Housing and Planning Bill

Lord Foster of Bath Excerpts

Thursday 17th March 2016 Lords Chamber

There is an urgent need for us to convert into law what is voluntary at the moment and is done by many people who belong to professional bodies to protect people who are most at risk, often small landlords and letting agents. A noble Lord described a property owned by one of his children, I think, and said that they should not choose the room next to the kitchen. Very often people do not have the ability to decide whether to choose the property—often they feel that they are only too lucky to find someone who will let to them and they do not realise that the rents, deposits and money for repairs are at risk. That is why we urgently need this amendment.

[Lord Foster of Bath (LD)]

My Lords, I support the amendment in the names of the noble Baroness, Lady Hayter, the noble Lord, Lord Kennedy, and my noble friend Lord Palmer. I hope that noble Lords will not read anything into my very brief appearance here on the Front Bench.

We have heard a little about some of the figures. Back in 2012, Reading University carried out a survey that showed that some £23 billion a year was paid in rent and that in a year some £6 billion to £10 billion was held by agents after being collected by them on behalf of landlords. However, as my noble friend Lord Palmer points out, a more recent survey shows that, at any one time, some £2.7 billion is held by letting agents. The amendment is about the protection of that money.

It is worth reflecting on what eminent people have said about this issue. In July 2013, the Property Ombudsman felt moved to say something about client money protection under the heading:

“Client Money Protection Is a Necessity for the UK Lettings Market”.

He said:

“'We need an even playing field for lettings. All agents are required to hold client money in a separate Clients Account but there is no current requirement to have those funds insured against unlawful use or fraud, which is why”,

client money protection,

“is crucial for landlords and tenants”.

He went on to say that client money protection,

“is not a duplication of any deposit scheme or professional indemnity cover. It goes beyond that and provides landlords with the peace of mind they need to know that the rent collected by an agent is protected”.

As we know, many good agents and trade bodies, such as the Association of Residential Letting Agents and the UK Association of Letting Agents, recognise the importance of this and provide necessary protection for their members. Sadly, however, some do not.

Back in 2013, the Property Ombudsman surveyed some 8,000 lettings branches and discovered that, while 80% had client money protection, 20% did not. The ombudsman concluded:

“My personal viewpoint would be to question why a letting agent would not support CMP. In the absence of any regulation … agents themselves need to take proactive steps to show landlords and tenants that they have taken out the necessary cover to protect rental income”.

However, it is very difficult indeed for the vast majority of agents—those who provide client money protection—to persuade the others to do so. It is also difficult for them to run the necessary publicity campaign to warn landlords or would-be landlords and the public of the need to choose an agent who provides that protection.

Of course, agents are helped to some extent by the new transparency rules, which are being enforced by local authorities; I have no doubt that the Minister will refer to that in his response. These require the publication of the breakdown of the fees that agents charge to tenants and landlords, the redress scheme that they belong to and a statement of whether they are a member of a client money protection scheme. I recognise that there are many such schemes—again, no doubt, the Minister will refer to schemes such as SAFEagent and CM Protect. However, as the noble Baroness, Lady Hayter, points out, there is no evidence to suggest—and the vast majority of agents agree with her—that those schemes alone will provide the level of protection that is needed.

Earlier in our deliberations on this legislation, during our discussion of zero-carbon homes, the Government said that by opposing the introduction of tighter energy efficiency standards they were protecting housebuilding businesses; they said that they were stopping the overregulation of housebuilders. I was able to point out at the time that the housebuilders themselves supported the introduction of the regulation. We have a similar case here. It is instructive to learn what Mr Brandon Lewis said in response to such an amendment when this matter was discussed in another place. He said:

“We want to ensure that we have a strong and thriving private rented sector that is not tied up in excessive regulation. Requiring agents to pay to belong to a client money protection scheme would force honest agents to buy insurance against the risk that they themselves were fraudulent, when, as the hon. Lady said, the vast majority of agencies are not. Introducing a mandatory client money protection scheme at this point would be a step too far and would overburden a market that is perfectly capable of self-regulation”.

That is slightly odd, coming from a Minister who is imposing a large number of regulations in the Bill. However, it is much more bizarre that in this case, just as with zero-carbon homes, the industry itself is pressing the Government to introduce regulation.

It was the Association of Residential Letting Agents that drafted the amendment before us today to protect money received from clients and held by agents, such as rent due to landlords. The Government claim that the only reason for rejecting the amendment is that it would overburden the industry, but given that the industry wants it imposed on itself, I hope that the Government will drop their opposition. I hope that when the Minster responds he will reflect on the other thing that Mr Brandon Lewis said during his response to a similar amendment in another place. He went on to say, rather indicating that even he is a bit worried about the situation:

“However, in May 2016 we will review the impact of the transparency measures that were put in place only recently. At that stage, I will take due consideration of whether any further action is needed”.—[Official Report, Commons, Housing and Planning Bill Committee, 10/12/15; col. 719.]

We see yet again another example of the Government being prepared to consider something after we have finished our deliberations on this legislation. I urge the Minister to reflect on the fact that the agents themselves want to see an amendment such as this in place. I hope that the Minister will support, if not the precise wording of the amendment, something along these lines.

[Viscount Younger of Leckie]

My Lords, it gives me considerable pleasure to be responding to the noble Baroness, Lady Hayter, who will probably remember only too well that not so long ago we debated a number of Bills with some vigour. This amendment would introduce provisions under which cover for money received or held by lettings agents in the course of business, generally known as client money protection, would be mandatory. I hope that at the end of my remarks I can offer a little light at the end of the respective tunnels for particular Lords, if I may put it that way.

I am aware of some support within the housing sector for this measure. That has been reflected in interventions from the noble Lords, Lord Palmer and Lord Foster. But I am concerned that requiring lettings agents to belong to a client money protection scheme will introduce burdens and costs into the sector that could have implications for rent levels. Instead, this Government’s approach is to encourage lettings agents to adopt client money protection without the need for regulations. I shall explain.

We have already legislated through the Consumer Rights Act 2015 to require lettings agents to be transparent about whether they offer client money protection. Transparency raises consumer awareness and encourages landlords and tenants to shop around and choose an agent based on the level of service that it provides. I recognise the importance of client money protection. This is why in our guide on how to rent we champion the SAFEagent scheme—a kitemark scheme, in effect. This helps landlords and tenants easily to identify agents that offer this protection by the display of the SAFEagent mark. I accept that participation is voluntary but estimate that at least two-thirds of agents already offer client money protection. At the moment, to introduce mandatory client money protection would be a step too far and overburden a market that is perfectly capable of self-regulation. The balance of regulation for lettings agents is now about right. We need to allow time for the transparency measures to which the noble Lord, Lord Foster, alluded to bed in.

We shall review the impact of the transparency measures later this year. I reassure all noble Lords, and in particular the noble Lord, Lord Foster, that this review will be taken seriously and that we intend to work closely with our industry partners and representative groups to develop this review. I hope that this explanation reassures noble Lords and that the noble Baroness will withdraw her amendment.

--- Later in debate ---

[Lord Foster of Bath]

The Minister is suggesting that the introduction of measures proposed in this amendment would increase costs on letting agents. That is true. I have looked at the costs of such insurance schemes as are currently available. We know that the Minister says three-quarters of lettings agents have already entered such schemes. I believe that it is almost 80%. Will the Minister share with the House, either from figures in his brief or by writing subsequently, the Government’s estimate of the cost of the introduction of the scheme, not to the 80% that have taken it up but to 100%, and of its impact on rent levels?

[Viscount Younger of Leckie]

Yes, indeed. I shall make two points arising from the noble Lord’s question. We believe that the balance is right also because we want to encourage a market whereby customers or people who wish to rent have the opportunity to shop around and to go to those agents where there is a kitemark scheme and reassurance in terms of their level of service. We believe that the market will weed out those without that. To answer the question on the money involved, agents typically pay an annual levy of around £300 to join a scheme. The noble Lord probably has these figures himself. This forms part of a central pot of money that can be used to pay successful claims by landlords and tenants.