The wild west of letting agent regulation

One of the big scandals of the private rented sector (PRS) has been the almost total lack of regulation of letting agents – sometimes described as the ‘wild west’ of the property industry.

Although regulatory bodies exist (for example, the Association of Residential Letting Agents (ARLA) and the Royal Institution of Chartered Surveyors (RICS)), they are voluntary. So, for example, there would be nothing to stop my 18-year-old son from setting up as a letting agent tomorrow and taking thousands of pounds worth of tenants’ deposits, despite the fact that he knows nothing about the industry, if he wanted (not, I hasten to add, that he has any intention of doing this).

Despite what many might assume, therefore, there are no requirements that a letting agent must have:

• Any training or formal qualifications;
• Professional indemnity or indeed any insurance;
• Client money protection; or
• Membership of any regulatory professional body.

As a result, many landlords have lost thousands of pounds due to letting agents failing to properly carry out their duties (for example, to protect tenancy deposits, for which landlords are jointly and severally liable with the agents), chase up unpaid rent, or keep client and deposit money in a separate client account, or ‘doing a runner’ and taking with them landlords’ and tenants’ money. Agents guilty of these and other failings range from the incompetent to the criminal.

At long last a few steps are being taken, but many think that they are still inadequate. Let us take a look at some of the new measures (which apply in England only).

PRS requirement

This was introduced with effect from 1 October 2014. There are three schemes at present:

1. The Property Ombudsman (TPO) – www.tpos.co.uk. TPO is a long-standing ombudsman scheme and is well known and respected in the industry. It is perhaps the largest of the three schemes and is supported by many of the larger letting agents. There is a detailed code of practice and complaints service, details of which can be found on the website, which also publishes regular reports.

2. Property Ombudsman Service – www.ombudsman-services.org/property.html. This is one arm of the ombudsman service that provides similar services to other sectors, such as energy and communications. The property service is similar to TPO.

3. Property Redress Scheme – www.theprs.co.uk. This is the ‘new kid on the block’ and was set up in response to the new laws. It is designed to appeal specifically to the smaller letting agent firms and property managers who may not wish to join the other two schemes. It also welcomes applications from other associated professions such as inventory clerks.

The three schemes all provide a complaints service for members’ customers, mostly landlords and tenants, although the complainant must have raised a complaint first with the agent or property manager directly.

If the ombudsman upholds the complaint, they can make an order, which can include any of the following:

• ??Some practical action to mitigate any detriment suffered by the complainant;
• Reimbursement of any actual loss/costs incurred;
• A payment in recognition of time and trouble taken to make the complaint;
• A payment, where appropriate, for distress; and
• Other appropriate action suggested by the complainant or decided by the ombudsman.

Financial awards can be made up to a maximum of £25,000.

Once the award has been made, the member must comply with this within ten days. If this is not done, then the scheme can issue a fixed penalty award. If this is not paid, then the member risks expulsion from the scheme.

Expulsion is a serious penalty. The agent or property manager will be in breach of the law if they continue to practise as a letting agent or property manager, but none of the other schemes will accept them as a member until they have complied with the order made from their previous scheme.

All agents/property managers who are not members of a scheme, whether by reason of expulsion or failure to join in the first place, can be fined up to £5,000 by their local authority.

Consumer Rights Act 2015

This Act brought in various new regulations, which came into force on 27 May 2015. The purpose of these is to create full transparency so customers know exactly what they will be required to pay before they enter into any binding contract or tenancy agreement.

Under these new regulations, agents are required to display details of all their fees, charges, or penalties (however expressed) payable to the agent by landlords or tenants for any letting agency or property management work they may do.

The only exceptions are:

• Rent payable to a landlord;
• Tenancy deposits; and
• Fees, charges, or penalties which the agent received from a landlord under a tenancy on behalf of another person.

The regulations do not apply to landlords, but they do apply to property managers. Anyone who finds tenants for a landlord or deals with the management of their property for a fee is covered. However, they will not be covered if they just publish the advert or provide a way for landlord and tenant to contact each other in response to an advert.

Here are some more points to note:

• All figures must be quoted inclusive of VAT;
• The fees need to be displayed at all premises where the agent deals face to face with the public, and the list must be somewhere it is likely to be seen by customers (i.e. they must not have to ask to see it);
• It must also be displayed on any website;
• There must not be any surcharges or hidden fees, and vague phrases such as ‘administration costs’ must not be used;
• It must be clear whether each charge is made per property or per tenant; and
• If the fee cannot reasonably be determined in advance, an explanation must be provided describing how it will be calculated.

Note that the legislation does not cover the fee an agent actually charges, as this is a commercial decision for each agent to take.

Agents and property managers are also required to state whether (or not) they are members of any client money protection scheme and state which PRS they belong to.

The new rules are enforceable by local authority trading standards, who can impose a fine of up to £5,000, although they have to give written notice first and there is a procedure they have to follow.

Local authority enforcement

These new rules go some way towards providing much-needed letting agent regulation and are therefore to be welcomed. However, they still fall far short of the regulation which many, for example ARLA, have been calling for, for many years.

It is particularly worrying that there is no obligation on letting agents to have any client money protection in place, bearing in mind the huge sums of rent and deposit money held by many agents.

There is also a question mark over the enforcement of these new regulations. The main bodies tasked with enforcement are local authorities. However, as we all know, local authorities are suffering budget cuts and many are reducing their workforce in response to this. It is difficult to see how a reduced workforce will be able to deal with this additional workload.

Indeed, a recent report published in March 2015, ‘The impact of local authority trading standards in challenging times’, indicates that enforcement against letting agents takes priority below takeaway restaurants, animal health, and secondhand cars. The report also indicates that, largely due to cutbacks, the ‘new reality’ is that most businesses do not see a trading standards officer ‘from one year to the next’.

Another bizarre fact is that, since the demise of the Office of Fair Trading (OFT), ultimate control over such letting agent regulation as we have is in the hands of Powys Council, who won the competitive bidding process to deliver this service in place of the OFT. This is doubly strange as these new regulations only apply in England.

In conclusion, therefore, although these new regulations are to be welcomed, there is still a lot to be done before consumers are fully protected against rogue letting agents. SJ

Tessa Shepperson is a lawyer and blogs on landlord law