An easy way to regulate the lettings industry

by Mark Alexander

11:44 AM, 1st February 2012
About 7 years ago

An easy way to regulate the lettings industry

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An easy way to regulate the lettings industry

There has been a lot of discussion on Property118 in recent weeks about Letting Agents, regulation and trust issues. That’s hardly surprising given the number of reported instances of the closing down of Letting Agents whilst owing landlords rent and having failed to protect deposits. We have also witnessed an increasing level of debate surrounding the competence of agents.

The government have announced their intentions not to regulate the Lettings Industry and that has stirred up mixed reactions. Those in favour of regulation obviously include people who have lost money but also some Letting Agents would welcome regulation to put the cowboy operators out of business and get the market share they believe they deserve. On the flip side those opposing regulation are fearful of the costs and the impact on the industry based on the reality of what has happened since the FSA begun to regulate financial services. Now in my opinion that really is bureaucracy and red tape gone mad.

Why does regulating the Letting Industry need to be so complicated?

I take the point about ARLA bonding only protecting clients money but don’t their members also have to carry Professional Indemnity Insurance to indemnify themselves against negligence claims? I also accept the point on what happens if they subsequently lapse memberships and policies and I think statutory regulation with effective checks and balances is the only way to enforce against that scenario. Make bonding and professional indemnity insurance compulsory and that’s the problem sorted so far as I can see.

A bit of lateral thinking and a simple licencing scheme is all that would be required to regulate this. The rest would be down to market forces because if Letting Agents were incompetent their Professional Indemnity Insurance premiums would rocket as a result of claims. This would eventually close down those who don’t perform as they wouldn’t be able to renew their licences without proof of bonding and Professional Indemnity Insurance. I suspect insurers would also look to reward those who undertake recognised Continued Professional Development and get qualifications through discounts on PI insurance premiums.

It’s really that simple to regulate Letting Agents if you think about it. Three pieces of paper to check every year and it’s sorted. The Councils could raise revenue from the licencing and use Trading Standards to close down unlicensed operators. Another simple enforcement tool would be to make it illegal for the media (on and offline) to carry advertising for unlicensed operators.

What do you think?

I believe so strongly in this I’ve created an e-petition.

Please click here to sign the petition for compulsory licensing of Lettings Agents to protect Landlords and Tenants



Comments

14:06 PM, 1st February 2012
About 7 years ago

At Landlord Referencing we totally agree Mark and also think that letting agents should be judged on how diligent they are at carrying out pre-tenancy protocol and awarded a star system, like hotels - so if you don't carry out any referencing you receive no stars...?
We also believe that referencing should be compulsory as well, by carrying out both types of references; lifestyle and credit.
Any letting agent who isn't carrying out a lifestyle reference is not doing the best for their landlord; how can they be?
Even today, an accreditation has joined us; which goes to show that even the council are concerned with problematic tenants.

Tessa Shepperson

14:08 PM, 1st February 2012
About 7 years ago

Frankly anything which goes to protect landlords is good in my view.  If a simpler scheme is more likley to be implemented then lets go for a simpler scheme.  I do feel strongly though that ANYONE whose business involves holding on to large sums of other people's money should be regulated in some way. 

For example as a solicitor, even though my client account only has a small sum in it, I still have to get my accounts audited annually and my accountants have to do a report to the Solicitors  Regulation Authority. 

Mark Alexander

14:12 PM, 1st February 2012
About 7 years ago

I completely see where you are coming from Samii but the administration of a rating system creates an industry which in turn increases costs to agents which would unlimately be passed on to landlords and tenants. I much prefer a very simple linecing system. If an agent fails to do appropriate due diligence, including a lifestyle reference, there would be an opportunity for the landlord to claim against the agents PI insurance for any losses incurred as a result of the agents negligence. Everybody wins that way and best practice becomes the norm.

Mark Alexander

14:16 PM, 1st February 2012
About 7 years ago

I totally agree Tessa, anybody handling money should be bonded and anybody providing advice should have PI. As a practicing solicitor I suspect it's also compulsory for you to carry PI insurance and to pay into the solicitors compensation fund too? That's what makes you a professional. Isn't that the status all letting agents would like to have?

Tessa Shepperson

14:30 PM, 1st February 2012
About 7 years ago

Abolutely.  I spend a small fortune every year on PI insurance, my practising certificate, accountancy fees, you name it!

Glenn Ackroyd

16:30 PM, 1st February 2012
About 7 years ago

I come from a legal background - All lawyers need a practicing certificate - and incompetent or negligent ones are subject to a complaints procedure and can be struck off. Similarly, the law society sets out codes of practice which includes handling client money in separate accounts from office/overhead money.

Similarly, solicitors require PI insurance with an excess - and premiums do rocket if you have a claims past. This forces good practice and standards.We've got half a million pounds of landlord money coming into our coffers every month - So why on earth aren't letting agents subject to the same rules as for example solicitors?We could easily run off with 3 month rent and live life of luxury on a south american coast.Agents also deal with a variety of aspects of law, relating to contract, health and safety, gas/electric, Town & Country Planning etc etc! How can somebody operate a business without any accreditation to confirm competence?For me, there should be a minimum requirement for qualification, such as NFOPP technical award for Arla, ARLA, or NALS/Safe Agent or similar membership and PI insurance and membership of the Ombudsman scheme for lettings.All of this is already in place - because it is not mandatory, many agents don't join to save fees. The agents that go under and fleece landlords by and large fall into this category.If the agent was an Alra member, their Money Bonded Protection scheme would protect each landlord/tenant up to £25k per claim.

17:01 PM, 1st February 2012
About 7 years ago

Simple, effective, compulsory regulation can only be a good thing for the industry's reputation. Sadly, even if the government was willing to act, its track record on such things is poor, and any scheme it introduced would almost certainly be a half-baked fiasco and a complete waste of taxpayers' money. HIPS anyone?

I like your licencing idea though, Mark, and the idea of bad agents being priced out of the market by extortionate PI premiums. That's so simple it could actually work!

Mark Alexander

17:45 PM, 1st February 2012
About 7 years ago

To broaden this discussion here are some examples of where I think PI insurers could attract claims for the negligence where the actions or lack of action on the part of letting agents results in losses to landlords. Feel free to add to my list:-

1) Failing to complete adequate tenant referencing
2) Failing to advise landlords of statutory checks, e.g. Gas certificates, HMO licences etc.
3) Failing to advise landlords that they need adequate insurance for liability
4) Serving notices incorrectly
5) Illegal eviction
6) Failing to advise landlords on the benefits of obtaining and referencing guarantors
7) Failing to report complaints
8) Failing to recommend Rent Guarantee Insurance
9) Failing to advise landlords of the deposit protection schemes available to them
10) Failing to advise landlords to commission a detailed and independent inventory
11) Failing to provide tenants and third parties with deposit protection certificates
12) Advertising a property to let without an EPC
13) Failing to obtain proof of identity for tenants
14) Failing to advise landlords of rent arrears in a timely manner and what their options are, e.g serving notices, claiming on RGI etc.
15) Failing to advise landlords of their legal obligations regarding tenant harassment and 'peaceful enjoyment'

All of this is pretty obvious stuff to any good letting agents who will undoubtedly have a check list to ensure they do all of this anyway.

18:10 PM, 1st February 2012
About 7 years ago

All these are good ideas.
However where is the commercial imperative going to come from to force LA to adopt effective protection for their clients.
With IFA's it was the govt.
Clearly as they have indicated the govt is NOT intending to do this with LA.
How then to bash heads together to force LA to come up with relevant protections for their clients.
Somehow all relevant parties involved in the rental industry need to sit down and thrash out a strategy which protects LL and tenants from incompetent LA and from them being able to do a runner with all the deposit and rent monies
So that there will be financial redress in the event of absconding LA etc.
In the meantime I wil not use a LA for management; just tenant source.
Principally because I don't trust LA.
I cannot be the only LL that feels this way.
LA must surely appreciate that until there are relevant schemes in place to protect LL and tenants then they will be losing out on potential busines.

18:16 PM, 1st February 2012
About 7 years ago

Perhaps with your thorough knowledge of the issues concerning LA and LL and tenants etc; you could come up with an insurance bonding solution with appropriate terms and conditions which would give LL and tenants confidence  in  LA probity.

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