The clock on a possible ban on referral fees from lawyers to estate agents has started running after new guidance on disclosure was published by National Trading Standards (NTS).
Failing to disclose referral arrangements risks criminal prosecution, estate agents are told in the guidance, which the government has said will be given a year to see if it is effective.
The guidance – drafted by Tom Crowther QC and Robert Brown, a solicitor in NTS’s estate agency team – said prosecution could come under the Consumer Protection from Unfair Trading Regulations 2008.
The NTS could also take action under the Estate Agents Act 1979.
The guidance noted recent surveys showing that it was common for solicitors, conveyancers and others to pay estate agents to refer sellers and buyers to them, and that “consumers are largely unaware of the practice”.
Speaking in January, housing minister Heather Wheeler MP said: “I have provided National Trading Standards teams with extra funding, to support their efforts to ensure transparency, and I’ve asked them to report back to me in 12 months.
“I expect this to mean an end to excessive referral fees, but if behaviour doesn’t change, I will look again at the case for a ban.”
The guidance said an estate agent should disclose “in plain terms”:
- The price of its services, including any ‘compulsory’ extras;
- Where a referral arrangement exists, that it exists, and with whom;
- Where a transaction-specific referral fee is to be paid, its amount;
- Where a referral retainer exists, an estimate of the annual value of that retainer to the estate agent or its value per transaction; and
- Where the referral is rewarded other than by payment, an assessment of the annual value of the reward or the value of the reward per transaction.
It said disclosure should be made in writing, to a seller as part of standard terms and conditions and to buyers by being incorporated into or annexed with the property particulars before any ancillary services were promoted.
They should also make it clear that the consumer can choose to source this service from another provider
“The disclosure must be made in a way which is clear, intelligible and unambiguous and have no lesser prominence in documentation than other important terms, conditions, or information.”
The guidance cautioned estate agents that they could not rely on lawyers’ obligations to disclose referral fees.
It also “strongly recommended” that estate agents use a pro-forma declaration produced by NTS when disclosing referral fees.
“The seller should be handed one completed form identifying referral fees as a consequence of referring them. A separate form should be handed to the buyer identifying any referrals likewise applicable. Keep copies of the referral forms form for both seller and buyer on the property file.”
Stephen Ward, director of strategy at the Council for Licensed Conveyancers, said: “This is another welcome step in improving the homebuying process for consumers. Transparency across the whole market is essential and this is a very positive step…
“The publication of this guidance, along with transparency requirements introduced by the CLC and other regulators from December last year requiring all property lawyers to publish certain price, service and quality information on their websites means consumers will be more empowered than ever before.
“The minister has made it clear that, if estate agents do not respond positively to this initiative, she has not ruled out legislating against such fees. So the onus is now very much on estate agents to make consumers aware when fees are being paid.”