My Lords, Amendment 82, spoken to by the noble Lord, Lord Campbell-Savours, concerns sales of property through auctions. I shall turn to that shortly. Amendment 81A and the next group of amendments are aimed at two different types of activity. One is the letting and management of privately rented homes. The other is the management of residential leasehold properties. It is important to make that distinction because, while some agents engage in both these activities, they are different activities, with different clients, contractual relationships and issues. However, a number of the amendments we are debating cover both sectors, so I shall make some remarks about each sector in turn before turning to the amendments.
The Government are aware of the important and growing role played by private renting and residential leasehold. This is true particularly in London and the south-east, where the pressures of growth in housing demand and the challenges of increasing supply are intense. There are now around 3.8 million privately rented and 3 million leasehold properties across England, with the majority of the latter being flats. Obviously, not everyone living in those millions of properties is happy with their property in every respect, whether
because of the costs they face in buying or renting it and then living in it, its condition or the quality of its management. Many of them are content, of course, and find that on balance private renting or leasehold meets their needs.
We have heard a number of contributions today, and previously in Grand Committee, describing unsatisfactory practices by letting agents in the private rented sector. This was highlighted today, notably by the noble Baronesses, Lady Howe and Lady Hayter, among others. Indeed, this sector has had a substantial amount of attention recently in the other place, in the media and in recent reports from Which? magazine, the Office of Fair Trading, the Property Ombudsman and others. The Government have been listening carefully to the views expressed on this subject, and recognise that there are issues. I am pleased that the noble Baroness, Lady Hayter, acknowledged this and highlighted it today.
While there are many agents who perform a good and honest service for their clients and serve an important role in the private rental market, there are too many agents who are not acting responsibly. My honourable friend in the other place, Mark Prisk, said in a debate in Westminster Hall last week that the Government consider many of the problems to be a consequence of years of undersupply in the housing market. The imbalance between supply and demand has put rents, the quality of accommodation and standards of service under pressure in some areas of the country. That has had consequences for the way lettings agents, as well as landlords, operate.
Expanding the supply of rented homes is therefore at the heart of the Government’s strategy. We want a bigger and better private rented sector. That is why we established a debt guarantee scheme of up to £10 billion to encourage institutional investment and, alongside that, a £200 million Build to Rent fund. Boosting supply is not just about financial support, however. It also means avoiding excessive regulation that can deter investment and stifle supply. Excessive regulation, however well intentioned, can result in precisely the outcomes we want to avoid. That is why we did not proceed with the proposals of the previous Government, such as a national register of landlords and the full statutory regulation of letting agents.
Nonetheless, there is a role for regulation in preserving standards. We have heard a number of people express the view that the lettings market is totally unregulated. That is not in fact the case. There is a substantial body of consumer protection legislation that covers letting agents. The Consumer Protection from Unfair Trading Regulations 2008 protect tenants from letting agents who mislead or engage in aggressive business practices. Similarly, the Unfair Terms in Consumer Contracts Regulations 1999 protect tenants from unfair conditions, such as unfair restrictions on the ways in which they can use a property. We know that trading standards bodies use these powers to prosecute lettings agents. Some very substantial fines, and indeed prison sentences, have been handed down to agents who engage in serious misdemeanours, such as misrepresenting their membership of professional bodies, or indeed misappropriating clients’ money.
However, my honourable friend in the other place, Mark Prisk, acknowledged that there is a problem with enforcement, and that action is needed on the less serious cases as well as the most serious ones. He stated his determination in Westminster Hall only last week to encourage national trading standards bodies to ensure that they tackle these issues across the marketplace. I am pleased to reassure my noble friend Lord Jenkin that recently my honourable friend indeed stated his case very clearly. I strongly support making better use of existing regulations before we create new ones.
The noble Baroness, Lady Howe, raised the question of bad letting agents harming the reputation of good ones, which is an extremely fair point. That is why we are clear in government guidance to landlords and tenants that they should ask which bodies letting agents belong to. The more that landlords and tenants ask these questions, the more pressure there will be on all letting agents to join such schemes.
The Office of Fair Trading has just produced its report on the lettings sector. It makes some suggestions for regulatory changes, but it makes other, non-regulatory proposals, too. The Government will study the report carefully, alongside the evidence to the Communities and Local Government Select Committee’s inquiry on the private rented sector. Evidence and recommendations are being presented by bodies with extensive expertise. We owe it to them to study the committee’s recommendations carefully.
The noble Baroness, Lady Hayter, referred to the fact that the OFT called for redress and enforcement. The OFT report on lettings agents recommends that the Government should consider whether it would be beneficial to require agents to sign up to a code of practice or to join a redress scheme. The Government will consider the OFT’s recommendations carefully, but we need to see the recommendation to consider mandatory redress alongside other elements of the OFT’s recommendations, some of which relate to making better use of existing laws and non-regulatory mechanisms.
Turning to residential leasehold, I believe that we have to be realistic and to recognise that living in a property where more than one party has significant financial and other interests, and where common parts of a property need to be maintained, is bound on occasion to lead to concerns and disputes. Although complaints procedures and a range of mediation and ombudsman services are already available—and, where those options fail, a number of legal options that can be pursued—we recognise that not all leaseholders are happy. The noble Baroness, Lady Hayter, asked why there is no client money protection in residential leasehold, but I reassure her—as she may know—that statutory protection already exists for leasehold service charges, which the law deems to be held in trust.
Our postbags, and those of Members of the other place, sometimes contain letters from leaseholders whose freeholder—or, more often, whose freeholder’s managing agent—is not providing the service they deserve or expect, or is sending increasingly unaffordable bills. We also hear from elderly and sometimes vulnerable people whose freeholder, or their agent, is failing to
follow good practice and, in some cases, may even be breaking the law. Where relationships over the management of people’s homes break down and become adversarial, it can lead to real worry and distress and can in some cases, as we know, culminate in cases before tribunals and the courts.
The Government are aware of concerns among some leaseholders about a range of issues such as management standards and consultation, but remain unconvinced of the case for increasing government regulation at this time. Rather than create new leasehold regulation, the Government want, in the main, to see existing rights and protections on the statute book used to best effect. We therefore welcome current moves towards greater self-regulation by professionals in the sector and are interested in ideas for giving these more support and encouragement. The Government are aware that there are failings and even abuses in some parts of both sectors and will continue to address them. We have carefully considered the amendment of the noble Baroness, Lady Hayter, and her arguments for regulating letting and management in the private rented and leasehold sectors, and I can assure her that the Government take her concerns very seriously.
The amendment would amend the Estate Agents Act 1979, extending the definition of “estate agency work” to include those involved in letting and managing agency work. This is intended, as we understand it, to give the Office of Fair Trading powers to prevent letting and management agents conducting business and to require agents to have in place redress schemes, client money protection and to meet the other requirements of the Act. While we acknowledge that there are issues that need addressing, we do not believe that the answer is to regulate letting and managing agents in the way that the noble Baroness proposes. The regulatory burden could be substantial, adding to costs borne by landlords and, in turn, tenants.
In his report for the Property Ombudsman, Professor Michael Ball set out a range of costs that this would entail. The noble Baroness, Lady Hayter, and my noble friend Lord Sharkey both brought up the issue of the cost of compliance with a mandatory scheme, and both stated that there would a debit of only some £800. Indeed, there are costs to bear in mind, including of extra staffing and other administrative work, to ensure that the business is run according to the relevant codes of practice. Our own figures suggest that these are on top of costs of perhaps £170 per office per year for redress, £300 for client money protection and £300 or more for professional indemnity insurance.
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Of course, many letting and managing agents already sign up to similar schemes, and government guidance encourages landlords and tenants to ask which bodies an agent belongs to. However, the approaches that are right for many agents are not necessarily appropriate for all. That is why the Government are in favour of nimbler and more tailored self-regulatory approaches wherever possible. For example, while client money protection is not mandatory for letting agents who are not members of professional bodies, the Government have endorsed the SAFE— safe agent fully endorsed—scheme, whose easy-to-recognise logo makes it easier
for consumers to understand whether the agent offers client money protection. Legislation already sets down requirements on how service charge money in leasehold must be held.
Furthermore, it is not clear what the effect of the noble Baroness’s amendment would be. In particular, it is not clear that it would succeed in bringing letting and managing agents into the scope of redress mechanisms within the Act. This is because the definition of a complaint within the Act relates to selling and buying “an interest in land”, not letting and renting. On the other hand, because the amendment covers management activities in connection with land, it could, possibly unintentionally, bring some other activities such as property development and perhaps even agricultural land management into the scope of the Act, resulting in a far broader range of industries having to comply with the terms of the Act. That would not be right. Therefore, while I understand why the noble Baroness might like to see letting agents in the private rented sector, and managing agents in the leasehold sector, brought into the scope of the Estate Agents Act, in particular in terms of access to redress, I do not believe that this amendment is the best way to achieve that goal.
I very much appreciate the input and acknowledge the expertise of the noble Baroness, Lady Hayter, in raising these important issues, and I was pleased to be able to consult her on these matters after our debate in Grand Committee.