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If You're Selling Or Buying Property In The UK Then You Ought To Know About Contracts And Agency

When you buy or sell property, make use of an estate agent, or enter into a mortgage, the principles of contract and agency come into play.

So you know what a mortgage is, right? A mortgage has two sides to it - you, the borrower looking for cash to buy a property, and the lender, providing the means by which you can buy the home of your dreams.

No problems there. But the process of buying a property and obtaining a mortgage loan both involve contracts. Yes they surely do. You, my friend, and the person selling the property. You and the lender providing the mortgage.

From the above, it can be seen a contract must involve two parties, at the very least. And in order for the contract to have teeth, legal obligations are put on either side.

Thus the principles of contract, and the principles of agency, add glue to the whole process.

The principles of contract are quite easy to understand. In essence, a contract is a legal arrangement which two or more persons agree to enter into.

A contract implies something tangible is given by one side and accepted by the other side. Doing so places legal obligations on both sides.

The 'something' that is given is known in legal circles as a consideration. Sort of old world? In terms of property, the buyer's consideration is cash, which he or she hands over. The seller's consideration is, naturally, the property.

But there's much more to a legally binding contract than simply the numbers involved and the handing over of a consideration.

We are referring to the capacity to enter into a contract by either party. And it's not as complicated as it sounds.

To enter into a contract in the UK, both sides must be 18 or over. They must both be legally able to sell property, or to buy the property. And either side must be of sound mind.

Then there is honesty. Both sides of the deal have got to be honest and sincere in the dealings with each another. It's known as utmost good faith.

So if one party asks a question of the other a truthful answer is expected in return.

This is particularly relevant when it comes to property. Any seller should expect questions from the buyer's solicitor or representative, with regard to a whole number of areas, as a matter of course, such as disputes, for example, or factors in the surrounding area or environment which might have an effect on the property.

Answers that are less than economical with the truth may result in all sorts of legal consequences at some future date. Well worth avoiding!

Having dealt with the principles of contract, it is time to look at the principles of agency, something you ought at least to think about and understand, too, if at all possible. That's because, in all likelihood, you are likely to enlist the services of an estate agent, whose job is to bring buyer and seller together.

So there's a relationship between estate agent and property seller, which is where the principles of agency come into their own. This involves an agent on one side and the principal on the other side - the agent naturally being the estate agent, and the principal the seller.

The principles of agency make it clear that under the law, all actions taken by the agent are deemed to be those of the principal.

Of course, that may be a rather simple explanation and in reality the situation is likely to be much more complicated. However, in terms of our estate agent, his or her role might be nothing more than passing on offers to the seller.

Compare this to other types of agency where the agent may be given greater authority to act on behalf of the principal, within, of course, certain agreed and predefined margins.

A common example of this is the relationship that often exists between IFAs (independent financial advisers) and their clients. On occasions IFAs will make independent investment decisions, within agreed parameters, without seeking permission of the client.

So, whether simple, or more complex, all conditions of an agency should be set out in writing before any action is taken - independently or otherwise - by the agent.

Thus, when the agent starts working for the principal, the agent knows precisely what the boundaries of the relationship are and where they lie. He or she knows exactly where they stand.

But things can go more than a little wrong, even with the best of plans.

Sadly, such can be the case when actions by the principal appear to give the agent authority way above and beyond the agreed limits.

This is called aparent authority. The agents actions have become ligitimised because of the actions of the principal.

When it is clear, however, that an agent has actually stepped over the boundary, action can be initiated against the agent by the principal.

Or the principal can retrospectively agree that the action taken by the agent was indeed acceptable. Commonly known as ratification, the principal ratifies the action of the agent after the event has taken place.

In this article, we've examined some of the legal issues surrounding the buying and selling of property in the UK. In particular, we've looked at the principles of contract and the principles of agency, hopefully shedding just a little light on the complex and sometimes difficult area of contract and agency law.

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