The Competition and Markets Authority (CMA) launched an important consultation on several important areas concerning ‘Unfair Commercial Practices (UCPs) last month. The Consultation finished yesterday.
The Consultation material states that UCPs can include “immovable property”. So the UCP provisions apply to the practices of ‘traders’ concerned with the sale or lease of land to consumers.
In a critical intervention, the Property Lawyers Alliance (PLA) makes clear in its submission to the CMA, the fundamental point, that it would be damaging to consumers, and so anti-competitive, for the panoply of existing statutory and common law protections for buyers of property, to be duplicated, undermined or contradicted, either by the UCPs set out in The Digital Markets, Competition and Consumers Act 2024 Act, or by any future guidance published by the CMA.
The PLA also brought to the attention of the CMA various commercial practices it considers should be categorised as “unfair”, and so unlawful:
including:
Reservation Agreements
Conditional Selling
Referral Fees
This formal submission follows discussions on other topics between PLA and the housing ministry:
Submission of The Property Lawyers Alliance
1 Introduction
This submission is made by the Property Lawyers Alliance (PLA), in respect
of the consultation on the draft guidance published on the 11th December
2024 (DG), by the Competition and Markets Authority (CMA) concerning
protections from unfair commercial practices (UCP) set out in The Digital
Markets, Competition and Consumers Act 2024 (Act).
2 Scope of the Act
PLA believes the UCP provisions in the Act intend (amongst other things):
2.1 To prohibit practices likely to cause the average consumer to take a
different ‘transactional decision’ because of a misleading action,
misleading omission, aggressive practice, or a contravention of the
requirements of professional diligence.
2.2 To prohibit omission of ‘material information’ from an ‘invitation to
purchase,’ UCP provisions in Schedule 20 to the Act, and the
promotion of unfair commercial practices in codes of conduct.
3 Selling or Leasing Property
PLA notes with concern, the reference in the DG to the proposed definition
of the word ‘Product.’
3.1 So, in paragraph 3.4 of the DG:
“the definition of ‘product’ covers both physical and intangible things, including
• goods (including immovable property, rights, and obligations), services;
and
• digital content. For example:
3.1 (a) a pencil, a car, music purchased online, a right to use a caravan for a
certain period, membership of a club and premium rate phone calls would all fall
within the definition.
(b) immovable property is included, and so the UCP provisions apply to the
practices of traders concerned with the sale or lease of land to consumers.”
3.2 Buying land cannot equate with the purchase of mere goods. Land can
be exploited by mining, planted with trees, developed, taxed (several times
over) sold, leased, or affected by myriad other legal interests.
3.3 Land is not a “product” – it’s not like a car or pencil where if it is faulty,
it can be returned (most ‘products’ are protected by appropriate
legislation).
4 What practices should be caught by the USP Provisions?
The PLA believes the following are properly the domain of UCPs:
Reservation Agreements (RAs)
4.1 Estate agents use RAs in so-called “modern auctions.” There are
several problems with them.
4.2 Consumers will sometimes pay several thousand pounds before they
have even obtained any independent legal advice. The agent will prepare
some form of “legal pack” but to keep costs low and secure a sale, these
packs are often riddled with legal issues, which only become apparent
following proper due diligence. At that point, the buyers are metaphorically
on the ‘back foot,’ attempting to persuade the seller to rectify the issues.
4.3 Conversely the seller sees no tangible benefit, as it is the agent, who
retains the entire reservation fee should the buyer withdraw.
4.4 RAs are rarely for the benefit of either party and are there simply to
ensure that the agent, who would normally only be paid at completion,
instead is paid in full before any transaction is even completed.
4.5 RAs have the potential to generate litigation, no matter how well drafted
they appear.
4.6 RAs do not provide the ‘clarity’ that people expect to ensure that the
transaction will go through smoothly since there are external factors such
as mortgage lenders being able to withdraw offers, even if an exchange of
contracts had occurred.
4.7 RAs also generate unwelcome legal costs for consumers and in PLA’s
view, damage the consumer’s interest.
4.8 As mentioned in paragraph 4.2 RAs encourage estate agents to put
forward properties prematurely because it is a painless way for them to
make money from abortive fees, as they get to keep the reservation fees
come what may.
5 Conditional Selling
5.1 ‘Conditional selling’ (CS) involves for example, an estate agent, sales
representative or anyone else with the power to sell a property, telling,
pressurising or ‘incentivising’ a consumer, to use the agent’s ‘in-house
services’, quite often as part of a single commercial entity, comprising an
estate agent and a ‘conveyancing factory’, for their offer to be put forward
on a property.
5.2 So, a consumer may already have a mortgage in principle, only to be
advised by the agent, that the deal will only be put forward to the owners
if the consumer uses their ‘recommended’ partner. More subtle techniques
are sometimes employed, for instance, by advising that the consumer can
use his or her broker. However, the in-house broker must assess the
consumer’s situation first, to verify that the consumer meets the ‘criteria’.
5.3 PLA considers that CS can properly be described as a UCP, that should
be more vigorously enforced to protect the vital interests of consumers.
6 Referral Fees
The PLA feels there are many problems with referral fees that are often
heavily embedded in CS arrangements (RFs):
6.1 Because of RFs, estate agents, via a CS, can manipulate consumers so
that consumers end up ceding control/independence/influence in the
purchase to the beneficiary of those fees.
6.2 Because of RFs estate agents achieve indirectly, what they could not do
so directly – control of the conduct of a purchase.
6.3 No degree of transparency can ever compensate for the conflicts of
interest generated by the payment of RFs.
6.4 Unfortunately consumers are often not sophisticated enough to
understand the conflicts of interest arising because of the payment of RFs.
6.5 The increased ‘imbalance’ in bargaining power between a consumer and
estate agents because of RFs is not in the interest of consumers.
6.6 Payment of RFs encourages consumers to go to the wrong law firms
that lack competence in complex conveyancing such as leaseholds.
6.7 Payment of RFs puts pressure on lawyers to break their duty to act
ethically a duty which is enforced robustly by the Solicitors Regulation
Authority.
7 What should be excluded from UCP provisions?
7.1 In November 2023 the National Trading Standards Estate and Letting Agency Team (NTSELAT) published guidance that aimed to provide consumers with “material information” (MI) in property listings,
purportedly to ensure consumers could make an informed decision whether
to buy or rent a property (MI Guidance).
7.2 NTSELAT stated that the MI Guidance was intended to ‘assist’ agents
with complying with the Consumer Protection from Unfair Trading
Regulations (2008) (CPRs). However, the MI Guidance was in PLA’s view,
unlawful, since it misinterpreted the source legislation. The purpose of the
CPRs at the time was to protect consumers from the unfair practices of
‘traders.’
7.3 The term ‘trader’ meant at the time “a person acting for purposes
relating to that person’s trade, business, craft or profession, whether acting
personally or through another person acting in the trader’s name or on the
trader’s behalf.” Whilst there is no doubt that an estate agent could be a
trader in that context, an unforeseen consequence of the MI Guidance is
that MI extended those obligations to the individual consumer selling a
property. NTSELAT did this by imposing them on the seller’s agent.
However, given that the agent acts on behalf of the seller, much of the
responsibility for complying with the MI Guidance would, in practice, fall
indirectly upon the shoulders of consumers. The CPRs however, were
concerned with traders who “omit,” “hide” or provide misleading
information. There was at the time no coherent interpretation of these
terms.
7.4 PLA suggests that the NTSELAT exceeded its statutory remit by re-
interpreting the law and so its MI guidance is unlawful.
7.5 PLA believes it is now evident, that the MI Guidance, which has been in
full effect since November 2023, has failed to achieve a significant
difference in how properties were marketed. Compliance with the MI
Guidance by estate agents remains generally poor and shows little sign of
improvement.
7.6 PLA believe that the reasons for this are primarily twofold:
7.6.1 full compliance with the MI Guidance poses a significant burden for
agents. For example, because it requires the early involvement of other
professionals, such as conveyancers, which sellers are often reluctant to
pay for at such an early stage; and
7.6.2 there was no reasonable prospect of enforcement action being
taken against estate agents who did not comply, and the property ‘portals’
largely declined the responsibility of enforcing the MI Guidance on
NTSELAT’s behalf.
7.7 In short, the MI Guidance was too ambitious. Unfortunately, in PLA’s
opinion, NTSELAT overplayed its hand.
7.8 The CMA should be careful not to repeat the same mistakes. Of course,
the alternative would be for the CMA to take a more robust approach to
enforcement. However, in PLA’s view, this would be unwise, given the still
untested nature of the legal position concerning the ambit of MI generally.
7.9 The PLA considers it preferable for the CMA to consult with agents to
find a sensible alternative to the MI Guidance, rather than taking a heavy-
handed approach to implementing an onerous and possibly unlawful, MI
Guidance the alleged benefits of which, remain unproven.
7.10 To sum up, what is a relatively recent, potentially unlawful and
expanded interpretation of MI contained in the MI guidance, cuts across
several other statutory regimes, undermining decades of conveyancing
practice. Furthermore, the practical lessons concerning the implementation
of MI cannot be ignored.
8 Problems with MI in Greater Detail
8.1 The stated purpose of MI was to provide “information which the average
consumer needs, according to the context, to take an informed
transactional decision.”
8.2 The proponents of MI claimed it would speed up transactions and reduce
fall-through rates. These claims do not reflect the experiences of most
property lawyers.
8.3 The concept of ‘Caveat Emptor’ plays a pivotal role in the conveyancing
process. The MI Guidance tries to change this core policy to ‘Caveat
Venditor.’ However, this merely shifts the burden of legal problems from one
type of consumer to another – buyer to seller.
8.4 The consumer’s disclosure of information on a sale, is inserted in
conveyancing forms after the conveyancer is instructed. This is beneficial
because the consumer receives legal advice throughout that disclosure
process. MI deviates from this normal practice by shifting disclosure to a
point before the property is marketed, potentially depriving the consumer
of the opportunity of independent legal advice and creating problems that
would otherwise not have occurred.
8.5 The property market is often short of supply. Adding an extra layer of
complexity and expense will inevitably deter consumers from placing their
properties on the market, exacerbating the supply problem.
8.6 In practice, consumers sometimes list their properties for sale merely
to ‘test’ the market. MI will deter these consumers from doing so.
9 Isolating Consumers
9.1 MI runs the risk of isolating consumers from independent legal advice.
9.2 Would the average consumer as a buyer be able to interpret the
information provided via MI without access to appropriate legal advice?
Certainly concerning ‘Part C’ of the MI Guidance, it would be difficult for an
average consumer to understand the significance of subjects, such as
covenants, building safety, planning permissions and tenure(s).
9.3 A consumer would still rely on their property lawyer to advise before
committing to an exchange of contracts in the usual way, reducing any
benefit of the information being provided ‘upfront’.
9.4 “Consumers” are unsophisticated when buying and selling property –
so sometimes a consumer doesn’t remember anything from when they
purchased a property, or when presented with mountains of “data” they will
not know how to interpret it. Consumers cannot expect guidance from
estate agents who know little about the law.
9.5 Estate agents should not be compelled by MI Guidance, to become
‘quasi-lawyers.’ It is not their proper function in the home-buying process.
10 Misrepresentation
10.1 MI represents potentially a fertile breeding ground for
misrepresentation and other civil claims against a consumer as a seller,
quite apart from any enforcement action the CMA might take against an
estate agent under the Act.
10.2 Statements made innocently or recklessly by a seller, via the selling
agent or a seller’s lawyer, to a buyer or the buyer’s lawyer in conveyancing’s
crucible, can be slowly ‘unpicked’ later in court.
10.3 Encroaching into the realm of property law by inappropriately worded
guidance, significantly increases the risk of a claim against selling
consumers under the Misrepresentation Act 1967. Similarly, because of
existing legislation and regulations, there would also be an increased risk
of judicial review.
11 Summary
11.1 The increasing growth of ‘conveyancing factories’ or ‘giants’ off the
back of covert CS arrangements, often funded by RFs, is anti-competitive
and represents unfair commercial practices for the consumer. Moreover,
such UPCs discriminate against smaller law firms, which also reduces the
choice for the consumer.
11.2 So, in conclusion, PLA considers that it would be damaging to
consumers and anti-competitive, for the panoply of existing statutory and
common law protections for buyers of property, to be duplicated,
undermined or contradicted, either by the Act or by any future guidance
published by the CMA.
21st January 2025
The Property Lawyers Alliance