Enterprise and Regulatory Reform Bill

Lord Campbell-Savours Excerpts

Wednesday 6th March 2013 Lords Chamber

[Lord Borrie]

The noble Baroness, Lady Howe of Idlicote, has indicated that at the present time there is an increasing desire, among young people particularly, to rent rather than buy. When I say “desire”, it is of course a desire that is impelled upon them because of the difficulty of getting mortgages and actually purchasing a house. Whatever the reason, they are having to rent rather than buy.

As so many noble Lords said in Grand Committee, which, unfortunately, I was unable to attend, there is a very strong argument that letting agents and management agents employed by landlords to look after their property should be covered by the Estate Agents Act 1979 and by an ombudsman scheme, as estate agents have been for some time. In Grand Committee, my Front Bench spokesman, the noble Baroness, Lady Hayter, made a powerful speech, as she has today, in favour of extending the power of the Office of Fair Trading to ban estate agents for misconduct to those who engage in the letting and the management of property and to make available an ombudsman scheme for complaints. In Grand Committee she put forward a number of very strong arguments—for example, the size of the market, running to a couple of million letting and management agents. On the number of complaints, she quoted from the Property Ombudsman, for whose council I had the honour to serve as chairman a few years ago. It has shown how the number of complaints has increased. All of the speakers so far in this debate today have mentioned that almost all British Property Federation bodies connected with this field are in favour of the scheme being proposed in this amendment.

The ombudsman scheme is very familiar to us now in all sorts of private industries, as it was already in public concerns—for example, the Parliamentary Ombudsman, which in 1967 started the ball rolling in this country, and the Local Government Ombudsman. I found very puzzling the response of the noble Viscount the Minister in Grand Committee when he said that there would be a reduction in choice if the amendment were carried. When government departments were made subject to the Parliamentary Ombudsman, individual departments were not given the choice as to whether they should be subject to the Parliamentary Ombudsman; they are all subject to it. As new departments and, indeed, quasi-departments, if I may put it that way, have come into being, they, too, have been particularly mentioned as being subject to the Parliamentary Commissioner or Parliamentary Ombudsman.

I thought that the Minister’s answers, as I understood them, were quite inadequate. They seemed to bring in the subject of competition. I am all in favour of competition, and part of this Bill is concerned with improving competition. Competition and choice are very important. Nevertheless, where does the benefit to the consumer come to choose between estate agents, estate management or letting agents, or whatever, which belong to an ombudsman scheme and those which do not? If there is a choice, surely no sensible consumer would wish to go to somebody who does not belong. It seems to me that a mandatory scheme is most desirable in this field.

Finally, I mention in passing the banning of estate agents when they engage in misconduct. This dates, as we all know, from the Estate Agents Act 1979. The Office of Fair Trading has probably not used it as much as it might to deal with bad estate agents. In my day at the Office of Fair Trading we tended to ban only estate agents who were in prison. In other words, they were imprisoned for fraudulent activities and we received evidence that they were coming out of prison shortly. We decided that they must not come out and engage in estate agency so we would ban them. There are not that many estate agents who have been banned who were not at the time in jail.

It is a pity if the Office of Fair Trading has, whether under my guidance or later, not been a little bolder, but it needs adequate evidence of course. Whatever it is, surely letting and management agents should be subject to the same rules.

[Lord Campbell-Savours]

My Amendment 82 is in this group. I apologise to the House for not being able to raise these matters in Committee due to my engagements in other proceedings.

I want to make it clear that I am not criticising in any way the actions of any particular property auction company in the United Kingdom. I also want to make it clear that my amendment is not lobby-driven: it is based on my own experience at property auctions.

Whereas most people’s measure of confidence in the national economy is based on news reports, share prices, unemployment and growth statistics, surveys of business confidence and a number of general indicators, my personal approach has been to measure confidence in what happens in the property market and, in particular, in property auctions. For almost every year over the past 20 years, I have watched the movement in regional property prices in London auction rooms, which I have attended—never as a vendor, never as a purchaser, but only as an observer. In my view, regional price movements excluding London are a real-world barometer of confidence in the economy.

However, there is one particular practice in the management of bidding processes that concerns me. I know that it causes a lot of upset among inexperienced bidders and particularly for young people buying their first home. Catalogues invariably show a guide price against the property description and lot number. I have a catalogue in my hand that shows the lot number of a property in Birmingham and the guide price.

As Barnard Marcus, a reputable company, says in its catalogue:

“The Guide Prices listed must not be relied upon by prospective purchasers as a valuation or assessment of value of the properties. They are intended to provide purchasers with an indication of the region at which the reserve may be set at the time of going to press”—

with the catalogue.

“Guide prices may be subject to variation … Prospective purchasers should be aware that eventual sale prices may be above or below guide levels dependent on the competition”.

That is the background against which people often judge whether they intend to attend an public auction.

Noble Lords should remember that I said,

“the eventual sale price may be above or below guide levels dependent on the competition”.

With that in mind, bidders often take time off work and travel great distances to attend property auctions. But what happens when they arrive and bid often comes as a shock. They presume, as per the quote that I read out from the Barnard Marcus catalogue, that the guide is an indication of the reserve. That is often not the case. The reserve is often substantially higher. The bidders are unaware that the guide is no guide at all as the reserve is not known to the bidder. As Countrywide Property Auctions states in its catalogue under the heading “Reserve Price”:

“Each property will be sold subject to a reserve price. This is a confidential figure agreed between the Auctioneer and the seller prior to auction and is a figure below which the Auctioneer cannot sell the property”.

In other words, the reserve price is unknown to the bidder.

What the bidder is witnessing is effectively a trade misdescription. The guide is no guide at all. Bidders are being attracted to property auctions on the basis of a guide that may or may not be exceeded dependent on bids received—the competition referred to in the Barnard Marcus quote. But the property is being sold on the basis of a reserve price known only to the auctioneer and unknown to the bidder.

Let us take an example. Property A has a guide price of £100,000. Bids received are £95,000, £100,000, £105,000, £110,000 and £115,000. The bidding stops at £115,000, £15,000 above the guide, at which point the auctioneer abruptly intervenes with the statement: “I am sorry but the property is withdrawn under instructions from the vendor because the reserve has not been met”. That reserve is £15,000 above the guide price.