Commons Select Committee PRS – Organisations, Agency Fees and ARLA
After being present for the first Commons Select Committee Witness Session on the Private Rental Sector, we thought it was best if we went back for an update.
This Committee meeting was a continuation of the one which we were present at on the 4th of February. Our last blog covering this meeting can be found here.
Witness Hearing – Portcullis House, Monday 4th March 2013
These are our abbreviated notes of some of the key points of discussion:
FIRST HALF: Witnesses
- Geoff Fimister, Senior Policy Adviser, Citizens’ Advice
- Jason Freeman, Legal Director, Goods and Consumer Group, Office of Fair Trading
- Mark Hayward, Managing Director, National Association of Estate Agents, representing the Association of Residential Letting Agents
- Caroline Kenny, Executive, UK Association of Letting Agents
In General do you think the PRS in functioning well in this country?
G.F: Obviously people come to Citizen’s Advice because they’ve got problems. They don’t contact us to tell us what’s going well. We see the problems and there are quite a lot of problems in the PRS. It’s obviously a very important sector and is growing very quickly so it is important we address the problems. We believe the majority of the issues are the rent levels, fraud ability, development in housing benefits, rising rents, conditions of properties and issues with lettings agents.
J.F: Problems we can identify are issues of redress, areas of law not being enforced, and professionals in the sector not being aware how the law is applied on a day to day basis. We also believe there is an issue with customer interaction and engaging the landlord and tenant making them aware of their rights and responsibilities.
M.H: We agree with the redress issues. Letting Agents are not compelled or regulated to join a redress scheme as Estate Agents are. People are unaware of their rights and regulations they have which is driven by an imbalance of supply and demand, with a far greater demand than supply.
C.K: I agree there is an issue and we need to focus on raising standards in the industry. We need to place the issue in perspective. At the moment there are about 3.8 million houses in the PRS. The Property Ombudsman received over 8000 complaints but if you put that in proportion that is only 0.2 % of represented households.
M.H and C.K, you represent the “good guys” the people who don’t cause problems. What do you do to find out about the activities of the bad guys?
M.H: Our members have to qualify; have client money protection and public indemnity insurance and we have a code of conduct they have to adhere to. The “rogue” agents do not. They’re not policed efficiently and, I feel, the Trading Standards don’t feel Letting Agents come under their focus. There’s great difficulty dealing with rogue agents.
C.K: I agree. All members of the Association of Letting Agents have to abide by a code of practice. Which include thorough complaints procedure with proper redress and protection for clients. There is an issue of enforcement with existing regulations.
What % of Letting Agents do you represent and how many have you expelled yearly?
M.H: We have over 6,500 members who handle over 600,000 tenancies. We do expel members but they are still able to continue as Letting Agents.
C.K: We have on average 10 members join weekly. We have 250 at the moment with 70 applications. At this moment we haven’t expelled any agents.
What are the issues with fees and charges?
J.F: We receive issues with “drip pricing” where the charges to gain a property are revealed as you progress further into the process. This causes the consumer to become psychologically attached to the property and are unable to evaluate the whole cost of the process meaning they are unable to compare the costs. There is also issue with the deposit holding. What is this deposit for and how will it be refunded and the circumstances the deposit is not returned
Why are these not made known to the consumer at the beginning?
J.F: We would like to see the information made more accessible. If the information could be put online showing the fee’s so the tenant can be informed at the earliest moment.
Do you think the transparency of fees should be underpinned by legislation?
G.F: We feel the fee’s should be levied on the landlord not the tenant and this should be reflected on the rent. That would make it a far more transparent process. We would like to see some form of regulatory framework which would cover Letting Agents and private landlords
ARLA favours compulsory control of Letting Agents. Could you give us an outline what this would look like?
M.H: Only around half of Letting Agents are members of professional bodies so they don’t fall under the redress scheme. We would like to see an overarching regulator, who could on behalf of professional bodies, supervise the redress scheme
C.K, You’re opposed to a central regulator and favour a series of minimum standards.
C.K: We would like to see a database which listed self-regulated and regulated agencies made available. This would provide an incentive for non regulated agencies to join a professional trade body. We would like to see enforcement of existing regulation
Do you think we should change the norm of tenancy lengths to help increase tenure security?
G.F: As the nature of PRS has changed with more families with children entering the PRS the idea of an insecure tenancy becomes more problematic.
- Shelter propose a 5 year model
- There should be a tax incentive for longer tenancies
- Average tenancy is 18 months
Are the arrangements for the protection of tenant’s money adequate?
G.F: We regard the current arrangements as arguments for an introduction of a form of regulatory framework.
J.F: Deposits make up around 20% of complaints that we receive and we feel that a lot of it is due to miscommunication between agencies and landlords about securing deposits and landlord being unaware of their responsibilities once they have received the deposit.
It is a fact that all Estate Agency have to belong to a redress scheme and fact that not all letting agencies do. Can you justify this?
M.H: There is no justification they should belong to a redress scheme.
J.F: There is justification as Estate Agencies carry higher risks with property transaction.
SECOND HALF: Witnesses
- Louisa Darian, Senior Policy Adviser, Which?
- Christopher Hamer, Property Ombudsman
- Peter Bolton-King, Global Residential Director, Royal Institution of Chartered Surveyors
Should there be a statutory framework for agency fees and charges?
L.D: We don’t believe that legislation should be brought in to do this but we would like to work with the industry to create a way of making these costs easily accessible so the consumer can be as informed as early as possible.
In a landlord vs. tenant scenario who should the agency act for?
C.H: The person who is paying you is the primary client, normally the landlord.
Do you think it is right then that the tenant should be charged anything?
P.B.K: We are assuming that there is a standard tenancy agreement which is not the case. In the majority of cases agreements must be altered for each tenant, which comes at a cost. Tenants should however be made aware of costs immediately so they can make an informed decision.
Should that be underpinned by statute?
P.B.K: Those who are part of a professional group are transparent with fees as it is a requirement. The issue is the 40% who aren’t members which have no incentive to be transparent. An issue we face is that the approach to regulations is very inconsistent, fragmented and confusing for the consumer. Whatever is done it needs to be enforced. On a larger scale we can see in certain boroughs where councils are introducing landlord licences and regulations.
C.H: We agree transparency is they key where the tenant needs to be made aware of the costs before they are given any form of liability. It is also vital that the tenant understands why they are liable for the fees. We would support statute in an effort to force the 40% of agent not members of professional bodies to enter a self-regulated group.
What do you find to be the most common complaint?
C.H: We find the most common issue is that which can be categorised as miscommunication and lack of diligence, such as references not being completed properly, agents not following the tenant criteria listed by the landlord and the agents taking an unrealistic amount of holding deposit for a property. It is known that should the tenant fail the references they often lose the holding fee when in fact they haven’t incurred that much other than the reference cost. This is not the majority of agents.
Are people not part of your scheme the worst offenders?
C.H: I don’t know what happens outside of my scheme. But as we monitor those who are part of our scheme those who deal with non members are at risk.
Is the reluctance for tenants to complain for fear of reprisal well founded?
L.D: We discovered 1/3 of 1000 tenants we surveyed did feel that the threat of reprisal would stop them from complaining. With the low supply of properties, especially for families with children, there is a high risk should they lose the property.
How do you think tenants could be given confidence to complain about unjust situations?
L.D: All agents to be signed up to a redress scheme as basic consumer protection so at least tenants could complain to the Ombudsman about an unfair agent.
The government doesn’t believe more regulation is required but you do. How would you convince the minister that you’re right?
P.B.K: There are 3 principle problems
- Inconsistent regulation; sales agents have to be part of a redress scheme whilst Letting Agents don’t. Estate Agents, Letting Agents and Management Agents should all be included in the same regulations.
- Poorly targeted regulations; no agent has to meet minimum competency standards and Letting Agents are outside of the Estate Agency Act. Meaning that if someone is banned as a Sales Agent there is nothing stopping them from becoming a Letting Agent.
- We can’t have a situation where we have ineffective and inconsistent enforcement of regulation.
C.H: I support what was previously said but add there is serious issue with the inconsistencies between Sales and Letting Agents. As the economic situation forces more from owning a house to renting, there needs to be a way to redress for letting.