Letting Agents

Steve Reed 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.

--- Later in debate ---

[Steve Reed]

Does my hon. Friend agree that it is unacceptable that in Croydon, where there are nearly 8,000 people on the housing waiting list, last year only 420 new social homes were built in the entire borough?

[Lilian Greenwood]

My hon. Friend is right, and that is why it is so disappointing that the Government are so far behind their targets for affordable rented housing.

As we have heard, there is no legislation covering letting agent practices. It is still possible to set up as a letting agent with no qualifications. There are no requirements as to conduct or for the safeguarding of consumers as there are for estate agents, and no obligation to register with a redress scheme. Letting agents simply operate outside any legislation. Agents can voluntarily join a regulation scheme, but it is estimated that fewer than 60% do so. There is no shortage of evidence that supports the need for action. As my hon. Friends have said, an investigation by the Office of Fair Trading found that the lettings market generates a high level of complaints, and the main areas of concern for tenants set out in its report published earlier this month included surprising and high charges, confusion about holding deposits, misleading advertising, repairs not being carried out on the property and non-refund of security deposits. Crisis, the charity for homeless single people, reported similar areas of concern. The property ombudsman reported a 26% increase in enquiries or complaints about letting agents between 2010 and 2011 and, as we have heard, Citizens Advice found that 73% of tenants whom it surveyed were dissatisfied with the service.

Experience from my constituency, consistent with those findings, highlights the need for action by the Government to regulate the private rented sector and, specifically, letting agents. Like my hon. Friend the Member for Sheffield Central (Paul Blomfield) I represent a constituency with many students. Some neighbourhoods, particularly Dunkirk, Lenton, Radford, the Park, Wollaton Park and Lenton Abbey, which are close to the campuses of the university of Nottingham, have high concentrations of private rented sector accommodation and especially homes in multiple occupation. Some years ago residents established the Nottingham Action Group on HMOs, because they shared a concern about the way their neighbourhood was being affected by the changing use of local housing. The group has vast experience of the impact of the private rented sector in the city. When I asked for views on letting agents I was told that the most common complaint is agents failing to sort out repairs or carry out regular maintenance. Of course that does not affect only the tenants of the property in question; it often affects neighbours and the wider community, either directly or indirectly, because the local environment becomes run down, the street looks uncared for and further problems flow from that.

However, NAG also had regular reports of other problems, such as agents sending prospective tenants round to view a property without making an appointment, or simply telling them to call round on the off chance. When the current tenants complain they are told to put up with it because the sooner the property is let the sooner people will stop dropping round unexpectedly. There are also reports of agents failing to give prospective tenants sufficient time to look at the property, and pressuring them to sign tenancy agreements and property inventories on the spot. It has been found that agents do not return deposits readily. There is evidence of agents who do not know, or wilfully disregard, legislation. One recent example of that in Nottingham was an agent who has now been fined twice for letting HMOs that required a licence but did not have one. NAG also raised concerns about agents hiring contractors to put up “to let” boards without overseeing the work. Boards have been fastened to fences belonging to neighbours’ properties, and to trees. Thanks to the persistence of NAG, working alongside Nottingham city council, and with the support of landlords and tenants, there are now local controls on the use of letting boards. However, some agents are still acting inappropriately and using every means that they can to circumvent the controls.

The university of Nottingham student union echoed similar themes when it submitted evidence to the Select Committee on Communities and Local Government inquiry into the private rented sector. It said:

“We believe that there need to be mechanisms in place to encourage landlords and letting agents to continually improve the standard of their housing stock. Having worked alongside UNIPOL”—

a voluntary accreditation scheme—

“for many years, we have seen the benefit of accreditation schemes. However, we have concerns that voluntary codes will never catch those landlords who continue to provide low quality housing. We believe that additional licensing in addition to properly supported and valued accreditations schemes would result in improved standards”.

On the regulation of landlords and letting agents the student union was equally clear:

“We believe that registration would improve management of properties by landlords and letting agents. To be registered would indicate that a landlord or letting agent were ‘fit and proper’ to manage properties…working to minimum management standards, and exclude those few landlords whose informal practices leave their tenants in a vulnerable situation”.

I recently heard from Ben, a student in Lenton, who provided a detailed account of the problems he and his housemates had faced. He says:

“Neither us nor our neighbours who are also with the same letting agency received an inventory until quite recently, despite the fact that we were pestering the agency since September. We send e-mails to the landlord and property manager often with complaints and he responds by saying he or one of his agents will come and inspect the property and sort the problems. When and if they come they say things will be sorted and leave and the problems persist with nothing being done. Often they don’t come at all. Our concerns are ignored and disregarded and there seems to be no simple and easy way in which we can launch a complaint and get our issues resolved.”

The Government need to act now to protect tenants like Ben and their neighbours, landlords and the reputations of responsible agents. They need to put an end to confusing and inconsistent fees and charges, so that people understand what they are paying for at the outset and can compare different agents. They should introduce measures to promote longer-term tenancies and predictable rents and should introduce a national register of landlords and give local councils the powers they need to raise standards and tackle rogue landlords. The need for action is clear. It is time for the Government to get on with it.