Undertaking work beyond an agent's knowledge and competence

The Disciplinary Committee suspended an estate agent's licence for his arranging his client to take over the remaining term of a retail shop tenancy from an outgoing tenant even though he was aware that alienation was prohibited under the tenancy agreement made between the landlord and the outgoing tenant ("the current tenancy agreement"), and that his client had not obtained legal advice.

The situation arose when the outgoing tenant wished to close his business and engaged the estate agent to find someone to take over the tenancy. The estate agent acted for both the outgoing tenant and the replacement tenant in this transaction.

Under the current tenancy agreement, the outgoing tenant was prohibited to assign, sub-let or otherwise part with possession of the retail shop. Despite this restriction and without obtaining the consent of the landlord, the estate agent arranged for the outgoing tenant and the replacement tenant to sign a Licence Agreement and a Sale and Takeover Agreement covering both the transfer of business and of tenancy.

Before signing these two agreements, the estate agent arranged for the replacement tenant to pay to the outgoing tenant a deposit equivalent to three months' licence fees, plus rates and management fees.

Shortly after the replacement tenant had taken possession of the shop from the outgoing tenant pursuant to the Licence Agreement, the landlord objected to the tenancy transfer. The landlord notified the outgoing tenant in writing that the transfer was in breach of the current tenancy agreement and refused the replacement tenant's request to take over the remaining term. Under these circumstances, the replacement tenant had no alternative but to deliver up possession of the shop to the outgoing tenant. However, the outgoing tenant alleged that this was a breach of the Licence Agreement and hence forfeited the deposit.

At the inquiry hearing, the Disciplinary Committee found that the estate agent had arranged for the replacement tenant, who had not taken legal advice, to enter into both the Licence Agreement and the Sale and Takeover Agreement even though the estate agent was fully aware of the alienation restriction on transfer of tenancy.

The Disciplinary Committee took the view that the transaction, which included transfer of business and tenancy, might have been beyond the estate agent's knowledge and competence. A prudent agent would have advised his clients to seek legal advice in the circumstances and should have advised the replacement tenant on the risks of entering into the Licence Agreement without the prior consent of the landlord.

The Disciplinary Committee held that the estate agent had not complied with paragraph 3.4.1 of the Code of Ethics by failing to protect and promote his client's interests and suspended his licence for three months.