However, it’s raising eyebrows and concerns among conveyancers, estate agents and insurers alike. To many professionals this announcement came unexpectedly with some still unaware of its impact. Those who have engaged with the topic express scepticism about its necessity and efficacy.
Under current legislation, as set out in the Consumer Protection from Unfair Trading Regulations 2008, estate and letting agents have a legal obligation not to omit material information from property listings. To date, practices around disclosure are not consistent across the industry and not all relevant stakeholders have been involved in the decision making.
The legislation states that the estate agents are responsible for finding and publishing all material information before listing a property, and non-compliance with material information requirements may result in fines.
The rationale is straightforward: by ensuring that buyers are made aware of any potential issues with a property from the outset, they can avoid investing time and resources into a transaction that may ultimately not be in their best interest. This sentiment is commendable, as it aims to reduce the likelihood of buyers encountering issues that could derail their purchase or lead to financial loss.
The rationale is understandable. The question is how soon should this information be disclosed in the transaction? What are some problems that could arise from disclosing before there is even a legitimate prospective purchaser?
While the intention behind providing material information is to protect consumers, the execution of this idea presents several challenges. Not least, simply stating that a property is affected for instance by restrictive covenants does not inform a buyer of the implications these covenants may have on their plans for the property. To determine whether a covenant is material to a buyer, several questions need to be addressed. For starters:
The estate agent is a critical stakeholder in the transaction process, influencing both the listing and sale stages. However, these questions require a level of legal expertise that they are not qualified to interpret or advise on complex legal matters; that is the role of solicitors and conveyancers. If the estate agent is unable to provide a full picture of how these matters affect the property, it raises doubts about the value of including them in the listing at all.
The potential ramifications of prematurely disclosing material information are concerning. Picture this: An estate agent notes that a property lacks planning permission for an existing extension on Rightmove. It prompts an egregious neighbour to report this to the local authority (if they haven’t already discovered it themselves) who then takes enforcement action.
In this scenario, the seller faces the greatest risk should the buyer decide to withdraw. The seller must navigate enforcement actions on a potentially historical breach before proceeding with the sale, and due to the enforcement action, they lose the opportunity to secure a legal indemnity policy.
If the issue had remained between the seller and the buyer, the neighbour might never have realised the extension lacked planning permission, allowing the seller or buyer to obtain an indemnity policy for protection against potential enforcement actions.
While Legal & Contingency doesn’t advocate bypassing planning permissions, our mission is to streamline transactions. Historical breaches can be challenging to resolve, often not aligning with the timelines of both sellers and buyers. Until now, insurers have offered reassurance to buyers and lenders, but this material information issue threatens to disrupt that balance.
If a legal indemnity is already in place for a matter affecting the property, this would be material to a potential buyer because the risk is already mitigated; albeit the buyer must decide if they’re comfortable with this level of risk. However, for most if not all legal indemnity policies, the existence of a policy can only be disclosed to a legitimate prospective purchaser and/or a potential lender. This prevents full material information disclosure on platforms like Rightmove or Zoopla.
So, is there a need for material information to be public? Or are we complicating an already complicated process?
The public disclosure of material information must be approached with caution. Title in the UK is complicated. The complexities of property law and the nuances of individual transactions require the expertise of legal professionals to navigate effectively. While improvements to facilitate smoother transactions can and should be made, a better starting point could have been addressing communication between conveyancers and estate agents, exploring AI or leveraging case management technologies.
Nonetheless, property listing platforms have already started disclosing material information. This move may inadvertently stifle market dynamics, lead to reduced market fluidity and increase the costs of transactions. It may also increase legal indemnity policy premiums due to increased risk of claims and estate agents will more than likely need to start obtaining professional indemnity insurance which may lead to them increasing their fees.
Regardless of which side of this argument you sit, the next few months will undoubtedly be eventful for estate agents, conveyancers and insurers as well as sellers and buyers. From a legal indemnity standpoint there’s a need to educate estate agents, sellers and buyers to be cautious on what they disclose and to who before they seek legal advice.
If you have thoughts on the disclosure of material information, please share them below.
Resource: Material Information - National Trading Standards