Property Agents: Registration

Lord Bourne of Aberystwyth Excerpts

Wednesday 18th October 2017 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government and Northern Ireland Office (Lord Bourne of Aberystwyth) (Con)]

With the leave of the House, I shall now repeat a Statement made in another place by the Minister for Housing in the other place. The Statement is as follows:

“With permission, Mr Speaker, I would like to make a Statement on a call for evidence on protecting consumers in the letting and management agents market. When our Housing White Paper was published in February, we committed to taking action to help people already on the property ladder or living in rented accommodation. The Prime Minister has also announced billions of pounds of funding for new affordable homes, including homes for rent. We are also taking action to create a fairer property management system that works for everyone. We have already announced plans to regulate letting agents, including banning fees for tenants, and we have made it clear that we want to see an end to the unjustified use of leasehold in new-build houses.

The time has now come to address service charges. As the number of leasehold and private rented homes has grown, so the market for managing agents has boomed. According to one estimate, annual service charges alone now total as much as £3.5 billion. While these managers provide an important service, the system in which they work is simply not suited to the modern age. Tenants and leaseholders, even some freeholders on new-build estates, hand over their money and receive services in return, but they have little or no say over which agent provides them or at what cost. This matters because, while the majority of agents are honest professionals committed to delivering a high standard of service, a near-total lack of regulation has led to the growth of a market where, in places, standards and safety come second to the pursuit of profit. We have seen reports of broken windows being repaired with cardboard and sticky tape, and of damp and mould simply being painted over. One landlord was billed £500 by his agent for repairing a shower door, while a group of leaseholders were charged 10 times the market rate to have a new fire escape fitted, with the £30,000 contract for the work being handed to the property owner’s brother.

You do not need any qualifications, training or experience to call yourself an agent. You do not need a criminal record check, and you do not even have to know what a managing agent does, so it is no surprise that some experts believe that such agents are overcharging by as much as £1.4 billion every year.

Today, we are setting out plans for fixing the problems in property management. We are publishing a call for evidence which outlines the challenges facing the sector, proposes some possible solutions, and asks for the views of the people who know the market best—people who work in it or who pay the service charges. As part of this new call for evidence, government is seeking views on three key elements: first, whether regulatory overhaul of the sector is needed; secondly, measures to protect consumers from unfair costs and overpriced service charges; thirdly, ways to place more power in the hands of consumers by giving leaseholders more say over who their agent is.

The sector has done some good work to raise standards already, but there is more to do to professionalise the sector and root out poor practice. Through the call for evidence, we shall take views on whether we need an independent regulator to oversee property management. So today, the Government are asking everyone who pays service charges and everyone who receives them to share their views on what is wrong and how we can fix it. We want to give power back to consumers, give agents a clear and consistent framework to operate in, and give landlords, renters and leaseholders the confidence they need to know that agents are complying with the rules. As we build more homes, we need the right people to take care of them. That is why it is important that government acts to recognise what works in the sector and fix what does not.

Today’s announcement is about delivering better value and services for tenants, leaseholders and hard-working people across the country. The call for evidence, which will be open for six weeks, is the first step in creating a property management system that works for everybody. I commend this Statement to the House”.

My Lords, that concludes the Statement.

--- Later in debate ---

[Baroness Pinnock (LD)]

The noble Lord, Lord Kennedy, has accurately listed the failings of the Government in attempting to reform the housing sector, particularly for private sector tenants and leaseholders. It is very sad to see the Minister come here with good intentions which are then not carried out by the Government. As today’s Statement demonstrates, there is a long-overdue need for serious protection for tenants. Indeed, some of the poorest families in this country rely on private sector rents for their homes. Those same people are being fleeced by others who have no regard for the welfare of their tenants. That, of course, is not representative of the entire market but there is a growing number of those sorts of landlords and management companies.

Having said that, I welcome the consultation, which has been a long time coming. I want to address two issues. First, the Statement refers to leaseholds. We all know that there has been a growing trend in property development for new builds to be sold as leasehold and for the buyer, for whatever reason—there has been quite a lot of publicity about this—to find out, often too late and to his or her considerable cost, that they have signed not a freehold purchase but a leasehold purchase. I urge the Government to move quickly to fulfil the commitment they have already made to prevent this unjustifiable burden falling on the house buyer.

The service charge is another element which affects private sector home buyers. In my area a new development has an open grass area that has not been reverted to the local authority to maintain but to a management company. The home owners in that development have had huge difficulties getting any maintenance of the shared open areas. I have first-hand knowledge of that, albeit in a small way. These people can fight their corner but, for many private sector tenants, service charges cause considerable anxiety. These people may often be on short-term tenancies and can find those tenancies ended without any redress if they raise questions about the service charges imposed on them.

I assume that the Minister will have read the consultation and therefore will be able to reassure the House that evidence will be sought on transparency over service charges and on accountability and redress, and that action will follow. If I was a private tenant, I would want to know that those three elements will be addressed. I would go further: there needs to be a right in law for a tenant to withdraw payment for a charge that is proven to be unacceptable or unjustifiable without the threat of eviction or the tenancy being brought to an end in any way. I have not read the consultation but perhaps the Minister will be able to help us on that.

Lastly, the rogue landlords register, which has been agreed, is secret and is held by councils. Councils know who these rogue landlords are. If we are truly protecting tenants, we ought to follow up on the pleas from this side of the House that that register be made open and transparent so that tenants can see before they sign an agreement whether or not their landlord is on that list. I look forward to reading the document and to the Minister’s response.

[Lord Bourne of Aberystwyth]

My Lords, I will respond to the comments from the noble Lord, Lord Kennedy, and the noble Baroness, Lady Pinnock. First, I was somewhat disappointed in the noble Lord, who is not generally as unfair as he was today. In fact, there was not a single question in his opening statement. There were some points, which I will certainly respond to, but the accusation that we are not doing anything is, frankly, amazing and far from the truth. I will deal with some of the particulars.

First, on banning letting fees—which, it is quite true, the noble Baroness, Lady Grender, raised some time ago—very shortly we will come forward with the draft Bill to deal with this issue. On leasehold reform—long leases and ground rent charges—consultation ended only at the end of September, to be entirely fair. We are looking at that consultation and will come forward with a response shortly, and we certainly intend to act after that response. Again, there is no doubt about that. But we cannot be attacked for consultation. It seemed to me that in the noble Lord’s statement there was a suggestion that we should not be consulting on these matters. It is important that we consult. As we have only just ended the consultation, it is somewhat unreasonable to expect a response in less than a month.

On protection of client money, the noble Lord referred, quite rightly, to the notable work of the noble Baroness, Lady Hayter, and the noble Lord, Lord Palmer of Childs Hill. We have accepted that and we are carrying it forward. It is important that we are doing that. We will consult with the sector, and I am happy to meet with the noble Baroness and others to discuss that. However, of course we are carrying that forward—we have given an undertaking on it.

I will deal with some of the other issues before I come to the Statement itself, which the noble Lord did not focus on. We are looking at a housing court and are taking that forward; the Ministry of Justice is considering that issue. We are looking at a landlord ombudsman to deal with unfair practices, and we are committed to that. Social tenants are of course already subject to the housing ombudsman, and redress is already provided for with regard to letting agents. As I say, we cannot be accused of not carrying things forward. I can understand noble Lords wanting to proceed at a greater pace than perhaps has been done but we have consulted fully and are taking these things forward.

On the part of the Statement which relates to service charges in the letting sector for both leasehold and tenanted arrangements, I thank the noble Baroness, Lady Pinnock, for her welcome of it. All the major parties here have been parts of government; if this has been so urgent for so long, one is entitled to ask why something was not done earlier. We are now carrying this forward and I hope that everybody will participate in this so that we can achieve something that is remarkable in being consensual and which takes us forward. There is much to be done, this is welcomed by all of the main letting association bodies, and, clearly, there is a need to act to provide the sort of principles that the noble Baroness was talking about with regard to transparency and redress. These are important and they will be provided for, and the questions are geared in that direction, as she will see. The consultation opens today and ends on 29 November, so it is open for six weeks, and I encourage anybody who is concerned in the sector to contribute to it. Another reason why it has taken some time to address the earlier consultations is that we had over 6,000 responses on leasehold reform and over 4,700 on letting agent fees. It is important that we go through all the points that were made to come up with a reasoned response.

[The Earl of Caithness (Con)]

My Lords, I declare my interest as a former surveyor, and I have let and managed property in a previous capacity.

The Statement refers to the letting and management agents market. Can my noble friend confirm that this will also include agricultural letting agents? That also involves letting and managing property in which people live. Does my noble friend not agree that the nub of the problem, which is stated well in the Statement, is that agents do not require qualifications? Given the number of qualifications that financial agents and managers now need, it is quite wrong that any agent dealing with property is not subject to qualification requirements. Should not all agents be fully qualified, including those who buy and sell houses?

[Lord Bourne of Aberystwyth]

My Lords, I thank my noble friend for that contribution—and would indeed encourage the agricultural sector, as he indicated, to participate in relation to tenanted arrangements and managing agents in this consultation. He put his finger on the nub of the issue. Without wanting to prejudge the consultation, it is remarkable that no qualifications or training are required for this sector. These are the things, inter alia, that we are seeking evidence about and views on in this consultation.

[Baroness Grender (LD)]

My Lords, I thank the Minister for the reassurance that letting agency fees will be banned—and soon. But I know that he will understand the frustration that Members of the House have that the consultation was announced a year ago and ended five months ago. For every day that we wait, there are tenants on very low incomes who are teetering on the brink of homelessness. As the consultation paper said at the time, one in seven has to pay more than £500 in fees—which is often a burden on those with the lowest incomes, because agents tend to charge them a higher level and they tend to move more often. Every day that there is a delay on this, people are literally teetering on the verge of—and some are shifting into—homelessness. So I urge that “soon” should be not just soon but tomorrow.

[Lord Bourne of Aberystwyth]

My Lords, it will be soon. I am not sure that it will be tomorrow but it will be soon. I thank the noble Baroness for her customary patience and I understand the frustration that she must feel. She will know that there have been events over the past five months that have conspired to contribute to the delay, but she can rest assured that we are determined to take this forward. I think that she will be reassured very shortly and I look forward to talking with her and progressing this through the House.

[Lord Beecham (Lab)]

My Lords, the Statement refers to the “billions of pounds of funding for new affordable homes” that has recently been announced. I take it that that refers to the £2 billion and the 20,000 or so houses that will be built. Will the Minister indicate how that money will be allocated and where we can expect to see the new houses? Further, will he indicate whether the Government are looking at the escalating levels of ground rent that are contained in some of these long leaseholds, because recently the problem of ground rents going up very substantially over a period has been frequently raised? Finally, I refer him to a matter that has arisen in Newcastle. A charity that wanted to enfranchise a long lease was apparently unable to do so because it contravened some provisions of the Charities Act. I will send him a copy of counsel’s opinion on the matter and invite him to look at it, because it seems to be anomalous. The charity in question would have been prepared to do it but apparently was not allowed to do so by law.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord for that. He rightly identified the £2 billion of additional money that was announced on 2 October for affordable housing. We will shortly issue details of how the money will be spent. On the ground rent issue, I mentioned in relation to leasehold reform that we will be responding to the consultation very shortly and looking at banning future long leaseholds with ground rents where they are inappropriate. I am very happy to look at the Jarndyce v Jarndyce situation he referred to in Newcastle—obviously I am not acquainted with it at the moment but I will have a look at the position and would be happy to meet him to discuss it if it would be helpful.

[Baroness Gardner of Parkes (Con)]

My Lords, I declare my interest as set out in the register and will try to keep my remarks short. I think that the Minister is in need of looking at what we have thrown out that we should not have. The leasehold valuation tribunal was a way of dealing with things very simply: you could get somewhere with it. Instead, the Minister mentioned the courts. This is one of the problems. If everyone has to go through expensive court proceedings for even the most minor thing, it is very difficult.

I was not able to speak in the debate the other day and so could not draw it to the attention of the House, but the Minister does not appreciate the number of rogue and totally illegal landlords, in particular in London, which is the area I know. I have discovered that homeless people could probably get somewhere to live, but only if they are prepared to pay rent in a place where no one is meant to be subletting. Is it not time that the Minister liaised more with the local authorities and returned powers to them? That way, we would know what was happening in these properties. In extreme cases, local authorities can be told, but the homeless people I have seen have been put out because it came out that they were paying rent and the landlord was not declaring a penny of it to anyone.

I will not go on about Airbnb or holiday lets because I am always speaking about that and have a Question coming up on it. However, there needs to be consultation on many things and local authorities are the bodies authorised to do this. But when I asked in a Written Question what consultations the department had had with local authorities, the Answer that came back was none. I have tabled another Written Question to ask: why not? I could go on and on—there are so many aspects to this and I hope that the consultation period will allow us to look into these issues thoroughly.

[Lord Bourne of Aberystwyth]

My Lords, I thank my noble friend. I anticipate that she will respond to the consultation and I encourage her to do so. On the housing court, I think my noble friend is in danger of running ahead of herself. We have not published any proposals on this, as yet. We are discussing the right way forward with the Ministry of Justice. That is work in progress. On rogue landlords, this April we introduced civil penalties of up to—from memory—£30,000.

I did notice that my noble friend had put down a number of Questions on local authorities, and we will of course respond to those. At the moment, local authorities have considerable powers in relation to the sort of activity she is talking about. And I note with relief that she did not push the issue of Airbnb today.

[Lord Palmer of Childs Hill (LD)]

My Lords, I draw the attention of the House to my entries in the register of interests. I was disappointed that, in the Minister’s repeating of the Statement and his answers to the questions, no mention was made of the latest growth business. In large blocks of flats with lots of leaseholders, leases are being sold to other companies whose business it is, at the earliest opportunity, to raise the ground rent on those leases, as well as service charges and the like. This is an incredible growth business. People are buying up blocks of leases with the intention of making life more intolerable for the lessees of those apartments.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord for that contribution. As he rightly says, it is not the subject of the Statement we heard today, but I will look at that matter and respond to him. I will ensure that a copy of my response is placed in the Library and copied to all noble Lords who participated in this Statement.

[Lord Campbell-Savours (Lab)]

My Lords, I am a little confused. The noble Lord referred to a paper on leaseholds. Surely any consultation on leasehold reform should be part of a wider package that includes the area we are dealing with today. That could then be incorporated in one piece of either draft or final legislation. Should not that be the intention? At the end of the day, these discussions all end in arguments about enfranchisement, as my noble friend suggested, and the purchase of freeholds.

That brings me to my final point. It is extremely difficult for residents’ associations to gain access to the lists of leasehold owners in blocks of flats, in particular in London where a large proportion of our flats are owned by people overseas. When residents’ associations seek to gain that information from management companies, they find that they are denied access to it. That often makes it impossible for them to move forward in the whole process of buying the freehold. Why is that not being considered as part of the legislation that the Government are proposing?

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord for his contribution. On the general point about whether it is wiser to act on individual parts of the problem or wait and do the whole thing in a consolidated way in one go, I think he would probably find himself in disagreement with people who are keen to move things forward in some of the areas we have been talking about. I understand what he is saying but there is a discrete area that we have been looking at in relation to leasehold reform and houses that have been sold on very long leases with ground rents. There is a case for urgent action there before we tackle the broader issue of service charges that we are looking at here.

On the specific point that the noble Lord raises about residents’ associations, that is encompassed within the consultation. I think that he will be pleased about that. There is a general catch-all anyway. If there is a particular question that is not asked which someone feels is appropriate, there is a catch-all which provides the opportunity to respond on that as well. However, we are looking forward to hearing from people on the particular issue that he raises.

[Lord Elystan-Morgan (CB)]

My Lords, it is clear from what has already been said in this short debate that there is a crying need for the disciplines that have been adumbrated by the Minister in relation to property agents. However, that is only part of the problem. Over the past 100 years, starting with the Rent Acts immediately following the end of the First World War, various Governments have from time to time turned to the problem of housing and the relationship between landlord and tenant and come to the conclusion that it was less than equitable in the circumstances, mainly due to the law of supply and demand and social conditions at the time. We are in such a period now. There should be the widest possible review of the situation in order to bring about as much of an equitable balance between landlord and tenant as is humanly possible.

[Lord Bourne of Aberystwyth]

I thank the noble Lord for his customary perception on the importance of looking at this whole area. He is right to say that there are many facets to this—including the social rental issue, which we are looking at separately, and on which there will be a Green Paper. I accept that action in relation to the private rented sector has been done in a somewhat piecemeal way, but it is an important part of the debate. The point has been made, but it is worth restating, that the vast majority of agents and landlords are very good, just as there are very good tenants. To put it in perspective, we are dealing with a minority, but that does not mean that it is not important. I accept what the noble Lord says about the broader issues but, believe me, within the department many considerations are bubbling away. There is an active discussion about what we do next—and there is an awful lot to do—because there is the accumulated problem of a lack of housebuilding and, in all honesty, perhaps a lack of attention on some of the issues in the private and social rented sectors.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, I am pleased to see the noble Baroness, Lady Hanham, in her place. We welcome what the Government are doing now because at the time of the Enterprise and Regulatory Reform Bill an amendment of ours was passed in this House to provide that letting agents should be regulated and be members of a redress scheme. The noble Baroness persuaded Ministers in the other place to accept part of the amendment, the element that provided for a redress scheme. We therefore welcome, somewhat belatedly, that the Government have come to the second part, which is that letting agents should also be licensed in some way.

My questions concern something that we got slightly wrong with the redress scheme. We included managing agents, but we now discover that management companies are not covered. It would be useful to know whether the new proposals now being discussed, which mention managing agents, will also cover property managing companies, particularly on long-lease properties. That is my specific question.

Perhaps I may repeat what I think was said at the end. I know that the Association of Residential Letting Agents and the Association of Residential Managing Agents, the voluntary professional associations, will welcome this move. It is something that they have long asked for, so they will be pleased that those who are not properly qualified and trained, and thus create a bad reputation for the sector, will now have to be included on any register.

[Lord Bourne of Aberystwyth]

I thank the noble Baroness, who I know understands the consumer sector and certainly knows this area well. I am grateful for her constructive contribution. I had not spotted that my noble friend Lady Hanham is in her place. It is a great pleasure to see her and I fully acknowledge the massive role that she has played in this matter.

On the point about management companies, the noble Baroness is right. I know something about company law and how companies are often used as a way of circumventing, sometimes intentionally and, in fairness, sometimes accidentally, obligations and occasionally rights that are bestowed. That should not be happening, so I am happy to undertake that we will look at how to ensure that it does not in this area. I also reiterate her point about the sector’s welcome for this development —indeed, the welcome it has already had. I will be getting them on to the noble Lord, Lord Kennedy, to make sure that some of that enthusiasm rubs off. It is important that we move forward together in this area.

[Lord Shipley (LD)]

My Lords, can the Minister clarify whether the scope of the Statement includes arm’s-length management organisations, which manage local authority housing? I should remind the House that I am a vice-president of the Local Government Association. ALMOs provide services to those who have exercised the right to buy, particularly in blocks of flats. I think the Statement is about managing and letting agents, but it does state that it is also about protecting consumers. The Statement says that the Government are asking everyone who is paying service charges to comment, which implies that ALMOs are included. This is a very important issue, which would benefit from ministerial clarification as soon as possible.

[Lord Bourne of Aberystwyth]

My Lords, it is important to state, as I think I have, that this is very much rooted in the private rented sector, so it is on private sector rented management agents that we are expecting contributions. However, within that there is considerable scope for people to give us their views on all the issues relating to transparency, redress and so on. We look forward to a thoroughgoing review of the sector and to receiving a considerable response by the end of November so that we can respond in a timely way. Then, with the approval and support of the House, we will work together to move things forward.