Letting Agents

Sarah Champion Excerpts

Wednesday 27th February 2013 Westminster Hall

[Sarah Champion (Rotherham) (Lab)]

It is a pleasure to serve under your chairmanship, Mrs Brooke.

I requested this debate because of my concern about the growing problems faced by tenants and landlords across the country at the hands of unregulated letting agents. I am concerned that the Government appear to be making no moves to address those problems. We need a regulated sector for the protection of all. I make it clear that I am criticising not all letting agents but a minority who bring the profession into disrepute.

My parents have been in private rented accommodation with the same landlord for the past 30 years. They receive an excellent service, pay a fair rent and have clarity on their position. Increasingly, however, that is not the case for all. I find more and more constituents are being exploited by unscrupulous agents.

With the economy flatlining, we are facing the biggest housing crisis in a generation. The Government’s housing and economic policies are making that worse. House building is down; homelessness and rough sleeping are up. We have a market in which people struggle to get mortgages, and, unfortunately, most of us cannot rely on the bank of mum and dad.

A result of the growing housing crisis is that more and more people are locked out of home ownership and are forced to live in the private rented sector. I have no objection to that per se. In most of Europe, the private rented sector is the norm, but tenants over there do not suffer at the hands of cowboy letting agents, which is the big difference.

In the UK, the private rented sector is now bigger than the social sector. Last year, the private rented sector overtook the social sector for the first time in nearly half a century. Five million people, however, are on local authority waiting lists, and young people are now forced to wait well into their 30s before they can buy their own home, if they can ever afford to do so.

The Government should be building more homes and better supporting tenants and families. The gap between supply and demand is ever increasing. The private rented sector clearly has an important role to play in meeting housing needs, but to do so it must be a market that works for tenants and landlords, with no room for rogue letting agents and rip-off fees.

There are now 3.6 million households in the private rented sector, and a third of those families have children. Private renting is not just for young professionals. The Resolution Foundation predicts that by 2025, if the economy remains weak, 27% of low to middle-income families will be living in private rented accommodation. That is why I urge the Government to act now to impose regulations, because the problem is not going away; it is growing.

What are the issues of private renting? Many of those looking to find a home in the private rented sector, or who already live in the private rented sector, have to use a letting agent. The evidence shows that too many tenants are being ripped off by opportunist letting agents who fail to protect tenants’ money and who charge exorbitant fees that are completely opaque.

A report by Citizens Advice found that 73% of tenants are dissatisfied with the service provided by their letting agent, with a significant number having difficulty contacting their agent and suffering serious delays in getting repairs. There are cases of agencies, even large and well established businesses, running into difficulties because they have no client money protection, with the money of both landlords and tenants being lost. Shockingly, that has not prevented the owners of companies that have gone bust from resuming their activities at a later date.

Ryan Lee, a 24-year-old Cheltenham letting agent, has today been sentenced after pleading guilty to taking £13,500 from 13 customers. Husband and wife Chris and Lucy Mallows were among Lee’s victims. They handed him £900, which they believed would go into a secure deposit scheme. They also discovered that money they had given to Lee to pay their first month’s rent had not reached their landlady. At the time, Lucy and Chris were setting up their own oven-cleaning business, and they could not afford to lose the cash. When they first realised they had been conned and went to the letting agent’s office to investigate, they found the shop stripped of computers and in complete darkness. Lee spent 10 months on the run overseas before being caught. Responding to the case another local agent said:

“There have been incidents recently, all local and reported in the press, of three letting agents disappearing with thousands of pounds of clients’ money.”

Unfortunately that is not only a Cheltenham issue but a national issue.

Individuals who are trying to invest for their future represent the biggest increase in landlords in recent years. That novice group are easy pickings for rogue letting agents. Novice landlords have expressed the pressure that letting agents put on them to raise rents. Shelter finds that one in four landlords has raised their rents because a letting agent had told them to do so. Letting agents put pressure on landlords to issue very short contracts, which benefit only the letting agent as they can charge more fees for re-letting the property.

Letting agents are preventing tenants from directly contacting their landlords. There are no safeguards to protect tenants, landlords or reputable agents. All I request is that the Government create a level playing field in which tenants are treated fairly and landlords have fair competition. Currently, good landlords are being exploited and good letting agents are being undercut by rogues, which cannot be allowed to continue.

More than 4,000 managing and letting agents are estimated to be entirely unregulated. At present, it is still possible to set up a letting or management agency with no qualifications whatsoever. There is no need to conform to requirements of conduct or to provide mandatory safeguards for the consumer. There are no obligations on letting agents, unlike estate agents, to register with a redress scheme enabling awards to be made against agents for quantifiable financial loss to clients. Letting agents, unlike estate agents, operate outside of any legislation. As the Royal Institution of Chartered Surveyors puts it, letting agents operate in the property market’s “Wild West.”

A local agent commented in the Bristol Post:

“It’s all well and good to seek out an agent who belongs to a voluntary licensing scheme, but the average man in the street would reasonably expect consumer protection from any operator in our industry.”

He is right. People do not start their property search by looking for which letting agents have the most kitemarks; they search online for a property in a certain area that is within their budget. Once a desirable property is found, it is difficult to walk away, and I am certain the letting agent’s track record is not even considered.

Voluntary schemes have obvious drawbacks. The good agents comply with such schemes, and the cowboys ignore them. In 2002, the previous Government established the national approved letting scheme as an independent voluntary regulatory body. Industry-led bodies such as the Association of Residential Letting Agents and the Royal Institution of Chartered Surveyors have done good work in encouraging a responsible regulatory approach. Although the principles are laudable, however, at no time have the majority of letting agents in England been members of such schemes. Self-regulation has not delivered and we now need something stronger.

[Steve Reed (Croydon North) (Lab)]

Does my hon. Friend agree that it was wrong of the Conservatives on London councils to scupper plans for a pan-London registration scheme for landlords and agents so that tenants could have had assurance that they met minimum standards?

[Sarah Champion]

My hon. Friend makes a good point, and I completely agree.

Across the industry, there is a problem with rip-off and opaque fees charged by letting and management agencies. A national survey of letting agents found that 94% impose additional charges on tenants on top of the tenancy bond, rent or rent in advance. The citizens advice bureau in Dorset reported a client who was considering renting a three-bedroom property. He was shocked to find hidden in the tenancy agreement a requirement for him to pay £94 every six months for “search fees.”

The national survey also found huge variations in the size of such charges. Charges for checking references ranged from £10 to £275, and charges for renewing a tenancy ranged from £12 to £220. In some cases, additional charges for a tenancy amounted to more than £600, which is a vast amount of additional money for anyone to find. The fact the fees vary so much shows that those charging the premium are clearly making a huge profit.

[Lucy Powell (Manchester Central) (Lab/Co-op)]

Does my hon. Friend agree that letting agents’ charges to landlords are also absolutely extortionate? It is not just tenants who face charges; many landlords, when tenancies are renewed, must pay 10% a year in ongoing charges. I get many complaints in my constituency, as I am sure she does, from landlords who feel that the market needs regulation.

[Sarah Champion]

My hon. Friend makes a good point. It is both tenants and landlords who suffer from unscrupulous letting agents, and we must do more to protect them. This cannot continue.

Up-front fees present a significant barrier to low-income people looking to rent, in some cases with serious consequences. The charity Crisis contacted me about Danny, a 34-year-old man who became homeless after a family break-up. Danny was given a list of letting agents who were happy to take housing benefit tenants. He called them daily for several weeks, looking for a property. He was eventually offered a flat and told that he could move in after six weeks.

Danny secured a crisis loan to help him pay rent in advance. The agent asked him for a £250 administration fee, refusing to confirm in writing what the fee was for or to provide a signed tenancy agreement. The agent then told Danny that others were interested in the property and asked for an additional £800 holding fee to keep the flat off the market. He knew Danny’s situation but refused to reduce the fees. Although he tried to scrape together the money, Danny could not take up the tenancy. Having forgone his place in a winter shelter, he slept rough before going to Crisis. He is now living in a hostel and looking to move into private rented accommodation again. I would love to say that Danny’s story is unique, but it is not.

[Mr Gregory Campbell (East Londonderry) (DUP)]

I congratulate the hon. Lady on securing this debate. She is telling a harrowing story about the individual whom she named. Does she agree that regulation must include transparency and clarity about any additional charges, so that potential tenants and landlords can be absolutely clear what they are being charged and why?

[Sarah Champion]

I completely agree, and I thank the hon. Gentleman for that intervention. What I am asking for most is a shopping list of fees, so that people can go in with their eyes wide open. What I am finding is that people—whether tenants or landlords—enter a tenancy agreement, and then additional fees are sprung on them, which is unacceptable.

According to Which?, some tenants are being charged up to £90 to renew an existing tenancy: that is, to stay in a property for which they have already undergone checks and been paying rent. Equally insultingly, some letting agents charge £120 to check out of a property; let us hope that the hotels do not catch on to that scam.

I recently encountered a case in Rotherham in which a vulnerable couple with dependent children paid a month’s rent in advance and a £100 administration charge to the letting agent. They were not given receipts. The couple were informed that the property was available and were given a date to move in. However, the house was in a state of disrepair. There were structural problems and exposed wiring and damp, and it was not suitable to live in without work.

The couple did not waive their rights to a seven-day cooling off period, and decided not to move into the property. They telephoned and wrote to the letting agent to cancel the agreement within the designated time limit, but the letting agency made it difficult for the clients to get back their deposit and administration fee. It took considerable time for the letting agent to agree to refund the advance rental payment. No mention was made of refunding the administration fee.

A report by the independent Resolution Foundation found three key areas of concern regarding fees and charges levied by unscrupulous letting agencies. First, there is a substantial disparity in the fees charged by different agents for similar services, but no apparent difference in the quality of the service received. Secondly, moving into the private rented sector generally entails significant up-front costs due to fees and charges. Thirdly, charges are too often hidden in the small print and people are exploited by unfair fees that they were unaware they would face.

All those issues were highlighted in an investigation by the Office of Fair Trading whose findings were released two weeks ago. The OFT found that although the lettings market is a significant part of the UK economy, it generates an extraordinarily high level of complaints. The investigation found that the main areas of concern for tenants were surprising and high charges, confusion about holding deposits, misleading advertising, repairs not being carried out and the non-refund of security deposits. The OFT also found that landlords’ concerns focused, among other things, on agents not doing what was agreed in the contract and not passing on collected rents to landlords.

As a result of its investigation, the OFT has called for better up-front information, including clear tariffs of fees and charges at the start of the process and certainly before any contract is signed, and a redress mechanism so that landlords and tenants can sort out problems when they occur. The OFT has also called on the Government to require agents to sign up to a code of practice or join a redress scheme, and it questions whether the level of consumer protection provided by law is right for the sector.

With such a weight of evidence, why is it that despite the reports from Citizens Advice, the Resolution Foundation, Which? and now the Office of Fair Trading, despite the calls for action and support for change from millions of tenants and landlords and despite calls for change from the industry itself, including the Association of Residential Letting Agents, the Labour party and the Royal Institution of Chartered Surveyors, the Government have so far not been moved to act? They voted against the Labour Opposition motion last month calling for action on the private rented sector, including on letting agents. The Government did not accept Baroness Hayter’s amendment in the Lords to include letting agents in redress schemes, which would have been a small step towards greater protections for tenants and landlords, and one of the first actions of the then Housing Minister, the right hon. Member for Welwyn Hatfield (Grant Shapps), was to scrap the last Labour Government’s proposals to regulate letting agents.

I hope that this Minister for Housing, the hon. Member for Hertford and Stortford (Mr Prisk), despite having voted against Labour’s proposals last month, will now consider changing course. Action to regulate letting agents would benefit tenants and landlords, providing protection for their money and appropriate redress mechanisms. It would also benefit the industry as a whole, protecting the reputations of responsible agents, and the economy: a report by the Royal Institution of Chartered Surveyors found that regulation of the industry could generate more than £20 million in benefits per year to the UK economy. Given that millions of families throughout the country are living through the biggest squeeze on living standards in a generation, action on fees would ease the pressure for tenants.

Will the Government act now to protect tenants and landlords by regulating letting and management agents? It is not a party political request; regulation is supported by the industry itself. Will the Government act now to end letting agents’ confusing, inconsistent and opaque fees and charges by ensuring transparency and comparability? Will they undertake to review the fees that letting and management agents can charge? Labour has repeatedly called on the Government to act now to change the private rented sector so that it works for all. There is no better place to start than with the lettings industry.