FountainPen_19114280PAUL MOONEY and ED CAREY look at the impact of the new requirement for licence holders to provide all clients with a letter of engagement.

All auctioneers and property practitioners are now aware of the new legislation governing the industry, and have now applied, and in some cases have received, their new licence from the Property Services Regulatory Authority (PSRA).

The Property Services (Regulation) Act 2011 is not just about changing the licensing application process and regime; after having obtained their license, property service providers now also have to comply with the other aspects of the Act.

General obligations
Many aspects of the new regime will not be new to members of the Society of Chartered Surveyors Ireland, but the formalisation of these obligations will require members to step somewhat outside their comfort zone. Regarding letters of engagement, for example, members should take comfort in the fact that the concept of letters of engagement has been regarded as good business practice for many years, so the new requirements should not be overly onerous. All of the new requirements require careful reading; however, the authors intend to deal principally here with these letters of engagement.

Part 4 of the Act deals with “General Obligations of Licensees”, the first of which is Section 43 (1), which states: “A licensee shall, not later than seven working days after the day on which the licensee starts to provide a property service to a person, or has reached an agreement with the person to provide a property service to him or her, whichever is the earlier, provide to that person, in respect of such property service, a letter of engagement (including a copy thereof) in the specified form”.

Schedule 2 of the Act details what is required in a Property Service Agreement in four sections (see panel). While this details what must, under statute, be contained in the letter of engagement, Section 43(1) suggests the use of “the specified form”, and this allows the PSRA to prescribe the format of such agreements.

As the legislation is not retrospective, the Act does not require practitioners to replace existing contracts; however, it is recommended that some acknowledgement of the requirements set out in Schedule 2 be made between agent and client.

For new clients and instructions received after the issuing of licences, or if a relationship exists where there is no current contract in place, the practitioner must put a new contract in place in the “prescribed form”. These templates are available on the PSRA’s website – www.psr.ie.

Letting and management
The “prescribed form” of such agreements goes much further than the panel illustrates. Providers of letting services and managers of multi-unit developments are likely to experience the biggest change, as these agreements are the most detailed and prescriptive.

In the case of lettings (residential, commercial or agricultural), full property details must be obtained and contained in the agreement prior to appointment. One imagines that this will require the owner of the property to have far greater knowledge than many display at the moment. In addition, for non-residential property, the agent must allow for letting in part of the land and gather greater detail on occupational costs such as rates, service charges and insurance, including the basis of such landlord recoveries. In residential property, the agent must allow for negotiation where the inventory may change.

All agents must confirm any such changes to the initial letter of engagement in writing to the client, signed by the licensee.

Rural members will be familiar with the current modus operandi relating to agricultural licence agreements, which are a significant part of many rural practitioners’ practices. Some debate surrounds the correct identification of ‘the client’ (the one who pays the fee). The Rural Agency Practice Group will shortly commence an engagement with the Regulator’s office in relation to this issue and further updates will issue as soon as clarification is received.

One imagines that such detailed contracts will alter the letting agent marketplace measurably, reducing the number of agencies listing the same properties, and creating stronger relationships and repeat business between property owner and agent. Anecdotally, the authors are hearing reports of currently unlicensed operators accepting the fact that non-compliance will result in the closure of their businesses.

In relation to the provision of property management services to multiunit developments, the prescribed form of agreement will continue to dramatically change this market segment. For many years there has been no requirement for agents to be licensed or to carry professional indemnity insurance, let alone enter into a written contract with the client. There is little left unsaid in the form of agreement, and the schedule of services contained in the Appendix is designed to educate an owners’ management company on the range of services on offer by the professional agent.

Conflict of interest
In most of the prescribed forms, there is a welcome indemnity that should comfort many agents and their professional indemnity insurers, and offers some protection from erroneous claims on the agent that are simply misdirected but require defence, with relevant costs.

A welcome inclusion is that of “Conflict of Interest”, and the requirement to disclose any potential conflict of interest to the client. In essence, this removes the agent’s ability to receive inducements from purchasers, service providers or any party without first disclosing these to the client. This will help the marketplace to find its correct fee more mature and professional market for us all to trade in.levels for professional services on a transparent basis, and create a more mature and professional market for us all to trade in.

Emphasis on clarity
As these are “prescribed forms”, all practitioners must adopt them for new clients and any client that does not already have a current and valid contract in place. In the event of complaints to the Authority, it is likely that the agreement will be the first document sought, and if such an agreement does not exist, it will not bode well for the licensee.

On a final note, while the legislation was clearly drafted with the issue of consumer protection in mind (in the aftermath of the property bubble, where purchasers of property – and not consumers of property services – were left with no recourse when problems occurred), we should take heart from the fact that clarity at the outset is the best panacea against problems arising at the conclusion of a sale. It is now clear that the property market has shifted beyond recognition from where it was. The Society is currently undertaking a significant survey of tenure preference change among consumers and members. The results will, we believe, be of significant interest to members, and may dictate the thrust of their businesses. The emphasis on lettings and management in the legislation may not have been envisaged to be as significant as it is now, and whether by accident or design is clearly welcome and long overdue. While the tone of the communication may not be to everyone’s liking, it is compulsory, will be played on a level playing pitch, and with our skills as educated, qualified professionals, in an increasingly turbulent market, we are better equipped than most to adapt to the new regime.

EdwardCareyEdward Carey
Edward is a member of the PSRA, Chairman of the
Residential Professional Practice Group of the SCSI, and
runs Property Team Carey Auctioneers in Co. Meath.

 

 

PaulMooneyPaul Mooney
Paul is a member of the PSRA, the Editorial Board of the
Surveyors Journal, and the Property and Facilities
Management Professional Group, and is a director/
partner of Strathmore Ivernia Ltd.