Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) Regulations 2018

Debate between Lord Shipley and Lord Best

Wednesday 13th June 2018 Lords Chamber

[Lord Best (CB)]

My Lords, I declare my relevant interests as in the register. I commend the Government’s two sets of regulations, which will make it compulsory for anyone who wants to operate a lettings agency to have client money protection insurance that is effective and not just a sham.

I felt unable to speak on this subject in this Chamber when the noble Baroness, Lady Hayter, pursued it so successfully, as I was then the remunerated chair of the Property Ombudsman, which was involved in this debate. However, I retired from that role last year and can now say what I think without any conflicts of interest.

Compulsory insurance sounds a dull technical matter of little interest, except to the landlords whose money is held by agents—mostly the rental payments due to the landlord later—who should now be better protected. However, the benefits of these measures go much deeper than simply covering a loss to a landlord if their agent disappears or goes out of business. These regulations will remove altogether from the lettings industry all those often small-time and sometimes pretty dubious property agents from whom not just landlords but tenants need to be protected.

In the absence of regulation, anyone can set up as a property agent. At present, no qualifications or training or financial resources are needed. The requirement to belong to a compulsory client money protection scheme will weed out all those firms, often comprising a single individual, that insurance companies assess as too risky to insure. Those are the men or persons of straw, who have no expertise and may even have a criminal record. Removing the less desirable elements from the still somewhat fledgling lettings industry is a necessary precursor to the forthcoming agents’ fees ban—the planned ban on the phenomenon of agents charging fees to tenants as well as landlords. This important ban is the next item on the list of measures to clean up the world of private lettings. It will often be the least reputable agents who have been making their money by persuading landlords to use their services by undercutting the fees that they ask of landlords and, instead, squeezing the tenant, who has no choice in the matter. The CMP regulations will make the fees ban more successful by removing in advance all those agents who are unable to get the obligatory CMP insurance.

My question to the Minister is about enforcement. We know that the problem with all aspects of regulation for the private rented sector is that trading standards officers and, in other contexts, environmental health officers, are not geared up to enforcing further regulations. Budgets for the work of these officers have been massively reduced as part of the wider cuts to local government spending. What steps is the Ministry of Housing, Communities and Local Government taking to ensure the additional enforcement that these regulations—and others covering property agents already enacted or yet to come—will require? Is it expected that the opportunity to retain the money from civil penalties will provide enough finance to cover the extra enforcement costs? While I wholly support the CMP regulations before us, it would be helpful to have reassurance that their effectiveness will not be undermined or blunted by an absence of resources for their all-important enforcement.

[Lord Shipley (LD)]

My Lords, I should declare my vice-presidency of the Local Government Association. I agree entirely with what the noble Lord, Lord Best, said, and in particular that we need to clean up the world of private lettings. As he rightly pointed out, this is one measure among a number that the Government are introducing and they are entirely welcome.

I welcome this draft statutory instrument. It has been a while in its gestation and of course it will be a further nine months, understandably so, before it finally comes into force. It is a very welcome addition to the measures to protect private tenants and landlords that the Government have been introducing. Client money protection schemes are an essential element of consumer protection, be the consumers tenants or landlords. We have to remember that some 4.7 million households are in the private rented sector, and the protection given to tenants and landlords alike means that all parties can have confidence that their money is secure. It is important to remember the scale of the sums of money involved: letting agents currently hold around £2.7 billion in client funds. Today, some 60% of lettings agents are members of a scheme when it is not mandatory to be so, which suggests that the behaviour of many lettings agents need not be a cause for concern. It is with the other 40% that there is a potential for problems, and this scheme will certainly help to extend the required consumer protection.

Like the Minister, I recognise the excellent work undertaken by the noble Baroness, Lady Hayter, and my noble friend Lord Palmer of Childs Hill, who co-chaired a working group to assess how a scheme might work. This statutory instrument is much the better for their work. Their conclusion that a mandatory scheme is needed if money is to be handled is the right one.

This takes me to the same issue that the noble Lord, Lord Best, has addressed of local authority enforcement. Local authorities will be responsible for enforcement, as they are for the enforcement of many similar reforms being or shortly to be introduced by the Government. Might the Government examine ways of improving publicity around this statutory instrument? Non-compliance can bring a civil penalty of up to £30,000, which can be retained by a local authority. Therefore, there should be no financial or resource reason for local authorities failing to undertake proper enforcement —except that there is, I think, an impediment to enforcement relating to a lack of understanding of the powers under the law by council officers. I am trying to be very specific about this issue: enforcement will work only if the officers undertaking that enforcement understand what their powers are and have the confidence to undertake them. I wonder whether the Government, perhaps in conjunction with the Local Government Association, might consider ways in which knowledge of the law can be spread further. In the end, Parliament may pass legislation that then fails to be implemented as it might be but, given the extent of the private rented sector these days, it is clearly important that government legislation is implemented. The test of the success of this statutory instrument will be on local authorities taking up the powers that they have, which could well be self-financing.