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

12:15 PM, 4th February 2012, About 11 years ago

Mary/Mark

The problem you have both identified lies in the contract between the parties involved and paying for a 'service' involves a cointractual relationship whoever the individuals are and their relationship to each other.

The problem is that many LA's contracts are very poorly written and do not explicitly deal with the detail that is required of either party and in particular what are the responsibilities of the Landlord within the contract the LA is setting up between the Landlord and the tenant.

Neither does it explain any indemnity that the LA is providing in case of default or negligence. As a result these situations are opaque and the landlord has no clear idea. As part of Marks Licencing it should be a given that a standard minimum contract which coves many of the issues raised above, must be part of the process if it is to have any validity at all. I would hope ARLA would have such a document for its members to use as part of their code.

In the interim we need to raise LL awareness of what they should look for in the contract.

12:29 PM, 4th February 2012, About 11 years ago

Hi Paul

Most defaulting agencies appear to be those who are often paying LL their rent on a single monthly basis therefore it is often 6-8 weeks before a landlord recognises and can react to a problem. Our view is that cleared fund collected the previous week should be paid the following week together with a detailed breakdown of the sum. Some agencies pay over individual sums as they clear but this can be confusing for a portfolio landlord and adds un-necessary costs. This system means a landlord is immediately alerted the moment that sum is not received and can take action to divert funds from tenants back to their account. Minimises loss to around half of one months rental income unless all rents are paid on same day.

Any reputable agent should carry a £25000 bond to cover losses and be a registered member of ARLA and subscribe to their codes.

Finally they should have Professional Indemnity Cover to cover for any negligence on the part of themselves or their staff.

The latter two are items that any licencing system should require for the protection of clients and that Landlords should also carry this cover as they also risk negligence claims from their tenants. It would also be their PI insurer who who deal with PI claims against the LA.

Mary Latham

13:04 PM, 4th February 2012, About 11 years ago

Thank you Paul I really value a pat on the back from a peer.

I post here because I learn and share and I am abe to say what is on my mind about the business I love without worrying if this or that organisation would agree with me. The freedom to express my own views is worth more than money at this point in my life. (Thank you Tenants)

Mary Latham

13:19 PM, 4th February 2012, About 11 years ago

Paul there are a lot more people reading these threads than are posting. Landlords often ask me about things that I have said on a thread and comments that I have made on this site have been mentioned on another site in a post. 

You have a good point about Landlords feeling that the should know something and feeling reluctant to ask for fear of looking ignorant.  In my opinion the foolish person is the one who would rather get it wrong than ask. I ring the NLA advice line often to check my facts.  So many things have changed in this business over the last few years and I can honestly say that I learn something new regularly and this is often something that I should have known.  There are very few people who could honestly say that they know everything about the business.

If there are Landlords reading this who do not feel comfortable asking questions just use a site name to protect your privacy.  I guarantee if you don't know something you will not be the only one.

Mary Latham

13:32 PM, 4th February 2012, About 11 years ago

I agree Roger but if we front load Licensing requirments it will increase the red tape and cost of administering the system.  I think the best option is issue the licence on application. The insurer would soon begin to realise that there are certain basic measures that would reduce their risk and would either load premiums or impose conditions

Raising Landlord awareness is a major part of my working life - most of the rest of the time I am digging out Landlords who have fallen into one of the many potholes in the road to financial freedom.

19:28 PM, 4th February 2012, About 11 years ago

I think the problems with LA are not LA per se; it is just that LL and tenants don't know what criteria to assess the probity of a LA.
The sort of things you are mentioning are ideals.
They are certainly things I am unaware of and I reckon it would go straight over the heads of most tenants.
Somehow LL should apprise themselves as to the things you have mentioned regarding the efficacy and probity of a LA.
How is that to be achieved?
Without your valuable advices being known to every LL and tenant how are we supposed to be able to empower ourselves with the appropriate knowledge to ensure we pick an appropriate LA.
It's one of those perennials, isn't it?
Perhaps some sort of check list that could be advised on LA websites or handed over in leaflet form to both LL and prospective tenants.
This would essentially advise that this LA conformed to all the aforementioned and that any other LA who didn't comply with the checklist should most probably be avoided.
Such information would be in lieu of the ideal licencing system along with insurance that Mark Alexander has suggested

19:41 PM, 4th February 2012, About 11 years ago

Yes I can see you have a foot in both camps, so to speak and what you do is a very good way of being transparent with the managing of the tenancies on behalf of LL.
Not many LA offer such an efficacious service as you presently are.
I think transparency which you are facilitating is something to be commended for and should be part of your overall USP's.
These may well attract additional business compared to other LA offerings.

Richard Baker

11:29 AM, 5th February 2012, About 11 years ago

Agree with the idea of regulation for lettings agents. Currently it's done on a voluntary basis only - it should be made compulsory. 
However a lot of people talk about 'licensing' or 'regulation' without defining exactly what they mean. 
An agent has a contract with the landlord to do certain things - let the property, reference the tenants, collect the rent, administer safety tests, advise the landlord, etc. If the agent fails to do this properly, some proper Professional Indemnity Insurance (PI) should offer protection to the landlord. Most lettings agencies should be able to get some form of PI.PI will not protect the landlord if the agent runs off with the client account though. An agent with 200k of tenancy deposits in his bank account, could easily spend 150k of these on propping up his failing business (and he'll need to if he's charging 5 or 6% fully managed, as fee income won't cover his costs. The agent may never get caught - as the chance of every tenant wanting their deposit back on the same day are zero. As such the agent could run his business like this for years, and on the outside everything would seem fine. The only thing that will cover the landlord in this scenario is Client Money Protection Insurance (CMP). All ARLA or NALS agents have this - it's a condition of membership, and to get it they have to have checks done on their client accounts on a regular basis. So the solution is simple - make CMP compulsory. However in order to do that, you need an insurer that is prepared to offer this insurance to agents. The insurer will want client accounts checked before offering cover, and at that point the world will realise that probably half the agents in the UK already have a 'hole' in their client accounts. (Believe me - I've looked at buying a few of my competitors, and it's scary!). So if CMP is made compulsory, many agents would instantly get put out of business (as no insurer would cover them), and large numbers of landlords would have to take a 'hit' on money that's already been lost. As such flicking a switch and 'regulating' or 'licensing' agents will have more consequences than maybe people realise.

Mark Alexander - Founder of Property118 View Profile

13:23 PM, 5th February 2012, About 11 years ago

I completely agree Richard and that's exactly why this licencing should be compulsory. We can only guess at how many agents are dipping into client money but I've heard several stories of good businesses who have looked to buy other letting agents only to discover this goes on more than many could possibly imagine. I think that's why the likes of ARLA push so hard for regulation and why so many agents fight against it. If only the good agents were to sign the petition and get their tenants to do the same we would easily get 100,000 signatures and get this raised in parliment. It's been a slow start to getting signatures on the petition but we have a whole year and hopefully the message will spread. If only the agents who have commented here were to ask their tenants to sign the petition that would be a few 1,000 and with a bit of luck that would be sufficient to start an avalanche of signings as they pass on the message.

0:34 AM, 6th February 2012, About 11 years ago

My long held and unproven suspicion that I have long held with no direct experience is that as you suggest most LA are NOT running a viable business proposition.
Essentially only deposits are being used as free cashflow to keep these unviable businesses going.
Personally I don't think LA should be allowed to go anywhere near tenant deposit or rent monies..
The monies should only be allowed to be accessed on production of relevant paperwork.
An independent deposit provider needs to be enforced.
Personally I do not see why ALL deposits should NOT be controlled by LL.
It is ultimately their liability anyway.
So no matter what scheme is used the monies should ALWAYS be in a LL account.
As suggested if such strictures came in then lot of LA would go out of business.
These circumsatnaces confirm all my suspicions about LA which I why I will NEVER allow  them to receive rent or deposit monies.
The tenant will be required to pay directly into MY account.

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