In our analysis of the High Court decision in Greenridge Luton One Ltd & Another v Kempton Investments Ltd (Seller beware: Service your replies or risk being charged) we considered the dangers associated with providing out of date replies to enquiries. Since then, the Law Society has published guidance on the Consumer Protection Regulations (CPRs) in relation to 'conveyancing'. This suggests even greater care should be taken by those selling or dealing with property. In this briefing we consider the risks posed by Consumer Protection legislation when selling or leasing property and the impact of the Law Society's guidance note in the real estate sector.
The Consumer Protection from Unfair Trading Regulations 2008 prohibit a trader from engaging in any commercial practice that is considered unfair when dealing with a consumer.
Who is a trader?
Any person who, in relation to a commercial practice, is acting for purposes relating to his business: the majority of our clients. We will also fall within the definition of trader if we are acting for a trader client.
Who is a consumer?
An individual acting for purposes that are wholly or mainly outside that individual’s business.
Is this just about standard residential conveyancing?
No. You need to have a wider view than simple residential conveyancing. In the current real estate market the CPRs bite on the Private Rented Sector (PRS) in particular where consumers could include, amongst others, students in halls of residence and pensioners in retirement schemes. PRS investors won't necessarily be used to dealing with consumers.
What are unfair commercial actions?
These include misleading actions, misleading omissions and failing to act with the standard of care and skill that is in accordance with honest market practice and in good faith ('failing to show professional diligence').
The Consumer Protection (Amendment) Regulations, 2014 (the 2014 Regulations) came into force in October 2014. These amend the definition of 'Product' to include 'Immovable Property'. Earlier this year the Law Society issued a guidance note on the 2014 Regulations which has sent shockwaves around the sector.
What does this mean in practice?
In England & Wales the onus has traditionally been on the buyer in a transaction to discover as much as they can about the property before buying or leasing it, with the seller being unaccountable unless they have deliberately misled or misrepresented something, or did not disclose a defect in their title. This follows the standard position in English law of 'Caveat Emptor' (or buyer beware).
The Law Society's guidance note suggests that this principle has been diminished by the 2014 Regulations and instead advocates a more proactive response for sellers/landlords suggesting that they should disclose any known material information. Their solicitors, in turn, should do everything possible to encourage their client to authorise disclosure of material information and if they refuse to do so, consider whether it is possible to continue to act for that client whilst still meeting all professional and regulatory obligations. A solicitor may even need to disclose the fact that there may be material information the seller is withholding even where he doesn't know and hasn't seen the detail of that information.
The penalties for breaching the regulations are significant - on a summary conviction: a fine not exceeding the statutory maximum (currently £5,000); or on indictment (a criminal charge): a fine or up to two years imprisonment or both.
The CPRs are an additional protection for those purchasing property/letting as consumers. The Law Society's guidance note takes a hard-line stance on the issue which reflects a growing trend in the market (and the courts) to protect "innocent" parties from "rogue" traders. You only need look at recent judgements such as Greenridge Luton One to see that there has been a move away from the traditional position. There is now, more than ever, a burden on a seller/landlord to ensure that material information is provided to buyers/tenants.
It will be of growing importance for both property owners and their advising solicitors to take greater care over the information provided, or kept hidden from consumer buyers/tenants and avoid, where possible, the go to phrase: 'rely on your own enquiries'. Sellers and landlords should ensure that they have an open and ongoing discussion with their solicitor to go over these issues and to identify and disclose all information which may be materially relevant to the property.