Enterprise and Regulatory Reform Bill

Baroness Hayter of Kentish Town Excerpts

Wednesday 16th January 2013 Grand Committee

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[Baroness Hayter of Kentish Town]

28ZH: After Clause 62, insert the following new Clause—
“Letting agents etc.
(1) In section 1 of the Estate Agents Act 1979 (estate agency work), for “to which this Act applies” substitute “and in subsection (1A) below to which this Act applies.
(1A) This Act also applies, subject to subsections (2) to (4) below, to—
(a) things done by any person in the course of a business (including a business in which he is employed) pursuant to instructions received from another person (in this section referred to as “the client”) who wishes to let or have the letting of an interest in land managed (for example, the collection of rents on his behalf)—(i) for the purpose of, or with a view to, effecting the introduction to the client of a third person who wishes to let an interest in land; or(ii) after such introduction has been effected in the course of that business, for the purpose of securing the letting of the interest in land; or(iii) for the purpose of, or with a view to, managing the letting of the interest in land on behalf of the client; or(iv) for the purpose of, or with a view to, block management of interests in land; and(b) management activities undertaken by any person in the course of a business (including a business in which he is employed) in connection with land or interests in land.””

[Baroness Hayter of Kentish Town]

My Lords, this is unfinished business for me. As the then chair of the Property Standards Board, I failed miserably to persuade the previous Government to do what I am now asking, but I feel I might have more success with this one.

The purpose of these amendments is, first, to bring letting agents into the Estate Agents Act, thus enabling the OFT to ban agents who act improperly; and, secondly, to require all letting and block management agencies to join an ombudsman’s scheme, which would give tenants and landlords the possibility of redress. This is already the case for estate agents under the Consumers, Estate Agents and Redress Act 2007 and we simply want to extend this to letting agents, as was demanded by Mark Prisk in 2007. I will make the case in three ways: first, the evidence of need due to the size of this sector; secondly, the number of complaints; and thirdly, the industry’s support for this move.

First, the numbers: about 3.5 million people rent privately, two-thirds of whom go through letting agents. Over 1 million landlords use letting agents to manage their properties. The private rented sector accounts for about 17% of all stock at the moment; this is forecast to rise to 20% by the time of the next general election. Which? estimates that tenants pay £175 million a year in agency fees. So it is a big industry, affecting the most basic of consumer goods—that is, homes—but it is not well run or well regulated.

Indeed, the industry is actually completely unregulated. There is ample evidence of rogue agents in this field. Luckily, there is also lots of evidence of good agents. In fact, just as estate agents have to sign up to a redress scheme, so 60% of letting agents—those who are members of the professional association ARLA: the Association of Residential Letting Agents—choose to belong to a redress scheme. However, 40% of letting agents are not members of a redress scheme because membership is voluntary.

We want all letting and managing agents to be members of a scheme and thus covered by a code of conduct or by the RICS “Blue Book” of standards. The amendment is supported by the two residential property ombudsmen: Ombudsman Services and the Property Ombudsman. The latter, Chris Hamer, has noted that with 40% of agents outside a redress scheme, there is a,

“significant risk for consumers who use such … firms. That risk arises from a failure of the firm to follow accepted standards of operation and customer service as laid down in … [the] code; and … exposes the landlord or tenant to … financial loss either through there being no protection of client money if the firm fails, or because … funds have been misappropriated”.

The Property Ombudsman’s workload with letting agencies has increased 200% in the past five years—up 25% last year alone. Some of that represents the increase in agents who are joining voluntarily, but it is the economic situation forcing more people into the private rented sector that is leading to more complaints. However, a quarter of the complaints referred to the Property Ombudsman could not be handled because the letting agent was not a member of the redress scheme.

The other ombudsman, Lewis Shand Smith, who is chief ombudsman at Ombudsman Services, has stated:

“Protection for the consumer in the lettings market is patchy which in turn leads to confusion. There is also an inequality in that those buying and selling residential properties are protected and have access to redress, while those renting in the private sector do not. A more robust and comprehensive regulatory framework and comprehensive access to independent redress will both protect and empower those in the PRS [private rented sector] market”.

These ombudsmen are seeing the problem grow day by day. Research undertaken by Which? and by RICS bears this out. One in five tenants and 17% of landlords said they were dissatisfied with their letting agents. Indeed, landlords’ customer satisfaction score for letting agents was sixth from the bottom across 50 markets and tenants’ satisfaction was second from the bottom. Half of consumers were unaware of or could not remember if their agent was a member of a professional body and the vast majority of them believed that letting agents are required to abide by a code of practice, despite that not being the case. However, nine out of 10 believe it should be compulsory for agents to register with a regulatory body and meet a code of conduct.

It is not just tenants. Landlords are hardly more sophisticated consumers than tenants. In fact, only one-third checked whether their letting agent was a member of a professional body. So tenants are not in a position to choose the agent and landlords often make bad choices. It is not simply that tenants and landlords have nowhere to go with complaints if there is not a redress scheme. It is also that, because letting agents do not have to be a member of a redress scheme, they cannot be banned for bad practice, they do not have to provide indemnity insurance, they do not need a published complaints procedure, there are no client protection rules and there are no entry requirements or qualifications. It will come as no surprise to the Committee that Shelter, Crisis and Which? support these amendments, as does Boris Johnson, mayor in this city, and Sir Robin Wales, Mayor of Newham, whose borough has driven the debate on regulation of the private rented sector. The noble Lord, Lord Borrie, who is, unfortunately, unwell today and unable to be with us, is also very supportive of these amendments. He was the first director of the OFT, which would gain some powers under one of these amendments. The noble Baroness, Lady Greengross, who sat through our last session when we did not reach these amendments would also like her name associated with them.

We know that those who represent tenants and landlords want this change, but what of the industry? The industry is absolutely behind this amendment. Lucy Morton, who has been described by the Telegraph as,

“the queen of London’s rental market for 30 years”,

told that paper:

“It is shocking that so many letting agents remain unregulated”.

The Chartered Institute of Housing wrote to me that it,

“believes that the private rented sector deserves adequate … regulation … to protect the increasing numbers of people … in the sector ... Currently, the regulatory arrangements … fall short of customer expectations with … nearly 40% of … agents not part of … [the] regime. CIH supports these amendments … [which] would … offer a redress scheme and extend the Estate Agents Act … to include … letting and managing”,

agencies.

They are not alone: the Residential Landlords Association, the British Property Federation, the Royal Institution of Chartered Surveyors, the Federation of Private Residents’ Associations, the National Federation of Property Professionals, the Association of Residential Letting Agents, the National Association of Estate Agents, Southern Landlords Association, the Institute of Residential Property Management and the Association of Residential Managing Agents have all asked me to let the Committee know that they support these amendments and that they support mandatory membership of a redress scheme in line with estate agents. They have written that they,

“believe that the regulatory framework in the lettings market … offers limited protection for the consumer with approximately 40% of lettings agents outside of regulation … The current … framework … costs business money, hitting many micro-businesses and sole practitioners … particularly hard. This amendment will provide consumers with clarity and … protection … raising standards across the rental sector, without adding unnecessarily to business costs”.

One of the UK’s largest estate agents, Knight Frank, has also written to endorse this statement.

This is a king-sized roll call. The industry is completely signed up to the initiative. Indeed, it is one that it has long wanted, as have others such as the Resolution Foundation, which wants all letting agents to be members of an ombudsman scheme and brought under the Estate Agents Act 1979 so that the OFT can ban those that act improperly. There is a major mischief at the moment as an estate agent banned by the OFT can open up the very next day as a letting agent. Charities, campaigners and the industry support my amendments.

I turn now to the governing parties. In their policy document, Decent Homes for All, the Liberal Democrats, noting that the numbers in the private rented sector now equal those in social housing and are set to overtake the public sector by 2020, describe how,

“a minority of bad … letting agents are a blight on the [private rented] sector … bringing PRS into disrepute”.

The Liberal Democrats therefore support,

“regulation … to ensure that … people are protected from unscrupulous or incompetent landlords and managing agents”,

by promising to,

“require all letting/managing agents to be on a national register and … to set up a mechanism whereby bad agents may be removed and therefore prevented from practising”.

These amendments provide that mechanism.

I turn to the other part of the coalition. The then opposition MP and now Housing Minister, Mark Prisk, tabled amendments to the 2007 Consumers, Estate Agents and Redress Bill when it was going through the House. His amendments, as I am sure the Minister has recognised, were virtually identical to my Amendment 28ZH. That is because he said that that amendment would amend the Estate Agents Act 1979 to extend the definition of estate agency work to include residential lettings and management. Some of the scandals in this market include charging both the landlord and the tenant for the same service, charging for simple procedures already covered by a landlord’s management fee, and charging exorbitant fees for basic functions. He went on to say:

“As a Conservative, I am instinctively cautious about arguing for more regulation. However, as a chartered surveyor and a constituency Member of Parliament, I know that we need to put lettings on the same regulatory footing as sales. The fact that the National Association of Estate Agents, the Royal Institution of Chartered Surveyors and the rest of the industry agree shows that the measure is long overdue”.—[Official Report, Commons, Consumers, Estate Agents and Redress Bill Committee, 24/4/07; col. 192.]

I have to confess that my party then proceeded to defeat his amendment. However, with this amendment, we have a chance to implement the amendment tabled by Mr Prisk in the other place. I beg to move.

[Baroness Gardner of Parkes]

My Lords, I support the amendment, but I do not think it goes far enough. I shall go on to talk about that in a minute. The noble Baroness has raised some interesting points and I was rather cheered to hear about her lack of success with the Labour Government because I am finding the same at the moment with the Conservative Government as regards the regulation of managing agents. I should say at the outset that that is what I think is missing here, and I hope to bring forward an amendment on Report to cover the regulation of managing agents of leasehold properties.

The noble Baroness mentioned the private rented sector. I am aware of what that is, but unfortunately we still seem to be unable to deal with the invisible private sector, which is quite worrying. I meet people all the time who are being forced out of a bedsit or something because the rent is being put up. The landlord does not even declare that he has any tenants—much less use any letting agents—and when the tenants try to find another place to go to, just a simple room, they are joining a huge queue of people. The rent is increasing even as they wait for their opportunity to get a room.

--- Later in debate ---

[Viscount Younger of Leckie]

Not only will I be very pleased indeed to reply to a letter that I might receive but I would be delighted to meet to discuss these matters fairly and fully.

[Baroness Hayter of Kentish Town]

The Minister will not be surprised to know that the lady is not reassured. I thank the noble Lords who have spoken for their support, not only the noble Lord, Lord Lucas, but also the noble Lord, Lord Sharkey, the noble Baroness, Lady Brinton and the noble Lord, Lord Deben, whose ministerial experience I am very grateful for, as well as the noble Baronesses, Lady Gardner and Lady Howe.

The problem with the voluntary scheme is that only the good agents belong. They are the members of the Association of Residential Letting Agents, which does not just get you in there—it educates you, awards certificates and does training. Very interestingly, ARLA also gets feedback from the ombudsman scheme to know what is going wrong and help them maintain their standards. The problem with the idea of using unfair contract terms is first that the consumer—whether it is a landlord or a tenant—simply does not know to go to them. Secondly, if an individual trading officer deals with something they will probably just deal with that one letting agent and there will be no feedback or ongoing case. I do not agree that this cost is disproportionate. The noble Baroness, Lady Gardner of Parkes, gave the figure of £150 to belong to a scheme: this is not going to put any letting agents out of business. The Minister also seemed to suggest that if any letting agents did go out of business—and they will only go out if they are bad and run off with clients’ money—this would somehow lead to less property. It will not: they will just go to a decent agency. It does not affect the number of properties on offer to tenants.