The principles of contract and the principles of agency? Right, sounds a real snooze but do not click off! You should know about both if you're into buying or selling a property in the UK, or have used or maybe intend to use the services of an estate agent, or are considering taking out a mortgage loan.



Most of us know borrowers are one side of the mortgage equation with lenders being the other part. Simple enough. Easy to understand.

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

At its simplest, a contract requires two sides, with each side bound by a string of legal checks and balances in order to function.

So enter the principles of contract and the principles of agency. Please do not fall fast asleep now.

Right, let's get down to the real basics of what a contract is. In its simplest form, it can be best described as a legal arrangement, agreed to by two or more persons. The principles of contract flesh this relationship out.

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

Something must be given - a consideration. In terms of property, a buyer hands over money and the seller hands over property.

But there are several other aspects to a legally binding contract.

For one, both sides must have the capacity to enter the contract in the first place.

To enter into a contract in the United Kingdom, both parties must be 18 or older. They must also both be legally able to sell the property, or buy the property. And both must be of sound mind.

A thruthful approach is another consideration, hence the concept of utmost good faith.

If one party asks a question of the other side a completely truthful response is expected in return.

This is particularly relevant when it comes to property. Any seller should expect questions and queries from the buyer's solicitor, 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 impact the property.

Legal consequences could result if it is found out later that certain information provided was less than the truth.

Now let us take a peek at the principles of agency because in most instances an estate agent is employed by the seller. The job of the estate agent is to advertise the property and hopefully bring in a steady stream of potential buyers.

So there is 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 of the fence and the principal on the other side - the agent naturally being the estate agent, and the principal being the seller.

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

In real terms, the estate agent's job is usually nothing more than passing on offers for the property to the seller, who then may decide whether or not to accept.

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

This can often be the case with an IFA (independent financial adviser) and their client. The IFA might have been given authority to take action independently with regard to, for example, investment decisions. However, any action will normally fall within prior agreed parameters.

So, whether straightforward, or much more complex, all conditions of an agency should be first set down in writing before any action is taken - independently or not - by the agent.

That way, agent and principal know where the lines are in the relationship right from the start.

Of course, as in many other aspects of life, the principles of agency may become slightly more complex.

There may be situations where the action of the principal may appear to give the agent authority way beyond any agreed limits.

This is known as aparent authority. The agents actions have become ligitimised through the actions of the principal.

Agents are only human after all and sometimes they do go a bit too far, acting well outside their remit either intentionally or by accident. The principal might then take some legal action.

Or the principal may retrospectively agree that the action 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 very short article, we've highlighted some of the important areas surrounding the buying and selling of property. We have also considered the principles of contract and the principles of agency. Both are very important areas to understand.