Draft Redress Schemes for Lettings Agency Work and Property Management Work (Approval and Designation of Schemes) (England) Order 2013
The Committee consisted of the following Members:
† Buckland, Mr Robert (South Swindon) (Con)
Cooper, Rosie (West Lancashire) (Lab)
† Drax, Richard (South Dorset) (Con)
† Farron, Tim (Westmorland and Lonsdale) (LD)
† Fitzpatrick, Jim (Poplar and Limehouse) (Lab)
† Freer, Mike (Finchley and Golders Green) (Con)
Hamilton, Fabian (Leeds North East) (Lab)
Herbert, Nick (Arundel and South Downs) (Con)
† Hopkins, Kris (Parliamentary Under-Secretary of State for Communities and Local Government)
† Jones, Susan Elan (Clwyd South) (Lab)
† Lavery, Ian (Wansbeck) (Lab)
† Leadsom, Andrea (South Northamptonshire) (Con)
Loughton, Tim (East Worthing and Shoreham) (Con)
† Perry, Claire (Devizes) (Con)
Reynolds, Emma (Wolverhampton North East) (Lab)
Simpson, David (Upper Bann) (DUP)
John-Paul Flaherty, Helen Wood, Committee Clerks
† attended the Committee
The following also attended, pursuant to Standing Order No. 118(2):
†Sawford, Andy (Corby) (Lab/Co-op)
Sixth Delegated Legislation Committee
Tuesday 26 November 2013
[Dr William McCrea
in the Chair]Draft Redress Schemes for Lettings Agency Work and Property Management Work (Approval and Designation of Schemes) (England) Order 2013
8.55 am
The Parliamentary Under-Secretary of State for Communities and Local Government (Kris Hopkins): I beg to move,
That the Committee has considered the draft Redress Schemes for Lettings Agency Work and Property Management Work (Approval and Designation of Schemes) (England) Order 2013.
I look forward to serving under your chairmanship, Dr McCrea. The Enterprise and Regulatory Reform Act 2013 gave the Secretary of State the power to require all lettings and property management agents in England to be members of a Government-approved or Government-administrated redress scheme. That will mean that tenants and landlords dealing with agents in the private rented sector, and leaseholders and freeholders dealing with agents in the residential leaseholder sector, will be able to complain to an independent person about the service they have received. The requirement for all lettings and managing agents in England to belong to an approved redress scheme will offer a clear route for landlords, tenants and leaseholders to pursue complaints, weed out the cowboys who give agents a bad name and drive up standards with the least regulatory burden. The order is the first step towards implementing that requirement.
The order, laid before the House on 25 October 2013, makes the provision for applications for approval of schemes, the conditions that schemes must meet before they may be approved or designated as a Government-administrated redress scheme, and the process of withdrawing approval or designation when a scheme no longer complies with those regulations. A Government-administered scheme must meet the same conditions as those for the approved schemes, with the exception that the scheme administrator is not required to demonstrate independence.
When the order comes into force, the Secretary of State will invite schemes to come forward for approval and, when he is satisfied that there are sufficient schemes of the required quality with necessary capacity, a second order will be made that will require agents to belong to such a scheme. While the majority of lettings and managing agents provide a good service, we are aware that a minority of agents do not provide a good enough service. Currently, about 60% of lettings and managing agents belong to a scheme, either voluntarily or, perhaps, as a requirement of belonging to a trade body, which leaves about 40% that do not. The redress schemes will make it easier for people who use that 40% to complain when things go wrong. The redress schemes will complement and not replace the existing protection awarded to tenants and leaseholders, such as the consumer protection legislation and the duties of local authorities.
Article 4 sets out the conditions that schemes must meet to be approved. The provisions of the scheme must include matters such as what types of complaints may be made, what the ombudsman’s duties and powers are in relation to investigating complaints and what redress a member of the scheme may be required to make to a complaint. Types of redress must include apologies, explanations, compensation and making good.
Article 4 also requires schemes to have procedures in place to ensure that members of the scheme deliver the redress awarded to the complainant. That may include expulsion from the scheme if a member does not comply.
When the duty to belong to a scheme is introduced, agents who do not belong to a scheme may be prevented from undertaking lettings agency work and property management work. To enable that to be monitored, article 4 also requires schemes to have arrangements in place for the provision of information to other redress schemes, or to any person who regulates lettings agency work and property management work. This will enable agents who do not belong to a redress scheme to be identified and, in the longer term, will help to drive up standards.
We recognise the importance of the redress schemes being seen to be independent and for their operation to be transparent. Article 4 requires scheme administrators to publish an annual report on the operation of the scheme. Article 7 requires administrators of the approved scheme to provide the Secretary of State with information about the operation of the scheme, enabling performance to be monitored.
In exceptional circumstances, where a redress scheme no longer meets the conditions of approval, article 8 of the order enables the Secretary of State to withdraw that approval. This will help to ensure that the level of service and standards expected of the redress schemes is maintained. Providing access to redress will deal with many of the failings that people are concerned about in their day-to-day dealings with lettings and management agents. This order is the first step in implementing this requirement that all lettings and managing agents belong to a redress scheme, by setting out the approval process of redress schemes and the criteria they must meet. Implementing the requirement will make a real difference to the experiences of landlords, tenants, freeholders and leaseholders. I commend the order to the House.
9.1 am
Andy Sawford (Corby) (Lab/Co-op): It is my pleasure to serve under your chairmanship, Dr McCrea, for the first time; also to be opposite the Minister for the first time. I bring apologies from my hon. Friend the Member for Wolverhampton North East, who had an equally important and pressing engagement, but it is my pleasure to speak on this, having spoken only recently in the House about the need for action on the private rented sector.
I start by saying that it is welcome that the Government have U-turned on this issue, even from their position in an Opposition day debate only a month ago. They have decided to back Labour’s plans for mandatory redress, which we had intended to bring in had we remained in government and which we wish that they had taken forward over the last three years. We should also recognise the pressure that has been brought to bear by our hon. Friends in the House of Lords, particularly Baroness
Hayter, and acknowledge the role of Baroness Gardner of Parkes, one of the Government’s peers, in encouraging the Government to take action in this area.This is a victory for tenants and landlords who rely on agents to rent or care for property. It is a victory for organisations such as Shelter, Crisis, the Association of Residential Landlords and other organisations including Which? I shall press the Minister on the excellent Which? report “Renting Roulette” in terms of where we might go next. The Minister described this as a first step and I am pleased that he acknowledges that redress is only one step in the right direction. I hope that it will mean more wrongs can be righted, but it will do little to prevent unscrupulous agents ripping off tenants and landlords in the first place.
This is why we believe that there needs to be further regulation of the industry. That regulation has the support of the lettings industry itself, so I politely say to the Minister that the Government seem to be alone in not wanting further regulation in this area. We need fundamental changes and stronger protection for renters and landlords, so we need up-front transparency over lettings agents’ fees. I hope that the Minister will consider this. He is new to his role, so we on this side ought to give him the benefit of the doubt that he will listen to the strong arguments in this area. I remind him that we also want to see safeguards such as client money protection insurance and, crucially, powers to ban all agents who act improperly.
We know that this issue is becoming more important, not less. The private rented sector has an important role to play in meeting housing needs, but it needs to change to meet the needs of the 9 million people who live in the sector, not least more than a million people who live in private rented accommodation with families and children. That is why we have called for the effective regulation of lettings agents through the mandatory regulation of the residential lettings and management agent market, and why we want the Government to join us in considering measures such as a code of conduct and compulsory business and consumer protection measures. We must also look at how compliance will be monitored, for example, by a proper regulatory body with real enforcement powers. Will the Minister consider extending consumer protection measures governing estate agents to letting agents? It has been widely pointed out by many organisations campaigning in this area that while estate agents are regulated, letting agents are not. That is an anomaly and it means that tenants lose out in relation to home owners who purchase through estate agents, or to landlords.
We want to see the Office of Fair Trading given powers to ban agents who act improperly. We want full transparency on fees. I recently served on the Communities and Local Government Committee, where we conducted an inquiry into fees and found that they vary hugely. It is very difficult for tenants to see up front what fees may be slapped on them at some point—fees that can vary from £10 to £300. Fees in that kind of range cannot be appropriate.
There is support not only from charities, but organisations like the British Property Federation. Ian Fletcher, the director of policy at the BPF, says:
“Anyone can set themselves up as a letting agent, and then potentially abscond with hundreds of thousands of pounds of people’s cash. It is therefore counterintuitive that estate agents, who handle relatively little cash are regulated, but letting agents, who handle lots of cash, are not”.
Ian Potter, the managing director of ARLA, says:
“The Association of Residential Letting Agents has for many years campaigned to have regulation of the private rented sector. We believe it should cover everyone operating in the sector, both landlords and agents, as without this there is an opportunity for people to slip through the net”.
We agree with him, as with the many others.
Focusing specifically on the order, Dr McCrea, I thank you for your flexibility in allowing me to press the case that there should be further steps. On the order, 60% of letting agents are currently voluntary members of the property ombudsman scheme, as the Minister said. What are the Government’s plans for ensuring that the 40% that he refers to that will be covered by the redress scheme are signed up quickly? That is crucial.
There need to be proper penalties for those who do not sign up. Has the Minister considered what that penalty would be? How will enforcement work if letting agents are reluctant to sign up? Who will be responsible for ensuring that they sign up, and for taking enforcement action when they do not, and for levying any penalties? Does the Minister expect enforcement to be a problem? Or perhaps the 60% of letting agents who have already opted voluntarily to be part of the redress scheme will shop the 40%, because they know that they give them a bad name.
What plans do the Government have to inform consumers about their right to seek redress for poor service, working with the industry? At the moment there is significant pressure on organisations like Citizens Advice, the Welfare Rights Advisory Service, community legal services and local authorities to provide information, advice and guidance services in terms of signposting, but all of those services all around the country are being cut back, because of the drastic cuts to local authorities and the voluntary sector. How will the Government ensure that people know that this redress scheme exists and know how to take up an issue through it?
Does the Minister expect more than one redress scheme to be approved, as the order allows? It is my view and, I think, the Opposition’s view that one redress scheme would be best because it would be clearer for the public; it would be confusing to have a number of different redress schemes. Will the property ombudsman approve the scheme? What would be his or her role? We welcome the commitment to have a review of implementation after one year, but how will that happen? Will it involve any kind of parliamentary debate? How will hon. Members know how the scheme is progressing?
Finally, there is some uncertainty as to how soon the legislation will come into force. When might we expect that to happen? There have been rumours that it could be as late as October 2014, although I understand that originally the Government had hoped to bring it in by April 2014. Clearly, Opposition Members on this side who have campaigned for this for so many years would like to see the order introduced as soon as possible.
Fee transparency is outside the order’s remit, but it is relevant. The guidance includes giving the approved redress scheme the power to consider levels of fees and their transparency. This is an issue that we looked at in
the Communities and Local Government Committee in my previous role and it has been much debated in the House. Will the Minister look at that as an appropriate area of work in addition to the legislation? We will not oppose the order, but we urge him to look at how he can go further.9.10 am
Jim Fitzpatrick (Poplar and Limehouse) (Lab): It is a pleasure to see you in the Chair this morning, Dr McCrea, much as it is a pleasure to follow my hon. Friend the Member for Corby (Andy Sawford). I welcome the improvements in the redress scheme, especially given my hon. Friend’s explanation of the background. The Minister will know that when Labour was in government we made several attempts at introducing and improving the scheme. It is good to see the coalition continuing to strengthen the protections for those in rented and leasehold accommodation, even if it was the Lords that persuaded them to do it.
Specifically, what does the order do to improve the protection of leaseholders? Can the Minister reassure me that these improvements will address unscrupulous property management companies? That is a big issue in east London, where over the past 20 years we have seen some of the greatest regeneration of anywhere in the country.
Paragraph 7.3 of the explanatory notes states:
“Around 40% of new build property in England is leasehold.”
I suspect that that percentage is greater in east London than elsewhere, because of the regeneration of the Thames Gateway area. I have heard from a number of constituents who are in dispute with unscrupulous property management companies, historically at Limehouse marina and the Cascades tower, and at present at Canary Riverside and West India quay. Those are expensive properties. Those affected know how to work any system, because of their professional background and occupations, but they are coming up against a brick wall in being treated fairly within the system.
To point out one anomaly, where leaseholders successfully challenge unfair service charges—as my hon. Friend said, it is difficult to get transparency into some of these arrangements in the first instance—they might get a reduction, but there is nothing to stop the property management company from recovering its legal costs by putting them on the service charges for the following year. That cannot be right, because that protects unscrupulous property management companies in levelling any charge. They will suffer no financial penalty, other than a temporary reduction in the service charges that leaseholders pay. Does the extension of the existing schemes cover that issue? I suspect that it does not.
A number of MPs and Lords within the Palace have been campaigning on the issue. We want a fairer system that protects legitimate challenges against unreasonable charges and ensures that claimants and appellants do not pay the legal costs of the person penalising them in the first place, because the claimants have no way of reclaiming their legal charges; they have to pay, whether they win or lose. The system seems unfair in that regard.
I have one final question for the Minister. He mentioned sanctions for those agents who do not join the approved schemes, but what do those sanctions entail? If the
agent is not a member of the official scheme, does that remove their right to practise? I had a quick word with him outside and I apologise for springing this on him, but if he cannot respond to the legal question, is he prepared to meet me and colleagues from across the House to discuss it?9.14 pm
Kris Hopkins: I thank the Opposition for their comments and their enthusiasm, which I share, for the order. I will try to answer their specific points. I think we can all see the benefits of making it a requirement for letting and managing agents to belong to a redress scheme, and I hope we can all see that we are offering clear benefits to consumers as well.
First, on transparency, following an Advertising Standards Authority ruling of 1 November, the ASA is requiring letting agents and private landlords, predominantly in the private rented sector, to include information about non-optional fees in their advertisements for rental properties. We are supporting that through the tenants charter, which will highlight to tenants that the details on all fees must be transparent. Where tenants feel that they have been subject to hidden fees and they are unsatisfied by their agent’s response, we expect them to use the redress scheme to seek compensation.
The issues of penalties and enforcement were also raised. When the second part of the order comes back, we will have an opportunity to debate its content. I hope that we can engage in that process between now and that second part, so that we can understand and get some buy-in into how that will be constituted.
Andy Sawford: That is a welcome offer from the Minister. The Opposition, and I am sure many organisations, are interested. Will he tell us when the second part of the order might come forward?
Kris Hopkins: In the early part of next year. To answer the other question, of when it might become law, we are hoping by next April, or as soon as we can possibly facilitate it.
If an agent fails to abide by the decisions of a scheme, for example refusing to pay compensation when ordered to, it will no longer be part of the scheme and therefore can no longer operate.
Whether legal fees may be released depends on each individual case. I am happy to have a conversation about the particular issues raised by the hon. Gentleman. He has asked for a meet offline. I am more than happy to have that conversation with colleagues.
In conclusion, the procedures and requirements set out in the order are key to delivering the first stage in the implementation of the requirement for letting and management agents to belong to a Government-approved scheme. The order will enable the Secretary of State to approve redress schemes against a clear set of criteria, which will ensure that all approved schemes provide an independent and transparent service and that consumer complaints can be dealt with fairly and consistently.