A guide to running your property business legally
A guide to running your property business legally
1. What a property agent is
You are a property agent if you:
- arrange properties to rent
- help customers buy or sell a property
2. Government legislation
If you’re a property agent, you’ll need to comply with certain legislation.
- Consumer Protection from Unfair Trading Regulations 2008 (CPRs)
- Business Protection from Misleading Marketing Regulations 2008 (BPRs)
- Estate Agents Act 1979
- Tenant Fees Act
Other legislation may also apply.
Our guidance on property sales (pdf, 775KB) (opens new window) explains what you need to do.
- what you need to do when marketing a property
- the rules about passing on offers
- how to avoid making misleading statements
3. Redress schemes
You must join a redress scheme.
Redress schemes give consumers a way to escalate a complaint if they’re unhappy with how you’ve dealt with it.
If you don’t join a redress scheme you may be fined up to:
- £5,000 for lettings
- £1,000 for sales
You may also be banned from trading.
The approved redress schemes for property agents are:
4. Fees and charges
You must provide your client with a detailed breakdown of any charges, even if they’re estimated. You can’t just show a total figure.
You must give your clients the following information in writing and in advance:
- when you’ll charge an agency fee, including any fees or charges that you’ll make if the property is taken off the market without a sale
- the amount of your fee, if you aren't sure you need to say how you’ll calculate it
- other charges apart from your agency fee
- any circumstances in which your client may have to pay an extra fee and how much it might be, if you aren't sure you need to say how you’ll calculate it
- your percentage agency fee: this should include VAT and an example based on the agreed marketing price, for example, 'if your house sells for £300,000 you’ll pay a fee of £3600, 1.2% inc VAT'
- your fixed agency fee, this should include VAT
- a flat rate agency fee, this should include VAT
If you’re trading to another trader, you don’t have to include the VAT.
Your estimate of charges
Your estimate must say what it’s for. It should give your client a rough idea of the maximum amount they’ll need to pay. When you put your estimate in writing, you can say that it is 'an estimate of £X, that will not be more than £Y, without client approval'.
If you have a special brochure for your client’s property, you must tell them how much it’ll cost to produce each copy. If you need extra copies, you must ask your client to approve the additional costs.
5. People who may benefit from a property sale
If you or a connected person is going to benefit from the property sale, you must tell your client.
A connected person includes:
- your employer
- an employee from your company
- your agent such as your business manager
- anyone related to you or the persons mentioned above
You must tell your client about any connected person before you agree to act for them. This must be done in writing.
Work you might arrange for your client includes:
- a mortgage
- a removal service
If you get a commission from someone you recommend to the buyer, you'll also need to tell them this. You don't have to reveal how much you’ll be paid.
6. Your terms of business
You’ll need to tell your client what the terms of your contract are:
This might include:
- Sole selling rights
- Sole agency
- Ready, willing and able purchaser
If you use different words that have the same meaning, you should still use the relevant definitions in full.
If the words you use could be misleading, you must make sure that alternative definitions are described.
7. Honesty with your clients
It’s illegal to mislead clients in any way.
You must not:
- tell a customer you’re not doing estate agency work when you are
- give wrong information about any offers or bids on a property
- falsely describe a property
- give wrong information about a potential buyer, such as if they’re cash buyers, or in a chain
- withhold information which would be of interest to a potential client such as Japanese knotweed or a flood risk
- show bias against potential buyers
You must give your clients information about:
- what they will have to pay or be responsible for such as ground rent
- services to potential buyers such as arranging a surveyor or giving mortgage advice
You must do this in writing, before you agree to act for the client.
8. Telling clients about any offers
You must give your clients written details of all offers received from potential buyers. This information must be passed on as soon as you get it. It can be sent by hand, email, post or fax.
You should keep a written record of all offers that you receive.
You don't have to write if your client tells you in writing that it isn't necessary to pass on certain offers.
If you have filed a Suspicious Activity Report (SAR) because of an offer made by a prospective purchaser, you must not pass on details of that offer to the vendor until:
- you’ve received a defence from the National Crime Agency
- or seven working days has passed, whichever is sooner
9. Handle clients' money properly
You'll need to handle your clients’ money properly.
- payment of interest
- keeping client accounts
We should talk to your accountant about the detailed requirements for handling clients' money.
You may be asked to hold a deposit. This means that you’re holding money on trust, so you’ll need to account for the client's money in a very precise way.
There are two types of deposit:
- Pre-contract: a deposit is paid before the exchange of contracts to show a serious intention to buy
- Contract: a deposit is paid at the exchange of contracts
You must put the deposit in a special account, called a 'client account', which is set up for this purpose at a bank, or other financial institution.
You can pay money from a connected contract, such as money used to buy carpets or curtains, into a client account.
You cannot pay any other client money, such as rents, into this account.
Keeping client accounts
When you keep a client account, you must:
- keep detailed records of all transactions
- give detailed receipts for all money you receive
- have your accounts examined and reported on by a qualified auditor within six months of the end of your accounting year
- be able to produce your latest auditor's report, if asked to do so by an authorised person, such as a trading standards officer
- keep the accounts and records for six years after the end of the accounting period to which they relate, even if you take them over from someone else
Payment of interest
If the interest on a deposit of over £500 is more than £10, you must pay it to the client.
If you don’t, you could face prosecution and a fine of up to lever four on the standard scale.
10. Disclose material information
The Consumer Protection from Unfair Trading Regulations 2008 (CPRs) require all businesses to disclose material information about products or services they’re marketing to consumers.
Material information is information that a consumer needs to make an informed transactional decision.
This can be challenging, as every property is unique and affected by different social, economic and environmental factors. Prospective buyers need to be given material information at the earliest possible date.
What should be disclosed
Any information which affects or impacts on the property should be disclosed.
- the price of the property
- the tenure, or if a freehold property, the number of years left on the lease
- any known potential threat to the property such as flooding, coastal erosion, mining subsidence
- anything which directly impacts the property such as nearby planning proposals, rights of way, Japanese Knotweed
- financial commitments such as ground rent, service charge, Green Deal, leased solar panels
- anything which may affect development or future enjoyment of the property such as listed status, tenure, conservation area, restrictive covenants
- notable events at the property or unusual features such as a recent suicide or murder, or is the vendor is a convicted paedophile
Businesses must make reasonable enquiries about information such as:
- flood risk maps
- land registry information
- local planning details
Vendors and their agents should know that they’re legally required to disclose material information about a property and not hide or conceal anything which may affect a prospective purchaser's transactional decision.
You shouldn’t leave the research or discovery of material information to the purchaser or their legal adviser.