My Lords, it is good to rise today to move this amendment in what is National Consumer Week—as I am sure your Lordships know. I shall speak also to the other amendments in the group, which between them would help tenants and landlords in their relationships with the intermediaries who often bring the two parties together and often continue as the conduit for money and other services between them.
The amendments address four different issues, so I trust that the Committee will bear with me as I try to romp through them. First, Amendment 81B would ban letting agents from taking “finder’s fees” from tenants, which is a rather rotten new practice that has grown up. Letting agents are chosen by and work for landlords who are seeking tenants. The client is therefore the landlord, to whom by contract and, I think, by law, obligations and duties are owed. The letting agency is paid by the landlord to find a tenant, although he can then carry out other services for the landlord such as obtaining and securing the deposit, handing over keys, collecting rent and so forth. These tasks are done on behalf of the landlord, who pays for the service.
However, we are now seeing in parts of London, especially where young people are desperate to find somewhere to live, prospective tenants being charged by the letting agent to show them a flat. As Alex Hilton, director of Generation Rent, said in welcoming our amendment to end what he calls “the abusive practice” of charging fees to tenants, a ban is long overdue. He stated:
“Tenants are being milked by gluttonous agents taking advantage of a housing market that’s failing to provide enough homes”.
Scotland has led on this, with all letting agents’ charges to tenants other than rent and a refundable deposit being illegal since 2012. The practice that has grown up exploits the potential tenant, but it also means that letting agents are being paid twice for the same bit of work. Furthermore, when we are keen to encourage landlords to enter this market and to provide more accommodation, and where tenants effectively
have a fixed amount of money to spend on their housing, this practice is leeching out of such available money a chunk which is neither going to the landlord nor being kept by the tenant, but is going off for a non-housing use. This is bad for tenants, as they have less to spend on rent, and it is bad for landlords, as there is less rental money around. Furthermore, it is bad business where one person has a duty of care to both sides of a contract. Whose interests, we may ask, are they representing? Traditionally, it has been clear that it is those of the landlord, but once they take money from a potential tenant, for whom then are they working? There is no written contractual relationship between the potential tenant and the agent, but I wonder whether there is not one by dint of the payment of money. The conflict of interest is obvious: it is non-professional and will lead to bad practice.
We have no problems with letting agents charging tenants for an individual service for the particular tenant; for example, obtaining the credit reference needed in order for the landlord to accept them. However, that is wholly different from showing flats only to those willing to pay the letting agent—I almost said “to bribe” the letting agent. That should be outlawed, along with letting agents charge two parties for the same bit of work.
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That brings us on to Amendment 105R, which hones in on the specific issue of double charging and would make it an offence for an estate agent to require signature of a contract allowing them to charge both buyer and seller for their services. It is particularly important, as estate agents are not caught by the Government’s amendments, which we agreed last Wednesday and which require letting agents to disclose their fees, as that does not cover sales. Sadly, we increasingly hear of estate agents charging both sellers and buyers for the sale of the same property, despite the fact that the estate agent was selected by and contracted by the vendor, who is therefore the client. It is obvious that there is a clear conflict of interest. Not only that, but with instances of estate agents charging buyers 2.5% of the house price, that is thousands of pounds which, again, is not going into the housing market itself but to those who prey on its consumers. I understand that the practice is spreading; it occurs no longer just in London, as was the case when we first started to discuss this, but now across the south-east and even the north-west of London. These rip-off charges exploit buyers and breach the client relationship with the vendor. We believe that they must be outlawed. In the other place the Minister admitted that double charging is a potentially worrying and emerging trend, which seems to be on the increase. However, the Government then voted against proposals to address it, so we are giving them a second chance today.
On client protection money, Amendment 81D would require any letting agent to have any money they hold—whether belonging to a tenant, by way of advance rent, or to a landlord, by way of rents received, and due to the landlord—suitably protected, so that even if the letting agent disappeared or went bankrupt, such money would be safe and available to the tenant or landlord. That is what any other profession does.
This is no minor issue. We know of nearly 500 cases of letting agents who have fraudulently taken money from tenants as a holding fee, the deposit or as rent, but have then not let them move in and kept the money themselves. Just last month, Tim Glasson from Cornwall was jailed for 21 months for unlawfully and dishonestly keeping rent and deposits for his own use. One of those was £2,000 from an 87 year-old lady—to her, a small fortune. Just today, I read about a man called Roy Jackson, who ran Suffolk Lettings in Ipswich and who has just admitted stealing £70,000 from landlords. He originally ran an estate agents in Finchley, and apparently has been taking money from landlords for some years. However, it took some time for the various complaints from landlords to come together. He is about to be sentenced.
In September, a letting agent from Carlisle stole more than £17,000 in tenants’ rents and deposits, neither repaying them to the tenant nor passing them on to the landlord. In a case in Bournemouth, Shirley Player stole, in this case, £400,000, and a landlord in Maida Vale lost £7,500 because the letting agent took his money. Noble Lords may have seen a Channel 4 report on the London Housing Solutions agency. It went into administration, leaving 100 landlords owed rent and the tenants fearing eviction, because although they had paid their rent, it had never reached the landlord. This is not new. In 2009, the CAB documented a similar catalogue in its report, Let Down. Again, this money is not going to the housing market but is depriving landlords of their income and tenants of their security.
Not surprisingly, this amendment is supported by landlords as much as tenants. It has the full backing of the National Landlords Association, the Royal Institution of Chartered Surveyors, the Association of Residential Managing Agents, the Association of Residential Letting Agents, Crisis, Shelter, the British Property Federation, the Property Ombudsman, Ombudsman Services, and the Association of Residential Letting Agents.
David Cox, who leads ARLA, said client money protection,
“is fundamental for tenants and landlords to ensure they have peace of mind should an agent go bust or take off with their funds”.
Carol Pawsey, a director of Kinleigh Folkard & Hayward—a member of the National Federation of Property Professionals, which does protect landlords’ and tenants’ money under a compensation scheme—said:
“All too often, rogue agents who do not subscribe”—
to such a scheme—
“misappropriate landlord and tenant funds resulting in much misery. It should be compulsory for all agents to subscribe to a client money protection scheme to protect consumers”.
Similarly, Jane Cronwright-Brown of Savills has urged the Government,
“to make it compulsory for all letting agents”,
to have client money protection. She goes on to call for all such money to be protected, pointing out that anyone can open a letting agency unregulated and with no checks on their bona fides.
Amendment 81D would require every letting agent to have client money protection. It is based on a similar provision for client money protection in Section 16
of the Estate Agents Act 1979, which applies to money received by an estate agent in the course of sales—although, of course, estate agents in fact handle far less money than letting agents. I gather that the original amendment we put in front of the Committee, by using the phrase “to let” rather than “to rent” in proposed new subsection (2), may initially have misled the department, but I think that we assured the Minister what the intention was when we met last week.
Best practice—it is only best practice and, sadly, not mandatory—is that any letting agent should maintain a client bank account to hold clients’ money, with written confirmation from the bank that all money in that account is the client’s and, importantly, that the bank is not entitled to combine the account with any other account or to exercise any right to offset money in that client account for any sum owed to the bank by the letting agent on any of its other accounts.
In addition, there is insurance known as client money protection, which ensures that when a letting agent fails to manage the client account properly, through fraud, insolvency or theft, the clients can be compensated for any loss. Such client money protection is provided either through a professional body such as RICS, ARLA or NALS, or through a membership body. The letting agent pays an annual fee for this protection and usually has to satisfy a number of conditions, such as that the firm is regulated by the body, it has professional indemnity insurance, it has certified its compliance with any rules about client money and it is subject to periodic audits of its client money accounts. In the event of a loss, the landlord can make a claim against the client money protection scheme, as the professional bodies will have insurance to cover such payments. The largest losses are when a firm has gone into liquidation and the client account has, in the process, been emptied by the letting agent. This amendment would prevent that happening.
Where the protection is provided by a membership club, such as CM Protect, run by Hamilton Fraser insurance, there will be similar conditions about that bank account, with assurances that the bank cannot put—