Housing and Planning Bill
Debate between Lord Palmer of Childs Hill and Baroness Hayter of Kentish Town
Baroness Hayter of Kentish Town (Lab)
My Lords, Amendment 84C is about client money protection. It would require every letting agent to have the money that they hold—belonging either to a tenant by way of advance rent or to a landlord as rent received or funds for repair or insurance—to be protected. In this way, even if a letting agent disappeared or went bankrupt, such money would be safe and available to the landlord. This client money protection is required of solicitors, other professionals, estate agents and, indeed, anyone else holding client money that belongs to others. It is what is needed for rents collected by letting agents on behalf of landlords. It is not the agent’s money and it should be held separately in a protected client account.
This is a big issue: there are hundreds of cases of letting agents taking money from tenants as holding fees, deposits, rent, service charges or even tax, but then pocketing the money. Sometimes, the long arm of the law catches up with them. Tim Glasson was jailed for 21 years for unlawfully and dishonestly keeping rent and deposits; Roy Jackson of Suffolk Letting stole £70,000 from landlords and Keiran Farrer stole £17,000 in rents and deposits, repaying neither the tenant nor the landlord. Similarly, Shirley Player was jailed for stealing £400,000 and Russell Baker was accused of taking £150,000 in deposits but not handing them on to either a tenant deposit scheme or the landlord.
This money is not going into the housing market. It deprives landlords of their income and tenants of their security. About 60% of landlords use letting agents to help to manage their property. Thus money for repairs and insurance, in addition to rents, is channelled through the agent’s bank account. This is not money for the agent’s services; it is due to be handed on to someone else.
The amendment would require the funds to be in a ring-fenced protected client account, in the same way as happens with solicitors. It is strongly supported by landlords as much as by tenants. It is backed by the National Landlords Association, RICS, the British Property Federation, the Association of Residential Managing Agents, the Association of Residential Letting Agents, the Property Ombudsman, Ombudsman Services, Crisis and Shelter. It was recommended by the CLG Select Committee in the other place.
Reputable letting agents strongly support the amendment. As David Cox, who leads their professional association ARLA, said, client money protection is,
“fundamental for tenants and landlords to ensure they have peace of mind should an agent go bust or take off with their funds”.
A director of a large firm, Kinleigh Folkard & Hayward, which protects landlords’ and tenants’ money under a client money protection scheme, said that,
“all too often, rogue agents who do not subscribe”,
to such a scheme,
“misappropriate landlord and tenant funds … It should be compulsory for all agents to subscribe to a client money protection scheme”.
Savills—well-known to everyone in this House—urges the Government,
“to make it compulsory for all letting agents to have client money protection”.
We are talking about vast amounts of money handled, but not owned, by letting agents: probably £2.7 billion at any one time, perhaps £700 million of which is unprotected. In deposits alone, renters typically hand over £600 each, with no guarantee of its safety.
Amendment 84C, which would require all letting and managing agents to have client money protection, is based on similar provisions in the Estate Agents Act 1979. Agents would have to maintain a segregated bank account for clients’ money, with written confirmation from the bank that all the money in that account belonged to the clients. It would mean, importantly, that the bank was not entitled to combine that client account with another account or to offset the money in that client account for any sum owed to the bank by the letting agent.
We tabled a similar amendment to the Consumer Rights Bill and it seemed that the Government were almost persuaded. They came up with a compromise amendment of their own, which required letting agents to display whether they had client money protection. However, it has not worked and it was never going to work. As far as tenants go, they cannot choose which letting agent to use; it is the landlord who chooses. For a tenant, if a particular letting agent is handling the property that they already rent, or which they want to rent, they cannot shop around to find another agent. Their only choice is not to rent that property. They have no consumer power to change behaviour in the market. It hardly works for the landlord either. Many are small and non-professional and do not really appreciate the importance of client money protection until, of course, it is too late.
The Government’s transparency amendment, which became part of the Consumer Rights Act 2015, is fairly useless because, even before that change, every letting agent who had client money protection already proudly boasted about it, but that did not drive the rogues to follow suit. As we predicted, the amendment made little difference. It did not help tenants, who could not shop around, and it did not help landlords, who could only check at the beginning, and not later, whether there was client money protection in place. The other problem is that even the law that was put through is being flouted. We have numerous examples of letting agents failing to display their charges and whether they have client money protection.
When we dealt with this before, the Minister for BIS, the noble Baroness, Lady Neville-Rolfe, claimed that client money protection could,
“make it difficult to encourage landlords to invest in properties”.—[Official Report, 3/11/14; col. GC 600.]
How wrong could she be? It is exactly the security given to landlords by client money protection that will encourage them to invest, knowing that the rents paid over to the letting agent are safe and sound. This amendment is wanted by tenants and is particularly wanted by landlords; it is also strongly supported by reliable letting agents. I beg to move.
Lord Palmer of Childs Hill (LD)
My Lords, I support the amendment, to which my name is attached. I declare my interest as chairman of the advisory board of the Property Redress Scheme, which has been mentioned in passing.
It seems very little to ask, in legislating for housing, to require letting agents to have a protection scheme in place for moneys received by them in their course of business from tenants, prospective tenants and anyone who is renting or seeking a place to rent. It has been estimated—I always wonder how these estimates are arrived at—that letting agents hold about £2.7 billion in client funds, yet if the agent has not elected voluntarily to obtain cover, landlord and tenant can lose their money. If disaster strikes in the form of an agent going bust or running off with the loot, under this amendment the landlord and tenant would be covered. The amendment does not require government underwriting, so the Chancellor does not need to amend the Budget. The cover could be provided by the users; this would supplement any award under any one of the redress schemes. As the noble Baroness, Lady Hayter, has said, we are not asking for reinvention of the wheel. Section 16 of the Estate Agents Act 1979 already provides protection in the course of sale and purchase transactions.
Client money protection is of course operated by the travel industry. Travel agents in the UK are required by law to be a member of an independent client money protection scheme that uses ABTA or ATOL. Many of us may have had to use these in the past—I certainly have. When you pay for your travel, your payment to the agent is protected by ABTA or ATOL against the agent going bust or going walkabout with your holiday money. You claim against ABTA or ATOL rather than against the travel agent. This amendment asks that what is the norm for the travel industry, just for going on holiday, is also used for letting agents—for most people, the property that they own or seek to let is much more important—and that there should be compulsory protection for rents, deposits or moneys held, even moneys for repairs.