Communities and Local Government CommitteeSupplementary written evidence submitted by the Property Ombudsman

1. The potential impact of the Government’s amendment to the Enterprise and Regulatory Reform Bill in relation to TPO’s previous evidence.

The Government’s decision allow the Secretary of State to utilise order making powers to establish an approved redress mechanism for letting and management agents in secondary legislation is a welcome development. The potential impact of this amendment is not only positive news for all tenants and landlords, but also for letting agents who have already voluntarily joined TPO as it will assist in helping to level the playing field with other agents currently operating to their own set of standards, outside of the existing redress arrangements.

It is a matter of public record that I favour an all-encompassing regulatory regime for the lettings sector. The Government’s amendment provides the first step in this direction. However, it does not address important issues such as client money protection insurance and training and qualifications, both of which would contribute towards an increase in consumer protection and establish true professionalism in the sector.

2. How far will the Government’s amendment go in relation to raising standards within the letting agent industry

Redress schemes can only considers matters which have been subject to a complaint that has not been resolved between the agent and consumer in question. As a result, the standards employed by individual letting agents will initially continue until such times as complaints arise which are then referred by the consumer to the redress scheme. There is a clear distinction between redress and regulation. The redress scheme can therefore only deal with the specific issues complained about meaning that other elements of the service provided by the agent will not be subject to scrutiny.

The Government’s amendment will nonetheless assist in raising standards across the industry, but, as the complaint process outlined above shows, it will take a significant amount of time to achieve an overall improvement given the various different services provided by individual letting and management agents across the UK in relation to the relatively small proportion of consumers who are willing and able to pursue their grievances through the agent’s internal complaint process and thereafter to a redress scheme.

3. Points that the Government should consider in advance of issuing secondary legislation

As already indicated, a note of caution must be sounded when discussing the potential of secondary legislation to harmonise and thereafter raise standards across the industry.

Under the Consumers and Estate Agents Redress Act 2007 (CEARA), sales agents are required to register with an OFT approved redress scheme but adherence to an approved code of practice was not made a mandatory requirement. However, the industry itself recognised that a consistent set of standards was required which is why 11,571 of the 11,940 sales agents registered with TPO have voluntarily agreed to follow the (OFT approved) TPO Code of Practice for Residential Estate Agents. The benefit of approximately 90 to 95% of UK sales agents following one code of practice is that the standards expected are consistent and clear to agents and consumers alike. If complaints arise they are judged against that same benchmark encouraging a consistency of decisions.

Currently all of the 9,956 letting and managing agents already signed up to TPO have voluntarily agreed to operate in accordance with the standards set out in the TPO Code of Practice for Residential Letting Agents. Furthermore, as stated in the previous evidence submitted on 16 January 2013 (1.7), the TPO Lettings Code has achieved Stage 1 OFT approval (and I expect the new approval arrangements to be operated by the Trading Standards Institute to apply to the same approval criteria), is recognised by the industry as the primary set of standards and is used by industry bodies such as ARLA and UKALA.

TPO’s Codes are regularly updated to take into account changing markets, new business initiatives and legislation. This constant evolution ensures that the Codes’ benchmark standards are always relevant to agents and their consumers. The Codes are operated separately from the Ombudsman’s redress process and agent compliance with the Codes is monitored. They are freely available to any agent, consumer, trade body or alternative redress scheme.

There is no difference in the cost of TPO membership for sales agents who register as full members to follow the Code and for those who register for minimum redress under the provisions of CEARA.

From TPO’s experience of operating its Codes and providing a redress mechanism for property agents for over 20 years, the following points should be considered in relation to the potential for a mandatory code of practice for letting and managing agents:

Where complaints are raised against an agent who has registered for the minimum redress requirements, the Code cannot be applied. In these cases, the Ombudsman can only judge the complaint on what he considers to be fair and reasonable in the circumstances.

Agents who do not follow a code of practice are still able to operate to their own set of standards. Whilst the services complained about will be called into question when a dispute is referred to a redress scheme, the fact remains that the complaint has to occur before the nature of the service could be considered. Operating in accordance with a mandatory code of practice actively encourages agents to adopt better and consistent standards from the outset, not after a complaint has occurred and, thereafter, has been investigated by the redress scheme. The compliance and consumer satisfaction tables set out under point 4 support this argument.

A mandatory code of practice would assist consumers’ understanding of the role of the agent and the level of service they should expect at the outset. This would aid consumer education and consequently encourage a reduction complaints based on unreasonable expectations.

A mandatory code of practice would ensure that all letting and managing agents work to the same set of standards and are judged against those prescribed standards by the consumer (at the point of making a complaint), by the agent (in responding to the complaint) and by the redress scheme (when reaching a decision on the complaint). The absence of a mandatory code would mean that neither the consumer, agent nor redress scheme could utilise such a benchmark thereby encouraging differing points of view, increasing the potential for areas of uncertainty, and overall elongating the complaint process.

Given the obligations placed on TPO letting agents by the Code of Practice, it could be argued that landlords are more likely to improve their overall knowledge and performance (resulting in a better outcome for tenants) when dealing with letting agents who operate to a set of defined common standards. Logically, it would therefore follow that problems concerning the condition of the property are less likely to occur if the letting agent involved in the transaction was bound by a mandatory code of practice.

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, for the reasons already stated, 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.

4. How the requirement to register with an approved redress scheme had improved standards within the sales agent sector

Monitoring adherence to the Sales Code (required by the OFT’s Consumer Code Approval Scheme—CCAS) has produced year on year increases in agent compliance with the Code and consumer satisfaction, underlining that standards across TPO sales agents have measurably improved. The monitoring results (out of an overall score of 10) for TPO sales agents are set out below:

Satisfaction

Sellers

Buyers

Overall

2004

8.8

8.2

8.5

2005

8.8

8.4

8.6

2006

8.9

8.4

8.7

2007

9.0

8.5

8.8

2008

9.2

8.6

8.9

2009

9.3

8.8

9.1

2010

9.3

8.9

9.1

2011

9.4

9.0

9.2

2012

9.3

9.0

9.2

Average

9.2

8.8

9.1

Code Compliance

Sellers—%

Buyers—%

Overall—%

2004

87.1

78.8

83.6

2005

88.3

82.0

85.7

2006

88.6

82.2

85.9

2007

88.8

82.0

86.0

2008

89.9

81.6

86.5

2009

89.4

82.4

86.4

2010

89.6

82.8

86.8

2011

89.9

84.4

87.1

2012

89.9

83.7

87.5

Average

89.4

82.85

86.45

Regarding letting agents following the TPO Code of Practice for Residential Letting Agents, although similar monitoring has only occurred for two years, the results show a similar trend to their sales agent counterparts:

Satisfaction

Tenants

Landlords

Overall

2011

9.0

9.4

9.2

2012

9.1

9.3

9.2

Average

9.05

9.45

9.2

Code Compliance

Tenants—%

Landlords—%

Overall—%

2011

77.0

80.0

78.5

2012

80.1

88.1

84.1

Average

78.6

84.1

81.3

The compliance monitoring results show that standards amongst TPO agents who follow our Codes have consistently risen, promoting a better consumer experience. It may also be the case that the standards employed by those sales agents registered for the minimum redress requirement have not increased in the same manner. However, without a code to measure standards against it is simply impossible to provide any accurate comment.

Summary

Whilst the Government’s proposal for mandatory access to redress is a step in the right direction, if there is a real desire for standards to be raised across the letting agent sector then a benchmark for those standards must be applied. The TPO Code of Practice for Residential Letting Agents is already followed by approximately 60% of the industry and encouraging those agents currently outside of redress arrangements to follow the same Code when redress becomes mandatory would present neither additional cost nor compromise individual businesses. Such a measure would ensure that all letting agents in the UK are obliged to operate to the same standards, thereby encouraging a consistency of service for consumers.

The Ombudsman would be happy to contribute to any discussion with the aim of encouraging higher agency standards across the sector.

May 2013

Prepared 16th July 2013