Why The Principal - That's You My Friend - Should Know About These Extremely Important Principles

The principles of contract and principles of agency - the what? I know, It sounds a real snooze but do not switch off! You should know about both of these if you are 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 looking at taking out a mortgage.

We all know borrowers are one side of the mortgage equation with lenders being the other half. Simple enough. Easy to understand.

However, obtaining a mortgage and purchasing a property, both extremely common occurences, are in fact contracts, involving you and the seller, and 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.

And underpinning the legalities and rules are the principles of contract and the principles of agency. So it is worth understanding both.

The principles of contract are easy to understand. In essence, a contract is a legal arrangement which two or more persons agree to enter into.

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

The 'something' that is given is known in legal circles as a consideration. Sort of old fashioned? In terms of property, the buyer's consideration is money, which he or she hands over. The seller's consideration is, naturally, the property.

But there's so much more to a legally binding contract than the numbers involved and the handing over of a consideration.

We are referring to the capacity to enter into a contract by either side. And it's not as difficult as it appears.

To enter into a contract in the United Kingdom, both sides must be 18 or over. They must also both be legally able to sell property, or to buy property. And either side must be mentally sound.

Then there's telling the truth. Both sides of the deal have to be completely truthful in the dealings with one another. It's called utmost good faith.

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

No doubts at all, this is extremely important when it comes to any and all dealings in property. The buyer's solicitor will certainly ask one or two probing questions as a matter of course. So many issues can have an effect on a property's value - disputes with neighbouring property owners, for example, or environmental factors, and so on.

Legal consequences might arise if it is realised later that certain information provided was less than the truth.

Now let us take a look at the principles of agency because often an estate agent is employed by the seller of the property. The job of the estate agent is to advertise the property and bring in a stream of interested buyers.

So there's 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 - the agent naturally being the estate agent, and the principal being the seller.

The principles of agency make it 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 role is usually nothing more than passing on offers for the property to the seller, who then decides whether or not to accept.

Other sorts of agency can be often more complex in that the agent may be given much more authority to act on behalf of the principal. This greater authority must, of course, be agreed in advance.

This may 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 parameters already agreed.

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

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

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

Sadly, such can be the case when actions taken by the principal appear to give the agent authority above and beyond the agreed limits.

This is called aparent authority. The agents actions have become ligitimised because of the actions of the principal.

When it becomes fairly clear, however, an agent has actually overstepped the mark, then action can be taken against the agent by the principal.

Or the principal can retrospectively agree the action taken by the agent was indeed acceptable. Commonly known as ratification, the principal ratifies the action of the agent after the event.

This has been a short article dealing with the complexities of the principles of contract and the principles of agency. Both are well worth bearing in mind when either buying or selling property in the United Kingdom.

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