When you buy or sell property, use an estate agent, or enter into a mortgage, the principles of contract and agency come into play.
Surely it is understood by everyone the mortgage process involves two sides - you, as the borrower, and the lender, usually a bank or perhaps a building society. No problems there.
Yes, no problems there. But the whole process of buying a property and obtaining a mortgage both involve contracts. Yes they surely do. You, my friend, and the seller of the property. You and the mortgage loan provider.
At its most basic, a contract requires two sides, with each bound by a string of legal checks and balances to function.
So enter the principles of contract and principles of agency. Please do not fall asleep now.
The principles of contract are easy to understand. In essence, a contract is a legal arrangement in which two or more people agree to enter into.
One side offers something and the other accepts it, offer and acceptance placing legal obligations on both sides.
The 'something given' is known as a consideration. Since we're talking property here, the consideration as far as the buyer is concerned is normally money. The buyer hands over money for the property. From the seller's point of view, the property, which he or she parts with in exchange for cash, is the consideration.
You would certainly be right in assuming, of course, there is so much more to this than the number of sides involved and the handing over of a consideration.
There are several more rules that must be complied with - even before both of the parties gets involved. It's called the capacity to enter into a contract in the first instance.
In the UK, that means they have to be 18 or over, and be legally able to buy or sell any property. And each side must be of sound mind.
There is another area to consider when entering into a contract - the concept of utmost good faith.
Simply put, it means when any query is asked by one party, the other gives an truthful reply.
No ifs or buts, this is particularly important when it comes to any and all dealings in property. The buyer's solicitor will almost certainly ask one or two probing questions as a matter of routine. That's simply because so many issues can have an impact on a property's value - disputes with neighbouring property owners, for example, or environmental factors.
A less-than-honest answer could, at a date in the future, result in some sort of legal action. Telling the truth really is the best policy.
Having dealt with the principles of contract, it is now time to look at the principles of agency, something you ought at least to think about and understand, too, if possible. That is because, in all probability, you are likely to grab the expertise of an estate agent, whose function is to bring together both buyer and seller.
So there is a relationship between estate agent and the seller of the property, which is where the principles of agency come into their own. This involves an agent on one side of the fence and the principal on the other - the agent naturally being the estate agent, and the principal being the seller.
Thus in law, whatever is done by the agent is deemed to have been carried out by the principal.
In real terms, the estate agent's job is usually nothing more than passing on any offers for the property to the seller, who then decides whether to accept or not.
Other types of agency can often be more complicated because the agent may have been given powers, i.e. authority, to take decisions without consulting first with the client.
A common example is the relationship that often develops between IFAs (independent financial advisers) and their clients. On occasions IFAs will take independent investment decisions, within agreed parameters, but without seeking permission of the client.
Thus, whether simple, or more complex, all conditions of an agency should be first set out in writing before any action is taken - independently or otherwise - by the agent.
That way, both agent and principal know exactly where the lines are in the relationship right from the start.
Having said all of the above, life - like many a business relationship - is often not quite as simple as it should be. Know what I mean?
For example, actions by the principal might appear to give the agent authority way beyond what has been agreed.
This is known as aparent authority. The agents actions have become ligitimised because of the actions of the principal.
When it becomes fairly clear, however, that an agent has actually overstepped the boundary, action can be taken against the agent by the principal.
Or perhaps if the actions of the agent are deemed acceptable, after the event, the principal may in fact ratify the actions. This is known as ratification.
In this article, we've looked at some of the legal points 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 bit of light on the somewhat complex area of contract and agency law.
Source: http://www.ArticlePros.com/author.php?John Donaldson
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