Communities and Local Government CommitteeWritten evidence submitted by the Central Association of Agricultural Valuers
1. Introduction
1.1 The Central Association of Agricultural Valuers (CAAV) is the specialist professional body which represents, briefs and qualifies some 2,500 members advising and acting on the very varied matters affecting rural and agricultural businesses and property throughout Great Britain. Instructed by a wide range of clients, including farmers, owners, lenders, public authorities, charities, government agencies and others, this work requires an understanding of practical issues. With many farms and estates letting dwellings, the private rented housing sector is a significant aspect of many members’ professional work; it is also a topic of economic and social importance to the countryside.
1.2 Fellows of the CAAV have passed our rigorous professional examinations which take place over two days each year. Of the 188 applicants who came forward for this year’s examinations, 105 qualified for Fellowship. The average age of those qualifying as CAAV Fellows is 29, so typically after some seven or eight years of active practice in the profession, acquiring breadth and depth of experience usually after a relevant honours degree or similar equivalent qualification in a related subject, typically rural estate management. A significant minority of those entering now have a master’s degree. All will spend their professional lifetime working in the rural economy.
1.3 Members must abide by the CAAV’s Bylaws, which govern professional conduct, professional indemnity insurance, continuing professional development and disciplinary procedures. The Bylaws are subject to regular review.
1.4 The CAAV does not exist to lobby on behalf of any particular interest but rather, knowing its members will be called on to act or advise both Government and private interests under developing policies, aims to ensure that they are designed in as practical a way as possible, taking account of circumstances.
2. Executive Summary
2.1 CAAV members are typically involved in the management of rural property, including let residential property, for a wide range of clients.
2.2 The private rented sector is an important and long-standing feature of the rural economy with distinctive characteristics and issues which merit separate attention from the larger suburban and urban markets.
2.3 There is a clear divide between property let on the remaining regulated tenancies and that let on Assured Shorthold Tenancies (ASTs). The latter generally command higher rents, but are equipped and maintained to a higher standard in order to attract and retain good tenants. The lack of investment in properties let on regulated tenancies is primarily because of the poor returns available.
2.4 A key feature is the relatively long term occupation by tenants of let dwellings in the countryside. An informal survey of CAAV members engaged in this sector showed that 45% of all properties were let to the same tenant for more than two years and 36% were let to the same tenant for more than five years.
2.5 The sector is already subject to significant levels of regulation and we believe that better application of existing provisions would be a better approach to tackling so-called “rogue” landlords than further regulation.
2.6 A number of professional bodies already exist in the property profession and already regulate their members. We would support efforts to require that anyone advising on the letting of residential property should be a member of a recognised professional body. Should there be proposals to further regulate those acting in this sector, we would recommend that members of existing recognised professional bodies be exempt.
3. Overview of the Rural Private Rented Sector
3.1 The let residential sector is an important part of the rural economy, offering a wide range of housing in areas where home ownership can be unaffordable for a significant part of the local population. The nature of the market in the countryside appears inherently different from that in urban areas, with many fewer but more individual and often older properties distinguished by their location; and with tenants seeking continuity as much as owners. The lower end of the lettings market interacts with often powerful local social concerns, while the upper end will compete across a wider area for the market it can offer and holiday lettings are an alternative use at all levels. The rural lettings market is less likely to be attractive to corporate investment in new let housing.
3.2 There are many types of let residential property in the rural economy, ranging from small cottages to family-sized former farmhouses and substantial country houses. It would be a simplification to assume that the rental market is only active at the lower value end; renting a property is no longer seen as an inferior option to home ownership and tenants may rent for a variety of reasons, including:
a lack of supply of houses to buy in some rural areas;
short term employment contracts necessitating temporary house moves;
pending the sale of a previous residence;
family break-up;
access to services, including schools; and/or
a preference for capital to be invested elsewhere than in a home.
3.3 In the rural sector, the types of landlord will include:
traditional landed estates which have let residential property for very many years;
individual farmers letting surplus cottages on the farm (including keeping the property occupied between periods when it is needed for employees);
those seeking an alternative or supplement to pension provision;
private individuals and small corporate investors with portfolios of let property;
the “accidental” landlord who is managing a property pending disposal after the death of a relative, for example;
individuals who have found their home difficult to sell or retained it after marriage and have opted to rent it out instead; and/or
charities and housing associations.
3.4 The ownership of let property in most rural areas is dominated by rural estates which typically hold their assets for many generations. Many such estates are in private ownership, while others are held by traditional institutions (such as the Crown Estate and the Church Commissioners), or charities (such as the National Trust). Estates are managed for a variety of objectives, but it is common to find that let residential property now makes an important contribution to their income and stabilises more variable farm incomes.
3.5 Such owners frequently have a long term perspective and are often interested not only in the immediate financial return, but also in local social concerns and the lasting management of their property. The restrictions of the law before the Housing Act 1980 meant that it often made more sense to sell any let houses that came vacant; since then such properties are commonly retained and re-let. A greater number of houses available to let has helped to keep rents more affordable, despite the pressure on rural house prices generally over the last three decades.
4. Rent
4.1 The de-regulation of residential tenancies in the 1980s allowed the private rented sector to grow and develop, and the quality and quantity of accommodation available improved as a result. Any suggestion of the re-introduction of some form of regulation of rents or other restriction would reduce the attraction of letting property and so at the margin encourage sales and discourage new landlords and investors.
4.2 In the decades before the de-regulation of the sector, let residential property was generally a burden for many landlords, especially where property of traditional construction required significant and costly maintenance, never minding investment. The income from letting was often not sufficient to cover the costs of major repairs, so that landlords were subsidising the provision of accommodation.
4.3 Greater freedom of contract between the parties was made possible by the introduction of shorthold tenancies, initially under the Housing Act 1980 and then with further reform by the Housing Act 1988. The shorthold tenancy (now commonly the Assured Shorthold Tenancy or AST) gave landlords the confidence that they could regain vacant possession at the end of a tenancy if they wished to do so. The de-regulation of rents meant that the market decided what the appropriate level of rent would be, but owners could choose to let for less. Better quality houses were more likely to let for higher rents to better tenants. Landlords received greater income from let houses, funding improvements such as the installation of central heating (not common in rural property before the 1980s, but standard now) and better quality kitchens, bathrooms and decor.
4.4 In the rural economy there is still a significant number of houses let from before 1989 which are protected by the Rent Act 1977 or the Rent (Agriculture) Act 1976. The rents of these properties are regulated and are usually reviewed by reference to a Rent Officer. As some protected tenancies have succession rights, such tenancies are likely to endure for decades to come. They pose the classic rural problem of a capital asset yielding little or no net income, yet providing a secure home that an ageing occupier can rarely afford to leave.
4.5 Rents for protected tenancies are usually significantly lower than those for similar properties let on ASTs. The Savills Estate Benchmarking Survey 2012 recorded average AST rents (covering everything from small cottages to large farmhouses) across the rural estates in its survey at £8,335 per year (£695 per calendar month), whereas the average rent for a regulated tenancy was £4,800 per year (£400 pcm). After landlord’s costs of insurance, management and routine repairs and maintenance, that leaves little income for re-investment into property improvements. One CAAV member in southern England made the following comment:
“It is true that a landlord is very unwilling to spend money on a 1977 or 1976 Act agreement. We have in the last year seen biannual increases of 15% to 20% on regular occasions. This means rents are typically between £550 and £650 pcm. This is better and is encouraging for landlords but most landlords feel they have had years of low rent and expensive repairs. Most of the properties let on old agreements need refurbishing to bring them up to a modern letting standard”.
4.6 Tenants occupying under regulated tenancies will, by definition, have been in the same property for more than 23 years (or succeeded to the tenancy of a parent or close relative). Some of them have made a choice to stay in a cheaper rented property with fewer modern amenities rather than move to a more modern property with a higher rent.
4.7 One possible consequence of any limit on rents would be that rural property owners would seek other markets as returns from letting fell, such as holiday lettings or sale. In some rural areas, the possible returns for holiday lets might be attractive if rents for long term lettings were regulated. The conversion of long term let property to holiday cottages would reduce the supply of privately let property in the market.
5. The Length of Tenancy Agreements
5.1 In the limited time available in preparing this submission, we contacted a small sample of our members to ask about the length of residential tenancies for the let properties which they manage for clients. The results showed that out of the 4,994 properties let by the firms of agricultural valuers who responded, 45% were let to the same tenant for more than two years and 36% for more than five years. On some rural estates, more than 60% of properties were let to the same tenant for more than five years. A satisfactory tenant is an asset, not a problem; a void between lettings is a cost (now including Council Tax); finding a new tenant involves cost and risk.
5.2 It is worth noting that many of those lettings which have endured for more than five years will have initially been let for terms of six months or a year. It is common for the initial letting to be for a relatively short term so that the landlord can assess the suitability of the tenant, whether rent is paid promptly and whether the property is looked after. Equally, a tenant is not always willing to commit in advance to a longer term. Thereafter, the agreement might be allowed to run on between the parties as a periodic tenancy with no further documentation, or the parties might choose to enter into a longer term tenancy for a specified period. That will usually be a matter of personal preference and negotiation, but where the landlord is holding the property as an investment, they will want to keep an income stream flowing from the property and will therefore be unlikely to terminate an agreement unless there is good reason to do so. It may be more likely that it will be the tenant who has independent reasons for leaving.
5.3 The nature of the difference between rural and urban lettings is illustrated by the response from one firm in the M4 corridor with two separate lettings departments, each letting more than 150 properties. 52% of its rural properties had been let to the same tenant for more than five years, but only 5% of its urban properties had been so let. Such differences mean that any proposal to change the legislation governing residential lettings should be carefully “rural-proofed”. The consequences of losing let accommodation in the countryside are more severe.
6. The Quality of Private Rented Housing
6.1 Our experience is that the quality of private rented housing in the countryside has increased considerably with the shorthold regime and its flexibility over rents and security. The greater choice and higher rents have meant that tenants have become more demanding, which in turn forces landlords to improve their properties if they wish to secure a good tenant at a reasonable rent. The following comment by a CAAV member sums up the point:
“... under ASTs, landlords are under greater pressure to keep their properties up to scratch. There is a reasonable supply, meaning that tenants not happy with the condition of their property can move and new tenants can be fairly choosy between properties so that condition, facilities and quality of kitchen and bathrooms in particular seem to be very important”.
6.2 A trust or charity landlord will have an obligation to act in the best interests of beneficiaries. Such a landlord will consider the returns available and the opportunity cost of any expenditure. In such cases, it is more likely that investment will be made in properties which can offer a better return and, in the case of let residential property, that will almost always mean those let on ASTs rather than those let on protected tenancies.
6.4 In conclusion, the majority of landlords will improve let housing provided that they can see a sensible financial return on their expenditure.
7. Regulation of Landlords
7.1 In considering the possible regulation of landlords, it is important to be clear about the nature of the perceived problem which regulation is intended to overcome. There is already much regulation in this sector, including:
Housing Act 1988 (as amended).
Housing Standards under the Housing Act 2004.
Landlord and Tenant Act 1985 requirements (basic repairing obligations where the tenancy agreement is silent).
Gas Safety Regulations.
Fire and Furnishings Regulations.
Fire Regulations.
Tenancy Deposit Scheme rules.
7.2 Properly enforced, these regulations and statutes cover many of the key areas of potential dispute between a landlord and a tenant. We consider that the most effective approach to “rogue” landlords would be to ensure that the relevant authorities are provided with sufficient resources to deal with the issues under existing regulations, rather than simply issuing new regulations. Those landlords who flout existing rules are unlikely to be deterred by the threat of yet more regulation, which will only serve to add to the burden on the majority of good landlords.
7.3 There are those who become landlords “accidentally” for an interim period, for example as executors of a will or when managing a property for an elderly relative who has moved into a nursing home and using letting as an interim measure (to ensure the property is occupied over a winter, for example). Any proposals to regulate landlords must acknowledge the position of this group which is less likely than professional landlords to be aware of necessary compliance.
8. Regulation of Letting Agents
8.1 The property sector is well served by professional bodies. As well as the CAAV, both the Royal Institution of Chartered Surveyors (RICS) and the Association of Residential Letting Agents (ARLA) have members acting as agents for the letting of residential property. All three bodies expect their members to comply with professional standards and have disciplinary procedures in place. In addition, the Property Ombudsman is able to consider disputes between landlords or tenants and lettings agents, where the agent is a member of the Ombudsman scheme. Further, the Consumer Protection from Unfair Trading Regulations 2008 and to a lesser extent the Estate Agents Act 1979 apply to lettings agents.
8.2 We would support proposals which required that any person advising or representing consumers or businesses in the private rented sector should be a member of a recognised professional body. However, in our view, further regulation is not needed when a letting agent is already a full member of a relevant professional body such as the CAAV, which requires its members to maintain professional standards, engage in continuing professional development, hold professional indemnity insurance and provide a complaints handling procedure. Further regulation would duplicate what already exists and add another cost to businesses which would inevitably be passed on to tenants and landlords in higher fees. It would also be contrary to the de-regulatory approach adopted by Government elsewhere.
We trust that this paper is of use to the Committee in its Inquiry and would be pleased to elaborate further or give oral evidence if that would be helpful.
January 2013