ECSH53050 - Factors to consider when dealing with estate agency businesses
There are some factors that need to be considered when dealing with estate agency businesses (EABs) that are unique to the sector.
While the factors below should be considered, they should be read in conjunction with the rest of the EAB guidance in the ECSH53000 chapter.
Agents and self-employed agents
Some EABs operate through employees and self-employed agents.
Responsibility for the EAB meeting its requirements under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) may differ depending on the EAB’s business model and the contract in place between them and their agents. The contract between the EAB principal and agent should make the position clear.
There has been a decline in the number of EAB principals with agents, with more agents becoming self-employed agents, directly responsible for registering with HMRC and implementing their own AML policies, controls and procedures (e.g. trading under the principal’s brand, but with the agent being responsible for MLR 2017 compliance and procedures).
If the EAB principal exercises control over the work and activities of the self-employed agent, such as the anti-money laundering controls and procedures used when they deal with customers, then the self-employed agent is acting on behalf of that EAB principal. This means the EAB principal is the relevant person responsible for the activity and compliance of the agent. The EAB principal would need to register the self-employed agent’s premises (including home addresses or contact addresses if they do not have a business address) and ensure those agents understand and manage risks in accordance with the principal’s risk assessment. Whilst the contract between the agent and principal could place obligations on the agent in conducting the work, the responsibility to comply with MLR 2017 ultimately rests with the principal.
If the self-employed agent has substantial independence from the EAB principal, for example if they make key decisions on how the business is run and puts in place its own AML controls then, in terms of compliance with MLR 2017, they are not an agent of the EAB. The self-employed agent would become the relevant person, needing to register as an EAB and would be responsible for complying with MLR 2017.
Franchise Business models
Franchise business models can vary in their operation and in terms of how control is exercised. Frequently there are indicators that both the franchisor and franchisee can make decisions that could be viewed as being in control of how their businesses are conducted. It will depend on the franchise agreement/contract that is in place.
Where a franchise agreement provides that a franchisee has substantial independence from the franchisor, then a franchisee is not an agent of the franchise and is operating independently on its own behalf.
For example, the franchisee makes key decisions on how the business is run and puts in place its own anti money laundering policies and controls. A franchisee in these circumstances must register with HMRC directly as an EAB and is therefore responsible directly for complying with MLR 2017, rather than relying on the franchisor to register and be responsible for AML controls in the business.
See ECSH44325 for more information.
Shared ownership properties
A shared ownership is when customers can buy a home through the Government shared ownership scheme if they cannot afford all of the deposit and mortgage payments for a home that meets their needs. The customer buys a share of the property between 10% and 75% of the full market value and the pays rent to landlord on the rest. More detail can be found here https://www.gov.uk/shared-ownership-scheme.
Where an EAB is involved in the selling of a shared ownership property, they will need to conduct customer due diligence (CDD) on all owners and the buyer.
If the EAB itself is part owner of the shared ownership property they are marketing, they will need to conduct CDD on the buyer and the seller (the other owner of the shared ownership property).
Repossessions and insolvency practitioners for EABs
Some EABs, especially property auctioneers, will deal with properties that are being sold as repossessions, or the sale of a business property when the business is in administration or liquidation. This may involve an insolvency practitioner or Law of Property Act (LPA) Receiver being involved in the property transaction.
This can cause some confusion when testing a business’ CDD measures, and if they have correctly identified their customer and verified their identity.
Depending on the property transaction, the EAB may have to conduct CDD on the insolvency practitioner, LPA, owner of the property, or lender (or all of them, if applicable).
Remember, a business’ policies, controls and procedures (PCPs) should explain what their processes are, along with how to identify their customer in this situation. Simplified due diligence might also be used, depending on whether the business’ risk assessment and PCPs correctly allow them to do so.
Further guidance on CDD is available within ECSH33300.
If you require further support in this situation, please contact your technical specialist, or consider a policy advice request.