With headlines predicting a double dip in house prices and a stuttering commercial property market, agents and those in the property business are keener than ever to ensure that what properties are available achieve maximum returns. To this end, effective marketing can help realise maximum potential. However over-enthusiastic marketing can come with a hidden price tag in the form of fines and criminal sanctions if the marketing material oversteps the criteria set out by statute to protect the purchaser.
Such was the case in 1991 when an estate agent from Bedford was found guilty under the Property Misdescriptions Act 1991 for describing Shuttle Cottage, Goldington Road in sales particulars as ‘detached’ whereas it was attached to what was formerly a stable block which formed part of a light-industrial estate.1 As liability under the Act is strict there was no need for the prosecution to prove any intention to mislead on the part of the agent. The prosecutor had only to show that the relevant statement was in itself false or misleading.
The scope of the Act is far-reaching as its purpose is to outlaw false or misleading statements in the context of the marketing and disposal of property and falling foul of its provisions is a criminal offence. In Lewin v Barratt Homes Ltd2 the court held that a show house carried an implicit “statement” that future houses with the same model name would be built to the same design and in George Wimpey UK Ltd v Brown3 a statement that adjoining properties which did not belong to Wimpey would be demolished formed the basis of a civil action.
What is the offence under the Act?
Under the Act it is an offence to make a false or misleading statement about certain aspects of a property (called “prescribed matters”) in the course of an estate agency or property development business. It does not apply to statements made by private individuals.
Estate agency business
Although many commercial property agents may not consider themselves to be estate agents, estate agency business is defined by reference to the 1979 Estate Agents Act and effectively means taking instructions from a client with a view to introducing a potential purchaser or vendor and then acting to secure for that client the disposal or acquisition of an interest in land which would include the grant of a lease. As can be seen this definition is much wider reaching than might be imagined and an offence can be committed at any time from receipt of instructions to completion of the disposal although will not apply where a business disposes of its own property.
Property development business
A statement is made in the course of a property development business if:
(i) the statement was made in the course of business concerned wholly or substantially with the development of land; and
(ii) the statement was made for the purpose of, or with a view to, disposing of an interest in land consisting of or including a building, or part of a building, constructed or renovated in the course of the business.
This is intended to catch property and construction companies who carry out and dispose of their own developments and refurbishments.
False or misleading?
Under the Act a statement is “false” if it is false to a material degree, and a statement is “misleading” (though not false) if what a reasonable person may be expected to infer from it, or from any omission from it, is false. Although there was no clear indication of what would be excluded as trivial when the Act was first introduced, the estate agent selling Shuttle Cottage was also found guilty for describing a house as “eighteenth century” when in fact it was built in 1835 and therefore nineteenth century.
A misleading statement is not necessarily false in itself but is misleading if a reasonable person draws a false inference from what is omitted from the statement. For example, to state that a property has “views over open country” without mentioning the cement works a few fields away is an omission which might be held to make the statement misleading. Likewise, to mention that a property has the benefit of planning permission without mentioning that the planning permission is only for part of the property could be misleading.
It is worth noting that a statement need not be limited to the spoken or written word as with sales particulars, measurements and advertisements, but can extend to plans, models, photographs and artists’ impressions. Where site advertisements and models are available at an early stage it is important to ensure their accuracy. In the Barratt Homes case, The High Court found that Barrat Homes were liable as they had been aware that they would be unable to build the houses to the design shown in the pictures and indicated by the show house.
What are prescribed matters?
All 33 prescribed matters are set out in the Property Misdescriptions (Specified Matters) Order 1992 and the list is extensive, essentially covering anything relating to the property. Included in the list are the property’s location, outlook, services, fixtures, condition, fitness for purpose, age, price, terms of lease (if leasehold), planning and covenants and easements affecting the property.
Given the extent of the prescribed matters, it is wise to assume that they cover all aspects of the marketing and disposal of the property.
Are there any defences?
The “due diligence” defence It is a defence to show that the accused took all reasonable steps and exercised all due diligence to avoid committing the offence.
A person cannot rely on the due diligence defence by relying on information provided by someone else unless he shows that it was reasonable in the circumstances to do so. And this must be measured against the steps taken to verify the information and whether he had any reason to disbelieve the information.
An estate agent or property developer should therefore be wary about taking information supplied by third parties at face value, expecting to be able to rely on the due diligence defence. There is a difference between relying on the client’s assurance that a property is in good condition and those of a qualified engineer who confirms he has tested the central heating system and confirms it is in good working order.
Unfortunately the Act is silent on the use of disclaimers (it neither permits nor prohibits their use), although government guidance suggests that disclaimers might be effective in the same way and under the same principles applied by the courts to disclaimers under the Trade Descriptions Act 1968. Consequently, any disclaimer must be as bold, precise and compelling as the statement to which it relates, be effectively brought to the notice of anyone to whom the property may be sold, and equal the description in the extent to which it is likely to “get home” to prospective purchasers. Unsurprisingly, a disclaimer will not be effective where it is applied to a statement which the maker of the statement knows is false.
Until the effectiveness of disclaimers under the Act is tested in the courts, they should be treated with caution. Nonetheless, government guidance states that disclaimers may have a useful role where an estate agent or property developer considers that an unqualified statement could be misleading. For example, a statement that a house had full central heating could be misleading if the estate agent knew that that system had not been used for some years and therefore had reason to believe that it might not be in working order. The guidance states that in such circumstances it might be considered prudent to state that the condition of the system was not known.
There are time limits for bringing a prosecution being:
(i) the end of the period of three years beginning with the date of the commission of the offence; or
(ii) the end of the period of one year beginning with the date of the discovery of the offence by the prosecutor.
Remedies for the aggrieved purchaser?
Enforcement of the Act is by local Trading Standard Officers who have powers to enter business premises and seize and copy documents if they reasonably believe an offence has been committed. A prosecution can be brought against both the person by whom the estate agency or property development business is carried on, the employee who makes the statement and also the director or other officers of the company.
A person found guilty of an offence is liable on conviction to a fine but unfortunately for an aggrieved purchaser, the Act specifically states that no contract will be void or unenforceable, and there is no right of civil action in respect of any loss.
This means that even though an estate agent or property developer may have committed a criminal offence, this alone does not give an aggrieved purchaser the right to claim any compensation. Once contracts are exchanged the buyer may be able to bring an action for misrepresentation or breach of contract otherwise the chances of disappointed purchasers getting any recompense remain slim. The good news is that a conviction under the Act may well be compelling evidence in an action for misrepresentation where damages can be awarded.
Although there have been any number of cases brought for misdescription under the Act by local Trading Standard Officers, few have been appealed at higher level and therefore are often not reported. It only needs one high profile case to highlight the scope and impact of the Act and developers and agents would be well advised to ensure that everything said or written about any properties for sale or let are accurate to the last detail.