We are seeing an increase in instances where professionals find themselves facing risks beyond contract and common law. These take the form of either statutory or regulatory risk, and in some cases both together.
No one is perfect and we all make mistakes, that is the primary purpose of insurance where good risk management practices have failed. But professionals are increasing facing non-insurable risks which can prove both costly and, from a brand perspective, highly damaging.
These risks come in a variety of guises, the most common including the Health & Safety at Work Act 1974 ("HSWA"), the Consumer Protection from Unfair Trading Regulations 2008 ("CPR"), the Planning (Listed Buildings and Conservation Areas) Act 1990 ("LBCA"), and the Consumer Rights Act 2015 ("CRA"). Regulatory risk, in so far as property professionals are concerned, sits firmly with the RICS.
HSWA: An Act designed to ensure the health, safety and welfare of individuals. Contravention of the prescribed duties can result in criminal prosecution and, if guilty, the possible sanctions range from statutory improvement or prohibition notices through to the imposition of fines; the Magistrates Court has a limit of £20,000 but the Crown Court has no limit. Imprisonment is also a possibility.
The legislation is principally aimed at protecting people at work but note that members of the public can also fall within the ambit of the legislation. This is of particular relevance to those engaged in property management. We recently acted for the property manager of a shopping centre prosecuted following an incident on an escalator which left a member of the public with a serious injury. The Crown Court, despite strong mitigation imposed a fine of £75,000 plus costs. It is worth noting that fines do not ordinarily fall within the ambit of PII cover.
CPR: This legislation was introduced to cover all business to consumer activity but, in so far as property professionals are concerned, adds a new dimension to that which it superseded, the Property Misdescriptions Act 1991. This earlier legislation enabled action to be taken against professionals guilty of false claims about a particular property, even if innocently made.
The CPR takes matters even further, making professionals susceptible to prosecution following not only the above type of mistake (commission) but also to mistakes involving a failure to divulge a negative feature which the agent knows about (omission). This latter problem came to prominence in the much publicised case brought against a national firm of estate agents by Wrexham trading standards in 2012. The agents knew, but did not inform a potential buyer, about a disused mineshaft in close proximity to the property being sold. Upon commissioning searches and surveys the buyer pulled out upon discovery of the mineshaft and complained to the local trading standards.
The Magistrates Court found the agent guilty of an offence under the CPR as, pursuant to the legislation, the agent was obliged to inform the buyer. A fine of £3,500, plus compensation of £515 to the buyer to refund the expenditure he had incurred, was imposed. Not to mention the adverse publicity that the case generated for the agent concerned.
LBCA: This legislation, designed to preserve the historical integrity of historical and architecturally significant buildings, makes it a criminal offence to execute or cause to be executed any works to such property without prior authority. The sanctions are similar to those imposed under the HSWA above.
Property professionals providing input advice, whether in isolation or as part of a wider team, need to be confident that the client has secured the necessary consents before any such works, however trivial, are commenced. We have acted for a number of property professionals who found themselves subject to prosecution, through a mixture of either ignorance of the statutory regime or misplaced belief that other members of the professional team were responsible for securing the necessary approvals.
Whilst strong mitigation can often be deployed, even the securing of a conditional discharge can still give rise to considerable time and cost implications, not to mention the real potential for reputational damage.
CRA: This significant piece of legislation arrived last year and replaces, amongst others, the Sale of Goods and the Supply of Goods & Services Act. The CRA codifies the existing law, in relation to the requirement to provide goods and services with reasonable skill and care and the inability to exclude liability unless it is reasonable. In addition it introduces some new provisions. Of particular interest to property professionals is the incorporation into every service contract of all pre-contractual statements and information about the services to be provided.
All those communicating with potential clients need to be alive to the fact that everything said has the potential for being elevated into the contract itself and it is likely that any express term seeking to exclude such will be deemed unreasonable. Equally worth mentioning is that the remedies for breach now include repeat performance of the service at the supplier's costs or, if that is no longer possible, a contract price reduction or refund.
It is likely, as consumers' awareness of rights and remedies grow at an even quicker pace than the government's apparent desire to provide ever increasing layers of protection to them, that the CRA will be used by many, whether through the internal complaints procedure process or beyond, i.e. referral to the ombudsman or a civil claim itself, to maximise recovery opportunities.
Finally property managers and letting agents will no doubt also be aware that the CRA dedicates an entire section to set out requirements around fee transparency. Here, the Act appoints local weights and measures authorities (aka trading standards) to police these provisions and provides them with the seemingly arbitrary power to impose fines of up to £5,000 if requirements are considered to have been contravened.
RICS: Last, but by no means least, is the regulator. The RICS is able to launch its own investigation wherever it is considered that individual members or regulated firms have fallen short of the standards they are expected to meet under the RICS Rules of Conduct.
Breach can result in certain activities being stopped and a fine of up to £2,000 per breach (curiously these penalties being available by consent only), the issuing of a caution against an individual member or regulated firm or, if considered more serious, a panel hearing can reprimand, impose conditions on continued RICS membership or even issue expulsion orders.
It seems that the RICS is beginning to take a more pro-active role in this area. We have experienced action being taken against those on the wrong end of a prosecution under the above referred statutes, even when the injured party has taken or is embarking upon action of their own to secure a civil remedy against the professional. Whilst this can seem somewhat inequitable, it aptly demonstrates that the potentially wide consequences of falling foul of the statutory requirements imposed on property professionals should not be underestimated.