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CMA warning for estate agents and letting agents not to break competition law

Red tiled rooftops of new build houses Print publication

17/06/2015

Background decision

In May 2015, the Competition and Markets Authority (CMA) issued a decision finding that an association of estate and letting agents in Hampshire, three members of the association and a newspaper publisher had infringed competition law by agreeing to restrict the advertising of fees and discounts in a local newspaper (Decision). The CMA also imposed penalties on the parties totalling over £750,000.

Warning letters to estate and letting agents and possible further enforcement action

In light of the Decision, the CMA sent warning letters to a number of estate and letting agents stating that it has reasonable grounds for suspecting they have been involved in anti-competitive agreements restricting advertising of fees.

The CMA also stated that it has separately received complaints alleging that other associations of estate agents and local newspapers may be engaging in similar practices, and that it is considering whether to take further action.

Open letter to the property and newspaper industries on competition law

On 3 June 2015, the CMA published an open letter to companies in the property and newspaper industries along with a case study warning of potential breaches of competition law of the type established in the Decision.

In the letter to the property sector, the CMA explains the importance of competition law and explains the background to Decision. The CMA notes that, in the Decision, it found that members of the trade association agreed that they would not advertise fees or make any reference to their fees or discounts in a local newspaper, and certain members also agreed to prevent other agents advertising or referring to their fees or discounts in that newspaper. Under pressure from certain agents, the newspaper agreed to reject any advertisements from agents that contained references to their fees or discounts.

The CMA found that agreeing not to advertise estate or lettings agent fees or discounts, or to prevent other agents from advertising fees or discounts, can make it harder for property owners to assess which agents offer the best value for money or the best service. This can reduce price competition between competing agents and contribute to keeping estate and letting agents’ fees artificially high. Furthermore, it may make it harder for new estate or letting agents to enter the market to compete effectively with established businesses.

In the letter to the property sector, the CMA highlights three points from the Decision:

  • agreeing with your competitors to restrict advertising of fees is likely to be unlawful. The adverting of prices is a fundamental way for businesses to compete with one another and attract new customers. A business can choose what price to charge and whether or not to advertise its prices, but this decision must be taken independently of its competitors or other companies such as newspapers or property portals
  • trade associations can break competition law. Where trade associations take actions that limit the commercial freedom of their members, for example, by restricting the form or content of their advertising, this risks breaking competition law. The association, as well as its members, can be fined for breaching competition law, and members cannot avoid liability by hiding behind the association
  • the consequences of breaching competition law can be severe. The CMA warns that it may impose fines, seek disqualification of directors and prosecute individuals engaged in serious cartel activity, such as price-fixing.

In the open letter to newspaper publishers, the CMA, in particular, notes that they should be aware that newspapers should not agree restrictions on what a business can advertise, even if they are pressurised to do so. Each advertiser must be free to determine the contents of its own advertisement, as long as this complies with the newspaper publisher’s own terms and conditions for the acceptance of advertisements.

The CMA also warns that entering into an agreement with third parties, or facilitating an agreement between third parties, which restricts another business’ ability to compete and attract new customers, for example, by advertising their fees or discounts, may breach competition law.

Further assistance

The CMA expects businesses to operate a “culture of compliance”. Indeed, compliance efforts (scoping your competition risks and rolling out tailored guidance to the business) can reduce the amount of a fine if a breach nonetheless takes place.

Should you have concerns about a potential competition law breach, or would like to discuss how to introduce an effective competition compliance programme, please contact Trudy Feaster-Gee (Partner, Barrister and Head of Competition).

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