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Latest on future of referral fees including possible ban – announcement expected shortly

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Thu 27 Feb 2020

Latest on future of referral fees including possible ban – announcement expected shortly

Industry regulator the National Trading Standards Estate and Letting Agency Team (NTSELAT) has been monitoring agents’ compliance with their guidance on disclosure of referral fees over the last 12 months.

Together with The Property Ombudsman it has also recently asked agents to participate in a survey to assess agents’ awareness and uptake of referral fee guidance rules.

My view is that NTSELAT will have had real problems in monitoring compliance, because agents are split into three camps –

  • Those who refer customers on to third parties and receive referral fees
  • Those who refer customers on to third parties and don’t receive referral fees
  • Those who don’t refer customers on to third parties

There is no way of easily establishing which camp an agent is in, and so it would be interesting to see the results and conclusions.

We had expected a government announcement this week on the future of these fees, but it appears it will not happen as ministers have asked to see the report and consider it. Apparently, an announcement is to be made in the next few weeks.

There appear to be a couple of options for ministers to consider.

The first will be to keep the status quo and use existing legislation to manage compliance.

The legislation is the Consumer Protection from Unfair Trading Regulations and any practice by an estate agent or letting agent that hides the real price of a service can be seen as an unfair commercial practice under the Regulations.

The interpretation here is this. If the agent refers a consumer on to a third party and they receive a payment for the referral, which is not disclosed, the consumer is hit with that ‘hidden’ referral cost. This failure to disclose all the material information relating to the cost of the service means an offence is committed.

In certain cases, this is quite correct. However, many service providers charge the same fees to consumers who contract with them as a result of an agent’s referral, as they do to those who contract with them directly.

The referral fee is simply an additional cost to the supplier, not to the consumer. In certain cases, the agent has negotiated a lower fee with the supplier so that their referred customers pay less than those approaching the supplier direct.

To prove an offence, Trading Standards officers must not only prove that there was a referral fee paid in each individual case, but will also have to prove that there was a hidden cost. This might well be quite difficult.

The second option that has been mooted is the banning of referral fees altogether.

Twelve months ago this was the threat made by the Government, if agents did not follow the guidance on disclosure.

As a compliance consultant, I suspect this might well be the Government’s preferred option, given their legislative approach with agents in recent times. I think this is the worst option for everyone.

Referrals will still take place, as the good agents will want to assist customers in the buying and selling process, but there will be less incentive for them to do it, or to negotiate those good referral deals.

Service suppliers will lose business, because of the lack of any incentive for agents to refer customers on. Unscrupulous agents and service providers may well continue the banned practice and enforcement will be even more difficult.

Trading Standards will struggle to prove that a banned referral fee was paid in any individual case, because the payments will be disguised as something else. The practice will become well and truly hidden if this takes place.