Consumer Protection Regulations and property transactions

What are the Consumer Protection Regulations (CPRs)?

These are EU based regulations prohibiting unfair practices by traders in relation to consumers. They impose obligations (including potential criminal liability) on businesses, their lawyers and agents which go well beyond those that apply where no consumer is involved.

Who can be liable for the offences?

Offences are committed by a "trader". That is anyone carrying on their business, whether personally or through an agent, supplying goods or services to a "consumer". A consumer is an individual acting for purposes outside or mainly outside their business. Offences occur in a wide range of situations and can easily be committed in property transactions.

Examples of traders in that context are:

• a property company, selling or letting property to a consumer
• solicitors, auctioneers and estate agents acting for that client
• solicitors, auctioneers and estate agents acting on any sale or letting of property to an individual for personal use or as a private investment.

The Law Society consider that this means that in residential conveyancing a solicitor or estate agent can be criminally liable under the CPRs, whereas their client, as a consumer, cannot be liable.

What are the offences?

Offences under the CPRs include:

• The General Prohibition: It is an offence to act otherwise in accordance with professional due diligence and good faith in a way which actually or potentially "distorts the economic behaviour" of the average consumer. In Scotland a letting agent was successfully prosecuted for not putting a tenant's deposit into an approved tenancy deposit scheme. Also Islington Council have just secured convictions against an estate agent who issued sham "licences" to tenants rather than assured shorthold tenancy agreements (ASTs). The intention was to exclude obligations relating to protection of deposits and the other rights which AST tenants normally have. This activity was considered to be in breach of the CPRs.
• Misleading action: This includes providing false information or presenting information about the nature or main characteristics of the property in a way which deceives or is likely to deceive the average consumer and, as a result causes the average consumer to take a "transactional decision" (such as a decision to buy) which they would not otherwise have taken. Traders are also required to make reasonable enquiries about whether such information exists. Estate agents have been prosecuted for misleading claims, such as that the property benefits from a private beach.
• Misleading omission: This includes the omission or hiding of material information in a manner which is unintelligible, ambiguous or untimely or does not make its purpose clear and again, which causes, or is likely to cause the average consumer to take a transactional decision they would not otherwise have taken. Failure to disclose the existence of a disused mineshaft was the issue in another prosecution.

Any limit on the seller's duty of disclosure to the consumer in the contract would be ineffective and may also be an offence.

Penalties

• Criminal:
  • On a summary conviction an unlimited fine
  • On indictment an unlimited fine or up to 2 years in prison or both
  • Enforced through Trading Standards departments of local authorities
• Civil – Consumer’s Right of Redress:
  • Compensation for financial loss / damages for distress etc.
  • Solicitors and estate agents are usually exempt
  • But a trader/client can be liable

Defences

In order to take advantage of defences under the CPRs the trader has to show that they committed the offence because of:

• a mistake or
• reliance on information supplied by someone else (e.g. the client’s information is wrong) or
• the act or default of someone else (e.g. the client does not tell the solicitor about something) or
• an accident or
• another cause outside the trader's control and
• the trader took all reasonable precautions and exercised all due diligence to avoid committing the offence.

Not only must the trader show the offence was not their fault, they must show that they tried to prevent it.

Changes to the law by the CPRS

Important changes include:

• Enhanced consumer rights: Civil law already imposes obligations on sellers to disclose hidden defects together with liability for misrepresentation and fraud but subject to these, the principle of "buyer beware" remains. Under this principle the seller is under no duty to disclose matters to the buyer which are clear for the buyer to see for himself and it is eroded by CPRs. It’s no defence to the duties of disclosure under the CPRs that the consumer/buyer failed to make their own enquiries or inspect the property.
• Increased potential liability for property developers/investors if they do not act fairly towards consumers.
• Increased potential liability for real estate professionals: In order to avoid liability on their part, solicitors, auctioneers and estate agents should strongly encourage clients to disclose material facts as fully as possible early on in the transaction.
• Conflict with solicitors' duty of confidentiality: A solicitor's duty to disclose material information to the consumer can conflict with the duty under Chapter 4 of the Solicitors Regulation Authority Code of Conduct of confidentiality to clients. For instance, an adverse survey report may be on the file which the client does not wish to disclose to a consumer buying the property. Law Society Guidance says that because of the possibility of criminal sanctions against solicitors for breach of the CPRs if the client will not authorise disclosure, the solicitor should consider whether they can continue to act for them.

Enforcement of the CPRs

Trading Standards departments of each local authority have their own policies on enforcement but they do not take action automatically in respect of each and every breach. Their duties are to promote compliance by the most appropriate means. Factors such as:

• the weight of evidence
• whether action is necessary, proportionate and consistent (given the nature of the breach, the harm caused, the trader's cooperation in putting matters right and the need to deter future non compliance)
• whether the alleged misconduct appears to be an entrenched business practice or a one off event and
• whether there is a defence

will (amongst other things) influence whether a prosecution is brought. This generally pragmatic approach may mean that only the worst cases are prosecuted and the full rigour of the CPRs is not, as yet, fully felt.