Communities and Local Government CommitteeWritten evidence submitted by the Association of Residential Lettings Agents

Introduction to ARLA

ARLA was formed in 1981 as the professional and regulatory body for letting agents in the UK. Today ARLA is recognised by government, local authorities, consumer interest groups, and the media, as the leading professional body for agents operating in the private rented sector. ARLA is a sister organisation to the NAEA, the ICBA, and the NAVA. All of these professional bodies come under the umbrella of the National Federation of Property Professionals. ARLA currently has a total of over 6,000 members.

All ARLA members are governed by ethical and professional standards which are set at a level far higher than the law demands. ARLA has its own disciplinary procedures so that any complaint is dealt with efficiently and fairly. In addition members who are PPDs are obliged to contribute to a client money protection scheme, provide an annual accountant’s reports, ensure that their firms are covered by professional indemnity insurance, and join a redress scheme. New entry into membership of ARLA requires a relevant Level 3 qualification.1

ARLA has a continuous and constructive dialogue with politicians and government departments involved with the PRS. The broad policy themes chosen by the Select Committee are familiar to ARLA and reflect some of ARLA’s own areas of concern.

As part of its preparatory work for providing this evidence ARLA surveyed its members using questions it felt went to the heart of the matters being considered by Committee. A summary of main survey responses is attached as Annexes 1–12. However we can disclose the full survey results to the Committee if that would be of assistance. Copies or web links for the documents we have referenced are also available on request.

Given ARLA’s emersion in this area it is very much hoped that ARLA will be given an opportunity to provide oral evidence to the Committee, in order to expand on some of the ideas outlined in this written submission and to answer any questions the Committee may have.

Glossary

Term	Definition
Agents	Property agents who deal with letting residential property.
ARLA	Association of Residential Lettings Agents
CEARA	Consumer Estate Agents Redress Act (2007)
CPR	Consumer Protection from Unfair Trading Regulations (2008)
DCLG	Department of Communities and Local Government
EAA	Estate Agents Act (1979)
HHSRS	Housing Health & Safety Rating System
ICBA	Institution of Commercial and Business Agents
Landlords:	Landlords operating in the private rented sector
NAEA	National Association of Estate Agents
NAVA	National Association of Valuers and Auctioneers
OFT	Office of Fair Trading
PPD	Principal, Partner, Director
PRS	Private Rented Sector
TPO	The Property Ombudsman
TPO Code	Code of Practice for Residential Lettings Agents

Theme 1

The quality of private rented housing, and steps that can be taken to ensure that all housing in the sector is of an acceptable standard.

1.1 We would like to draw the Committee’s attention to the following:

Legal requirements

HHSRS

1.2 HHSRS is a risk-based evaluation tool designed to help local authorities identify and protect against potential risks and hazards to health and safety from any deficiencies identified in private rented sector dwellings.2 Landlords can be prosecuted for breaching HHSRS.

1.3 If an ARLA agent was found to have breached HHSRS by statutory body then ARLA could take disciplinary action itself, which may result in the members being expelled from ARLA.

1.4 ARLA believes that clarity of expectation and national consistency would help consolidate compliance with HHSRS. On this basis ARLA welcomes the current proposal to extend the Primary Authority scheme towards HHSRS.3

1.5 The Primary Authority scheme is designed to provide consistency for organisations operating in more than one local authority area. It allows an organisation to form a partnership with one local authority which provides “assured advice” on how to fulfil regulatory obligations. This advice can be relied upon across all of the organisations’ operations throughout England and Wales. ARLA is currently considering whether to enter into one of the new Primary Authority schemes for professional associations, the idea being that one local authority would provide assured advice to all ARLA members in England and Wales. It would greatly assisted ARLA’s awareness raising and educational role, as well as NFOPP Qualifications, if all ARLA members received consistent advice.

CEARA

1.6 ARLA feels strongly that one of the ways to achieve acceptable housing standards is for lettings agents to be made subject to the EAA. This would mean that all lettings agents would be subject to a number of legal requirements including declaring a personal interest, holding client money in a designated client account, and keeping basic accounts. In addition the OFT could apply for prohibition orders for rogue agents, and most importantly CEARA would apply and therefore all lettings agents would have to join an approved redress scheme. Providing the public with an additional route of redress is particularly important given the cost of taking matters to court, and at this time of scarce local authority/trading standards resources.

1.7 In fact many lettings agents already belong to the biggest of the approved redress schemes, perhaps 50%-60% of the sector. As a condition of their membership of ARLA PPDs must ensure that their firms are members of an Ombudsman’s scheme, and the most popular scheme is TPO. Non-ARLA agents can also voluntarily join TPO.

1.8 The TPO Code members of the scheme to comply with the law. One of the Code’s requirements is that agents must respond promptly to communications, particularly where these relate to statutory repairing, maintenance obligations, or safety regulations.

1.9 Baroness Hayter introduced an amendment to the Enterprise and Regulatory Reform Bill concerning bringing lettings agents within the scope of the EAA.4 Her amendment was debated by the House of Lords Grand Committee on 16 January 2013. In fact making redress compulsory for lettings agents has been raised at parliamentary level on a number of previous occasions but unfortunately failed.

CPRs

1.10 There is potential for the CPRs to have an impact in the area of housing standards in the private rented sector. The public can already make a complaint to an Ombudsman if they suspect that a lettings agent has been breached the CPRS, given that the TPO Code covers general breaches of the law, but only if that agent belongs to an Ombudsman scheme. This route of redress should made automatically available to the public whenever they deal with any lettings agent. An important factor to bear in mind is that tenants don’t choose the lettings agent they have to deal with.

1.11 The CPRs have the potential to significantly enhance consumer protection, in particular by virtue of regulation 6 which is a new offence of “misleading omission.” It an offence for a trader (such as a lettings agent) not to disclose material information which causes, or is likely to cause, the average consumer to take a transactional decision he would not have taken otherwise (say the decision to view or rent a property).

1.12 During September 2012 the OFT published guidance about the regulations in the context of property sales, and ARLA understands that the OFT is about to commence work on guidance about the CPRs in the context of the rental of property. See paragraph 4.4 below.

1.13 These regulations apply to “traders”. Whilst it is clear that lettings agents are traders and therefore they are covered by the regulations, the position of landlords is less clear following the case of Office of Fair Trading v Foxtons ( 2009) EWHC 1681 (Ch). The Office of Fair Trading has said that individual that landlords are not traders if they:

(i)Let out their property whilst travelling abroad

(ii)Let out part of their property in order to fund their mortgage

(iii)Their property investment represents part of their pension plan or other long term saving.5

1.14 On this basis we believe that institutional landlords who let multiple properties are likely to be traders. Landlords who let out a single property, perhaps because they need to relocate but have been unable to sell, are presumably more likely to be consumers. However there are many landlords that fall between these two extremes as they let out more than one property but still operate on a relatively small scale.

Licensing

1.15 See Theme 5 below for comments on HMO licensing.

1.16 Compliance with HHSRS could be linked with landlord/letting agent accreditation/regulation, HHSRS is already tied in with HMO licensing and therefore could be linked with licensing schemes for all PRS properties. However all forms of scheme have the potential to provide local authorities with the information they need in order to monitor and control the sector, and also to provide the revenue to finance enforcement of the legislation that applies to the PRS.

1.17 A voluntary accreditation scheme for landlords has been operating in Wales for a number of years. One of the scheme requirements is that landlords work within the legal rules relating to lettings and management, which includes HHSRS. There is currently a proposal that the scheme should become compulsory for all landlords and lettings agents.6 If this goes ahead then breaches of legislation could ultimately lead to the offending individuals being unable to act as landlords or lettings agents.

1.18 The London Borough of Newham has taken a dual approach. Newham has recently made licensing of all private rented properties compulsory (the license holder may be somebody other than the landlord, such as an agent). One of the intentions of this scheme is to help Newham to identify and penalise rogue landlords who are responsible for creating poor housing conditions. Newham also runs a voluntary licensing scheme for landlords. We understand that in appropriate circumstances a landlord could be forced to join the accreditation scheme if this was made a condition of their property licenses.

1.19 ARLA is very much in favour of some form of compulsory control of lettings agents and a number of studies support this argument.7 The expansion of the PRS and the vast sums of public money held by lettings agents are two of reasons why a scheme is long overdue. At present the vast majority of agents who do not belong to ARLA are not subject to any form of control unless they voluntarily join TPO. An exception to this general position is the Isle of Man which has statutory requirements for lettings agents including client money protection.8

1.20 ARLA accepts that imposing its high standards on all lettings agents may not be realistic as a first step. However there is concern that the local authority landlord and lettings accreditation schemes are extremely light-touch in terms of consumer protection. The Welsh legislative proposals are that lettings agents and landlords must attend a one day training course, at the end of which there a short test, with retesting at regular intervals. Voluntary schemes are likely to impose even fewer conditions.

Sources of information

1.21 English Housing survey is published annually by DCLG. The survey includes statistics which are formally designated as National Statistics.

1.22 The 2010–11 survey includes a chapter concerning the circumstances of vulnerable and disadvantaged groups. This chapter includes information about housing conditions, and related issues, for the following groups:

Older households.

Long term sick/disabled groups.

Ethnic minority groups.

Households in poverty.

Larger households.

1.23 The Scottish House Condition Survey is also informative.9

1.24 In 2008 the Centre for Housing Policy published an independent report which includes a sub-section concerning improving property quality.10

ARLA Member Survey

1.25 Please see Annexes 1–4.

Theme 2

Levels of rent within the private rented sector- including the possibility of rent control and the interaction between housing benefits and rents.

2.1 Rent controls were originally used as temporary measures around the time of the first and second world wars. They were intended to deal with evictions of tenants at a time when landlords could obtain more for their properties because of the acute lack of housing and increasing numbers of homeless. Some of the controls were complemented by prohibiting lenders to increase interest rates.

2.2 There has been a history of problems with rental control and it being lacking viability for landlords. Financial institutions, including pension funds and sovereign wealth funds, would be very likely to lose interest in investing in the private rented sector if rent controls were introduced. Overall rent controls have the potential to significantly damage stock availability and housing standards. However if rent control is introduced in some form, perhaps in particular geographical areas, as a minimum it should be linked with Retail Prices Index and the Consumer Prices Index.11

2.3 Trends in Local Authority Housing Allowance are relevant to this issue. The market is pushing beyond the limits of the allowance meaning that the most vulnerable are being forced into the worst property. These properties and lets are probably being managed being handled by landlords themselves without the use of an agent. The absence of an intermediary agent may make it harder for tenants to complain about any issue, including the standards of their rented home. Some buy-to-let mortgages do not allow to tenants who are in receipt of Housing Allowance, or they place conditions such as dictating the length of tenancies. Landlords who let to Housing Allowance tenants may also have problems obtaining buildings insurance.

ALRA Member Survey

2.4 Please see Annex 5.

Theme 3

Regulation of landlords, and steps that can be taken to deal with rogue landlords

3.1 Our response to Theme 1 deals with licensing/regulation of both landlords and lettings agents. ARLA sees the two are inextricably linked given the close relationships which landlords form with their agents.

ARLA Member Survey

3.2 Please see Annexes 6–8.

Theme 4

Regulation of lettings agents, including agents’ fees and charges

4.1 See our response to Theme 1 in relation the regulation of lettings agents.

4.2 ARLA feels strongly that neither landlords nor tenants should be charged fees that they aren’t expecting because they weren’t made clear at the outset. The TPO Code includes a number of relevant provisions including:

All fees and charges to be clearly stated to landlord clients, and drawn to their attention.

Transparency in relation to the commitments of each party.

4.3 There is an exception concerning property standards, in particular the necessity for emergency repairs. Normally agents cannot repair without instructions from their landlord client.12 Some agents take a risk and act without instructions, in the hope that their landlord client will retrospectively agree to pay. If the tenant has been at fault then the agent could try and recover from them. If the agent is an ARLA agent then they must bear the cost whilst the dispute and attempted recovery take place, and ultimately if they are unable to recover the cost then it remains with them. In other words ARLA agents are unable to utilise their client accounts to subsidise these circumstances.

4.4 The CPRs, particularly regulation 6, may enhance tenants protection in areas such as renewal fees if the fees weren’t made clear to them from the outset.

4.5 In Scotland all fees to tenants were recently made illegal under the Private Rented Housing ( Scotland) Act 2011. As this only became enabled law at the end of November 2012 the full impact is not yet know, however the likely result is increase of fees payable by landlords and rising rents. As there is an increasing number of benefit claimants within the PRS which could ultimately mean these costs falling on the state.

ARLA Member Survey

4.6 Please see Annex 9.

Theme 5

The regulation of houses in multiple occupation (HMOs), including the operation of discretionary licensing schemes imposed by a local authority for a category of HMO in its area

5.1 The Housing Act (2004) defines what HMOs local authorities must licence. The Act also includes two other definitions of HMOs which local authorities may wish to licence. It is not uncommon for local authorities to choose one of the broader alternative definitions rather than the minimal mandatory definition.

5.2 Licensing of HMOs is compulsory for landlords whatever definition is adopted. Landlords who rent out properties in a number of local authority areas may find that some of their HMOs must be licensed and others not.

5.3 The main rationale for HMO licensing was poor quality property, tenants being illegally evicted, and severe overcrowding. The HMO system should make it easier for local authorities to take action for improper behaviour by landlords, however this very much depends on the attitude and resources of the local authority. By law lettings agents must ask to see copy of the HMO licence, but it is unclear how this provision is being enforced.

ARLA Member Survey

5.4 Please see Annex 9.

Theme 6

Tenancy agreements and length and security of tenure

6.1 The focus on longer tenancies reflects the fact that the PRS has changed, but there is some concern about what longer tenancies mean for landlords in respect of:

The attitude of mortgage lenders.

Shorter tenancies have earlier break points, which is effective way of dealing with rent arrears and anti-social behaviour without resorting to legal action. The only route for landlords dealing with longer tenancies will be the court system which is rife with uncertainties and delay, and commonly unrecoverable lost income for landlords.

Costs of deeds for tenancies of more than three years.

6.2 Whilst in the past the PRS primarily services the geographically and economically mobile. However the PRS now also caters for those who cannot access social housing, those who cannot afford to buy a home, and specialist sectors such as students.

ARLA Member Survey

6.3 Please see Annex 11.

Theme 7

How local authorities are discharging homelessness duty by being able to place homeless households in private sector housing.

7.1 The lack of social housing has resulted in local authority having to rely on the private rented sector and the Localism Act will consolidate this.

ARLA Member Survey

7.2 Please see Annex 12.

January 2013

Annex 1

Do you ever reject property because of HHSRS (Housing Health & Safety Rating System)?

*335 responses.

Note:

It is encouraging that nearly half the respondents reject property on the basis that it is non HHSRS compliant. It is possible that at least some of the respondents who do not reject property on this basis have not had to address the issue because the properties offered to them are already HHSRS compliant.

Annex 2

Has your local authority enforced the HHSRS?

*335 responses.

Note:

It is impossible to know whether or not the lack of enforcement reflects a lack of breaches.

Annex 3

If your local authority has enforced the HHRS please indicate the number of prosecutions or other types of lower level enforcement, such as warnings, over the past three years.

*99 responses.

Note:

Some respondents have included health notices as a form of enforcement action. Such notices are used by local authorities as a first step. One reason for this may be that if a local authority wishes to pursue a prosecution it must take into consideration all 29 HHSRS hazards. The Committee may wish to consider whether this is unnecessarily burdensome bearing in mind that category 1 hazards are widely thought to be of most concern.

A number of respondents also referred to landlords’ newsletters produced by local authorities, eg in Cardiff and Oxford. Agents felt these were important educational tools.

Annex 4

Please provide ideas about other steps that could be taken to ensure acceptable housing standards.

*126 responses

The underlying problem is that the lack of stock is causing pressure in the market. The Local Authority Housing Statistics, England, 2010–2011, record that there were 1.84 million households on local authority waiting lists on 1 April 2011, an increase of 4.5% on 1.76 million on 1 April 2011.13

The willingness of landlords to invest in their rental properties has been negatively impacted by a number of factors. Housing benefit has been squeezed and once the allowance is paid direct to tenants as opposed to their landlords this is likely to lead to greater arrears.

At present the mortgage rate mirrors rental yield. However if the base or mortgage rate increases then rental becomes uneconomic.

Despite these underlying structural problems, ARLA has sought positive suggestions from its member and hopes that some or all of the following are of interest to the Committee:

The majority of responses received to this question from ARLA members referred to the need for licensing/regulation of landlords and their lettings agents. Compulsory membership of ARLA was one of the options mentioned.

One respondent commented as follows:

“Ensure all agents have Client Money Protection Insurance, have annually audited client accounts and pass a qualification such as the ARLA Technical Award. You have to be careful with all this that costs don’t get piled onto the landlord who then can’t afford to own and rent a property. The housing market doesn’t have enough transactions as it is, so if we make it too expensive for landlords to be landlords they will get out or be repossessed and there will no housing stock for people to rent. Banks could repossess, bring up to standard and link with the best local qualified professional to act as their agent”.

Training was another common theme, although it would be easier to ensure that training is delivered if landlords and lettings agents were captured under the auspices of a licensing/regulatory structure.

The provision of simple check sheets for prospective and existing landlords and easily accessible information for tenants. The Private Rented Sector Scotland Act (2011) will make Tenant Information Packs compulsory, commencing sometime in 2013.

Tenants may worry that making a complaint will result in them having to leave the property at the end of their tenancy, ie if it is an Assured Shorthold Tenancy the landlord may serve a s.21 notice.14 Therefore landlords should be unable to serve a notice if their tenant seeks the local authority’s assistance. The landlord would only be able to serve a notice after the repairs have been made. It is appreciated this change could be exploited by tenants who are unwilling to leave their rented properties making vexatious complaints but this risk should be manageable provided local authorities are adequately resourced to deal with complaints swiftly.

The Electrical Equipment (Safety) Regulations (1994), and the requirement for portable appliance testing, are too vague and not prescriptive enough. Electrical safety certificate to become a legal requirement (similar to gas safety certificates).

Smoke alarms to be made compulsory as they are in Scotland. Similarly carbon monoxide alarms, fire blankets, and extinguishers, should also be required all rented properties.

Properties being let to recipients of Local Housing Allowance should be inspected before this benefit is granted. This would stop the state subsidising poor properties.

Local authority improvement grants, but with proper controls on contractors to prevent the abuses of the system previously encountered.

Annex 5

In your view is there a correlation of levels of rent and Housing Benefit limits?

*308 responses.

Annex 6

Do you think landlords should be regulated if acting without an agent?

*335 responses.

Annex 7

Do you think landlords should be regulated if acting through a regulated agent?

*335 responses.

Note:

The reference to regulated agents is intended to reflect the difference between ARLA members and other agents. See our introduction concerning ARLA’s requirements which are significant commitments.

Annex 8

If landlords are regulated which of the following do you feel is appropriate?

*311 responses.

Note:

Other suggestions made by respondents were:

Checking if the landlord is the owner. For example, when a person is long term absent from their property because they are ill or go into a nursing home there is a risk that their property will be let without their knowledge or permission eg by a family member who has access. This offending could prejudices the position of tenant as their right to occupy could be uncertain.15

The perception was that there is a greater need to regulate landlords if the aren’t using an lettings agent, or they are using an agent who is not a member of a professional body such as ARLA.

Some respondents felt that local authority registration could only ever be a starting place, but in itself it is too easy and a compulsory training element should be added.

Landlords Associations should take on regulatory activities.

Whistle blowing helpline for tenants.

Local authority point of contact for tenants.

Financial checks to ensure that landlords have financial capability in regard to expenditure on maintenance, eg a credit reference check.

Annex 9

Should level of fees paid by tenants be controlled?

*335 responses.

Annex 10

How are HMOs licensed by your local authority?

*335 responses.

Note:

Reactive is intended to mean that local authorities respond to complaints, whereas proactive means that local authorities initiate checks.

Annex 11

If longer term tenancies become compulsory measures should be introduced to protect landlords and their agents?

*335 responses

Note:

An expedited procedure should be possible if an eviction is not contested by a tenant, eg they admit their rent arrears.

One suggestion is that longer tenancies of say 36 or 60 months should not require a deed, which tends to involve a solicitor.

Annex 12

Do you work with your local authority on housing homeless?

*335 responses.