Communities and Local Government CommitteeWritten evidence submitted by Which?

1. Introduction to Which?

1.1 Which? is a consumer champion. We work to make things better for consumers. Our advice helps them make informed decisions. Our campaigns make people’s lives fairer, simpler and safer. Our services and products put consumers’ needs first to bring them better value. We are an independent, not-for-profit consumer organisation with over 750,000 members—the largest consumer organisation in Europe. Independent of Government and industry, we are funded through the sale of Which? consumer magazines, online services and books.

1.2 Which? has a history of work in the home purchase market; we were instrumental in bringing estate agents into redress through the Consumer Estate Agent and Redress Act (CEAR 2007). With the growth of the private rented sector, and the loophole created whereby letting agents remain outside the scope of the CEAR, we have conducted research and are currently lobbying for greater consumer protection in the lettings market. While our research was predominantly focussed on the role of letting agents our response also touches on issues relating to length of tenancy and the quality of properties in the market.

2. Summary of Findings and Recommendations

2.1 Choosing a letting agent is an important consumer decision: For the 1.2 million consumer landlords, agents are responsible for managing a valuable investment—their property. For the three million plus UK households who are renting through an agent they play an important role in determining how secure and comfortable they feel in their home.1

This makes choosing the right agent an important consumer decision, particularly in a market where there is such wide scale poor practice and limited consumer protection. Roughly 40% of agents are not signed up to an approved body or redress scheme. The Property Ombudsman found that complaints were up by a quarter this year compared to last; 25% of these could not be dealt with because they related to agents who were not a member.

2.2 It is a decision in which consumers are not engaged. We conducted extensive research during May-October last year including diaries with landlords and tenants, focus groups, nationally representative surveys and an analysis of a year’s worth of complaints about letting agents to Citizen’s Advice Bureaux. Our research found that tenants are disempowered throughout the process. 73% of tenants shopped for the property rather than the agent, which means they have little control over which agent they end up with, and are unable to switch agents without losing their home. Whether they ended up with a good or a bad agent was a gamble. This puts all of the onus on the landlord to make a “good” choice, but our research found that just 37% checked whether their agent was a member of a professional scheme before hiring them.

2.3 Making poor choices results in significant consumer detriment for both the landlord and tenant. Our research identified numerous examples of poor practice which could result in substantial financial losses. We refer to a number of case studies in our evidence.

2.4 Recommendations:

To increase price competition in the market and help inform choice fees need to be available to tenants at the point of sale alongside the rent in a clear and standardised format, for instance in adverts on internet portals and on agent websites. Landlords should also be provided with information on fees charged to the tenant so that they can asses the full cost of the service.

In order to increase consumer protection in the market and to create consistency with protection in the estate agency market, legislation relating to estate agents should be extended to cover letting agents. In particular all agents should be required to sign up to a redress scheme, but the OFT should also have the power to give an agent a warning or ban them from practicing. To help protect against losses it should be a condition of an ombudsman’s code for agents to have Client Money Protection.

In order to reduce the likelihood of tenants unfairly losing upfront fees, agents need to provide full details of the terms of the agreement before any fees are paid, and there needs to be much greater clarity on the conditions under which, and the amount of, money that might be withheld or refunded.

Awareness needs to be raised among both landlords and tenants to help them make informed choices in the lettings market. Local authorities, universities, colleges and central government should more actively disseminate information to help raise levels of awareness particularly among first-time renters.

3. Main Findings

3.1 The private rented sector is becoming an increasingly important market for consumers. It provides a home to 4.7 million UK households, and an investment for more than 1.2 million consumer landlords who are letting as a part-time activity, for example to pay the mortgage or provide a pension.

3.2 Letting agents play a critical role in managing consumer experiences of this process. 66% of all private tenancies involve an agent. From the landlord’s perspective they are responsible for managing a valuable investment, their property. From the tenant’s perspective they can determine how comfortable and secure they feel in their home. This makes choosing the right agent an important consumer decision. It is particularly important given the levels of poor practice in the market. The Property Ombudsman found that complaints were up by a quarter this year compared to last.

3.3 Which? conducted research between May and October of this year to see how tenants and landlords make this decision. We wanted to listen to the experiences of the typical consumer landlord and tenant, and to understand how problems in the market impact on both sides.

3.4 The research included:

Qualitative diaries with tenants and landlords

We recruited 15 tenants and six landlords who were in the process of looking for a property to rent or agent to manage the let. Participants were asked to complete an online diary for a month and to record their experiences. Participants were drawn from three areas—London, Nottingham and Mansfield.

Qualitative focus groups

Which? conducted four focus groups among landlords and tenants who were renting or letting a property through a letting agent. The groups were held in London on 11 July 2012 and in Nottingham on 17 July 2012.

Quantitative research among tenants

Populus, on behalf of Which?, conducted an online survey of 1,006 tenants who had rented through an agent in the last two years, between 4 and 10 September 2012. Populus is a founder member of the British Polling Council and abides by its rules.

Quantitative research among landlords

Populus, on behalf of Which?, conducted an online survey of 506 landlords who had let their property through an agent in the last two years, between 4 and 6 September 2012.

Secondary analysis of Citizens Advice complaints data

In May 2011/May 2012 CABs in England and Wales advised on 5,181 enquiries relating to letting agents. CAB staff also recorded 181 qualitative case studies about cases which they considered highlight an underlying social policy problem. Which? conducted detailed analysis of these 181 cases.

Mystery shopping exercise

Which? Money conducted a mystery shopping exercise of landlord and tenant fees across 32 letting agents in Nottingham, London, Birmingham and Leeds in October 2012.

The Tenant perspective

3.5 The research found fairly high levels of dissatisfaction among tenants. One in five were dissatisfied with their agent. When we applied Which?’s customer satisfaction score—which allows comparison across 50 consumer markets—letting agents ranked second from the bottom, with only financial comparison websites worse.

3.6 It also revealed that tenants are disempowered throughout the process. With the growth of internet portals, and in a market where demand outstrips supply, tenants shop for a property rather than an agent. The majority of tenants in our research didn’t have a particular preference to use an agent and hadn’t chosen to use their agent over any other. 73% approached whichever agent was listing the property they liked. This meant that whether tenants ended up with a good or bad agent was a gamble. Where tenants ended up with a bad agent they were unable to switch agents, and were reluctant to complain, without risking the loss of their home.

3.7 Problems in the market included:

agents not safely or fairly handling the security and holding deposits, which could result in tenants losing large sums of money through no fault of their own;

missed appointments, aggressive sales tactics, poor customer service and out of date and misleading adverts all of which hampered rather than helped the search process;

opaque and variable fees which tenants thought were unfair given that they also thought that renting through an agent meant paying higher rent, and that they could end up paying frequently because of high levels of churn in the market. 36% of tenants didn’t think fees were value for money. 41% thought upfront fees weren’t fair. Our mystery shopping exercise found that out of 32 agents none had information about tenant fees on their website. We estimate that tenants are paying in the region of £175 million in agent fees each year, and that the potential loss from not shopping around is in the region of £76 million;¹

agents letting properties in poor condition. The general condition of properties at the visit was a common cause for complaint among tenants in the diaries and also came out in the survey: only 40% of tenants agreed that conditions in the sector were good. This, in part, reflects the quality of properties in the private rented sector as a whole but also the fact that some agents don’t ensure that the property meets certain conditions or standards when it is let. Many tenants thought that agents should play a greater role in letting properties in good condition if they are offering a professional service.

£600 tenant deposit lost

A CAB in the south east reported the case of a tenant who had signed up for a 12-month tenancy with a six-month break clause with letting agency X. The landlord has subsequently informed her that the letting agency has gone out of business and her £600 deposit has been lost. The landlord claims no responsibility for the deposit and gave the tenant no information about where or if the deposit was lodged with any deposit protection scheme. The tenant is at a loss to know how to go about recovering the deposit without lengthy court action.

£360 tenant holding fee lost

A CAB in the south east reported the case of a tenant who wanted to move into private rented accommodation sourced by letting agent X. She paid a deposit of £1,000 plus a holding fee of £360 to prepare the paperwork and take the property off the market. The landlord subsequently changed his mind and the offer was withdrawn. The tenant’s deposit was returned but not the £360. When the client queried this, the agent told her that she would have to take it up with the landlord and not them as it was not their fault. The tenant feels this is unfair as she paid a considerable sum of money to the letting agent in good faith and it was not her fault that the tenancy was not completed.

Poor conditions

A CAB in the South West reported the case of a student tenant has rented a property with five other students from letting agency X. They each paid £180 to the agency as an administration fee. On entering the property the tenants found it to be severely affected by damp and mould in nearly every room and consider the property to be a health risk. The letting agents said that the condition of the property is a matter for the landlord. The landlord is aware of the problem but unwilling to provide any assistance. Tenants feel that the letting agency has some responsibility to vet the properties that they are letting out, especially when they charge the tenants a large fee for finding them a suitable property.

3.8 Tenants were also reluctant to complain because they were concerned about the implications this would have for their tenancy. In our survey 38% of tenants said they would be confident about making a complaint about their agent without it having repercussions for their tenancy agreement. This is connected to the lack of security in the private rented sector which can stem from the use of the Assured Shorthold Tenancy. This entitles the tenant to a six-month period during which the tenant can’t be evicted without taking the matter to court; after this period the landlord can give two months’ notice requesting a tenant to leave. 45% of tenants in our survey said they do not worry about having to leave before they want to.

The landlord perspective

3.9 Problems with letting agents were not exclusive to tenants. The landlord customer satisfaction score was sixth from the bottom across 50 markets. While landlords had more power to chose their agent, few landlords were considering the level of consumer protection their agent offered. Just 37% checked whether their agent was a member of a professional body. In a market where approximately 40% of agents are not signed up to a professional body, are not a member of a redress scheme, and don’t have insurances in place in the event that the agent misappropriates their money, landlords and their tenants are both vulnerable when things go wrong.

3.10 Problems in the market included:

agents not passing on rent to landlords and then disappearing;

agents not putting the tenant’s deposit in the protection scheme and then the landlord being liable;

agents not carrying out tenant vetting procedures, or carrying out inadequate procedures, which can result in “bad tenants” being let the property;

agents not conducting regular inspections of the property, or adequate check-out procedures, resulting in serious disrepair going unnoticed.

These issues could result in thousands of pounds worth of losses. Many landlords were also carrying out activities that they had paid the letting agent to do as a means of “keeping them on their toes” and to check that the terms of the contract were being met. 60% of landlords we surveyed were fully or partially carrying out activities the agent was paid to.

£3,600 rent owed to landlord

A CAB in the South East reported the case of a landlord owns a house that he rents out using letting agency X. For the last three months, tenants have been making payments to letting agency X, but landlord has not been receiving any rent. She sent emails to the agent, phoned them and visited their offices. They have not responded and the office is always shut. The landlord is out of pocket on rent by up to £2,400 and is liable for the tenants’ deposit of £1,200.

£7,897 Amount landlord had to pay in repair bills

A CAB in the East reported the case of a landlord who decided to rent out her house using letting agency X. The agency found a tenant to rent the property for one year. The landlord paid 10% of the rent as a management fee to the agency every month. The tenant caused considerable damage to the property and even took the curtain rails with them when they moved out. The letting agency failed to produce an inventory when the tenant moved in. They did not carry out any inspections and returned the tenant’s deposit without inspecting the property. The landlord complained to the agency, which admitted negligence but failed to offer compensation or mediation, saying she would have to take them to court. In addition to the fees paid to the agency for “management” the landlord has had to pay £7,897 in repair bills to restore the property to a rentable condition following damage by the tenant.

3.10 The research also found that many landlords weren’t aware that their tenants were likely to be paying fees to the agent, too. Some landlords had children with first-hand experience of renting a home, which they said provided good insight into the tenant’s experience. These landlords showed empathy for tenants in terms of the fees they pay and their rights within assured short-hold contracts. Only half of landlords (49%) agreed that tenants should pay a contribution towards agent fees.

January 2013

Attached:

Renting Roulette: Consumer experience of the lettings market

Letting you down? Which? Money article, December 2012