Section 40(2) of the Estate Agents Ordinance prescribes that where a licensed estate agent, employs a person as a salesperson (whether the employee is the holder of an Estate Agent’s Licence (Individual) or a Salesperson’s Licence) or ceases to employ a person as a salesperson, the licensed estate agent should notify the EAA in writing within 31 days. If the salesperson ceases to be engaged in estate agency work after the cessation of employment, he shall, pursuant to Section 40(1) of the Ordinance, notify the EAA in writing within 31 days of his cessation of work.

Licensed estate agents should use prescribed forms for notifications of the above matters. For the employment or cessation of a person as a salesperson, Form 9 should be used. Form 8 is for licensees to notify the EAA of their cessation of engagement in estate agency work. These two forms may be downloaded from the EAA website. Licensees may also file Form 8 through e-Service which is available at the EAA website.

It is stipulated in item 5 of Schedule 3 of the Estate Agency Agreement for Purchase of Residential Properties in Hong Kong (Form 4) that “the Purchaser is also liable to pay commission to the Agent for services rendered with regard to the property concerned if the Purchaser or the spouse, or any nominee, undisclosed principal or agent of the Purchaser enters into a binding agreement for sale and purchase with the vendor of any one or more of the Properties during the Validity Period, whether through the Agent or otherwise.”

In other words, even if the client purchases the property direct from the vendor, as long as the purchase is made during the validity period of the agreement, the client is legally obliged to pay commission to his appointed estate agent.

Section 9(2) of the Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulation (“Practice Regulation”) prescribes that a licensed estate agent shall obtain a vendor's written consent prior to the issue of an advertisement in respect of the vendor's residential property. Although there is no stipulation in Practice Regulation on the format of the written consent prior to the issue of an advertisement in respect of the vendor’s (or landlord’s) residential property, the licensee must note that under section 6(1) of the Practice Regulation, a licensed estate agent who acts for a vendor (or landlord) shall enter into an estate agency agreement with the vendor (or landlord) (a) within seven working days after accepting an instruction to sell or lease the residential property concerned; or (b) prior to advertising the property for sale or lease; or (c) prior to signing an agreement for sale and purchase or a lease of the property, whichever is the earlier.

Estate agency agreements for residential properties are prescribed forms under the Estate Agents Ordinance. They set out the rights and duties of consumers and estate agents, and help protect the interests of both parties. Therefore, licensees should enter into an estate agency agreement with their clients when they deal with residential properties.

When issuing advertisements, licensees must comply with the relevant requirements in the Estate Agents Ordinance, Estate Agents (Licensing) Regulation and the Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulation. One of the requirements is to state clearly and conspicuously the number of the estate agent’s licence or Statement of Particulars of Business and the business name in the advertisements. Depending on the circumstances of the case, the dissemination of property development information on social networking websites may also be regarded as an advertisement, and if so, the abovementioned requirement must also be complied with.

According to the relevant Practice Circular (No. 12-02 (CR)), if the floor area information of a property is included in an advertisement and the saleable area of the property can be obtained from either the Rating and Valuation Department or the agreement for sale and purchase of the first assignment of the property registered in the Land Registry, then licensees are required to provide the saleable area of the property in the advertisement. Licensees must also clearly state in the advertisement that the floor area provided is the saleable area of the property in order to avoid any misunderstanding.

As stipulated in Schedule 4 of the Estate Agency Agreement for Sale of Residential Properties in Hong Kong (Form 3), if the vendor has appointed an estate agent as his exclusive agent, but sells the property through another estate agency during the validity period, his exclusive agent has a right to claim commission from him.

However, if the client sells the property to the purchaser direct instead of the exclusive agent or another estate agent, he does not need to pay commission to the exclusive agent.

The Estate Agents Ordinance (“EAO”) and its subsidiary legislations have no stipulation on the amount or rate of commission that estate agents are entitled to or whether estate agents can offer any incentive to their clients. It is subject to the negotiation between the estate agent and his client.

However, according to the Practice Circular No.13-04(CR) issued by the EAA on the conduct in the promotional activities of first sales, licensees must set out in writing any promise of incentives, including any gifts, discounts or rebates they have made to prospective purchasers, and stipulate clearly the terms and format of incentives offered by the developer or their estate agency companies.

In addition, the EAO stipulates that if an estate agent represents both the vendor and the purchaser, he shall disclose to their clients any pecuniary or other beneficial interests in relation to the property to all parties concerned, including the amount of commission. According to the Code of Ethics issued by the EAA, estate agents must also provide services to clients with honesty, fidelity and integrity, protect and promote the interests of their clients, and act in a fair and impartial manner to all parties involved in the transactions.

Prior to signing a provisional agreement for sale and purchase with the vendor, a licensee should have provided the purchaser client with the following:

• Property Information Form (i.e. Form 1 as stipulated in the EAO), unless he has specially waived his right to receive it
• A copy of the latest land search record

Information listed in the Property Information Form includes ownership, subsisting encumbrances (if any), the floor area, year of completion and user restrictions of the property.

According to the relevant Practice Circular (No. 13-06 (CR)), licensees should supply a copy of the provisional agreement to the party as soon as that party has signed the agreement. If any of the terms of the provisional agreement have been varied by making amendment(s) on the provisional agreement itself, licensees should supply a copy of the amended version of the provisional agreement to the parties and seek a written receipt thereof from the party concerned as soon as practicable.

The information on permitted occupation purposes in respect of residential properties provided by the PIO of the RVD originates from the Occupation Permits issued by the Buildings Department.

Hence, for the purpose of complying with the requirements on the provision of prescribed property information under the Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulation, the information on permitted occupation purposes in respect of residential properties obtained from the PIO will be regarded by the EAA as obtained from a prescribed source.

Certain encumbrances might be registered against a property. For example, when certain kinds of documents such as Court Orders, Charging Orders, Memorandum of outstanding management fees, etc., have been registered against the property, the sale of the property might become complicated. Due to the defective title of this kind of properties, their transactions might be cancelled by the purchaser. Therefore, in order to avoid any disputes, licensees should be very careful when handling the transaction of properties with subsisting encumbrances, and they should inform their clients of the details of encumbrances and the related risks before the transaction.

Common causes for registering encumbrances against a property include the property owner’s failure to make repayments to a bank, financial institution, management company or other personal debts and thus being sued by creditors; breaches against the Buildings Ordinance due to the existence of unauthorised building works or not complying with any building orders; violating the deed of mutual covenant and being sued by the incorporated owners or other owners of the building etc.

Licensees should bear in mind that the licensee who acts for the vendor of a residential property must conduct a land search and provide a copy of the land search of the property to the purchaser immediately before an agreement for sale and purchase is entered into. If licensees discover the above mentioned encumbrances registered against the property through a land search, licensees should inform clients honestly, reminding them (no matter whether they are vendors or purchasers) of the related risk in that property transaction and advise them to seek legal advice before proceeding with the transaction.