Communities and Local Government CommitteeSupplementary written evidence submitted by the Royal Institution of Chartered Surveyors

Further to the Committee Chair’s letter of 17 April 2013, RICS is pleased to provide a supplementary memorandum.

RICS is the leading organisation of its kind in the world for professionals in property, construction, land and related environmental issues. As an independent and chartered organisation, RICS regulates and maintains the professional standards of over 91,000 qualified members (FRICS, MRICS and AssocRICS) and over 50,000 trainee and student members. It regulates and promotes the work of these property professionals throughout 146 countries and is governed by a Royal Charter approved by Parliament which requires it to act in the public interest.

RICS has welcomed the Government’s amendment to the Enterprise and Regulatory Reform Bill requiring all lettings and management agents to sign up to a redress scheme as a good first step in

ensuring tenants and landlords are comprehensively protected. The Government is to be commended on engaging constructively with industry on the issue in a short space of time. However, this is only a first step in raising standards in the sector. The Government’s amendment will only give consumers support and access to redress after the damage has been done, leaving them still unprotected throughout the whole transaction with their letting or managing agent. It does not address issues around extortionate fees charged throughout the transaction, misleading adverts, professional indemnity insurance and a generally dysfunctional market that is treating tenants and landlords poorly.

The Government’s amendment does not address the wider regulatory issues in the UK’s residential market. Government needs to take a joined up regulatory approach to the whole of the UK property market with principles based regulation which is targeted where the risks are the greatest.

The current regulatory environment is problematic in the following ways:

1.No sales, lettings or managing agents are currently required to meet minimum professional standards in order to start trading. As a result of this poorly targeted regulation, there is considerable potential for consumer detriment. For example, lettings agents not being fully aware of all their responsibilities under existing landlord and tenant legislation, such as the need to undertake annual gas safety checks of their rental properties, with potential fatal consequences for tenants.

2.A residential sales agent can be forced to cease trading by the Office of Fair Trading for being in breach of the Estate Agents Act 1979 or wider consumer protection legislation, but can continue to trade as a lettings agent, or set up a lettings business instead;

3.Enforcement of existing legislation, including consumer protection law, is poorly targeted and under resourced, leaving tenants poorly protected.

A joined-up approach from Government Departments and Agencies is required to tackle these issues.

RICS believes that there is a very strong business case for better targeted regulation which requires sales, lettings, and managing agents to sign up to a professional regulation scheme that would raise standards across the sector. The first steps to simplifying the current regulatory framework would be to:

Amend the definition of “estate agency” in Section 1 of the Estate Agents Act 1979 to include lettings and managing agents.

This will 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 managing agent.

Enact Section 22 of the Estate Agency Act 1979

This will require all sales, lettings and managing agents to acquire statutory minimum professional standards before they start trading. RICS considers these standards should be set at NVQ level 3 (equivalent of ‘A’ level). This would be enforced via a relaunched joint industry standards board. This will level the playing field for all agents.

The benefits of introducing clear, consistent, and targeted regulation covering all aspects of the UK residential property market will include:

consolidated and reduced legislation/regulations;

a simplified regulatory framework—easier for consumers and businesses to understand;

reduced costs associated with business compliance; and

enhanced consumer protection.

RICS is working with the Property Ombudsmen, the Chief Ombudsman and other industry bodies to establish a Property Standards Board. This will ensure the industry moves forward together to raise standards in sector.

Benefits of bringing lettings agents within scope of the Estate Agents Act 1979 and enacting Section 22 of that Act

RICS has undertaken (Autumn 2012) detailed research into the costs and benefits of bringing lettings agents within scope of the Estate Agents Act 1979 and enacting Section 22 of that Act (statutory minimum professional standards, which RICS considers should be NVQ level 3 or above for all agents). This research is based on a methodology compliant with relevant Government guidance for impact assessment work, and included consultation with business practitioners and consumer organisations to test and further inform the initial desk research. A high level breakdown of the costs and benefits contained in this research is shown in tables overleaf.

Using the BIS Impact Assessment Calculator over a 10 year horizon, simplifying existing lettings agent legislation will be worth £130 million to the UK economy against the initial cost of £46.5 million.

This research, by identifying ongoing net benefits of over £20 million per year, directly challenges Government’s concerns about the increased costs on landlords, tenants and the industry which a new mandatory regime might bring and presents an overwhelming case for change.

HIGH LEVEL BREAKDOWN OF PRINCIPAL COSTS

One off costs of bringing Lettings Agents within scope of the EAA79:

Costs to “Lettings only” Agents not regulated or signed to a redress scheme

(mainly introduction of accounting systems, training, additional IT, and professional fees)

£24.3m

Costs to “Lettings only” Agents who have voluntarily signed up to redress schemes and/or are members of a professional body/trade association but who require additional investment to become fully compliant

(mainly introduction of accounting systems, training, additional IT and professional fees)

£16.7m

Total one off costs of bringing Lettings Agents within scope of the EAA79:

£41.0m

One off costs of enacting Section 22 of the EAA79:

Total one off costs to Sales and Lettings Agents of enacting Section 22 of EAA79 (additional training costs)

£4.8m

GRAND TOTAL ONE OFF COSTS

£45.8m

Annual costs of bringing Lettings Agents within scope of the EAA79:

Costs to Lettings Agents

(annual costs of joining a redress scheme)

£0.639m

GRAND TOTAL ANNUAL COSTS

£0.639m

HIGH LEVEL BREAKDOWN OF PRINCIPAL BENEFITS

Annual benefits of bringing Lettings Agents with scope of the EAA79:

Benefits to Tenants

(time/cost savings at start/end of tenancies because Lettings Agents adopt better procedures)

£1.1m

Benefits to Landlords

(time/cost savings at start/end of tenancies because Lettings Agents adopt better procedures; improved health & safety advice from LA’s, and fewer call outs by tradespeople)

£2.2m

TOTAL BENEFITS OF BRINGING LETTINGS AGENTS WITHIN SCOPE OF EAA79

£3.3m

Annual benefits of enacting Section 22 of the EAA79:

Benefits to Tenants

(more competent Lettings Agents to deal with)

£3.3m

Benefits to Landlords

(more competent Lettings Agents, providing better guidance/advice)

£8.7m

Benefits to Lettings Agents

(improved staff competency and associated productivity gains)

£0.4m

Benefits to Sales Agents

(improved staff confidence and associated productivity gains)

£2.1m

Benefits to Buyers/Sellers

(reduced failed transaction rate)

£3.3m

TOTAL BENEFITS OF ENACTING SECTION 22 of EAA79

17.8m

GRAND TOTAL ANNUAL BENEFITS

£21.1m

A copy of the full report is available to download from:

www.rics.org/uk/knowledge/research/research-reports/regulation-of-sales-and-letting-agents-report/

Secondary legislation introducing statutory redress for lettings and managing agents

RICS will be engaging fully in the forthcoming consultation exercise on proposals to introduce secondary legislation requiring all lettings and managing agents to be members of a redress scheme.

RICS considers that this secondary legislation should build on the existing statutory redress arrangements for sales agents to avoid the potential for confusion and unnecessary duplication. Many sales agents also operate a lettings/managing agent business and will be familiar with the existing statutory redress arrangements. In addition, some lettings/managing agents are already voluntarily members of one of the existing redress schemes for sales agents.

May 2013

Prepared 16th July 2013