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When you purchase or sell property, use an estate agent, or enter into a mortgage agreement, the principles of contract and agency come into play.
It surely is understood by all the mortgage process has two sides - you, as the borrower, and the lender, normally a bank or building society. No difficulties there.
However, purchasing a house and obtaining a mortgage are in fact contracts, between you and the seller and lender.
At its most basic, a contract requires two sides, with each side 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. It really is worth understanding both of these.
The principles of contract are fairly easy to grasp. In essence, a contract is a legal arrangement in which two or more people agree to enter into.
One half offers something and the other accepts it, offer and acceptance placing 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's more to a legally binding contract than the numbers involved and the handing over of a consideration.
For one, both parties must have the capacity to enter into the contract from the word go.
The rules are simple. First you've got to be 18 or over. Then you've got to be legally able to buy, or sell, the property. You, and of course the other party to the deal, must be both of sound mind.
Then there is telling the truth. Both parties to any deal have got to be absolutely honest in the dealings with one another. It is called utmost good faith.
In other words, truthful answers when either side asks any question.
This is particularly relevant when it comes to property. The seller should expect questions and queries from the buyer's solicitor or representative, regarding 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 affect the property.
Replies that turn out to be less than economical with the truth may result in all sorts of legal ramifications at some date in the future. Well worth avoiding at all costs!
Having dealt with the principles of contract, it is time to look at the principles of agency, something you should at least think about and understand, too, if at all possible. That's because, in all probability, you are likely to enlist the services of an estate agent, whose function is to bring together buyer and seller.
In simple terms, an agent is a person who acts on behalf of someone else, called the principal. The estate agent is known as the agent. The seller is the principal.
Now this is extremely important. It is at the heart of the principles of agency. The law says that the actions of the agent are in fact the actions of the principal. No what ifs, or buts or whatevers!
Of course, in reality it can be slightly more complicated. However, as far as the relationship between the seller of the property and the estate agent is concerned, which surely is what most of us have some experience of, the estate agent's role is essentially that of messenger, passing on any offers on a property to the seller.
Compare this to other types of agency where the agent may perhaps be given more authority to act on the principal's behalf, within, of course, certain agreed and predefined margins.
This often happens with regard to IFAs (independent financial advisers), for example, who might make a number of investment decisions without actually consulting the client on every single occassion.
However, no matter what the depth of the relationship between agent and principal, conditions of the agency should always be set down in writing before any action by the agent.
Thus, when an agent acts on behalf of a client, the agent knows precisely what the limits are right from the beginning.
However, life - like many a business relationship - is sometimes not quite as straightforward as it should be. Know what I'm saying?
For example, actions taken by the principal might appear to give the agent authority far beyond what has been agreed.
This apparent authority serves to legitimise the actions taken by the agent, despite those actions being outside the parameters agreed at the start of the relationship.
Agents occasionally do step over the boundaries laid out. In such circumstances, legal action often may be taken by the principal if desired.
Or he or she might simply ratify the agent's actions instead, agreeing after the event the actions taken are indeed acceptable.
In this extremely short article, we've highlighted some of the important issues surrounding the buying and selling of property. We've considered the principles of contract and the principles of agency. Both of these are very important parts to understand.
Where do you go when looking for mortgage advice? Try www.mortgageadvice4free.co.uk, a site which carefully reviews other mortgage sites.
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