Risks exist in the purchase of properties where there was a previous assignment at nil consideration or a deed of gift, as the transaction could be set aside should the previous owner go into bankruptcy or liquidation within five years of the or winding up petition.
To protect the interests of their clients, estate agents should bring the purchasers’ attention to the possible risks when they are handling transactions involving such properties.
Potential risks associated with purchasing properties involving a deed of gift or an assignment at nil consideration could include the purchasers not being able to obtain any (or sufficient) mortgage loan to complete the purchase, or acquire good title to the property, such that they could resell the property without difficulty.
Therefore, to enhance the professionalism of estate agents and promote the interest of consumers, a relevant practice circular (No. 13-01(CR)) was issued by the Estate Agents Authority (EAA) in 2013 to remind estate agents of the points to note when handling properties involving a deed of gift or an assignment at nil consideration.
According to the circular, estate agents should conduct a historical and current land search of the property to see if its current land search reveals that the vendor has been the current registered owner of the property for less than five years; and if so, to check if there was any registration of a deed of gift or assignment at nil consideration.
If such a document has been registered, estate agents should inform the clients of its existence, alert them that the deed of gift or assignment at nil consideration may affect the title of the property and that there is a risk that the purchaser may not be able to obtain sufficient mortgage loan to complete the purchase, and advise clients to seek legal advice on the risk of selling or purchasing the property before entering into any agreement.
Here, I would like to share a disciplinary case in which an estate agency practitioner failed to inform his client that the property involved a deed of family arrangement involving an assignment at nil consideration.
In a property transaction, a salesperson arranged for the purchaser to enter into a provisional agreement for sale and purchase (PASP). However, the purchaser was later informed by his solicitor that the property involved a deed of family arrangement which might affect his mortgage application.
Indeed, it turned out that all the purchaser’s mortgage applications to different banks were rejected. As a result, he had to cancel the transaction and his deposit was forfeited. Feeling dissatisfied that the salesperson did not inform him that the property had a deed of family arrangement registered at the land registry, nor of the potential risks relating to the title of the property, he lodged a complaint with the EAA.
The EAA’s disciplinary committee was of the view that the salesperson failed to inform the prospective purchaser that the property involved a deed of family arrangement which involved an assignment at nil consideration and failed to advise the prospective purchaser to seek legal advice before arranging for him to enter into the PASP.
Hence, the salesperson was in breach of paragraph 3.4.1 of the Code of Ethics, which states that “Estate agents and salespersons should, in engaging and accepting an appointment as an agent, protect and promote the interests of their clients, carry out the instructions of their clients in accordance with the estate agency agreement and act in an impartial and just manner to all parties involved in the transaction.”
Having considered the nature and gravity of the case and the disciplinary record of the salesperson, the disciplinary committee decided to reprimand him, impose a fine of HK$8,000 on him and require that he obtained 12 points in the EAA’s Continuing Professional Development Scheme within 12 months.
One of the important duties of estate agents is to protect and promote the interests of their clients. If their clients have been alerted to the relevant risks but still decide to proceed with the transaction, estate agents are advised to obtain a written acknowledgement from them in order to avoid any dispute afterwards.
I would also like to remind prospective purchasers that they should be careful and understand more as to whether an encumbrance registered against the property at the Land Registry might affect their mortgage application before deciding to purchase the property concerned.