Consultation on the repeal of the Property Misdescriptions of Act 1991

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1 Graham Noyce Consumer and Competition Policy Directorate Department for Business, Innovation and Skills 1 Victoria Street London. SW1H OET. 5 April 2011 Also by estate.agents@bis.gsi.gov.uk Dear Mr Noyce Consultation on the repeal of the Property Misdescriptions of Act 1991 The National Association of Estate Agents (NAEA) is a division of the National Federation of Property Professionals (NFOPP) which has 13,000 individual members. The NAEA is a membership and self regulatory body. The NAEA s over-arching aims are to support its members by promoting the highest standards of professionalism and integrity amongst those working within residential sales, and to encourage members of the public to proactively choose NAEA members when they are involved in any kind of property transaction. Although the aim of recommending the repeal of the PMA is to reduce burdens on business in fact we have drawn the opposite conclusion. In our view repeal would result in a significantly increased burden for all of the relevant stakeholder groups, that is to say consumers, enforcement officers, and estate agents. For this reason, in our view the UK Government should continue to use its discretion and impose prescriptive requirements in this area as allowed by the exclusion from maximum harmonisation for immovable property in the Unfair Commercial Practices Directive. We have considered the implications for the three major stakeholder groups and wish to express the following concerns. Consumers Repealing the PMA could expose consumers to increased risk at a time of vulnerability. A consumer s decision to make a property purchase, particularly a residential purchase, and all of the associated transactional decisions relating to whether to view or instruct surveyors/ solicitors, have little in common with consumers decisions to purchase other products. Emotions and life aspirations are likely to have the same level of significance as economics, if not more significance. In our view these

2 factors justify a higher and more specific expectation in relation to how estate agents describe property than may be justifiable for other traders in relation to other products. Estate Agents and Enforcement Officers The burden on enforcement officers and estate agents will increase as they struggle to cope with the untested CPRs in the absence of the more specific PMA. The consultation paper highlights that at the moment PMA prosecutions are relatively rare, and that it is far more common for enforcement officers to offer advice or give informal warnings. Whilst we accept diversion from the court system is common place, in our view a generally high level of compliance by estate agents should not automatically be discounted as one of the other reasons for the declining number of prosecutions. In terms of prosecution costs, the statistics in the consultation paper indicate that if a prosecution is taken the agent is likely to plead guilty and of course this minimises legal fees and court time. All of these positive trends may be jeopardised if the PMA is repealed. Although the consultation paper refers to a small amount of case law concerning property and the CPRs, in actual fact all of these cases relate to agents falsely advertising trade body or ombudsman membership. Similarly we understand there have only been two prosecutions for breaches of the Business Protection from Misleading Marketing Regulations 2008 (BPRs) in relation to property. One of these cases related to a commercial agent misdescribing the services they could provide, and the other related to a commercial agent misdescribing the level of consumer protection in place. As we understand it in fact no prosecutions have been brought under either the CPRs or BPRs for the misdescription of property. Therefore if the PMA is repealed there will be no guiding case law and we anticipate that this gap will pose significant problems. Ultimately enforcement officers and responsible estate agents may continue to work to the PMA and this must bring into question the validity of a repeal. In our view Trading Standards spend relatively few resources on their obligation to enforce compliance by estate agents and we anticipate these limitations are likely to be compounded by the current budget cuts. Creating greater uncertainty in this area may further stretch scarce resources and provide unscrupulous agents with a free reign to mislead consumers. Timing Our views on the disadvantages of repealing the PMA are outlined above and below, but regardless of whether our arguments or the government s arguments are accepted we must question whether now is the right time to repeal. Enforcement officers are facing budget cuts, and estate agents are already having to deal with the significant downturn in the property market. A delay would allow the development of more meaningful case law under the CPRs and BPRs. Therefore if the decision if made to repeal the PMA we suggest that this does not take place in October 2011 but that more time is allowed. In fact it seems sensible to delay any repeal until the wide review of the

3 CPRs planned for 2011 has been completed and any revised CPRs have had a chance to bed in including the development of a reasonable body of relevant caselaw. Yours sincerely ELIZABETH RICHARDS HEAD OF LEGAL AND POLICY

4 Question 1 The Government s view is that the CPRs provide a broadly equivalent level of protection to the PMA. Do you agree? No. The government acknowledges that the tests for breach of the PMA and CPR vary quite significantly which makes a direct comparison difficult, e.g. in reality is a different standard proof required to meet the CPRs average consumer and transactional decisions tests, as compared with the PMA concepts of materiality and due diligence? Although the average consumer test may be determined by reference to a smaller group than the population as a whole, in some cases even this more focussed test may fall short of the standards which should be expected of agents; the PMA s strict liability approach may be more appropriate. Another legal consideration is that under the CPRs agents could argue that any false or deceptive information contained in a property advert would be corrected in good time before the consumer made an actual purchase. This defence is not available to agents under the PMA, and we believe this is appropriate. In our view agents should give full care and attention to adverts at the first opportunity. It is notable that the consultation paper makes no attempt to analysis the BPR against the PMA. This is difficult to understand given that commercial customers vastly differ, and commercial customers include sole proprietors and small family businesses. For these reasons it should not be presumed that all commercial consumers require the same level of protection, or that individual consumers always require more protection than commercial consumers. The PMA s defence of due diligence encourages staff training and appropriate systems. IN our view encouraging compliance in this way is far more effective than the threat of the uncertain set of offences in the CPR. Question 2 If your view is that the CPRs provide substantially more or less protection, please provide examples where this might be the case. See our response to Q1. Question 3 Which of the two regulatory options would you choose- no change or repeal with guidance? Please explain why. The Government s favoured option is repeal with guidance. We favour no change. Drafters of the proposed CPR/BPR guidance are likely to find themselves been a rock and a hard place as guidance cannot second guess what legislation means, but on the other hand to be worthwhile guidance must be of use to practitioners. Guidance does not have the same status as

5 case law, especially in the absence of a legislative hook which formally recognises guidance and requires courts to take it into consideration 1. We are conscious of the very difficult history of the guidance on the Bribery Act by the Ministry of Justice and the continued controversy surrounding that guidance. Although the Office of Fair Trading (OFT) and Department for Business, Enterprise and Regulatory Reform produced guidance on the CPRS in May 2008 this guidance is generic, high level, and not sector specific. Crucially, as far as we are aware this guidance was produced without seeking any input from trade bodies such as NAEA. We reject the argument that the PMA should be repealed because of future proofing considerations. The PMA and the associated Property Misdescriptions (Specified Matters) Order 1992 have stood the test of time despite the significant changes which have arisen since their implementation due to the increasing use of the internet. As the PMA has been in force for twenty years it has had a chance to mature and bed in. Although the PMA s formulaic approach may now be unfashionable, in short, all the evidence suggests that it works. We feel it is relevant to mention in this context that unfortunately estate agent is not a protected title and therefore anybody can claim it regardless of their educational background or previous criminal convictions. In our view this free entry supports the continuation of a formulaic approach as a proved and tested method of protecting the public. Question 4 Do you have any comments on the Impact Assessment and on the costs and benefits we have identified? The costs outlined in the consultation paper for Policy Option 1 seem unreliable. We note that the Regulatory Policy Committee also concluded that the estimates of the monetised benefits cannot be considered reliable and will need to be strengthened during the consultation process. For example, the OFT may have estimated that non staff costs in producing guidance and holding a workshop on the CPRs would be in the region of 4K, but we are uncertain whether this figure captures the realistic cost of developing guidance, including the legal advice that would be required. The workshop would also need to be delivered nationally. The costs currently being borne by estate agents in providing information to Trading Standards and preparing property particulars will not fall away if the PMA is repealed. It will still be necessary for property professionals to ensure particulars are not misleading although the parameters of what is or isn t allowed will become blurred. Overall we strongly dispute that repealing the PMA would result in a cost saving of 5.2m. Question 5 Do you have any other comments that might aid the consultation process as a whole? 1 Such as section 330(8) & section 331 (7) of the Proceeds of Crime Act 2002, and section 9 of the Bribery Act 2010.

6 No.