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We fully support the spirit and intent of new clause 1, although the drafting is somewhat strange, as it does not make it clear that the proposal is meant to apply to the regulation of lettings and direct sales. We know that that is the intention from the debates that we
have had, but the text contains none of the relevant language. We also note that the new clause contains very little discussion of timing, and makes no mention of consultation. I associate myself with the various observations that have been made about the lack of adequate regulation for lettings and direct sale, but I shall not repeat arguments that have been expressed in Committee and again today.
The key purpose of new clause 2 is to establish minimum standards of training and qualifications for estate agents, and for people who do estate agency work such as lettings and direct sales. We also want to ensure that firms have adequate professional indemnity insurance and, where appropriate, insurance to protect clients’ money. Any order made under the new clause would need the approval of the House under the affirmative procedure, and the Secretary of State would be required to consult before making any such order.
We touched on these matters in Committee, but in no great depth. Our debate focused on the arguments made by Which?, the various anonymous surveys that it carried out, and its investigations into issues such as offers, valuations and contracts. Those arguments were well set out earlier by the hon. Member for Cotswold (Mr. Clifton-Brown), and the response to the magazine’s inquiries showed that British people do not trust the estate agent industry or believe that they are treated in a way that is always responsible, competent or honest. The fact that the profession is not respected is very significant, and we believe that people’s concerns should be heard and understood.
When we raise the issue of requiring proper training and qualifications, we are always told that that would place an undue burden on the industry and act as a restraint on people entering the profession. However, new clause 2 is supported by Which?, the National Association of Estate Agents, and by Halifax estate agents. The two chartered surveyors in the House will be interested to hear that the new clause’s principle and intention are supported by the Royal Institution of Chartered Surveyors, although it would prefer the provision to be included on the face of the Bill rather than introduced as a statutory instrument.
The argument that the new clause would be onerous and act as a barrier to entry is fallacious. It has been pointed out that good estate agents want a requirement for qualification and training, and that it is those who are not competent who run away from the proposal. In addition, it takes only about six months to meet the present NAEA qualifications: that is hardly a barrier to entry, and the exam is being adapted so that people can do it online, at their own convenience.
People do not have to give up jobs to enrol in a complex school programme. There is a great deal of flexibility, and the NAEA qualification can be provided in an efficient way that fits with people’s general diaries and schedules.
Interestingly enough, the pass rate for the NAEA qualification is about 62 per cent., and the people who want to do lettings do rather worse than that. That means that something like 40 per cent. of the people taking the exam—which is equivalent to national vocational qualification level 3—do not pass and have to do further study to achieve the qualification. That makes it clear that many people go into the estate agency business who simply are not competent. The
exam structure focuses on basic law, building construction techniques and valuation techniques. How can a person who does not have mastery of those three disciplines advise people on what is probably the most important investment that they will make in their lives?
The sums of money are very large, and people are bound to lack competence of their own because they are likely to buy a house only once, twice or three times in their lives. It is not surprising, therefore, that they look to estate agents for competence, and new clause 2 would make minimum standards and qualifications a requirement.
It has been claimed, both on the Floor of the House and in Committee, that rogues are not stopped by requiring them to take exams, but exams can prevent incompetence. I do not oppose the redress scheme, because rogues in the industry must be dealt with, but we also have to tackle incompetence. Prevention is better than either cure or punishment in that respect, and we should ensure that the industry meets the standards that the public expect. We would not dream of allowing an unqualified solicitor to draft the language of a contract, or of hiring an unqualified surveyor when we are buying a house. It is beyond belief that anyone would want to use an incompetent estate agent.
I advise the House that we did not discuss these matters in depth in Committee, and that we had no opportunity to divide on them. If the Minister makes a satisfactory response, I shall not press new clause 2 to a Division. However, if the Government do not accept the essence of the proposal, I shall press the proposal to a vote.
Mr. Tom Clarke: If I may say so, I think that the hon. Lady made an excellent contribution to the Committee, but I am puzzled by her assertion that we did not have an opportunity to divide on these matters. If she had wanted a Division in Committee, she could have had one. However, she has moved the debate on today, and seems to be holding the Minister to ransom. Why did she not press the proposals to a Division in Committee?
Susan Kramer: I thank the right hon. Gentleman. If he remembers, there were many points at issue that day and we were trying to cover a vast amount of ground. It seemed to us that we might get some movement on the issue without having to force the matter to a Division. That did not happen, and it would be good for the House to have an opportunity to make its opinions clear on an issue that is well understood by the public and about which the public care. Members of the House, certainly of my party, would like to have the opportunity to express themselves on the issue, but that decision is in your hands, Mr. Deputy Speaker.
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The Minister of State, Department for Business, Enterprise and Regulatory Reform (Mr. Stephen Timms):
I begin by expressing thanks to the hon. Member for Cotswold (Mr. Clifton-Brown) for his words of welcome and by welcoming him to this brief. I also thank the hon. Member for Richmond Park (Susan Kramer) for her welcome and express good
wishes to her in her new responsibilities. I endorse what my right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr. Clarke) said about the contribution that she has made to debates on the Bill in recent months.
The hon. Member for Cotswold explained what new clause 1 would do. I must say to him that it would give the Government a very wide power to amend a central concept that underpins the Estate Agents Act 1979. He said in defence of the new clause that it might never be brought into effect, but it would not be sensible for the House to agree a measure if it did not want it to be enacted. The House would need to be comfortable that this was a reasonable measure before it agreed to its introduction. It would represent a large and, I suggest, ill-advised addition to the regulatory burden. There would be little restriction on how the power could be used. All sorts of activities could be brought within the definition of estate agency work if the Government of the day were so minded, albeit with the affirmative parliamentary procedure as a check.
If there were a power to amend the section 1 definition, we would have to consider the implications for other pieces of legislation that rely on that definition such as the Property Misdescriptions Act 1991, the Money Laundering Regulations 2003 and the Proceeds of Crime Act 2002. They all refer back to that definition.
The 1979 Act was intended only to apply to those engaged in estate agency work. The controls imposed by the Act would not all be appropriate to impose on the other categories of commercial organisations that he suggested—lettings agents, property developers or other property professionals. We would also have to rewrite the rest of the 1979 Act to make it compatible with a new definition. For example, if lettings work were included in the definition of estate agency work, as the hon. Member for Cotswold suggested, we would probably also have to amend the definition of an interest in land. And if such a power were to be added, we would in effect have the ability to rewrite large chunks of the Act via secondary legislation. That on its own should give hon. Members pause for thought.
Let me comment on the three categories to which the hon. Member for Cotswold drew attention. He rather unkindly said that the Government were carrying out some reviews as an alternative to action. I suggest to him and to the House that it is right to proceed on the basis of careful thought. The Office of Fair Trading is conducting a market study of the house building industry. The study will allow the OFT to consider the potential competition and consumer concerns in the market and will focus in particular on the delivery of housing and customer satisfaction. It will follow on from Kate Barker’s review of housing supply, which recommended that the house building industry should demonstrate increased levels of customer satisfaction. She also recommended that if progress was not satisfactory, the OFT should conduct a wide review of whether the market was working well for consumers. That study is now under way and is expected to report by the summer of next year. It is right to await the outcome of that work before we decide whether to take legislative action.
We have also committed to undertake a wider property review to examine regulations and redress across a range of sectors, including lettings and whether further steps are needed. That review will be led by my right hon. Friend the Secretary of State for Communities and Local Government. Officials are drawing up the terms of reference for that work and looking at the timing, but it is expected to start in the summer.
Mr. Ben Wallace (Lancaster and Wyre) (Con): In Committee, the Minister’s predecessor alluded to the property review. It is not clear whether the property review will include park homes and the plots that they sit on. Currently, property does not include such facilities, so they are not protected, because estate agency applies to property. Will that be looked at in the review? If the Minister wants more information, I am happy to write to him.
Mr. Timms: The hon. Gentleman is welcome to write to me. As I say, officials are drawing up the terms of reference for that work. If the hon. Gentleman wants to make a contribution to reflections on that, I will make sure that his letter is taken into account.
As for internet-based estate agency, the OFT issued guidance in September 2005 on the types of activity carried out by internet property retailers that are likely to lead to their falling within the definition of estate agency work under the 1979 Act. Where activities over the net fall within the meaning of estate agency work under the 1979 Act, internet property retailers will be required to be members of redress schemes.
My right hon. Friend the Member for Makerfield (Mr. McCartney) explained in Committee the reasons why we have not sought to change the definition of estate agency in this Bill. We have already taken action to deal with some of the problems in the lettings sector. The tenancy deposit scheme, which was introduced in April, has improved the rights of tenants by ensuring that deposits cannot be withheld unfairly. The Housing Act 2004 gave new rights to vulnerable tenants by requiring landlords who manage houses of multiple occupation to be licensed. We have committed to looking closely at the lettings sector as part of the wider property review.
We need to look carefully at the evidence, make sure that we have the evidence that we need and then consider recommendations from the reviews that have been put in train before deciding what next steps are necessary. It is also important that major changes of the kind envisaged in the new clause are made by Parliament through primary legislation rather than the broad power proposed in new clause 1.
Mr. Clifton-Brown: The Minister is dealing with the matter in a reasonable way, and much of what he said I expected him to say. New clause 2, which was tabled by the Liberal Democrats, contains two important aspects that we have not yet discussed. It is relevant to discuss it now. One is the issue of professional indemnity for estate agents. If they do not have professional indemnity, one must rely solely on the redress scheme. The Government ought to think about that.
On Second Reading in the other place, a great deal of discussion was had on the Farepak debacle and the whole issue of holding other people’s money. There will
be a number of activities in which estate agents hold people’s money. It will not be long before we have a scandalous case of a rogue estate agent holding a client’s money and disappearing with it. I wonder whether the Government could give some thought to that.
Mr. Timms: Let me turn to new clause 2; I have not yet started to address the points made by the hon. Member for Richmond Park, and I am happy now to do so. I know that there was a substantial debate on the issue in Committee.
We have made it clear throughout the passage of the Bill that we want to raise standards in estate agency. By requiring membership of redress schemes for all estate agents, this Bill gives estate agents the incentive to raise their own standards to avoid being investigated by an ombudsman. Businesses will be able to judge for themselves what training is needed to ensure that staff deliver a good service. If they do not make it clear to staff that best practice standards are expected and train staff accordingly, they will know that they are likely to face costly payouts in due course. That is a pretty effective way of concentrating the minds of those involved.
In response to the case that the hon. Lady presented to the House, it would be a mistake to force all estate agents to belong to an industry body and then give that body, or bodies, free rein to decide the standards of conduct estate agents should adhere to and the training they require. The hon. Lady pointed out that her proposal has the support of the National Association of Estate Agents, which does not surprise me. The NAEA is a reputable organisation and does tremendous work promoting higher standards in the industry, but it is not a regulator. It would be unwise and confusing to give it a regulatory function in addition to the role it already fulfils.
Susan Kramer: The Minister will know from reading the new clause that it includes no mention of that organisation. I gave the NAEA as an example of an organisation that provides a qualification, which is not onerous but is recognised. It demonstrates the fact that many people who go on to become estate agents cannot reach that standard and thus cannot meet the test of competence. That is today’s world.
Mr. Timms: If the hon. Lady does not have in mind an industry body for the performance of that role, which body would it be? The debate in Committee focused on the idea that it should be an industry body, so as an important rejoinder I underline the dangers attached to the route she suggests.
I accept that the discussion would be slightly different if another kind of body was involved, but the approach in the Bill is right. It is based on the work of the Office of Fair Trading. The Bill gives force to recommendations based on evidence provided by the OFT, whose study showed that the best incentive for raising standards is the threat of being taken before a redress scheme. I agree with some of the points made by the hon. Member for Cotswold; the real danger is from rogue estate agents whose problem is not competence but honesty. They know exactly what the rules are but they also know how to get round them. Handing over control to an industry body would
simply restrict entry to the profession with no guarantee of getting rid of the rogues, as the hon. Gentleman said. The clear advice from the OFT was that the cost of putting up barriers to entry, which would also be likely to raise prices for consumers, would outweigh the benefits of that approach.
We are confident that requiring estate agents to belong to approved redress schemes will improve standards in the industry. We are also strengthening the enforcement powers in the Estate Agents Act 1979 so that the Bill ensures that breaches of statutory undertakings and enforcement orders under the Enterprise Act 2002, as well as the commission of specified criminal offences, can result in an investigation of an estate agent’s fitness to practise, which will enable enforcers to deal more effectively with agents who rip off their customers, and take them out of the market.
New clause 2 highlights issues about professional indemnity insurance and the handling of customers’ funds, and I shall comment on both. Estate agents would be unwise to trade without a minimum level of professional indemnity insurance, which is a condition of membership of the National Association of Estate Agents. It is also a condition of membership of the existing voluntary redress schemes for estate agents; for example, the ombudsman scheme for estate agents requires firms to have minimum cover of £100,000 and the surveyor ombudsman scheme requires members to have cover of at least £250,000. The Bill will require estate agents to belong to such schemes.
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Susan Kramer: Will the Minister clarify what may have been my misreading of the Bill? Does it say anywhere in the measure that a requirement of joining a redress scheme is adequate indemnity insurance and insurance protection for clients’ money? Did I miss that?
Mr. Timms: The hon. Lady knows the answer. No, she did not miss it. There is no mandatory requirement in the Bill, because if the level were set too high it could operate as a barrier to market entry. I emphasise again the importance of not erecting unnecessary barriers as the impact would be to raise prices for consumers, which would be unhelpful. Nevertheless, such a requirement is a feature of the two schemes I mentioned.
Susan Kramer: A few moments ago, the Minister said he thought it would be unwise for a company to practise without such insurance. Is he comfortable with an environment in which companies are supported in their continued existence when—in his view—their practice is unwise? We need an answer to that important question for the industry.
Mr. Timms: I am comfortable that the market will be able to work effectively in the framework we are implementing and that it will be able to deliver services that meet the needs of customers. The balance we have struck in the Bill is the right one.
The hon. Member for Cotswold referred to clients’ cash, which is mentioned in the new clause, too. However, it is often solicitors rather than estate agents who handle clients' money when they are buying or
selling a property. Estate agents who handle money have to comply with the requirements of the 1979 Act and with the Estate Agents (Accounts) Regulations 1981. Non-compliance is an offence that can lead to prosecution in a magistrates court. Thanks to the Bill, it would be open to the consumer to seek redress for any problems they experienced with an estate agent who was handling their money, so a legislative requirement is not needed.
Mr. Clifton-Brown: The debate has raised two major difficulties with the scheme proposed by the hon. Member for Richmond Park (Susan Kramer). The first, which has already been mentioned, is the question of who will carry out the training. We have already seen the difficulties that arose when the Government tried to get their scheme for home inspectors off the ground, so the training would probably be left to one of the existing bodies. The second real difficulty, which has not been covered in the debate, relates to the training that would be required. As chartered surveyors, my hon. Friend the Member for Newbury (Mr. Benyon) and I know that it takes four years to train for that profession, and part of the training is a year’s experience actually doing the job. The hon. Lady’s proposal for a six-month training course would not include any training on the job, which is one of the best ways of learning how to become an estate agent.
Mr. Timms: The hon. Gentleman speaks from extensive experience and I am happy to draw attention to his expertise and that of his four chartered surveyor colleagues in the House.
I hope that my reply offered some comfort to the hon. Gentleman and the hon. Member for Richmond Park, and I thank all those who contributed to the debate. The Government remain of the view that ensuring that all estate agents belong to a redress scheme, alongside tightening up the available enforcement powers, is the right approach. On that basis, I hope Members will feel able to withdraw the proposal, but if not, I urge my hon. Friends and others to vote against it.
Mr. Clifton-Brown: It looks as though the Government are not acceding to my new clause. I therefore ask to put it to the vote.
Question put, That the clause be read a Second time:—
The House proceeded to a Division.
Madam Deputy Speaker (Sylvia Heal): I ask the Serjeant at Arms to investigate the delay in the Aye Lobby.
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