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Should letting agents in England be regulated?

December 13, 2012 | Company News  

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David Standeven, of Let-Leeds.com is analysing whether Letting Agents should be regulated as part of his Estate Management degree following his placement year at Let-Leeds.com. As a Leeds based Letting Agent we have a keen interest into whether the regulation of Letting Agents will benefit or harm the lettings industry. David has completed the initial discussion of the topic below.

The effects of regulating letting agents from both a Landlords and Tenants point of view will be specifically addressed. The author will also investigate which professional bodies are currently in place, how effective the current guidance and legislation is, what the government’s stance towards regulation is, who is in support of regulation & who are the main interested parties as well as looking into what other European countries regulate letting agents, and whether this works.

The question is; should Letting agents be regulated in England.

‘In most North European countries the private rented sector has undergone a process of deregulation since the 1960s. This process has been more thorough in Britain than in most countries’ (Hughes & Lowe, 2007).

Today the private rented sector makes up 17% of all housing stock, up from 9% in 1991 for the UK. The growth of the sector has brought with it growth in agents to help manage the process of letting. Approximately two thirds of tenancies involved a letting agent in 2006, up from 37 % in 1993/4. Louisa Darian (2011)

Communities and Local Government (2009) state there are at least 8,000 letting and management agents (LMA’s) in England, estimating that around 4,000 belong to one of the professional bodies.

Currently there are several self-regulating professional bodies operating within the sector, however these bodies are not mandatory to follow and purely optional.

ARLA: Association of Residential Letting Agents

ARLA is widely recognised as one of the key self-regulating bodies currently operating within the industry. This wide recognition has been established through a set of high standards relating to professionalism and ethics that a letting agent must comply with in order to be a member. Membership of the association is through formal qualifications which ensure that all ARLA members have the knowledge and experience to guide you through a property transaction. ARLA (2012)

TPOS: The Property Ombudsman Scheme

The Property Ombudsman provides a free, fair and independent service for dealing with unresolved disputes between letting agents who have joined the TPO and consumers who are tenants in the UK. A code of practice has been set up to generate good practice in key areas such as processes, procedures, obligations and responsibilities. TPOS (2012)

SAFE AGENT              

Safe Agent is a mark recognising firms that protect both landlords and tenants money through client money protection schemes. Safe Agent (2012)    

NALS: National Approved Letting Scheme

The National Approved Letting Scheme is another widely recognized scheme. The scheme again has various rules and regulations that a member must comply with such as: NALS (2012)

  • Meet defined standards of customer service
  • Be part of a Client Money Protection Scheme
  • Have a written customer complaints procedure offering independent      redress through an ombudsman.
  • Have current Professional Indemnity Insurance
  • Have a designated client bank account

RLA: Residential Landlords Association

The RLA sets out a Code of Conduct which aims to achieve and promote the highest standards of conduct by members of the Association in order that the image and professional status of the private sector landlord may be improved and advanced.

Various schemes have recently been developed (April 2007) in order to protect clients (tenants) money such as deposits. In order to be a member of many of the above associations it is mandatory to be a member of one of these schemes.

DPS: Deposit Protection Scheme

The DPS is open to all landlords and letting agents, with no pre conditions to meet, and is the only scheme that is free to use. All funds are secured within UK Government approved banks. DPS (2012)

My Deposits

My deposits are a government authorised tenancy deposit protection scheme. It is designed to enable landlords and letting agents in England and Wales to take and hold a deposit for the duration of the tenancy. 

The current regime provides no mechanism by which a consumer can check agents’ expertise, financial backing, professional indemnity insurance, or client money protection. My Deposits (2012)

How effective is current guidance and legislation?

Julie Rugg & David Rhodes (2003) have drawn to the conclusion that a broad agreement amongst the industry, the government, and tenants’ rights interest groups, have agreed the private rented sector (PRS) is performing below its potential in terms of quality and quantity. Jane Ingram (2012) comments:

Standards in the lettings industry do need to be raised; that’s why we have long called on the Government to act swiftly and introduce a robust licensing system designed to protect consumers.

It has been argued in recent times that the popularity of buy-to-let mortgages has brought a mass of ‘amateur’ landlords into private renting, who are simply unacquainted with the law and poorly skilled in the business of letting property. More generally, the image of ‘rogue’ landlords has dominated discussions within the sector. Julie Rugg & David Rhodes (2008)

The Rugg Review (2008) highlights weaknesses within the sector, stating that some landlords do not consider themselves landlords and, therefore fail to gain a sufficient knowledge to be a good landlord. Others are ill intentioned and seek to operate outside of the current framework, often exploiting vulnerable people. Communities and Local Government (2009).

It is still possible to set up a letting or management agency with no qualifications whatsoever, with no need to conform to requirements as to conduct or to provide mandatory safeguards for the consumer. Still in today’s modern age no mandatory regulation for protection of clients’ money both landlords and tenants are in place, giving opportunistic rogue landlords a chance to perform improperly. Communities and Local Government (2009). 

Louisa Darian (2011) calls for a more effective procedure in regulating letting agents, stating that letting agents should be brought under the Estate agents Act (1979), which would give the Office of Fair trading the power to ban agents who act improperly. Also stating that all letting agents should have to become members of an ombudsman service, giving tenants the opportunity to pursue redress in cases of poor practice.

What is the government’s stance towards regulation?

The poor overall quality of the private rented sector is evident on the basis that over 45% of properties did not meet the national decent homes standard in 2007. This has resulted in a strong emphasis on the need to ‘professionalise’ the private rented sector management. The relatively new coalition government originally announced it had not intended to proceed with preliminary plans laid out by the previous government to introduce new regulations covering, for instance, a national register of landlords, regulation of letting and managing agents, and compulsory written tenancy agreements. Michael Oxley (2011). Stating regulating the industry would create unnecessary red tape, believing the industry should remain self-regulated.     

However since the original statement made by the housing minister at the time (Grant Shapps) a U-turn appears to be on the agenda. The government now appears to acknowledge the need for a national register of landlords and regulation of letting and managing agents.

Communities & Local Government (2010) the government agrees with the emerging consensus that letting and managing agents need to be regulated and believe the drivers for regulation are overwhelming:

  • Consumer protection for both tenants and landlords with a particular focus on protecting consumers money
  • Increase the professionalism and reputation of the management sector
  • Drive improvements in condition of the PRS
  • Create a level playing field for all agents

How do other countries regulate letting agents?

Germany is well known as a country of tenants, and policy has played an important role in maintaining a healthy PRS by the way or regulation and subsidization of rental housing.  Kemp and Kofner (2010) argue that relatively strong tenant protection allows for relatively stable returns on housing investment in the long run. Rent control is strict, but market-led and is concerned with protecting sitting tenants (Haffner et al, 2009). There is a general rule that rents may not be increased by more than 20% within a three-year period. Security of tenure is strong in Germany, implying that the length of tenancy in principle is indefinite. With the notice period for tenants being three months and contrary to the landlord, the tenant does not need a reason for handing in notice. The author believes Germany promote the rights of tenants against landlords far more favourably than in England. However, the author will conduct further research into this are to create a more detailed picture.

Research Strategy

The author will undertake a significant amount of further secondary research in order to gain a more extensive and thorough knowledge around the letting industry and regulation in particular. This will be obtained by deeper reading into many of the sources listed in this bibliography and also further afield. The secondary data collected will be from a mixture of sources such as: government statistics, reports and documents along with news articles, journals and also any relevant text books associated with the topic.

Once the author has a clear more detailed picture, primary research will be conducted in order to obtain qualitative and quantitative data. The author proposes this will be conducted in the form of interviews, with the intention of addressing the issue of: Who is against regulation of the letting industry and for what reason? Interviews are a suitable method to gain an insight into things like people’s opinions, feelings, emotions and experiences Denscombe (2007, p.174). The author will conduct the interviews in a relaxed manor and a one to one style. This is to allow the interviewee to give an honest opinion and speak freely about any potential arguments or ideas they have surrounding the subject. One to one interviews will be recorded via a mixture of note taking and also a written checklist compiled before the interview. Finally a full write up of the interview will be completed straight after the meeting as this will prevent any key information been missed and not recorded.

A draw back to this method of data collection is that only one opinion can be recorded at once and so could prove to be a timely process. It is also important to question the reliability of the answers provided, bearing in mind they may well have a bias point of view for personal gain or interests.

A second primary method will be to conduct a simple questionnaire focusing on different letting agents across Leeds and their options on weather letting agents should be regulated. The questionnaire will be given to approximately 30 letting agents, some that are currently regulated and some that are not. This will give an indication as to the opinion of the problem currently facing Leeds.

Questionnaires also have limitations in that not all questionnaires will be returned and finally it is hard to ensure the exact opinions have been given when mearly answering a set of questions.

Finally the author will write to Julie Rugg (Centre for housing policy, university of York and author of the Rugg Review), this is to try and organise a meeting with her to obtain further detail of her opinions in regards to this topic. Also to the department for Communities and Local Government in order to try and obtain the exact data many of the reports produced are based upon, to check no bias views have been implemented. It is however anticipated that both requests may well be rejected in the forms of a written reply, however if successful invaluable data and information could be obtained for the final dissertation.

References

HUGHES, D., & LOWE, S. (2007). The private rented housing market regulation or deregulation? Aldershot, Hants, England, Ashgate. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=438440.

DENSCOMBE, M. (2007). The good research guide for small-scale social research projects. Maidenhead, Open University Press. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=316269.

Rugg, J. and Rhodes, D. (2003) Between a rock and a hard place: the failure to agree on regulation for the private rented sector in England. [report] London: Routledge, p.937 – 946.

Darian, L. (2011) Renting in the Dark: Creating a lettings market that works for tenants. [report] London: Resolution Foundation, p.2-3.

Communities and Local Government (2009) The private rented sector: professionalism and quality. [report] London: Communities and Local Government Publications, p.5.

Department for Communities and Local Government (2009) Impact Assessment of Regulation of letting and management agents by an independent body. [report] London: Communities and Local Government, p.3.

Rugg, J. and Rhodes, D. (2008) The Rugg Review. [report] London: p.113.

Rugg, J. and Rhodes, D. (2008) The private rented sector: its contribution and potential. [e-book] York: The Centre for Housing Policy. p.58. Available through: York University http://www.york.ac.uk/media/chp/documents/2008/prsreviewweb.pdf [Accessed: 10/11/2012].

Oxley, M. (2011) The role of policy in supporting the private rented sector: international comparisons. [report] Toulouse: p.10.

Arla.co.uk (2012) About us | ARLA. [online] Available at: http://www.arla.co.uk/about-us/ [Accessed: 14 Nov 2012].

Tpos.co.uk (2009) The Property Ombudsman | About Us. [online] Available at: http://www.tpos.co.uk/about_us.htm [Accessed: 14 Nov 2012].

Safeagents.co.uk (n.d.) SAFE | What is Safe?. [online] Available at: http://www.safeagents.co.uk/what-is-safe [Accessed: 14 Nov 2012].

Nalscheme.co.uk (n.d.) NALS | What is NALS?. [online] Available at: http://www.nalscheme.co.uk/what-is-nals [Accessed: 14 Nov 2012].

Rla.org.uk (1998) RLA : Residential Landlords Association: About. [online] Available at: http://www.rla.org.uk/about/about.shtml [Accessed: 14 Nov 2012].

Depositprotection.com (2011) About Our Scheme – Deposit Protection Service. [online] Available at: http://www.depositprotection.com/about [Accessed: 14 Nov 2012].

Mydeposits.co.uk (2012) Deposit Protection Scheme | Service for Landlords, Agents and Tenants | My Deposits. [online] Available at: http://www.mydeposits.co.uk/ [Accessed: 14 Nov 2012].

Kemp, Peter A. & Kofner, Stefan (2010) Contrasting varities of private renting: England and Germany. International Journal of Housing Policy Vol 10, No 4, pp379-398.

Haffner, M., Hoekstra, J., Oxley, M., & van der Heijden, H. (2009) Bridging the gap between social and market rented housing in six European countries? (Amsterdam, IOS Press).

Arla.co.uk (2012) ARLA – Shelter response | ARLA. [online] Available at: http://www.arla.co.uk/news/2012/9/shelter-response-64118/ [Accessed: 14 Nov 2012].

Bibliography

Alakeson, V. (2012) Lettings agents need more effective regulation | Housing network | guardian.co.uk. [online] Available at: http://www.guardian.co.uk/housing-network/2012/sep/14/lettings-agents-regulation [Accessed: 14 Nov 2012].

Lettingfocus.com (n.d.) LettingFocus: A Quick Review of the Rugg Report by David Lawrenson of Letting Focus. [online] Available at: http://www.lettingfocus.com/2008/11/quick-review-of-rugg-report-by-david.html [Accessed: 14 Nov 2012].

Rla.org.uk (1990) RLA : Residential Landlords Association. [online] Available at: http://www.rla.org.uk/news/news.shtml?post=238 [Accessed: 14 Nov 2012].

Lettingagenttoday.co.uk (2012) Could U-turn be on way over licensing of all letting agents? – Letting Agent Today. [online] Available at: http://www.lettingagenttoday.co.uk/news_features/Could-U-turn-be-on-way-over-licensing-of-all-letting-agents [Accessed: 14 Nov 2012].

Lindsays.co.uk (n.d.) Call for legislation to be introduced to regulate letting agents in scotland | News — Lindsays. [online] Available at: http://www.lindsays.co.uk/news-and-features/news/item/call-for-legislation-to-be-introduced-to-regulate-letting-agents-in-scotland/ [Accessed: 14 Nov 2012].

Let-leeds.com (2000) New Calls For Letting Agents To Be Regulated. [online] Available at: http://www.let-leeds.com/article/let-leeds-landlord-news-new-calls-for-letting-agents-to-be-regulated/ [Accessed: 14 Nov 2012].

Labour.org.uk (2012) Labour launches Policy Review document on the private rented housing sector | The Labour Party. [online] Available at: http://www.labour.org.uk/policy-review-doc-on-private-rented-housing,2012-07-18 [Accessed: 14 Nov 2012].

Labour party (2012) Labour’s Policy Review: Private Rented Housing. [report] London:.

Landlords.org.uk (2012) NLA comments on Labour’s policy review of private rented housing | National Landlords Association. [online] Available at: http://www.landlords.org.uk/news-campaigns/news/nla-comments-on-labours-policy-review-private-rented-housing [Accessed: 14 Nov 2012].

Lettingagenttoday.co.uk (2012) Labour slams letting agents’ ‘rip-offs’ but won’t regulate – Letting Agent Today. [online] Available at: http://www.lettingagenttoday.co.uk/news_features/Labour-hits-out-at-letting-agents-rip-offs [Accessed: 14 Nov 2012].

Bachelor, L. (2010) Landlord regulation proposals scrapped | Money | guardian.co.uk. [online] Available at: http://www.guardian.co.uk/money/2010/jun/10/landlord-regulation-proposals-scrapped [Accessed: 14 Nov 2012].

Aboutproperty.co.uk (2012) Government urged to regulate letting agents. | AboutProperty.co.uk. [online] Available at: http://www.aboutproperty.co.uk/uk-property/2012/03/20/time-to-regulate-residential-property-says-rics [Accessed: 14 Nov 2012].

 

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