4 Letting agents |
68. The growth of the private rented sector has
brought to greater prominence the role played by agents both in
the process of finding tenants and letting properties, and in
the management of housing on behalf of landlords. In this chapter
we will consider how letting agents should be regulated. We will
also look at key concerns raised about letting agent behaviour,
in particular the fees they charge to landlords and tenants. Where
we use the term letting agents we refer both to those agents who
find tenants and those who manage properties on behalf of landlords.
By sales agents, we mean those involved in the sale of properties.
Regulation of agents
69. A number of witnesses considered the regulatory
framework covering letting agents to be inadequate. The Residential
Landlords Association stated that the letting and managing agent
part of the sector had "remained unregulated far too long
and as such is on occasion unprofessional".
The Royal Institution of Chartered Surveyors (RICS), which has
described the lettings sector as "the property industry's
considered that the "the regulatory framework in the lettings
market and the ever-increasing number of registration schemes
offers limited protection for the consumer and costs business
and again, we heard concern that anyone could set up as a letting
agent without qualifications or prior knowledge of the industry.
70. We heard that the lack of regulation was
giving rise to bad practice in parts of the industry. The consumer
organisation, Which?, referred to research it had carried out
in 2012, which identified a number of problems in the market including,
from a tenant perspective: the mishandling of deposits; missed
appointments, aggressive sales tactics, poor customer service
and out of date and misleading adverts; opaque and variable fees;
and the letting of properties in poor condition.
From a landlord's perspective, Which? found agents: not passing
on rent; not properly vetting tenants; and failing to carry out
regular inspections or adequate check-out procedures.
We heard particular concerns about the fees charged by letting
agents, which we consider in more detail later in this chapter.
GOVERNMENT PROPOSALS: REDRESS
71. Initially, the Government told us that it
did not believe that "significant burdensome regulation was
needed" as "new regulation could increase costs for
both landlords and so far tenants".
In April 2013, however, the Government laid an amendment (subsequently
enacted) to the Enterprise and Regulatory Reform Bill providing
for an order-making power to require letting agents (and agents
providing management services for leasehold housing) to belong
to an approved redress scheme.
In a letter to our Chair, the Government explained that
ensuring that landlords and tenants have access to
redress, via an Ombudsman, will not only provide an avenue for
dealing with complaints when they arise, but in the case of those
agents who do not currently offer redress, will act as a strong
deterrent to those providing unacceptable services and engaging
in unlawful practices.
The Government said that it would carry out a consultation
and consider the Committee's recommendations before bringing forward
72. We found support for the Government's amendment.
The Office of Fair Trading (OFT), which had carried out a review
of complaints made about letting agents to Consumer Direct, said
that "an effective redress scheme should be able to deal
with the majority of complaints identified in our report, where
the issue involves an allegation of misconduct by a letting agent".
To address potential problems with the scheme, the OFT suggested
it was important that "the benefits of using an agent that
is a member of a redress scheme are sufficiently publicised, and
that there is robust enforcement against agents that do not join
It also suggested that the Government should consider the "interaction
between the letting agent/property management redress schemes
and deposit protection schemes".
73. The Property Ombudsman, who already provides
a voluntary code of practice for letting agents,
was keen that adherence to a code of practice be made mandatory
alongside the redress scheme:
While the Government's amendment will set up a basic
redress mechanism for letting and managing agent consumers, if
an adherence to a code of practice is not made mandatory [...]
there is a real concern that letting agents will continue to operate
to their own set of standards until such times as they are brought
into question. This would mean that, for the foreseeable future,
consumer confidence in relation to the service provided by letting
and managing agents may remain low.
The Housing Minister, Mark Prisk, intimated that
the redress scheme would be underpinned by a code of practice.
74. We welcome the Government's moves to require
letting agents to be part of an approved redress scheme. There
are a number of issues the Government should consider in implementing
the scheme. We
recommend that, as part of its consultation on the redress scheme,
the Government seek views on how best to publicise such a scheme
and what penalties should be in place for those agents who do
not comply. The Government should also explore how the redress
scheme fits alongside existing arrangements for deposit protection.
We further recommend that the redress scheme is accompanied by
a robust code of practice that sets out clear standards with which
agents are required to comply.
75. A number of witnesses described the Government's
proposals on redress as a "first step".
It was suggested that they had to be part of a wider regulatory
framework. RICS set out what it saw as the two "first steps"
to a simplified framework.
The first of these arose from concern that letting agents were
not subject to the same regulation as estate agents. RICS proposed
amending "the definition of 'estate agency' in section 1
of the Estate Agents Act 1979 to include lettings and managing
and associated changes to the Consumers, Estate Agents and Redress
Act 2007. This,
it said, would
give the OFT powers to ban agents who act improperly,
require agents to provide client money protection, professional
indemnity insurance and clear redress mechanisms in the event
of a dispute. It will prevent sales agents who have been banned
from operating from starting up a new business as a lettings and/or
The second of RICS's suggested changes was to implement
section 22 of the Estate Agents Act 1979, which would "require
all sales, lettings and managing agents to acquire statutory minimum
professional standards before they start trading".
Mechanisms such as mandatory client money protection and minimum
professional standards or qualifications enjoyed support from
many of those submitting evidence to us.
76. We also received a number of suggestions
that letting agents should either be licensed or required to be
registered with an accredited industry body.
The Association of Residential Letting Agents (ARLA) has published
its own proposed structure for regulation of the property industry.
Under this structure,
letting agents and other property professionals would
be licensed, registered and monitored by an accredited industry
bodysuch as ARLA, [the National Association of Estate Agents],
RICS and others. These bodies in turn would be audited and overseen
by a single industry regulator. ARLA would propose that The Property
Ombudsman would be the most appropriate bodyits structures
already exist, and would only need to be 'beefed up' and better
resourced, as opposed to created from scratch.
77. We asked Mr Prisk whether he would be prepared
to look at regulation beyond a redress scheme. He said:
In due course, but let us not get ahead of ourselves.
We have quite a complex process to go through, and if we can get
the code of practice right that underpins the redress scheme we
probably will drive out the vast majority of the kinds of problems
that our constituents face.
78. While the Government's proposals were welcome,
there was widespread recognition that much more was needed. There
is a strong case for a single regulatory framework covering all
agents, be they involved in lettings, management or sales. We
recommend that the Government make letting and managing agents
subject to the same regulation that currently governs sales agents.
This includes giving the Office of Fair Trading the power to ban
agents who act improperly, and making client money protection
and professional indemnity insurance mandatory. Moreover,
if any changes are made to the regulation of sales agents, these
changes should also be applied to letting and managing agents.
to require sales agents to meet minimum professional standards
before they begin trading should also be applied to letting and
managing agents. In addition, if at any point a requirement for
sales agents to be registered with an accredited industry body
is to be introduced, this should be part of a wider framework
also covering letting and managing agents. We recommend that the
Government review these arrangements in two years' time.
FEES AND CHARGES
79. We heard many concerns about the fees charged
by letting agents, both in terms of the amount charged and lack
of transparency. In June 2013, the housing charity Shelter published
a report which stated that fees were "variable but high,
costing £355 on average" and that one in seven renters
who had used a letting agency had paid fees of more than £500.
The OFT, when conducting its analysis of complaints about letting
agents made to Consumer Direct, grouped the complaints into five
main areas. The largest of these areas related to complaints about
fees and charges, which represented 30% of the total number.
Jason Freeman, Legal Director of the OFT's Goods and Consumer
Group, explained that mainly, these complaints related to "drip
pricing", that is charges were revealed gradually to the
The effect tends to be that people become increasingly
committed to the transaction psychologically, if you like. They
do not have the opportunity to appraise the whole cost of the
letting at the time they are going to compare properties. They
might compare based on the level of rent or the amount of security
deposit they need to pay, but they would not factor in the many
other fees that they might need to pay.
He added that the second main area for complaints
about fees and charges related to holding deposits and that there
seemed "to be quite a lot of uncertainty around what holding
deposits are for and how people are going to get them back".
We heard in other evidence that the fees charged for referencing,
inventories and contract renewal were not commensurate with the
costs to the agency.
Moreover, Cllr Sarah Hayward, Leader of Camden Council, suggested
that there were instances where agents were "double charging,
so charging both the landlord and the tenant for searches".
80. Opaque charging is not confined to a small
number of "rogue" agents. Which? told us about a mystery
shopping exercise it had carried out at London branches of four
leading agents (Barnard Marcus, Foxtons, Martin and Co and Your
Move). This exercise
suggested that the agents were often failing to provide potential
renters with upfront information about fees:
None of the letting agents provided information about
fees in any property listings on their website, on Rightmove.co.uk
or after tenants had registered online.
Only one tenant (at a Foxtons' branch) was proactively
given fee information when they registered in branch or called
to arrange a viewing
No tenant was provided with a written schedule of
In some cases tenants were either not given fee information
even when they asked, or they were not given the complete details.
81. The Advertising Standards Authority (ASA)
told us that it had "ruled against an ad by the estate agent,
Your-move.co.uk, that appeared on the property website, Right
Move, for not making clear that administration fees had been excluded
from the quoted price, or providing enough information to allow
the consumer to establish how further charges would be calculated".
The ASA explained that
The ruling makes clear that advertisers must include
all compulsory fees and charges upfront in the price quoted. If
the fee cannot be calculated in advance because of, for example,
an individual's circumstances, then the advertisers must make
clear that compulsory fees and charges are excluded and provide
adequate information for consumers to establish how additional
fees are calculated. This means that potential tenants will have
all the information they need in the first instance to help them
make an informed choice and to avoid being drawn into contracts
they haven't budgeted for.
The ASA added that it was now working to ensure that
its rulings were "followed by the sector as a whole".
82. Those representing agents suggested that
publishing fees on a website was not straightforward. Caroline
Kenny, Executive at the UK Association of Letting Agents, said
that "there is an element [of tenants' fees] that agents
could perhaps display on their website, but other fees will be
more complex and would need to be calculated according to individual
She added, when asked why agents could not set out the costs of
an inventory from the start, that properties were "rented
so quickly because of market conditions that it may be quite onerous
for agents to do that".
Mark Hayward, representing ARLA, suggested that "because
of the climate with lettings at the moment, the urgency to secure
a property is such that people will not read the small print"
and that even if the information was "bold, compelling and
specific, they will not necessarily see it".
83. These arguments are less than convincing.
That there is currently so much urgency to secure a property makes
it all the more important that tenants are aware of fees and charges
from the very start, before they commit themselves to a particular
property. It is also important that landlords are made aware of
what the tenant is being charged. Agents should include details
of their fees and charges to tenants with property listings on
their website, in their windows and elsewhere. We are therefore
very concerned to hear reports of letting agents being less than
transparent about their fees and charges, especially as this practice
appears to extend to some of the leading high street firms. It
is encouraging that the ASA is cracking down on such sharp practice
but more needs to be done. A requirement for transparency should
be enshrined in the new code of practice. We
recommend that the code of practice accompanying the new redress
scheme include a requirement that agents publish a full breakdown
of fees which are to be charged to the tenant alongside any property
listing or advertisement, be it on a website, in a window or in
print. This breakdown should not be "small print", but
displayed in such a way as to be immediately obvious to the potential
tenant. The code should also require agents to explain their fees
and charges to tenants before showing them around any property.
Furthermore, the code should forbid double charging, and there
should be a requirement that landlords are informed of any fees
being charged to tenants. If agents do not meet these requirements,
the fees should be illegal. Finally, the professional bodies should
make a commitment to full, up front transparency on fees and charges
a requirement of membership.
THE SCOTTISH APPROACH
84. In 2012, the Scottish Government announced
that the law would be "clarified so that all tenant charges,
other than rent and a refundable deposit, will be deemed illegal".
A number of witnesses suggested that fees and charges to tenants
should also be made illegal in England.
We also, however, heard strong opposition. One agent, Simon Shinerock,
told us that the Scottish market was "now in a total mess"
as a result of the decision to ban fees to tenants.
RICS said it "would not support regulation of agent fees
as this would be a restriction of the market".
Mark Prisk said that he was "generally not in favour of banning
things" and that, in Scotland, some agencies had gone out
of business as a result of the ban.
85. A particular concern about banning fees to
tenants was that it could lead to an increase in fees charged
to landlords, and that landlords could then raise rents to cover
The Building and Social Housing Foundation suggested, however,
that, even if rents were to increase, a ban on fees might still
Although the Scottish approach is likely to result
in higher charges to landlords by agents, which may be reflected
in rent levels, it ensures that tenants are not excessively burdened
at the start of a tenancy, or hit by additional charges at later
stages. This reduces the barrier to entry for tenants to the sector
and makes it easier for tenants to predict their outgoings. However,
the wider consequences for the market as a whole warrant further
86. At the very least there should be a requirement
for complete transparency on fees. In addition, we are interested
in the approach that has been adopted in Scotland but consider
that the impact on overall costs and the operation of market should
be fully understood before a decision is made to make fees to
tenants illegal in England. We
intend to gather further information on the impact in Scotland
of the decision to make fees to tenants illegal, and to return
to this issue in 2014.
127 Ev 154, para 6.2 Back
"Renting: Property's Wild West", RICS press release,
22 November 2012 Back
Ev 187 Back
See also, for example, Ev 266, para 26 [Leeds City Council],
Ev w86, para 6.2 [Pro Housing Alliance], Ev w148, para 7.0 [Nottingham
Action on HMOs], Ev 215 [Bristol City Council]. Back
Ev 206, para 3.7 Back
Ev 207, para 3.10 Back
Ev 301, para 27 Back
Enterprise and Regulatory Reform Act 2013, sections 83-84 Back
Letter from Mark Prisk MP and Jo Swinson MP to CLG Committee
Chair, 15 April 2013, published on CLG Committee website, www.parliament.uk/clg Back
Ev 183, para 4; see also, for example, Q 460 [Richard Blakeway]. Back
Ev 184, para 8 Back
Ev 185, para 21 Back
Ev 194, para 1.6 Back
Ev 203; see also, for example, Ev 210 [Which?]. Back
Qq 720-1 Back
See, for example, Q 497 [Paul Smee and Ian Fletcher], Ev 191
[Royal Institution of Chartered Surveyors], Ev 304 [UK Association
of Letting Agents]. Back
Ev 192 Back
As above Back
Ev 188 Back
Ev 192 Back
As above Back
On mandatory client money protection, see, for example, Ev w64,
para 5.3 [The Dispute Service Ltd], Ev 202-203 [The Property Ombudsman],
Ev w102, para 25 [DASH], Ev 209 [Which?], Ev w285-w286, para 6.4
[Chartered Institute of Housing]. On minimum professional standards
or qualifications, see, for example, Ev 202 [The Property Ombudsman],
Ev 215 [Bristol City Council], Ev 177 [Association of Residential
Letting Agents], Ev w283, para 1.7 [Chartered Institute of Housing]. Back
See, for example, Ev w22 [Finders Keepers], Ev w27 [Greg Jones],
Ev w49 [Roy Kitchen], Ev w64, para 5.3 [The Dispute Service],
Ev w82-w83 [***name redacted***], Ev w120, para 8.2 [Central Association
of Agricultural Valuers], Ev w133, para 5.1 [Chartered Institute
of Environmental Health], Ev w225, para 4.5 [Haringey Council],
Ev w303, para 4.4 [LandlordZONE]. Back
ARLA, A proposal for the regulation of the property sector,
March 2013, p 7 Back
Q 733 Back
Shelter, Letting Agencies: The Price You Pay, June 2013,
pp 10-11 Back
Ev 179, para 13 Back
Q 153 Back
As above Back
Ev w141 [Victoria Roberts Vukmanovic]; see also, for example,
Qq 598-603 [Irfan Ahmed], Ev w191, para 22 [Housing for the 99%]. Back
Q 652; see also, for example, Ev w102, para 35 [Cornwall Residential
Landlords Association]. Back
See Ev 208, para 2.2 for details of Which?'s methodology. Back
Ev 208, para 2.3; see also, for example, Ev 137-138, paras 25ff
Ev w329-w320 Back
Ev w330 Back
As above Back
Q 165 Back
Q 168 Back
Q 164 Back
"An end to illegal charges to tenants", Scottish Government
press release, 26 August 2012 Back
See, for example, Ev 150, para 4.2.1 [National Private Tenants
Organisations], Ev w249, para 15 [Housing Law Practitioners Association],
Ev w162 [Digs], Ev w191, para 22 [Housing for the 99%], Ev 275,
para 25 [National Union of Students]. Back
Ev w1, para 17; see also Ev w80 [Barrie George]. Back
Ev 190 Back
Q 724 Back
See, for example, Ev w97 [SpareRoom], Ev w183 [Reads Davies Estate
Agents and Valuers], Ev 198, para 4.21 [The Property Ombudsman],
Ev 167, para 4.5 [Association of Residential Letting Agents],
Q 95 [Alan Ward]. Back
Ev w255, para 5.3 Back