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FAQs about Practices -
Highlights of the “All You Can Ask” series


 

1.       I am a salesperson. Do I need to inform the EAA when I was employed by an estate agency or when I ceased to be engaged in estate agency work after my cessation of employment? Or is my employer responsible for informing the EAA?
     
   

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.

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2.      If an estate agent arranges for a client to view a residential property and enters into an estate agency agreement with him, but then the client purchases the property from the vendor direct, does the estate agent have the right to claim commission from the client?
     
   

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.

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3.      An estate agent received instructions from a vendor for leasing his residential property but he did not sign any estate agency agreement. Instead, the client gives the estate agency company his written consent for issuing an advertisement for his property. Is the estate agent allowed to issue an advertisement for his property?
     
   

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.

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4.      Is dissemination of property development information on some social networking websites regarded as an online advertisement? Is it necessary to state the number of Statement of Particulars of Business in those advertisements?
     
   

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.

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5.      Does an estate agent need to clearly state that it is “saleable area” in the advertisement when he provides the saleable area of a residential property in the advertisement?
     
   

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.

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6.      If an estate agent is appointed as an exclusive estate agent to sell a client’s property, but the client eventually sells the property to his neighbour direct, does the client need to pay commission to the estate agency?
     
   

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.

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7.      Are estate agency companies allowed to promote that they will only charge a small amount of commission (or no commission), or even mention that they will offer a commission rebate to their clients?
     
   

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.

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8.      An estate agent is acting for a purchaser to purchase a residential property. Before the estate agent arranges for the client to enter into a provisional agreement for sale and purchase with the vendor, what documents or information should the estate agent provide him with?
     
   

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.

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    9.      The Property Information Online (PIO) service of the Rating and Valuation Department (RVD) provides information on user restrictions in respect of residential properties. However, RVD is not a “prescribed source” of “user restrictions” as specified in the Property Information Form. Can an estate agent fill in the form according to information on user restrictions provided by the RVD?
         
       

    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.

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    10.      What are “encumbrances”?
         
       

    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.

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