Avoiding corrupt relationships in property market

Property firms may need to think carefully about how they behave when mixing with clients and competitors. Picture: TSPL
Property firms may need to think carefully about how they behave when mixing with clients and competitors. Picture: TSPL
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ESTATE agents need to be seen to act properly, writes Michael Dean

Collusion and bribery are strong words and despite being the butt of a few jokes over the years, few estate agents would expect to be accused of either. However, transgressions can come down to a slip of the tongue and property firms may need to think carefully about how they behave when mixing with clients and competitors.

All the evidence suggests that the industry is in regulators’ sights and could be next in line for more regulatory attention if it doesn’t take measures to ensure its house is in order – and seen to be in order. While it is being argued that regulation of the sector should be devolved, irrespective of the future regulatory landscape, the fundamental principles are unlikely to change.

Recently, a number of English estate agents and their local association, as well as a newspaper publisher, were fined more than £735,000 by the Competition and Markets Authority (CMA) after admitting they had agreed to restrict the advertising of fees and discounts.

Regardless of the details of this particular case, there is potential for such arrangements to come about through the relatively convivial relationships that are the norm in the industry. In a typical regional estate agency sector, many staff at competing agencies will know each other – especially senior partners whose paths will have crossed many times over the years.

Where there are close commercial and personal relationships, even among competitors, it is easy to gravitate to arrangements intended to benefit that small group – but that is where danger lies. In the case brought by the CMA, the local newspaper compromised itself even though it had nothing obvious to gain from the arrangement. The actions of a single employee responding to a casual request from a customer and friend can lead to issues that later become a serious matter for the regulator.

The CMA rightly took the view that advertising discounts is an important way in which firms compete to the benefit of consumers and to restrict that dampened competition among them and made it difficult for new entrants to attract business.

An agreement that constituted price-fixing, such as agreeing minimum rates, would be considerably more serious and would likely see criminal charges brought.

It would appear the CMA thinks these kind of practices may be relatively commonplace in the property sector: following the case, it penned an open letter to the industry UK-wide, which looks like a warning shot. Therefore, it is essential all firms, including those in Scotland, ensure staff are aware of the law because the next time a case comes up, the fines are likely to be even higher.

Staff – particularly senior partners, those dealing with advertisers and those negotiating with large clients, must know where the danger lies. They must be in a position to steer a conversation clear of anything that could be perceived as agreeing terms of business or “industry practices” that in any way relate to the sales process.

Beyond competition issues, another danger area is around the Bribery Act. An example of where a property professional could potentially fall foul of the Act without thinking he or she is taking a bribe, is where they might offer advantageous terms or information to regular buyers and sellers, in exchange for either information on the appropriate level at which to pip the top bid received or for the agent to persuade a client to accept a developer’s offer where that is improper performance of the agent’s role; i.e. it is not in their client’s interest to do this.

The Act defines a bribe widely as a financial or other advantage, and holds both sides of the transaction liable for the offence. It might seem unlikely that such an arrangement would ever come to light, but whistleblowing is often the best form of defence, and that is leading to yet more cases being exposed, and greater regulatory attention.

The real estate sector can make sure it has its house in order. Compliance measures for firms are relatively straightforward, and if all firms put them in place and are seen to be clean, the industry should have nothing more than a few jibes to worry about.

• Michael Dean is partner and head of the European Union, competition and regulatory practice with Maclay Murray and Spens LLP www.mms.co.uk