Everything You Ought To Know About When Considering Contracts And Agents

So why should anyone be concerned with the principles of contract or the principles of agency? Well you certainly should be if you're buying or selling a property in the United Kingdom, using the services and skills of an estate agent, or looking to take out a mortgage.

It surely is understood by everyone the mortgage loan process involves two sides - you, as the borrower, and the lender, usually a bank or building society. No problems there.

Yes, no problems there. But the whole process of buying a property and then obtaining a mortgage loan both involve contracts. Yes indeed they do. You, my friend, and the seller of the property. You and the lender providing the mortgage.

At its most basic, a contract requires two sides, with each bound by a number of legal checks and balances in order to function.

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

Firstly, the basic concept of a contract - a legal arrangement entered into by two or more parties - is clearly understood by most of us. The principles of contract are slightly more involved, however.

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

The 'something given' is called a consideration. Since we're talking property here, the consideration as far as the buyer is concerned is usually money. The buyer hands over cash 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.

But there are one or two other aspects to a legally binding contract.

We're talking about the capacity to enter into a contract by either side. And it's not as complicated as it appears.

The rules are simple to follow. You've got to be 18 or older. Then you have got to be legally able to buy, or sell, the property. You, and of course the other party to the deal, must be of sound mind.

There is another area to look at when entering into a contract - utmost good faith.

In other words, truthful answers when either side asks any question.

Truth is very important when it comes to the buying and selling of property. If you are selling a property then why wouldn't you expect some in depth questions or queries from the buyer's solicitor, for example? There are various areas, such as disputes, environmental and other issues which can easily have an impact on property.

Any less-than-truthful answer could, at a future date, result in some sort of legal action. The Truth truly is the best way to go.

Now let us take a look at the principles of agency because in most instances an estate agent is employed by the seller. The task of the estate agent is to advertise the property and therefore to bring in a line of potential buyers.

So, in other words, there is a relationship between estate agent and property seller, which is where the principles of agency come into play. 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 the seller.

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

Of course, that may be a rather simplisitc explanation and in reality the situation is very likely to be a little more complex. However, in terms of our estate agent, his or her job is usually nothing more than passing on any offers to the seller.

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

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

However, no matter the relationship between agent and principal, prior to any action being taken, all rules and conditions should be set out clearly in writing.

That way, both agent and principal know exactly where the lines are in the relationship from the word go.

Of course, as in many other aspects of life, the principles of agency can become a little bit more complex.

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

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 little bit too far, acting well outside their remit either intentionally or by accident. The principal might then take some legal action.

Or the principal might just simply ratify the agent's actions instead, agreeing after the event the actions taken are indeed acceptable.

This has been a very short article dealing with the highly complex areas of the principles of contract and the principles of agency. Both are very well worth bearing in mind when either buying or selling property in the UK.

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