Industry Quake 3 - Is the Agents' Mutual exclusivity rule legal What are the consequences if it isn't

Agents' Mutual and its supporters feel their proposition needs the exclusivity rule to give it teeth. However, what if those teeth turn round and bite their master

This is my third article on the subject of Agents' Mutual and I think I'm gaining ground. The FT has taken up the story and I wouldn't be surprised if Agents' Mutual supporters start breaking ranks as they realise they could be going out of the frying pan into the fire.

With a bit of luck, common sense will prevail and Agents' Mutual will realise the only responsible thing to do is admit they were wrong and drop the exclusivity rule before it's too late.

If they won't see sense, I would strongly suggest taking your own legal advice before signing up. If you have already signed up, seek legal advice anyway, as any agreement found to be anti-competitive will become null and void.

To recap, my starting position back in January was to question the validity of the exclusivity rule imposed by Agents' Mutual on its members. At the time I wasn't making a legal point but a pragmatic one.

My audacity saw me banned from Agents' Mutual meetings by Ian Springett himself. This highhandedness made me question the core motivation of the proposition and has led me to speak out for the industry.

Recently, my second article posed the question 'would you sign a five year franchise agreement with an unknown company who insist you become their appointed representatives, promote their business and relinquish control over your marketing strategy'

In reply to a post made in the comments section of this article, I raised the question as to the legality of the exclusivity rule. Since then I have been researching this aspect and have concluded that there is serious cause for concern.

Russell Quirk from eMoov has clearly been thinking along similar lines. As has been recently reported, he has now made an official complaint to the CMA.

By coincidence the story broke on the day after I was on the phone to the CMA. Their opinion, after listening to me explain the Agents' Mutual proposition and the exclusivity rule, was that there was cause for concern and I should make a complaint.

A lesson from history

When I founded Choices back in 1989, the only source of local marketing was the local papers. Our first office was in Crawley, where there were two local papers with property sections, the Crawley News and the Crawley Observer. They were fairly evenly matched and competed on price, which meant agents had a choice. In this way they could be compared to Zoopla and Rightmove. A page of advertising was about £350 with discounts for volume. At one point we were paying for 11 pages including sales and lettings. Even with discounts it was far more than the equivalent portal cost.

At the time we were advertising a service that comprised an upfront fee of £250 plus 1/2% commission on sale. The local agents didn't like us so they got together with the Crawley Observer and agreed to all advertise exclusively with that paper on the condition we were excluded. This dislike and rejection could be likened to Agents' Mutual's rejection of online agents.

A series of amusing phone calls between me and the advertising manager of the Observer followed, where I was suddenly quoted £2000 a page and then told the paper was 'fully booked' for three months. In response to this, I sent a private investigator along to a meeting of the cartel to record their conversations. I then sent a letter to the Competition Commission, as the CMA was called back then. Surprisingly enough, the paper suddenly became un-fully booked and we all went back to competing with one another as before. Later on I made friends with most of my antagonists and we all laughed about it.

The parallel between my experience and what's happening today is striking, albeit today it is on a far grander scale.

The main questions are whether the Agents' Mutual exclusivity requirement is legal, or whether it breaches UK or European competition legislation Or both And, if it is illegal, what are the consequences for the participants

There was an especially interesting article on the Pinsent Masons OutLaw.com website, entitled Anti-Competitive Behaviour under the Enterprise Act. I think it is essential reading for anyone considering signing with Agents' Mutual, or, even more importantly, anyone who has already signed.

Here is an extract: From 1 April 2014, the cartel offence was redefined such that, for agreements entered into or operating after that date, it is no longer necessary for the prosecution to prove that the individuals acted dishonestly'.

The Act added new provisions to the Company Directors Disqualification Act 1986 to permit the disqualification of directors where the company of which they are a director has breached competition law....The OFT may seek disqualification (for a period of up to 15 years) where serious infringements of EU or UK competition law are established, not just for participation in hardcore cartels.

It's interesting that one of the defences open to an individual accused of an offence under the competition rules is that they took reasonable steps to seek legal advice. This raises the question as to whether Agents' Mutual has taken this precaution. If they have, when did they do it This new guidance was only introduced in April this year.

I would also conclude that each company signing up to the exclusivity rule would need to take their own legal advice to use this defence in the event of prosecution, a prosecution that could be mounted by any interested party.

It's worth having a look at how the Agents' Mutual exclusivity rule might be viewed by the CMA. The reason for the exclusivity rule is to control portal costs and, indirectly, to increase member profits. This could be seen to be at the expense of the consumer, who would suffer as a result of their property receiving less exposure than it would have done if the free market were allowed to operate.

When making a business decision it's usually best to act with your head not your heart, which means weighing up what you have to gain and what you have to lose by going ahead. Apply this to the Agents' Mutual proposition and there seems precious little to gain and everything to lose, if it turns out that as a member you have been complicit in illegal, anti-competitive activity.

Government agencies such as the CMA can afford to be patient, so if Agents' Mutual launches with the exclusivity rule in place it could be like having the sword of Damocles hanging over its members heads for a long time to come.

I'm hoping I don't have to write another article on this increasingly embarrassing (for the industry) subject. I'm hoping to hear an announcement very soon from Agents' Mutual that they are reviewing their position on the exclusivity rule. If I don't hear that announcement then I will continue with my next installment and, believe me, I have plenty more reasons why Agents' Mutual, as it's currently constituted, is a very bad idea.

Article written by Simon Shinerock, Chairman of Choices Estate Agents. For more information on Simon, see his LinkedIn profile: https://www.linkedin.com/in/simonshinerock