What is the Estate Agents Act 1979?
The Estate Agents Act 1979 governs the work done by estate agents. Complying with the Act helps to ensure that sellers and buyers are treated honestly, fairly, and promptly.
Definition of estate agency work
Under the Act, an estate agent is someone who introduces and/ or negotiates with “people who want to buy or sell freehold or leasehold property (including commercial or agricultural property) where this is done in the course of a business pursuant to instructions from a client.” This applies regardless of whether or not the sale takes place. It doesn’t matter if you don’t call yourself an estate agent, if you work for yourself or as part of a business. If you do estate agent work, the law applies to you and compliance is essential.
There is a narrow exception. If you simply advertise properties and enable private sellers to communicate (e.g., via a newspaper or online property portal), then the Act may not apply to you. However, if you are unsure of your status under the law, it is better to check.
Sending out listings, acting as an intermediatory between buyers and sellers, and offering advice all fall under the definition of estate agency work.
Compliance requirements of the Estate Agency Act 1979
The Act covers the duties estate agents owe to clients and third parties. This includes the information agents must pass to clients before agreeing to act. For example, estate agents must provide a comprehensive breakdown of all the fees & charges that apply (or might apply), regardless of whether or not a sale concludes. The requirements cover set fees, how costs are calculated, VAT in quotes, client approval, additional charges, etc. The Act also requires estate agents to declare any personal interest in a transaction and the services provided to the other party. Estate agents must also give a copy of their T&Cs and explain these terms.
There are further requirements for handling negotiations, offers received, and record keeping. Estate agents must not mislead buyers or sellers. Even if an agent believes something to be accurate, they could find themselves on the wrong end of the law if the information presented is misleading or cannot be proved correct. Also, estate agents must refrain from discriminating against potential buyers who do not want to use their services (e.g., refusing to send information about a property to someone who does not want to use the business for conveyancing). The Estate Agents Act 1979 also has specific requirements about how client money should be handled (including deposits and interest) and the insurance required to cover potential liabilities.
If an estate agent is thought to be in breach of its compliance requirements, the NTSELAT can require the agent (and clients and potential buyers) to produce documents/evidence of the negotiation and transaction. As such, it is not enough to be compliant; agents must also be able to demonstrate their adherence to the law.
Consequences of non-compliance
While estate agents are not legally required to be licensed or qualified (there are calls to introduce minimum professional standards), those who do not comply with the Act risk acting in a way that is not in the best interests of their clients. As such, instances of non-compliance are taken seriously.
When someone is deemed unfit to undertake estate agency work, this can lead to a prohibition order. It is a criminal offence to ignore these bans, so estate agents also face prosecutions and fines if they do so.
According to HMRC, dozens of estate agents have been fined more than £500,000 for breaching anti-money laundering requirements. 68 estate agents were fined a total of £519,645 for not complying with rules designed to stop criminals laundering money from illegal activity.
Fines were imposed following the first prosecution of an estate agent for not registering with HMRC.
A London estate agent who was convicted of trading for 3 months while unregistered was sentenced to 120 hours of community service and banned from acting as an agent for 2 years.
Research has found that only 20% of homeowners and aspiring homeowners trust estate agents. This lack of trust harms the profession, and it is especially upsetting as it is misplaced. 82% of buyers and 83% of sellers satisfied with the service received from estate agents. Compliance with the Estate Agents Act goes some way towards improving public confidence in the industry. And that can only be a good thing for agents and their clients.
Money Laundering Regulations 2007 and other relevant estate agency legislation
The 1979 Estate Agents Act is one of many relevant laws for estate agents. The Consumer Protection from Unfair Trading Regulations 2008 (CPRs), the Business Protection from Misleading Marketing Regulations 2008 (BPRs), the Consumers, Estate Agents and Redress Act 2007 (CEARA 2007) and the Town and Country Planning (Control of Advertisements) Regulations 2007, also place requirements on estate agents.
Crucially, the Money Laundering Regulations 2007 require anyone who engages in estate agency work to ensure adequate procedures to anticipate and prevent money laundering and counter-terrorist financing. The requirements cover things such as:
- Customer due diligence (with an emphasis on client ID checks)
- Source of funds and source of wealth checks (where appropriate)
- Suspicious activity reporting.
As such, estate agents must ensure that their AML policies (as well as any supporting policies), documents, procedures and trainings are all relevant, up-to-date, and correct.
HMRC is cracking down on estate agents not complying with money laundering regulations. Dozens of estate agents have already received fines of more than £500,000 for breaching AML requirements. And in October 2022, HMRC named 68 estate agents it had fined for not complying with the rules.
A failure to meet AML compliance obligations can lead to fines, reputational damage, and even closure. And as the authorities get more rigid in their treatment of firms that do not have solid systems and controls in place, the role of compliance becomes more and more complex. For many estate agency businesses, understanding and meeting all the necessary legal requirements can be a real challenge. But, without a robust compliance culture, estate agents are likely breaking the law.
Outsourced audits and reviews can help estate agents to understand the regulations and industry requirements and adapt their processes and procedures accordingly.
Speak to our specialist compliance advisers today
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