Numerous property investors throughout the UK have lost tens of millions of pounds through Property Clubs who have over-promised and not delivered. But is all truly lost? Sq Ft investigates...

Investors have experienced huge losses as a consequence of investing in properties via Property Clubs and organisations and now face sleepless nights worrying on the basis that promises made by these "Clubs" on Values and Rental Incomes have not materialised. The fallout from this is that collectively numerous investors have lost millions, if not been made to face bankruptcy.

The majority of Investors who have bought through Property Clubs and any investor who attended the numerous property investor shows over the last few years, knows just how many of these there are. These clubs and organisations have all recommended the buys across the world of great deals to be had, particularly with off plan investment.

It is also the case that when you buy a property the principle of "Caveat Emptor" applies, in other words "Buyer Beware" and upon exchange of contracts there is a binding agreement to buy which must occur regardless of any issues to do with value or the availability of mortgages upon completion. It is also a legal fact that the Property Club or Investment House is not a party to the contract of purchase and therefore is not bound in law to the earlier recommendation to buy. Therefore on this position in law how might the Property Investor try and redress the Balance?

The answer it seems for many is to look at the "Law of Agency" which dates back some 300 years.  

Agents MUST declare commissions 

Andrew Callen, LLB (Hons), MSI, CeRER is a Solicitor and Property Investment expert who has represented thousands of clients who have invested in property throughout the years. He is a Property Investor himself and is now helping investors claim back their rightful compensation. He explains: "Simply, if you pay any business a fee to do something for you as 'your agent' then they have a duty of absolute clarity to you in the way that they may make a commission."

"It is NOT sufficient for them to say that they 'may' receive a commission - they must be exact and up front in what they are to receive and before the contract is agreed and monies handed over. Where there is such a breach not only does the Broking Fee need to be returned to the "Principle" but so must any commission received and interest at a damages rate if the clarity has not been given in advance of the parties entering into the agreement."

Investors Owed Millions

Therefore as the law stands, it is quite clear that thousands of investors are probably owed tens of millions back by the property clubs concerned who made secret or half secret commissions, provided of course that an agency fee was paid.

What yet needs to be tested in the Courts is whether the substantial sums made by many property clubs is such that, had the client been fully aware of just how much commission the agent/club was going to receive from a particular transaction, would the client have gone ahead with the Purchase? Therefore would that impact on the Courts sufficiently in law to suggest a gross misrepresentation and that as a consequence of such deception that the parties should be restored to the position they would have been in before the situation occurred. In other words as if the transaction had not occurred.

What is clear for those who believe they are the victims of hidden commissions is that they should seek either directly or through a Solicitor for detailed disclosure from the property club to disclose all commissions and incomes received and if not the Courts may then choose to direct disclosure in any event. The Courts additionally have the power to order disclosure subject to certain conditions. Even for Investors who have bought abroad, the terms and conditions signed with the property club more often than not refer to a dispute being settled in the "Courts of England and Wales".

Undoubtedly, many Property Clubs have properly called for regulation of the Industry which includes transparency, and other standards of dealing. What will now be interesting is to see just how many really are transparent in their dealing with their "valued customers", by disclosing the relevant facts upon reasonable demand by such valued clients of theirs.