An easy way to regulate the lettings industry

An easy way to regulate the lettings industry

11:44 AM, 1st February 2012, About 11 years ago 97

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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

8:49 AM, 2nd February 2012, About 11 years ago

Mark
I think you have come into the Letting Agent regulation debate at the wrong point.
My feelings are that the whole "industry" and its processes needs reform.
Within the business model of the average Letting agent there is a fundamental conflict of interest.
Who do they actually represent during the letting process?
The landlord, from whom they take a fee.
Or the tenant from whom they also take a fee.
How can they find a quality tenant and check references objectively for the landlord (who pays for each of these services)  while they also are anxious to collect the fee from the tenant for producing the agreement and creating the tenancy?
The law industry does not allow its practitioners to prosecute and defend simultaneously in the same case, so why are Letting Agents getting away with it?
Reg

9:00 AM, 2nd February 2012, About 11 years ago

As a letting agent I totally agree with simple regulation that works. Please not too much government red tape!

Mark Alexander - Founder of Property118 View Profile

9:18 AM, 2nd February 2012, About 11 years ago

The way I see this Reg is that the Letting Agent acts for and is accountable to the landlord as his agent. Any rules broken by the agent on behalf of the landlord or as a result of the agents negligence or incompetence remain the responsibility of the landlord, that is already a given. For example, if an agent fails to protect a tenants deposit or lets a property without a Gas certificate it is the landlord who is responsible for the consequences. If the tenant suffers any damages (financial or otherwise) as a result of an agents negligence the tenant or his representatives will litigate against the landlord. Therefore, it is vital for the protection of the landlord that the agents is bonded and has PI insurance. Similarly, if the agent lets a property to protect his ongoing management fees, without proper tenant referencing or a disclaimer from a landlord accepting that a tenant is not recommended, then again the agent is at fault in his duty of care to his client (the landlord). All of the above will obviously be tested in Court over time and case law will evolve based on PI insurers fighting claims. It really doesn't have to be complicated regulation. The simple licencing system I have proposed leaves the commercial decisions to be made via the courts and the insurance companies as opposed to civil servants who often don't understand the complexities of the businesses they attempt to regulate.

9:22 AM, 2nd February 2012, About 11 years ago

Reg
As a letting agent we absolutely work for the landlord throughout and this has to be quite clear at all times. although legally we have what is termed as a "duty of care" to the tenant. 

I have heard many stories however of agents getting this horribly wrong however and taking the tenants side, particularly in deposit returns and maintenance, this is a common issue which causes a lot of distress for the landlords, and is down to ignorance and lack of training

This comes down to an agent having good clear terms and conditions, and also solid training and monitoring of its staff.

i heard of one agents staff member, that when the tenants shouted at her she would just return the deposit to them (but then send ot to the landlord too!). This is theft, but highlights that this and other companies do not have the self regulation that the good agents have with the likes of ARLA etc.

we have to audit our client accounts monthly to ensure that what money is in there is in there, (this obviously was not being done) we cannot pay out money we have not received due to bye law 3.

Good agents have a double entry payment system with authority levels, sometimes leading to a triple entry system, this means that payments cannot be made without 2 or 3 people authorising it, and this should be backed up by a seperate accountants auditing.

i agree with that the initial file sort set up is key as landlord referencing state, this is the point at which most mistakes are made, i have worked as a consultant with many letting agents and this is their weakest point. i have seen files with no gas certificate, no signed agreements, incorrectly served notices, no references etc. and someone has paid for this. so a star rating here would be an awesome idea!

on my presentations i tell all my attendees to "check your files" go into your agent and ask to see your files! its a great test! following on from that someone asked me to record a video as to what should be in a file and my property manager Helen did so, it is on youtube lettingscoach channel, so you can compare.

regulation would be a good thing to level the playing field, in the meantime landlords need to help themselves and be more diligent, not just looking at fees, but looking for evidence of testimonials, quality service, and back end systems to protect them along with professional indemnity insurance, cliet money bonding and protection, regular auditing and qualified staff!

Mary Latham

11:55 AM, 2nd February 2012, About 11 years ago

Reg makes a very good point.  Lettings Agents serve two masters, they do work for the Landlord in terms of managing and letting the property and the Landlord pays for these services.  Most Agents also take fees from Tenants to set up (and renew) the Tenancy They have a conflict of interest.  Most Agents consider themselves to work for the Landlord but I wonder how that would be viewed if it were legally challenged?

I would like to see clarity on exactly what an Agent should charge to a Tenant and what should be included in the Landlords letting fee. 

I would also like to see someone attempt to write guidance for Agents on how to ensure that they are meeting their implied obligations to each party.

Reg has actually put into words a situation that I have witnessed many times where the Agent is stuck in the middle of a Tenant and a Landlord. Agents may well have signed contracts with Landlords but they surely have legal obligations to Tenants who have paid for their services too?

Sorry if this is off the main point of the thread Mark but I think that this is at the core of many problems and I am interested in what other people think, Landlords, Agents and Tenants

Mark Alexander - Founder of Property118 View Profile

12:02 PM, 2nd February 2012, About 11 years ago

Hi Mary, do you not think that the responses from myself and Sally Lawson addressed these issues adequately? If you don't, please feel free to ask more specific questions so that the Property118 community can share their thoughts.

15:06 PM, 2nd February 2012, About 11 years ago

We have had to remind one of Sally’s staff in the past that we are the customer not the tenant and that the tenant is not always right, (e.g. the tenant does not automatically get a new carpet just because a carpet sales person has told them they need one, when we believed just the door bar needs to be fixed) – So I think this is a big issue. I have never see an agent make clear to the tenant(s) that the landlord is the customer not the tenant – when we were renting it was always presented as if we were renting from the agent.  All the paper work had the agent names in big print and the landlords name as a bit of “unimportant” small print.

Mark Alexander - Founder of Property118 View Profile

17:24 PM, 2nd February 2012, About 11 years ago

We've set up an epetition to make more people aware if this, do sign the petition for compulsory licensing of Lettings Agents to protect Landlords and Tenants and pass it on! [http://epetitions.direct.gov.uk/petitions/28848]

18:48 PM, 2nd February 2012, About 11 years ago

With regards to tenants and maintenance, when items are reported to us as needing rectification or repair, in this case carpets thinning and rippling, we have a duty to refer this to the landlord, and carry out their instructions.
 
I can see here that you asked us to get quotes for both replacement and stretching, which was done. Our overexhuberant contractor for some reason chose to take samples with him to the property, but this was not under our instruction and we have certainly stopped him from doing that again.
 
We would certainly never intentionally give a tenant the impression that they have the right to new carpets, unless this was part of a rent review or negotiation which had been agreed with the landlord.
 
If you would like to discuss this with me i would happy to do so.
 

19:38 PM, 2nd February 2012, About 11 years ago

Hi Mary

Can I completely concur with what you and Reg are saying about the dichotomy that exists between the Landlords interests and those of the Letting Agent.

Perhaps instead of a guide for Letting Agents we should actually be promoting a guide for Landlords which educates them into what they can expect a Letting Agent to provide and how to check whether they actually do so. It was with this aim to get this education process going that I wrote my series of Articles in Property 118 that Mark was kind enough to publish that sets out what the level of service a Landlord should be expecting a 21st Century Letting Agent to provide.

Perhaps if Property118, NLA, RLA, ARLA and Local Authorities really started campaigning on this front in their publications, websites and at their meetings and conferences perhaps we might achieve much of our expectations and we may even be get the PI companies on board as well.

I like Marks idea of the simplified regulation and will certainly throw my weight behind it but doubt that it can be a quick answer benefiting landlords now if ever. Ultimately if given the tools to evaluate a letting agent a landlord still goes to Fred in The Shed, the ultimate cut price LA then perhaps he or she desreves what they get. The Red Tape Nanny State does not always benefit those it intended to protect. Lets try education first and light regulation if it is ultimately required.

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