A case that The Property Ombudsman was asked to review came from buyers who stated that the agent misrepresented the property they purchased at auction as they failed to make them aware that the property was tenanted or that there were only 55 years remaining on the lease. The buyers were seeking the return of the £3,000 reservation fee they paid which the agent had transferred to the seller following their withdrawal from the purchase.
In considering this complaint the Ombudsman had particular regard to the following Paragraphs of the TPO Code of Practice for Residential Estate Agents:
- Agents must by law comply with the Consumer Protection from Unfair Trading Regulations 2008 (the CPRs). The CPRs require agents to disclose any information of which they are aware or should be aware of in relation to the property in a clear, intelligible and timely fashion and to take all reasonable steps that all statements that they make about a property, whether oral, pictorial or written, are accurate and are not misleading. All material information must be disclosed and there must be no material omissions which may impact on the average consumer’s transactional decision and where information is given to potential buyers or their representatives, it must be accurate and not misleading. (7i)
- In regard to leasehold properties, agents should include basic key information such as service charges; ground rent; the length of years remaining on the lease; any known special conditions, and advise sellers and prospective buyers that there may be additional fees that could be incurred for items such as leasehold packs (7k).
The marketing details stated that the tenure of the property was leasehold, however they did not provide the length of the lease. In this case it transpired that the lease length was 55 years which meant that the majority of mortgage providers would not lend on such a short lease.
The agent said that as the buyers were cash buyers, the length of the lease was immaterial to them, in that there would be no concerns about the availability of mortgage funding. Whilst the buyers were seemingly able to purchase the property in cash at the time, there was always the possibility that they may need to lend against the property in the future, something which is not always possible on leasehold properties with a short lease. The length of a lease constitutes material information and the agent’s failure to make the buyers aware of the same before they paid the reservation fee prevented the buyers from making an informed transactional decision.
The issue of the short lease length only came to light during the conveyancing process. The property was within a holiday park. Despite the buyers making clear that they had been informed by the park owner that they could not extend the lease (which would have had a potentially significant and detrimental effect on the re-sale value) the agent insisted that the buyers could do so “after two years of ownership.” The agent had made no enquiries regarding the possibility of extending the short lease with the seller and the statement they made was inaccurate.
The marketing details produced by the agent made no reference to there being an ongoing tenancy. This was material information regardless of the agent’s comments that the completion date was set to allow for vacant position. The agent seemingly only became aware of the tenancy after the buyers had paid the reservation fee. In an email sent after the auction, the agent said that the seller had a tenancy agreement which was due to expire in a month, but as the tenant was buying a new build property locally, and its completion was delayed, they may wish to stay in the property for longer. The agent explained that the seller would be providing a copy of the tenancy agreement and asked whether the buyers had purchased the property as a holiday home or to let, adding that if the latter they could arrange for the tenancy to be transferred to the buyers.
In this case, the agent had failed to disclose the ongoing tenancy to the buyers. They should have asked questions about this to elicit the information and included such material information within their marketing details for the property.
The complaint was supported.
The Ombudsman was satisfied that it was the short lease length and the fact that the owner of the park in which the property was situated informed the buyers that the lease could not be extended which caused them to withdraw from the sale. Had the buyers been made aware of this information before the auction, it was reasonable to conclude that they would not have submitted bids for the property, thereby making a different transactional decision.
By way of resolution to their complaint, the buyers had requested the return of the £3,000 reservation fee they paid.
It was accepted that the agent had paid the reservation fee to the seller in accordance with the terms and conditions of the Exclusivity Agreement and the Online Auction Buyer Terms and Conditions. However, the Ombudsman concluded that the agent failed to provide all material information. This had prevented the buyers from making an informed transactional decision. Had the agent adhered to their obligations to ascertain the number of years remaining on the lease and disclosed this information, it was reasonable to conclude that the buyers would not have submitted bids for the property or paid the reservation fee.
An award of £3,000 was made in full and final settlement of this dispute.