THE Edinburgh Solicitors Property Centre (ESPC) has been referred to the Competitions and Markets Authority (CMA) amid claims that it may have broken anti-competitive rules by forcing members to advertise through its marketing channels.
If the complaints, from two members of the public, are formally investigated by the CMA and found to be in breach of regulations, the trade organisation could face a fine of up to hundreds of thousands of pounds.
Businesses can be fined up to 10 per cent of annual turnover
Two years ago, the ESPC published a new agreement, which every member solicitor had to sign, which requires member firms to take out an advert with the ESPC for each property on its books – even if the client would prefer to use other methods, such as local media or independent websites such as RightMove. The £370 cost of the advert is then passed on to the seller.
If a member firm fails to market a property through the ESPC, it risks disciplinary action and ultimately, expulsion. Up to 90 per cent of property sales in Edinburgh and the Lothians are handled by solicitor agents which are members of the ESPC – with very few firms operating independently.
ESPC firms have to be solicitor-run estate agents, while estate agencies which are not owned by lawyers, such as high-end chain Savills, are not allowed to be members.
The complaints come just weeks after the CMA fined three English estate agents £735,000 for anti-competitive behaviour after they were found to have prevented members of the Three Counties trade body – the local equivalent of the ESPC – from advertising their fees or discounts in the local newspaper.
In an open letter to the property industry published shortly after the ruling, the CMA said: “Whilst trade associations can offer many legitimate benefits, where they take actions that limit the commercial freedom of their members, for example by restricting the form or content of their advertising, this can risk breaking competition law.”
Complainants to the CMA are allowed to remain anonymous for their own protection.
One letter to the CMA claimed that the ESPC, which is “owned” by its members, charges a “higher than a proper price” for marketing properties.
The letter said: “A symbiotic relationship now exists between the member owners and the company, allowing the members and the company to utilise one another to achieve their ends. This allows ESPC to maintain a higher than proper market price for ESPC’s property advertising/marketing services and allows the solicitor members to utilise the company to effectively block new entrants, to control and interfere with existing members’ business models to ensure that they are not ‘too competitive’ and to ensure that they cannot break the status quo business model employed by solicitors estate agents in Edinburgh and the Lothians.”
The CMA confirmed that it had received the complaints and said it was considering the situation. It has powers to launch a full investigation – or issue a warning letter to firms it believes may be in breach of regulations.
Businesses that are found to have broken competition law can be fined up to 10 per cent of their annual worldwide turnover and company directors can be disqualified for up to 15 years.
The ESPC’s turnover, according to its accounts filed with Companies House for the 12 months to May 2014, was £4.7 million.
A spokeswoman for the ESPC said: “The CMA has made no approach to ESPC on this issue.
“However, we are confident the regulations to which our 140 members agree are well within the current CMA guidelines and pose no unlawful restriction to their individual operations.
“One of the many benefits of being a member of ESPC is the ability to bring together all the properties being sold by member firms through our three marketing streams which has benefits of scale for each solicitor estate agent and their client,” the spokeswoman added.