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Consumer Protection Regulations in conveyancing

25 February 2016

This practice note includes detailed advice on:

The purpose of this practice note is to alert you to the new guidance in relation to the CPRs and its implications for practice.

This guidance note puts forward recommendations on a cautious basis to avoid the present uncertainties in the application of the CPRs.

Legal status

This practice note is the Law Society's view of good practice in this area. It is not legal advice.

Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.

Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.

For queries or comments on this practice note contact the Law Society's Practice Advice Service.

Terminology

SRA - Solicitors Regulation Authority

Must - A specific requirement in legislation or of a principle, rule, outcome or other mandatory provision in the SRA Handbook. You must comply, unless there are specific exemptions or defences provided for in relevant legislation or the SRA Handbook.

Should - Outside of a regulatory context, good practice for most situations in the Law Society's view. In the case of the SRA Handbook, an indicative behaviour or other non-mandatory provision (such as may be set out in notes or guidance).

These may not be the only means of complying with legislative or regulatory requirements and there may be situations where the suggested route is not the best possible route to meet the needs of your client. However, if you do not follow the suggested route, you should be able to justify to oversight bodies why the alternative approach you have taken is appropriate, either for your practice, or in the particular retainer.

May - A non-exhaustive list of options for meeting your obligations or running your practice. Which option you choose is determined by the profile of the individual practice, client or retainer. You may be required to justify why this was an appropriate option to oversight bodies.

The Law Society also provides a full glossary of other terms used throughout this practice note

1 Introduction

1.1 Who should read this practice note?

All solicitors involved in conveyancing.

The Consumer Protection from Unfair Trading Regulations (as amended) (CPR) prohibit businesses from engaging in unfair commercial practices with consumers. They cover most commercial dealings with consumers and apply to services provided by solicitors to clients that are not businesses. The CPRs, in their original form, have applied since 26 May 2008, but the Consumer Protection (Amendment) Regulations, 2014/870 have extended their scope in a number of ways. The amended regulations came into force on 1 October 2014. Since then, they apply to 'immoveable property'. As a result, they have a most important impact on the duties of solicitors in conveyancing transactions in general and dealings involving consumers, whether they are clients or even if they are third parties dealing with clients whom the solicitor is representing.

Infringements of the CPRs by solicitors, in the absence of a prescribed defence, are offences punishable on summary conviction by a fine not exceeding the statutory maximum or on conviction on indictment to a fine, or imprisonment for a term not exceeding two years, or both.

1.2 What is the issue?

The purpose of this practice note is to alert you to the new guidance in relation to the CPRs and its implications for practice. The guidance is set out in paragraphs 2 -5 below.

The information in this practice note constitutes the initial view of the Law Society. The full effect of the CPRs is still untested and in some respects somewhat uncertain. It is for the courts to determine the extent and applicability of the CPRs. When there is a body of case law, the effect of the CPRs may become clearer. In the meantime you should review your practices in accordance with the CPRs and obtain independent legal advice if necessary. This guidance note puts forward recommendations on a cautious basis to avoid the present uncertainties in the application of the CPRs.

In September 2015 the National Trading Standards Estate Agency Team (NTSEAT) produced revised guidance to estate agents - in connection with their obligations under the CPRs. That guidance replaces the Office of Fair Trading 2012 guidance. Even though the revised guidance has been prepared for estate agents and specifically states that it is not aimed at conveyancers or surveyors, it is suggested that parts of the guidance 'may be relevant and helpful' to surveyors and conveyancers. You may find it useful to read its guidance.

1.3 Compliance with regulatory and legislative obligations

In relation to the CPRs, you may wish to consult chapter 3 - conflicts of interests, and chapter 4 - confidentiality and disclosure of the Solicitors Regulation Authority (SRA) Code in more depth.

The CPRs may impact differently where there is an unrepresented third party. You are under a duty to act fairly towards both your own client and also towards third parties, especially those who are unrepresented. You must act in your client's best interest and must not act if there is a conflict of interest.

There are ten mandatory principles which apply to all those whom the SRA regulates and to all aspects of practice. The principles can be found in the SRA Handbook. You should always bear these principles in mind and use them as your starting point. Failure to meet your professional duties within the SRA Handbook may result in SRA sanctions or a referral to the Solicitors’ Disciplinary Tribunal.

Your duties and obligations are contained within the SRA Code and the indicative behaviours will provide guidance as to whether you have met the objectives of the outcome focused code. Further details are set out in paragraph 4 below.  

2 The Consumer Protection from Unfair Trading Regulations 2008 (as amended) (CPRs)

2.1 Legal basis of the CPRs

The CPRs are the Regulations intended to implement EU Directives on Unfair Commercial Practices [2005/29/EC] that regulate transactions between traders and consumers. The CPRs were amended by SI 2014/870 with effect from 1 October, 2014. The amendments made to the definition of  'trader' are reflected by the definition of that term in the Consumer Rights Act 2015.

Many of the obligations placed on you as a solicitor under the CPRs are already covered by your obligations under the SRA Code and, provided that you treat consumers fairly, you are unlikely to be in breach.

2.2 Key terminology in the CPRs

The terms set out in this paragraph are definitions or expressions used or explained in the CPRs and of particular significance in this practice note. As a result, and as they may apply to solicitors, they are in some cases paraphrased and extracts only. Reference to the CPRs is necessary for the full definitions and their detailed effects:

Average Consumer - the material characteristics of a consumer, or the average member of a particular group of consumers, who is reasonably well informed, reasonably observant and circumspect; account is to be taken of a clearly identifiable group of consumers whose particular vulnerabilities a trader could reasonably be expected to foresee.

Commercial Practice - any act, omission, course of conduct, representation or commercial communications (including advertising and marketing) by a trader, which is directly connected with the promotion, sale or supply of a product to or from consumers, whether occurring before, during or after a commercial transaction (if any) in relation to a product.

Consumer - an individual acting for purposes that are wholly or mainly outside that individual’s business.

Material information - information which the average consumer needs, according to the context, to take an informed transactional decision.

Misleading action - providing false information or presenting information about the nature or main characteristics of the goods or property in a way which deceives or is likely to deceive the average consumer and, as a result, causes or is likely to cause the average consumer to take a transactional decision he would not otherwise have taken.

Misleading omission - the omission or hiding of material information or providing material information in a manner which is unintelligible, ambiguous or untimely, or fails to identify its commercial intent and, as a result, causes or is likely to cause the average consumer to take a transactional decision he would not otherwise have taken.

Product - a product, inter alia, includes 'a service' and 'immoveable property'.

Trader - a person acting for the purposes of that person's business, whether personally, or through another person acting in the trader's name or on the trader's behalf . The definition includes a person acting in the name of, or on behalf of, a trader. A person acting in the name or on behalf of a trader (a solicitor, for example) is therefore himself a trader, except for the purposes of the provisions for consumers' rights to redress, when acting on behalf of a trader.

Transactional decision - a decision taken by a consumer, whether to act or refrain from acting, concerning the terms of purchase, payment or on what terms to exercise a contractual right in relation to a product.

2.3 Executive summary

The CPRs apply to commercial practices before, during and after a contract is made between a trader and a consumer. The aim of the CPRs is to prohibit trading practices that are unfair to consumers; vulnerable consumers are to be treated with a higher standard of consideration and care. The CPRs have a broad coverage; the impact they have involves significant changes to solicitors’ practice

Solicitors' conveyancing practice comprehends the common law and statutory principles relating to misrepresentation, and takes into account the implied duty of sellers and lessors to disclose latent defects in title. Otherwise, the principle of caveat emptor ('let the buyer beware') is well-established in the law relating to the sale and letting of real property.

The CPRs now cover 'immoveable property' in trader-consumer transactions. As such:

  • The definition of 'trader' affects solicitors in two capacities. First, by providing a service to a consumer/client, solicitors are traders for the purpose of the CPRs. Second, when acting on behalf, or in the name of, a trader in a trader/consumer transaction, typically when he is selling or letting a property, solicitors are treated as 'traders' having full responsibility for their actions and omissions under the CPRs.
  • The definition of 'commercial practice' includes the supply of a product to or from consumers; 'product' includes both a service and immoveable property provided by a trader. The extended definition of both expressions certainly applies to solicitors when acting for a trader and also when they are supplying their services directly to a consumer/client (a solicitor supplies a service to a consumer/client).

    The wide language used in the definition of 'commercial practice' may well be interpreted to extend to a solicitor in dealing with a third- party consumer even when he is not acting for a trader (for example, in selling residential property, the product supplied in the course of commercial practice of the solicitor includes immoveable property). It is a logical interpretation requiring, perhaps, court determination to ascertain the application of the CPRs in this respect.
  • Solicitors, as traders, are liable for misleading actions, misleading omissions, and engagement in prohibited commercial practices, as those terms are defined in the CPRs.
  • Unfair commercial practices are prohibited. These include misleading actions, misleading omissions and failing to act with the standard of care and skill that is in accordance with honest market practice and in good faith ('failing to show professional diligence'). A commercial practice is unfair if it contravenes the requirements of professional diligence and it materially distorts, or is likely to distort, the economic behaviour of the average consumer with regard to the product.
  • Solicitors will commit an offence if they engage in prohibited practices in the course of their commercial practice.
  • Solicitors' duties of confidentiality to clients are impinged upon. The full extent to which they are overridden by the CPRs is, as yet, uncertain. The issue finds no mention in the CPRs.
  • Diligent enquiries of, and advice to, traders and consumers alike on the part of solicitors are required in discharging their responsibilities under the CPRs.

In transactions or matters where no consumer is involved, common law and statute law as to misrepresentation and disclosure apply, as do your obligations under the SRA Code. The CPRs have no application in that context, but adherence to solicitors' honest and fair dealing requirements must, of course, be observed. Fair dealing and good practice requires the disclosure of material information.

3 Offences

3.1 Circumstances constituting offences

As stated, the CPRs prohibit unfair commercial practices. Interactions with consumers need to be free from any practice which would constitute, for the purposes of the CPRs, an unfair commercial practice, a misleading action or a misleading omission - all three are offences under the CPRs.

Offences carry criminal sanctions ranging from a fine to imprisonment for up to two years.

It is an offence if a misleading action is taken or there is a misleading omission on the part of:

(a) a person supplying property to a consumer where the supplier is acting for the purposes of his business

(b) anyone acting on behalf of that person

(c) even where the supplier is not acting in a business capacity, anyone who, for the purpose of his business, carries out an action which is directly connected with the promotion, sale or supply of property to a consumer. 1Thus, even though the supplier is not a trader, the solicitor acting for him opposite a consumer, may be treated, it appears, as a trader; the solicitor is acting in the course of a commercial practice.

3.2 Who could be liable for these offences?

Those who could commit offences include:

(a) a property company selling or letting property to a person for personal use or private investment, but would not catch one property company or fund selling to another property company or fund or the sale or letting of property for the buyer's or tenant's business use

(b) an estate agent or solicitor acting for someone caught by (a)

(c) an estate agent or solicitor acting on a sale or letting of property to a person for personal use or private investment, even where the client (seller or landlord) is supplying it in a non-business capacity, such as in the case of residential conveyancing

3.3 Misleading actions

Misleading actions may include representations in relation to fitness for purpose of a property and the results of any survey, tests or checks carried out on the property.

3.4 Misleading omissions

The impact of the CPRs' prohibition on 'misleading omissions' is that you must make full disclosure to private buyers/tenants, or the solicitor representing them, about defects and other material adverse matters relating to the property known to you, having obtained the authority of your client to do so. If you are aware of the existence of material information relevant to the transaction in hand, even if you are not aware of the content, it may, in the circumstances be your duty in a trader-consumer transaction to disclose what you know (having obtained the client's authority to do this) so as not to be responsible for a misleading omission. This goes further than the duty not to misrepresent, reduces the application of the principle of 'caveat emptor' and may impinge on the duty of confidentiality to your client (see paragraph 4 for further details).

3.5 Defences and consumers' rights to redress

3.5.1 Defences

It is a defence of a person against proceedings for an offence if the person proves that the commission of the offence was due to a mistake, reliance on information supplied to him by another person, the act or default of another person, an accident or some other cause beyond his control. The defence is available if the person took all reasonable precautions and exercised all diligent care to avoid the commission of the offence by himself or any person under his control. A solicitor is at risk accordingly in the absence of taking reasonable precautions or in failing to exercise all due diligence.

3.5.2 Consumers' rights to redress

When acting for a trader selling or letting a property to a consumer, a person acting on behalf of or in the name of the trader, such as a solicitor or an estate agent, is exempted from the consumer's right to redress becoming due to the consumer under Part 4A of the CPRs ('Consumers' Rights to Redress') for financial loss, reasonably foreseeable at the time of the commission of the prohibited practice, or for distress, physical inconvenience or discomfort, which would not have been incurred if the prohibited practice had not taken place, such damages as are incurred are payable by the trader.

3.6 Advice to your clients on the effects of the CPRs

You should make your client aware at the outset of a transaction with a consumer of his duties if he is a trader and, even if he is not, your duties to a consumer in those circumstances, under the CPRs:

  • You should remind your client that neither the client nor you must mislead the buyer or tenant either by providing incorrect or ambiguous information, or by omitting to provide material information.
  • You should remind the client that certain information will be revealed through searches and the completion of the TA6 form. Other information may become apparent through searches and other enquiries of public databases, surveys and valuation reports.
  • Your client must also be advised that the consumer with whom he is dealing would have rights of redress against him, including in certain circumstances, the right to unwind the transaction and damages (see CPRs, part 4A)
  • You may wish to encourage your client to make all known disclosures as early in the transaction as possible to prevent delays. This advice to the client can be included in relevant terms of engagement, but can equally be included in another communication between client and solicitor.

The test is whether omitting to disclose material, or a failure to provide it in a clear, intelligible and unambiguous manner, is likely to cause the average consumer to take a different transactional decision. What information is deemed to be material is unlikely to be the same in every case.

When acting for a trader client, you may have material information which it is your duty to disclose to the consumer. You may be aware of an adverse survey of the property, or of adverse information present in the deeds of the property, or in any circumstances that material information has come to your attention otherwise than through your client.

It is your duty to make reasonable enquiries to find out if any material information exists. Even if you do not know of the contents of a piece of material information, but only of its existence, it could still be a misleading omission not to disclose the fact of its existence to the consumer.

4 Confidentiality and the duty of disclosure

4.1 The SRA Code requirements

You owe your client a duty of confidentiality further to chapter 4 of the SRA Code. You are also bound by the duty of disclosure under the CPRs, and in some instances these two duties may cause a conflict. For example, if your client tells you about a structural defect at the property but instructs you not to disclose this information to the buyer, you may need to decide whether you are able to continue to act, taking into account your duties under the SRA Code.

You are already bound by the SRA Code not to take unfair advantage of a third party (outcome 11.1) and you have a duty to ensure the client is correctly advised as to what disclosures should be made to the third party.

4.2 The impact of the CPRs

In the context of the prohibition on misleading omissions, it is often the seller who holds the material. This demonstrates the conflict that you may encounter between the regulatory prohibition of, and criminal sanctions for, misleading omissions and your duty of confidentiality to your client while continuing to act in your client's best interest.

The conflict between the duty of confidentiality and the need to avoid a breach of the CPRs may be sufficient to mean that you have to refuse to act for your client in circumstances where your client instructs you not to disclose material information. The duty to act fairly, openly and honestly and, in particular, not to omit necessary information may be difficult or impossible properly to reconcile with your duty of confidentiality to your client.

Because of the possibility of criminal sanctions against solicitors for breach of the CPRs, you should err on the side of caution.

  • you should strongly advise the client seller or landlord to disclose any known material information
  • you should do everything possible to encourage the client to authorise disclosure of that information
  • if the client declines to authorise disclosure, you should consider whether it is possible for you to continue to act for the client and meet all of your professional and regulatory obligations

5 Existing Guidance for Solicitors

5.1 SRA Code

The CPRs reinforce the existing duties found within the SRA Code. You are under a duty to act fairly towards both your own client and also towards third parties, especially those who are unrepresented. You must act in your client's best interest and may not act if there is a conflict of interest.

5.2 Conveyancing Handbook

The Conveyancing Handbook contains information regarding CPRs at M6.17. Section B5 of the Handbook refers to the seller's duty of disclosure. The seller is only under a duty to disclose latent defects in title and incumbrances to the buyer but should err on the side of caution and make a full disclosure of all defects.

Section B5.3.3 refers to physical defects and states that it is immaterial whether the defect is latent or patent, patent defects generally do not fall within the duty of disclosure, although the buyer may seek a remedy in misrepresentation if the contractual description is inaccurate through the omission (Re Puckett & Smith's Contract ,1902).

The deliberate concealment of a known physical defect may give rise to an action in the tort of deceit (Gordon v Selico Co Ltd, 1986).

It should be noted that a prospective buyer, who is not in a fiduciary relationship with the seller, is under no duty to disclose to the seller the reason as to why he is not proceeding with the purchase (section B5.4.1).

The seller can be protected by the inclusion of appropriate contractual clauses to prevent the buyer from exercising the right to rescind in respect of any disclosed matters.

Incorporating an exclusion clause in the contract in order to restrict the seller's duty of disclosure is likely to breach the CPRs.

5.3 Conveyancing Protocol

The Conveyancing Protocol promotes the sharing of information, subject to confidentiality provisions, in order to assist in the efficient management of each transaction. The client should be encouraged to disclose all relevant information unless there are exceptional circumstances. The protocol expects you to treat others with respect and maintain high standards of courtesy and to deal with others in a fair and honest manner.

The protocol strongly encourages early disclosure to ensure the buyer is treated fairly and that the transaction is not delayed by information being obtained by the buyer just before exchange, for example.

6 Further information

6.1 Law Society

6.1.1 The Practice Advice Service for Solicitors

The Law Society provides support for solicitors on a wide range of areas of practice. Practice Advice can be contacted on 0870 606 2522 from 09.00 to 17.00 on weekdays or email practiceadvice@lawsociety.org.uk

Visit the Practice Advice Service webpage

6.1.2 Other Law Society Practice Notes

Conflict of interest
Client Care
Vulnerable clients

6.1.3 Law Society publications

6.2 SRA

6.2.1 Professional Ethics helpline

The SRA provides advice for solicitors on the SRA Handbook, call 0370 606 2577 (inside the UK), 09.00 to 17.00, Monday to Friday

6.2.2 Reporting another professional

The SRA provides guidance reporting misconduct.

6.3 Other resources

Consumer Protection from Unfair Trading Regulations 2008 (CPRs)
National Trading Standards Estate Agency Team (NTSEAT) guidance
EU Directives on Unfair Commercial Practices [2005/29/EC]
amended by: The Consumer Protection (Amendment) Regulations 2014 SI 2014/870
Consumer Rights Act 2015

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