two years could also be imposed.
Prosecutions brought by Trading Standards through the courts are however likely to be rare as the consumer does not directly benefit from the outcome and so is likely to approach the agent directly and then, if not satisfied, seek redress through one of the ombudsman schemes.
Whilst to date and to my knowledge there has only been one successful prosecution under CPR (and this was used alongside other legislation breaches to penalise a rogue landlord), there have been hundreds or maybe thousands of ex gratia compensation payments made by agents to disgruntled buyers and tenants who wasted time and money pursuing a property only to find out some material fact that they should have been informed about at the outset.
In addition, there have now been many cases go through the Ombudsman schemes where awards have been made.
Dealing with issues once they have become a complaint is time consuming and expensive. It is commercially sensible to try and ensure that issues do not arise in the first instance. Agents need to ensure that all of their staff are fully aware of CPR and that the business has the systems and processes necessary to comply.
There are undoubtedly “shades of grey” with regard to what may or may not constitute a CPR issue. I’m not sure if there are fifty (my guess would be much greater than that) but an agent should at least be identifying and documenting the actions they took or didn’t take as a result.
I will revisit CPR in future articles and go into more detail on specific aspects. In the meantime, I am happy to talk to anyone about how I can help their business be commercially compliant.
I am running two open courses on CPR and Money Laundering Regulation compliance in London on September 8. Full details here
01753 889287 or 07717 295369