Summary
- Starting an estate agency in England requires no mandatory qualifications, but owners must comply with laws governing client money handling, anti-money laundering obligations, and restrictions on acting as a conveyancer or solicitor.
- Incorporating as a limited company protects personal assets from business liabilities, which is particularly important given the high-value nature of property transactions.
- Estate agents must hold professional indemnity insurance and keep client funds in a designated, separate bank account with detailed transaction records.
- This article is a plain-English guide to the legal and regulatory considerations for entrepreneurs starting an estate agency in England.
- It was prepared by LegalVision, a commercial law firm that specialises in advising clients on business structuring, regulatory compliance, and contract law.
Tips for Businesses
Incorporate your business to limit personal liability. Join NAEA Propertymark for credibility and resources. Never draft contracts or give legal advice – refer clients to a solicitor. Keep client money in a separate account. Obtain professional indemnity insurance before trading. Draft clear client contracts that define the scope of your authority.
An estate agency is a regulated business that facilitates property transactions under Australian state and territory law. Licensing is governed by jurisdiction-specific legislation, such as the Property and Stock Agents Act 2000 in New South Wales, with regulators like NSW Fair Trading overseeing compliance. The ACCC also applies consumer law obligations under the Competition and Consumer Act 2010. This article will discuss general points all aspiring business owners might consider before they launch their enterprise.
General Considerations
Your Business Plan
Your business plan is a comprehensive document outlining the essential elements of your business, its goals, and the roadmap for the first few years of launch. While you can include more details about your business model, in particular, you should consider the scope of the services you intend to provide.
Some questions to consider include:
- Will you work in the residential or commercial sectors?
- Will you operate across lettings and sales?
- Do you intend to provide any property management services?
Some other factors to consider include:
- how you will market your business;
- which geographical areas you will serve;
- your IT and software systems;
- your marketing and branding strategy; and
- whether you intend to hire employees.
Financing Considerations
You should also consider how you will finance the business’ startup costs. Unless you have adequate savings, you will likely need access to outside capital. Some possible sources of capital include:
- friends and family;
- business contacts prepared to go into business with you; and
- a bank loan.
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Adopting a Business Structure
Your business structure is the legal framework that you will trade through. Unless you take active steps otherwise, you will automatically become a sole trader. As a sole trader, your personal assets will not be separate from your business assets. This means that if your business cannot meet its liabilities, creditors can claim against your personal assets to settle any amount you owe.
Given that property market transactions are usually high-value, if your business acts negligently, you could face substantial financial liabilities. Accordingly, you should consider incorporating your business into a limited company (or limited liability partnership). This will protect your business assets from your personal ones.
Finally, your financing options will likely be more diverse if you trade through a limited company.
Specific Considerations
Certification and Qualifications
In England, there is no law that requires an estate agency or an individual estate agent to obtain qualifications or certifications. Nor is there any professional society you need to join. However, as a matter of commercial prudence, you stand to benefit from joining the National Association of Estate Agents (NAEA) Propertymark. This is the largest professional body of estate agents and associated professions.
Having relevant qualifications gives your business an extra degree of legitimacy. Further, membership with NAEA will provide you with helpful resources. It can also be a great networking source.
Regulatory Compliance
The law imposes certain restrictions on your ability to deal on behalf of your client. For instance, you cannot:
- draft contracts for the purchase of land;
- enter into a contract on behalf of your client. An exception is where you are acting for the seller, and the seller has given clear instructions as to the price they would accept;
- provide certain factual statements that a third party may rely on in the course of purchasing a leasehold or freehold; or
- receive purchase money from the buyer on behalf of your client.
The above actions fall within the scope of a conveyancer or solicitor, not a real estate agent. Therefore, failure to abide by these restrictions can open you up to substantial civil and potentially criminal liability.
Wider Legal Considerations
Depending on the scope of your services, you will need to understand the various laws and regulations governing the property market. Notably, some laws may not be relevant to the market you operate in. For instance, the various laws protecting residential tenants are unlikely to apply if you solely work on commercial lettings.
In general, you should acquaint yourself with certain obligations related to:
- residential tenancy rights, including obligations on landlords and their estate agents not to charge unlawful fees;
- anti-money laundering and laws against terrorist funding due diligence; and
- gas and electricity safety monitoring.
This is a non-exhaustive list. Depending on the terms of your relationship with your customers, you could be held liable for giving improper advice because you were unaware of the relevant laws and regulations.
That said, you are not a lawyer and cannot give legal advice. Likewise, you should not hold yourself out as having particular legal expertise or qualifications if you do not.
Contract Law & Fiduciary Duties
The law of agency governs the relationship between your customers (called principals) and you (the agent).
The contract you and your customer sign will largely govern the exact nature of your business relationship. Indeed, the contract will determine the extent of your authority to act on your customer’s behalf.
In some cases, you may owe a fiduciary duty to your customer. This special duty might arise because of an express term in the contract or may be implied from the nature of your relationship. If there is a fiduciary relationship, you must always act in the absolute best interests of your client. You must also never profit from your relationship. For example, you cannot purchase land directly from your client or use information obtained from the relationship in a private transaction with a third party to benefit yourself.
Obtaining Insurance
As you will be assisting your customers in high-value transactions, if you are negligent and they lose money as a result, you could be held liable.
You should therefore obtain a professional indemnity policy. Additionally, if you employ anyone, you will need to have an employer policy in place. Finally, if you operate an office open to the public, you should obtain insurance limiting your occupier’s liability.
Choosing an Office
Traditionally, estate agents draw prospective tenants and purchasers through ads displayed in their high-street offices. If you decide to have an office, you will need to negotiate a commercial lease. Common terms include:
- the rental price;
- any service charges;
- insurance provisions you and the landlord will have in place, if any;
- the party liable for keeping certain elements of the premise in good condition; and
- the extent you can sublease the premises or sell the lease to a third party.
Understanding Client Money Handling
When running an estate agency, you may handle deposits or other funds on behalf of clients. It is crucial that you keep client money separate from your business funds. You should open a designated client account at your bank specifically for holding these monies. Mixing client funds with your own business money can lead to serious regulatory issues and potential claims of misappropriation.
You must also maintain clear records of all client money transactions. This includes keeping detailed accounts showing when money was received, from whom, and when it was paid out. These records should be reconciled regularly to ensure accuracy.
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Key Takeaways
Before starting an estate agency, you should determine which markets you will operate in. You will also need to budget startup costs and determine how you will finance these. Likewise, consider how you will structure your estate agency. Incorporating your business gives you the benefit of limited liability and more prestige to prospective clients. This is because they typically expect to do business with an incorporated entity rather than a sole trader.
Additionally, the law surrounding land is varied and complex. Given your role in facilitating transactions, you can add value to your clients by holding relevant qualifications and being familiar with the various laws. Additionally, you could be held liable for any negligence arising from ignorance of the law. However, you are not a conveyancer or solicitor and therefore cannot give legal advice or execute transactions on behalf of your clients.
LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced business lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
What do I need to start my estate agency?
Aside from the necessary experience and commercial connections, starting an estate agency involves establishing a brand to attract customers. You will likely need to invest in software, IT, and marketing to build this brand. You may need an office and contracts to hire employees. Importantly, consider how you will finance this.
What are the main regulatory and licensing requirements for an estate agency?
You do not need a professional certification to run an estate agency. However, there are laws preventing you from engaging in particular conduct. For example, you cannot give legal advice, execute transactions on your client’s behalf or otherwise act in the capacity of a conveyancer or solicitor.
Should I set up a limited company?
You should consider setting up a limited company. A limited company protects your personal assets if the business faces financial difficulties. It also makes your business appear more professional to clients and may provide better financing options.
Do I need to keep client money in a separate bank account?
Yes, you must keep client money separate from your business funds. Open a designated client account at your bank for holding deposits and other client monies. Keep detailed records of all transactions and reconcile the account regularly to avoid legal issues.
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