Draft Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to belong to a Scheme etc.) (England) Order 2014
The Committee consisted of the following Members:
† Bacon, Mr Richard (South Norfolk) (Con)
Blears, Hazel (Salford and Eccles) (Lab)
† Blunt, Crispin (Reigate) (Con)
† Esterson, Bill (Sefton Central) (Lab)
† Freer, Mike (Finchley and Golders Green) (Con)
Godsiff, Mr Roger (Birmingham, Hall Green) (Lab)
† Harrington, Richard (Watford) (Con)
† Heath, Mr David (Somerton and Frome) (LD)
† Hopkins, Kris (Parliamentary Under-Secretary of State for Communities and Local Government)
† Lancaster, Mark (Lord Commissioner of Her Majesty's Treasury)
† McCartney, Karl (Lincoln) (Con)
† Mann, John (Bassetlaw) (Lab)
† Phillipson, Bridget (Houghton and Sunderland South) (Lab)
† Sawford, Andy (Corby) (Lab/Co-op)
† Shelbrooke, Alec (Elmet and Rothwell) (Con)
Simpson, David (Upper Bann) (DUP)
† Williams, Roger (Brecon and Radnorshire) (LD)
Wood, Mike (Batley and Spen) (Lab)
Fergus Reid, Committee Clerk
† attended the Committee
First Delegated Legislation Committee
Monday 14 July 2014
[Annette Brooke in the Chair]
Draft Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc) (England) Order 2014
4.30 pm
The Parliamentary Under-Secretary of State for Communities and Local Government (Kris Hopkins): I beg to move,
That the Committee has considered the draft Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc) (England) Order 2014.
It is a pleasure to serve under your chairmanship, Mrs Brooke, as always.
The Government are actively supporting a bigger and better rented sector, which is a key part of our future housing market. The private rented sector is now the second largest sector of tenure in England, providing for 4 million households. We also believe that there are more than 3 million residential leasehold properties in England. To provide tenants with greater choice and improved standards, the Government have introduced a number of initiatives, including the publication of the “How to rent” guide and the development of the model tenancy agreement, and we are introducing transparency for letting agency fees. We recognise the importance of tenants having a voice about the quality of service that they have received and the ability to complain when they have received poor service from their letting agent.
The vast majority of letting agents and property managers provide a good service. Indeed, more than 60% of such agents have already voluntarily joined a redress scheme, but the draft order will force the remaining 3,000 agents to join. It is an excellent mechanism that will offer a clear route for landlords, tenants and leaseholders to pursue their complaints, weed out the cowboys who give agents a bad name and drive up standards with the least possible regulatory burden.
In April this year, three schemes were approved by the Secretary of State: the property ombudsman; Ombudsman Services: Property; and the property redress scheme. All three schemes have met their specified conditions for approval, including demonstrating that they are independent, fair, effective, transparent and accountable. We will monitor their performance to ensure that the conditions for approval continue to be met.
We propose that the duty to belong to an approved redress scheme will come into force on 1 October this year. The requirement for letting agents and property managers to belong to one of the approved redress schemes will be enforced by local authorities, which will be able to fine agents that fail to join such a scheme up to £5,000. A local authority may fine an agent more than once. To ensure fairness, however, should agents or property managers feel that the fine was wrong or unreasonable, they are able to appeal to the first-tier tribunal.
We recognise that enforcement of the requirement is a new burden on local authorities, but we are committed to making additional funding available, and local authorities will be able to retain any penalties paid to them.
Mr David Heath (Somerton and Frome) (LD): Will the Minister explain one thing to me? I understand and strongly support the proposed requirement to enter a redress scheme and the monetary penalty for failure to do so, but am I right in thinking that if a company is not a member of a redress scheme, although it may be subject to a fine, there is no requirement for it to cease offering its service while the fine is outstanding?
Kris Hopkins: As I understand it, a company cannot be a letting agent without being a member of the redress scheme. It would have to cease functioning at that point in time.
Mr Heath: I understand that, but the only penalty will be the monetary one, for which there is a 28-day grace and plus an appeals system, and there seems to be no requirement on the company to cease trading or offering a service to potential customers, whether tenants or landlords. It would be in receipt from those landlords and tenants, who would not then have the protection of a scheme. I ask the Minister to reflect on that. It will not cause me to oppose the draft order, but I ask him to reflect on whether it is adequate for the task, or whether there is an alternative solution.
The Chair: Order. Shall we make progress with the Minister moving the motion before we return to further debate?
Kris Hopkins: Thank you, Mrs Brooke. I will reflect on the points my hon. Friend has made.
As letting agents and property managers have a broad definition in legislation, exclusions have been identified, which include universities helping to find students accommodation or operating halls of residence; legal professionals; managers of refuge homes; and mortgage receivers.
Overall, redress schemes are an excellent mechanism for helping the thousands of people living in the private rented sector, landlords and leaseholders to resolve their disputes with agents without having to rely on the courts. By providing them with an effective complaints system, we will raise standards without placing an unnecessary burden on the sector.
4.36 pm
Andy Sawford (Corby) (Lab/Co-op): It is a pleasure to serve under your chairmanship, Mrs Brooke, especially as I know that you take an interest in these issues.
Nine million people now rent privately, which is more than those who rent a social home. More than a third of those in the private rented sector are families with children, and nearly half are aged over 35. It is therefore essential that the sector is fit for purpose, but there are real problems of affordability, stability and standards that must be addressed if it is to provide homes for so many people now and in the future.
A key area that needs addressing is the letting agents industry. Citizens Advice found that 73% of the tenants it surveyed were dissatisfied with the service provided by their letting agent. Its report highlighted the fact that a significant number of people have difficulty in contacting agents and suffer serious delays in getting repairs. The Office of Fair Trading has said:
“Unfortunately the lettings market attracts a significant number of complaints.”
In 2011, the property ombudsman dealt with 7,641 letting inquiries, which was an increase of 26% on the previous year.
There is also a significant problem with fees. On average, tenants are forced to pay £355 to their letting agent every time they move, which can happen often in the current market. Mystery shopping conducted for Labour found that some tenants are being charged £450, while Shelter found some being charged as much as £700. Such costs put additional pressure on renters—54% of those surveyed said that they faced financial difficulties in covering the fees.
Ever since the Government took office, Labour has been calling on them to take action to regulate the industry, but they have been reluctant to do so despite the lettings market being described as “the property market’s wild west.” In fact, they have been on an interesting journey—perhaps even a tortuous journey—on the regulation of letting agents. On taking office they scrapped the previous Government’s proposals to regulate letting agents, describing them as “red tape”, but last year they were forced into an 11th hour U-turn to back action for mandatory redress for tenants and landlords, which was the subject of a statutory instrument that the Minister and I debated.
The Government, having been defeated in the House of Lords on an amendment to the Enterprise and Regulatory Reform Bill, accepted the need to act and brought forward proposals to introduce the consumer redress scheme we are discussing today. Credit is due to the industry, which had called on the Government to act, and Baroness Hayter, who led the campaigning in the other place. While a mandatory redress scheme is to be welcomed—after all, more wrongs will be righted as a result—it will do little to prevent unscrupulous agents from ripping off tenants and landlords in the first place. Therefore, while we will support the order, we are clear that further action is needed.
Organisations from Shelter to the British Property Federation and the Association of Residential Letting Agents—the trade body for letting agents—have also been clear that redress does not go far enough. I was struck by the evidence they gave to the Select Committee on Communities and Local Government’s inquiry when I was on that Committee.
We need fundamental changes and stronger protection for renters and landlords. Anyone can become a letting agent, and there is no way of knowing who the agents are and no proper way of banning those who have engaged in bad or even criminal practice. That point supports the remarks made by the hon. Member for Somerton and Frome.
We need to consider a mandatory code of practice. There is a clear issue with fees, as too many letting agents charge extortionate fees on every change of tenancy. Often, both landlord and tenant are charged
for exactly the same thing. It is not a matter of just a few rogue agents; bad practice has become widespread throughout the industry. Fees often include hidden sums for having pets, for carrying out inventory checks or for taking references. That is all on top of the large amounts of money that people must find for rent in advance, and for a deposit. One in four people have to borrow money to pay those fees, so that they can get a home.When someone buys a house, it is the seller, not the buyer, who pays the estate agent; the same should apply to the letting agent. When a letting agent contracts with a landlord to market their property, the landlord, not the tenant, is the client. I am afraid that the Government’s response on the issue has been as confused as their broader approach on letting agents. When they announced the intention to introduce redress, they claimed that that meant there was no need for further regulation, and that it would also solve the issue of fees. However, when the Labour party put forward proposals earlier this year to ban fees for tenants, the Government suddenly admitted that greater transparency was needed. Apparently redress will not cut it after all.
Transparency and redress are welcome, but they will not stop tenants being ripped off by letting agents. The Government’s position is to say to tenants, “It is okay to be charged £700 to sign up for a property as long as you know about it and complain about it afterwards, even if, frankly, you can do very little about it.” That is not good enough. We welcome the measures before us today and will support them, and we do not intend to divide the Committee, but we do not think the order goes far enough.
Will the Minister consider some questions and respond either today or in due course? On banning fees, has he had a chance to review the research conducted for Shelter by BDRC Continental on the impact of the letting agent fee ban in Scotland, which shows that some of the things on which the Government rely in their arguments simply have not arisen there? Shelter’s report says that there is no clear link between the ban and increases in rent and that
“landlords in Scotland were no more likely to have increased rents since 2012 than landlords elsewhere in the UK”,
so will the Minister now drop the argument that tenants will just end up paying through higher rents rather than up-front fees, and back a ban that will help millions of hard-up renters?
Will the Government commit to conducting a review of the fees issue, or is the Minister perhaps worried that that will simply prove Labour’s case? A review would be very welcome, not only to the Opposition but, I am sure, to many hon. Members from the coalition parties, who represent some of those 9 million renters.
On the matter of fee transparency, is the Minister saying that being charged £700 to sign up for a property, as shown in Shelter’s findings, is okay as long as the tenant knows about it; or does he agree with us that those fees are far too high and are a problem for many people in the private rented sector? What difference does the Minister think it will make to renters to know how much they are being charged, if every agency can charge them hundreds of pounds to renew their lease? Does the Minister accept that that is an issue?
I urge the Government to do more, but of course we support the order.
4.42 pm
Kris Hopkins: We can see the benefit of requiring letting agents and property managers to belong to a redress scheme. That will bring clear benefits to consumers, without creating unnecessary burdens on the sector. I welcome the debate that we have had.
I want to comment on a couple of points. The hon. Member for Corby pointed out that many individuals, and families with children, use the sector. We want to make sure, regardless of tenure, that we introduce protection to look after those individuals and raise the standard of the private rented sector. The order before the Committee is one intervention to enable that to happen.
We think it is right that every letting agent should advertise fees in their premises and on their website if appropriate. There should be no hidden costs, and a customer should be able to see exactly what they will be charged. Part of that is legislation that we are introducing in the Consumer Rights Bill, which will be on the statute book in the near future.
On banning fees, the points that the hon. Gentleman raised require more of a response than I can give him today, so I will write to him. There is evidence that banning fees would just transfer the cost to rents, and that letting agencies would be required to sponsor the mechanism by paying for staff to facilitate the process. It is right that people can see what they will be charged and the consequences of using a particular agent. However, I will give a full response in writing to his questions and the points that he has made.
In conclusion, the order will provide for the mandatory membership of letting agents and property managers in an approved redress scheme, which will ensure that landlords, tenants and leaseholders have access to an effective and independent complaints procedure, raising standards and ensuring that letting agents and property managers who offer poor service will be forced to pay compensation. I commend the order to the Committee.