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When you purchase or sell property, make use of 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 involves two sides - you, as the borrower, and the lender, normally a bank or perhaps a building society. No problems there. However, obtaining a mortgage loan and buying a property, both very common occurences, are in fact contracts, involving you and the seller, and you and the mortgage loan provider. And from the above, it can be seen that a contract must involve two sides, at the very least. And in order for the contract to have teeth, legal obligations are placed on both sides. And underpinning the legalities are the principles of contract and the principles of agency. It is worth understanding both of these. The principles of contract are fairly easy to grasp. At its simplest, a contract is a legal arrangement which two or more people agree to enter into. A contract implies that something tangible is given by one side and accepted by the other party. Doing so places legal obligations on both sides. Something tangible must be given - a consideration. In terms of property, a buyer hands over cash and the seller hands over property. You would certainly be right in assuming, of course, there is so much more to this than the number of sides involved and the handing over of a consideration. There are a couple more bits and pieces that must be complied with - even before either of the parties gets involved. We are referring to the capacity to enter into a contract. To enter into a contract in the United Kingdom, both parties must be 18 or over. They must also both be legally able to sell property, or to buy the property. And either side must be of sound mind. Then there's honesty and truth. Both parties to the deal have got to be absolutely truthful in the dealings with each another. It is called utmost good faith. If one side asks a question of the other side a completely truthful response is expected in return. Yes, truth is extremely important when it comes to buying and selling of property. If you are selling a property then why would you not expect some searching questions from the buyer's solicitor, for example? There are so many areas, such as disputes, environmental and other issues which can impact on property. Legal consequences might follow if it is realised later that information provided was less than honest. When dealing with property, too, the principles of agency may also become a factor. That's because most property dealings involve the use of estate agents, to bring buyer and seller together. So there is a relationship between estate agent and property seller, which is where the principles of agency come into play. This involves an agent on one side of the fence and the principal on the other - the agent naturally being the estate agent, and the principal the seller. The principles of agency make it clear that under the law, all actions by the agent are deemed to be those of the principal. Of course, it can be more complicated. However, as far as the relationship between the seller and the estate agent is concerned, which is what the majority of us have some experience of, the estate agent's role is that of messenger, passing on any offers on a property to the seller. Compare this to other types of agency where the agent may enjoy more authority to act on the principal's behalf, within certain agreed and predefined parameters. This may often be the case with an IFA (independent financial adviser) and their client. The IFA might have been given authority to take action independently with regard to, for example, investment decisions. However, any such action will normally fall within parameters already agreed. However, no matter 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 the agent starts working for the principal, the agent knows exactly what the boundaries of the relationship are and where they lie. The agent knows exactly where they stand. Despite this, things can go a little awry, even with the best of plans. There may be situations where the actions of the principal appear to give the agent authority far beyond any previously agreed limits. This is called aparent authority. The agents actions have become ligitimised through the actions of the principal. Agents unfortunately do step over the boundaries set down. In such circumstances, legal action often may be taken by the principal if required. Or if the actions of the agent are deemed acceptable, after the event has taken place, the principal may in fact decide to ratify the actions. This is known as ratification. This has been a very short article dealing with the complexities of the principles of contract and the principles of agency. Both are very well worth bearing in mind when either buying or selling property in the United Kingdom.
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