The implications of the Fraud Act for both auctioneering best practice and the industry sparked intense debate at the National Association of Estate Agents property forum last week.
Introduced in 2006, the Act brought into focus the issue of disclosure and a move towards even greater transparency. Peter Taylor, a member of the Royal Institution of Chartered Surveyors real estate auction legal expert panel, and partner at Olswang, warned that “it places a huge burden on sellers, agents and solicitors”.
Addressing a packed room at the event at Rugby’s Dunchurch Park Hotel, Taylor cautioned: “This act is quite serious because it is difficult for anyone to know what the hell is going on, yet it came into force in January 2006. What is false? What is representation? What is dishonesty? It is incredibly broad, yet it was meant to be consolidating.
“In reality, it puts auctioneers into a very difficult position.”
The market is already subject to significant regulation and legislation, including the Property Misdescription Act, culminating in fines of up to £5,000 or 10 years in jail for fraudulent misrepresentation of property, whether fraudulent, negligent or innocent. But, delegates heard, the introduction of the Fraud Act presented something of a minefield to the industry.
“It may be getting towards the stage where we have to make a sensible analysis of the effect of every document. How do you describe ‘occupation’ when it is a difficult question of lease or licence? Should the particulars be excluded from the contract any more?” said Taylor. “Perhaps auction users need to see that we have inspected the property and perhaps we should charge for this facility as they do in fine art houses.”
Though sellers could proffer the defence of caveat emptor, auctioneers need to focus attention upon patent defects and latent defects in the condition of the property as sellers may have a duty to disclose these, added Taylor.
The Act also left auctioneers facing a dilemma over bidding on behalf of sellers and disclosing reserves. Charles Smailes, former president of the NAEA, said: “How should we address the issue of reserves? Should we declare them, set guides at reserves, or declare them if asked? My view is that auctioneering practice works for our customers at the moment and we need to ensure it is not categorised as fraudulent.”
Richard Auterac, chair of the RICS property auction group, echoed his concern, and added: “Buyers do know that we act on behalf of sellers. But society is demanding different levels of disclosure and we recognise people want greater disclosure, so there will be changes over time. At the moment, we want to anticipate this trend because we believe it is good for the market. We will do more business as a result and we have a duty to ensure the market works.”
Other key issues affecting the market included the Third Money Laundering Directive, which tightened up procedural checks on clients who were not present. “It is a difficult thing to do when they may be in a country that does not have the same levels of disclosure as us,” conceded Peter Bolton King, NAEA chief executive.
“If you are dealing with a trust, then you must take particular care because there is clear evidence that criminals are using trusts for money-laundering purposes. Auctioneers taking cash sums of £15,000 or more in deposits must be ever-more vigilant.”
Smailes: “Auctioneering practice works…and we need to ensure it is not categorised as fraudulent”
naea news round-up
Other industry news included:
? The launch of an NAEA Technical Award In Real Property Auctioneering, a Level 3 qualification.
? Work on the Third edition of the Common Auction Conditions has begun. The RICS is to hold a consultation exercise and aims to publish the revised industry standard in 2008.
? The RICS is to publish its Fifth edition of the Auction Guidance Notes with up-to-date information on data protection, underwriting and mandatory and recommended practice.
