My Lords, this simple amendment in my name and that of the noble Baroness, Lady Howe, would make letting and block managing agents have to belong to a redress scheme. Estate agents must belong to a redress—that is, an ombudsman—scheme. That is good for users, having an independent arbitrator to sort out disputes. Also, if an estate agent repeatedly cheats consumers, or does so particularly badly, it can then be banned by the OFT. However, letting agents, which handle client money and have slightly younger, poorer and less confident users, are completely unregulated. This means that an estate agent banned by the OFT can reopen the next day as a letting agent. Neither the landlord nor a tenant can take a complaint about a letting agent to an ombudsman, unless that particular agent chooses to join.
There are 4.5 million people who rent privately, two-thirds through letting agents. Given that tenants move quite often, they resort to letting agents with some frequency. Half of them stay in their property for less than two years, as opposed to 6% of owner-occupiers. There are, I fear, a lot of bad—indeed, some very dubious —letting agents. Just today, we have had a major ASA ruling against a letting agent who was breaking the ASA code by not disclosing compulsory charges.
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Why is there no ombudsman to deal with such things and award compensation? Just yesterday, the mystery shopping undertaken by Which? showed that only one tenant was given information about fees when they went to a letting agent to arrange a viewing. No prospective tenant was given a list of charges. This failure to disclose fees up front probably breaches the unfair trading regulations, but tenants have no one to complain to. I hope that the Government will not expect them to take action themselves or through trading standards, which cannot award redress. Is it any wonder that one in five tenants and almost the
same proportion of landlords are dissatisfied with their letting agent? Indeed, landlords rate letting agents sixth from the bottom for customer satisfaction across 50 markets. Sadly, only a third of landlords check whether their agent is even a member of a professional body, despite over a million of them also using letting agents to manage their property.
It is no surprise, therefore, that landlords are completely behind this amendment. It is not simply that tenants and landlords have nowhere to go with a complaint: it is also that letting and management agents cannot be banned for bad practice; they do not need to provide indemnity insurance; they do not need to have a complaints procedure and there are no client money protection rules. This is a big business for such a lack of standards. It takes some £175 million a year just from tenants, so it is no wonder that everyone wants letting and block managing agents to be subject to the same requirements as estate agents.
The two residential ombudsmen, who have to refuse a quarter of the complaints they receive because the letting agents had refused to join the scheme, described the problems with unregulated firms. They included: no protection of client money if the firm fails or if funds are misappropriated; no code of conduct and no minimum standards. These ombudsman, Shelter, Crisis, Which?, the mayors of Newham and of London and the Chartered Institute of Housing all support this amendment. It is perhaps as interesting that the industry itself is absolutely behind it. Lucy Morton, described by the Telegraph as the “Queen of London’s rental market for 30 years” said:
“It is shocking that so many letting agents remain unregulated.”
There are many other groups that support this amendment: the British Property Federation, RICS, the Federation of Private Residents’ Associations, the Association of Residential Letting Agents, the National Association of Estate Agents, Knight Frank, the Southern Landlords Association, the Institute of Residential Property Management, the Electricity Safety Council and the Association of Residential Managing Agents. All of those groups support this amendment because, at present, there is only limited protection for the consumer, with about 40% of letting agents unregulated by any professional body. As these groups say, this costs businesses money, hitting 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”.
Those were the industry’s words, not mine. Furthermore, on 14 February, the OFT itself called for a general redress mechanism, together with an enforcement strategy.
What about the governing parties? The Liberal Democrats, in Decent Homes for All, describe how bad letting agents bring the private rented sector into disrepute. They therefore support regulation to ensure that people are protected from unscrupulous or incompetent agents. They promise to set up a mechanism whereby bad agents may be removed and prevented from practising. Amendment 81A is that mechanism.
As for the Conservatives, in 2007 the then Opposition MP Mark Prisk tabled virtually the same amendment as my Amendment 81A. As he said, it would have amended,
“the Estate Agents Act 1979 to extend the definition of estate agency work to include residential lettings and management. Some of the scams … in this market include … charging both landlords and tenants for the same service; charging for simple procedures that are already covered by a landlord’s management fee, and charging exorbitant fees for basic functions”.
He went on, quite rightly, 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 industry agrees,
“shows that the measure is long overdue”.—[Official Report, Commons, Consumers, Estate Agents and Redress Bill Committee, 24/4/07; cols. 191-192.]
This year, now as Minister, Mark Prisk has acknowledged that some letting agents let down tenants and landlords, and he claimed that the Government are determined to raise standards. However, he seems to be afraid of the costs to landlords and/or the tenant, despite the willingness of the industry to fund these.
The cost of meeting this amendment is estimated at £770 for an agent, including insurance. Given that letting agents often charge a single tenant up to £600 in fees, this is hardly substantial. Furthermore, the 60% of letting agents who voluntarily sign up seem to manage that cost, and according to the impact assessment undertaken by RICS, almost half the agents surveyed said that they could absorb the costs. Sixteen per cent said that they would find efficiencies, and only 23% said that they would pass the cost on to landlords. However, the landlords would, of course, receive a better service, and probably lower overall costs.
Industry, the consumer groups, the OFT and three political parties want this. The amendment simply requires membership of a redress scheme, and empowering the OFT to remove letting agents in the same way as they can remove estate agents. In a recent meeting I heard Mark Prisk say that he was open to reason. I hope, therefore, that the Minister will be able to indicate that he has listened to reason, and that the Government are willing to require such a system of mandatory redress and help us rid ourselves of unscrupulous letting agents. I beg to move.