Business, Innovation and SkillsWritten evidence submitted by Shelter
Overview
The private rented sector (PRS) has changed significantly in the last ten years. Young families with children, and people aged over 35, now dominate the market.
As the sector has expanded, the number of people coming into contact with letting agents—employed by landlords to act as “gatekeepers”—has increased. However, unlike estate agents, letting agents are not currently required to provide consumers with any real or reliable rights and protections. The poor practice and professionalism of many agents has therefore become an issue of growing salience to renters, including the people that Shelter help through our services. It is now a significant consumer rights issue affecting millions of people on a daily basis across the country.
The Consumer Rights Bill offers a unique opportunity to address this, and provide both renters and landlords with a clear set of consumer rights and protections.
There are two reforms we recommend for inclusion in the Bill:
Extending consumer protections required of estate agents to also cover letting agents; and
Prohibition of letting agent charges to renters for any service other than rent and a deposit.
Shelter recommends adding a clause to the Bill which would extend the requirements currently governing estate agents to cover letting agents. This would ensure all landlords and tenants have access to client money protection and indemnity insurance when using a letting agency. It would also allow the Office of Fair Trading to ban the worst letting agencies, as it can with estate agents.
Our investigations show renters using lettings agencies pay on average £350 in letting agency fees, with one in seven renters facing fees of £500 or more. These fees are often hidden, charged on top of what landlords have paid letting agencies, and are not proportionate to the service carried out.
Letting agency fees should only be paid by the principal client. This is the landlord, as they are the party who contract the letting agency to work in their interest. It is they, not renters, who have the power to negotiate the fees being charged. Shelter recommends adding a clause to the Consumer Rights Bill which would prohibit letting agents double charging landlords and renters, preventing renters from being charged anything other than rent, deposits and rent in advance. A similar requirement operates in Scotland, and has not led to a spike in rents or a decrease in the numbers of letting agents in business.
Consumer Protections for Landlords and Tenants who use Letting Agents
1. Over the last five years, consumer complaints and inquiries to The Property Ombudsman (TPO) regarding letting agents have increased by 123%. These complaints have come from both landlords and renters. Letting agencies now account for a disproportionate share of the TPO’s work. The Office of Fair Trading (OFT) recent report stated that complaints about letting “agents providing a poor service” is second most reported area of concern for consumers regarding letting agents.
2. Letting agents are currently not required to provide consumers with the same protections as estate agents. This means that they are under no real obligation to adhere to basic professional standards, such as providing client money protection. This is anomalous given letting agents handle a far greater amount of money than estate agents and they are more likely to have closer involvement with vulnerable or financially inexperienced households. One consequence of this is that landlords and tenants can face agencies failing to pass money on or return it when required; sometimes, landlords and renters face agents disappearing with their money all together. Such cases were evidenced extensively in Citizen Advice Bureau’s (CAB) 2009 report Let Down.
3. The Government’s recent amendment to the Enterprise and Regulatory Reform Bill, requiring letting agents to be a member of a statutory redress scheme, is welcome, but it does not fully resolve these problems. Neither do existing consumer protection regulations, which also tend to be poorly enforced.
4. In line with the Government’s stated intention that the Consumer Rights Bill empowers consumers with “the right to services being performed with reasonable care and skill”, Shelter recommends adding a clause to the Bill which would extend the requirements currently governing estate agents to cover letting agents too. This can be achieved by amending the Estate Agents Act 1979 and Consumers, Estate Agents and Redress Act 2007 to bring letting agencies within both Bills’ scope.
5. This would:
Provide landlords and renters with the right to client money protection
Provide landlords and renters with the right to indemnity insurance
Give the Office for Fair Trading (OFT) powers to ban letting agents who act improperly.
6. Doing so would provide people who rent their home through an agent with the same rights and consumer protections as people who buy their home through an estate agent.
7. This has wide support from a wide range of stakeholders, including the leading letting agent body ARLA, consumer organisation Which? and the Royal Institute of Chartered Surveyors (RICS). It was also a key recommendation in the Communities and Local Government (CLG) Select Committee recent report on the private rented sector.
Letting Agent Fees
8. The consensus on the need to raise standards is welcome, but it is the cost of using letting agents, including those who provide a good, professional standard, which is the biggest cause of concern in terms of impact on rents. Fees and charges remain the most reported area of concern for renters who use letting agents, according to OFT analysis. Recent research by Shelter found that each time a renter moves they face being forced to pay an average of £350 in fees for things such as “administration”, referencing, credit checks as well as other services. One in seven renters have had to pay £500 or more in upfront fees.
9. At a time of stagnant wages and rising rents, the financial impact on people is severe, especially when combined with the private rented sector’s lack of security which can require households to move every six months. 1 in 4 renters who have dealt with a letting agency told us that they were left in debt as a result of fees, while 1 in 6 reported cutting down on food or heating to meet the cost of fees.
10. These charges often bear little relation to actual costs, and are regularly imposed without the landlord’s knowledge. An investigation by CAB found that letting agents regularly charge landlords and renters for the same service (“double charging”). Many landlords are surprised when they do discover that tenants have also been charged fees, as they assumed that the agent had been contracted to work in their interest. The OFT has noted that the ability of agencies to charge both renters and landlords creates a potential conflict of interest.
11. As the landlord is the primary consumer in the letting agent market—and the only party with genuine consumer power—it is the landlord who should pay for the costs of setting up a tenancy. The agency fees currently being passed onto renters are for core services provided by agencies for landlords, and should be factored into the pricing of a landlord’s commission rate accordingly. Agencies price the fees they charge to landlords competitively in order to attract business, but it is currently all too easy for agencies to compensate by transferring additional costs on to renters. Letting agent fees and charges to renters do not represent that of a normal business and consumer transaction—but instead exploit renters’ lack of bargaining power.
12. It is fairest for landlords to bear all the initial costs of setting up a tenancy in the fees they already pay to agents. If necessary, the costs of setting up a tenancy can then be reflected by the landlord in the rent over the course of the tenancy. This would be far more manageable for renters than being forced to find significant sums of money up-front and at short notice.
Shelter therefore recommends adding a clause to the Consumer Rights Bill which would prohibit in law letting agents charging renters anything other than rent and a deposit. The wording of this clause could be based on language within the existing Accommodation Agencies Act 1953, which already outlaws agents charging renters for registering their name or requirements and providing a list of available properties to let.
13. Since November 2012, such a requirement already operates in Scotland. This has not led to a spike in rents, while the number of letting agents in business in Scotland is higher after the ruling than before.
14. This measure would clarify in law that landlords are the consumer in the letting agent market. For this reason, our recommendation enjoys the support of a number of landlords, and we were joined in our recent campaign to end fees to renters by Dorrington Residential, a large institutional landlord operating across the south of England.
19 August 2013