Letting agents hold millions of pounds of other people’s money, but remain unregulated.
Why is this?
Particularly as there are many reports in the press of negligent and criminal agents.
Two recent examples:
The first is from Plymouth (first brought to my attention by the excellent Property 118 blog) where Jacqueline and Tony Burridge trading as Hothomes UK disappeared owing landlords and tenants sums estimated at almost half a million.
Rent has been collected but not paid over to landlords, save by cheques which subsequently bounced. Deposits have been collected from tenants and not protected (meaning that the hapless landlords will be liable to the tenants for the money).
Then there is this report on Lettings Today about a company in Milton Keynes who have closed down, again owing both landlords and tenants vast sums of money.
These are just two recent examples of a problem which occurs again and again. It will continue to occur until letting agents are properly regulated by law.
The need for proper regulation
In my opinion, which I am sure will be shared by many people (not least those who have lost money by negligent and criminal agents) it is an absolute scandal that the lettings industry remains unregulated.
Organisations which hold other people’s money are in a special position. They have the power to cause very serious loss to people who trust them. Letting agents generally hold many thousands of pounds at any one time. Why are they exempt from regulation?
Other organisations holding other people’s money are regulated
Banks and financial institutions are regulated by the Financial Services Authority (FSA), the Treasury and the Bank of England. Solicitors, who often hold clients money, are regulated by the Solicitors Regulation Authority (SRA).
For example, as I solicitor I have to hold all clients money in a separate clients account. This is audited annually by an independent accountant who has to file a report with the SRA.
To get my practising certificate I have to confirm that I have professional indemnity insurance in place and have done 16 hours per year continuing professional development.
If I fail to comply with the requirements or if I breach the solicitors accounts rules and deal inappropriately with clients money, I can lose my practising certificate and my livelihood.
Finally, the whole profession pays into a fund which is used to provide compensation to clients who are for one reason or another unable to claim under their solicitor’s PI insurance.
So why are letting agents exempt?
If someone wants to set up as a letting agent, all they have to do is set up shop and start taking peoples money.
- They do not need to have any training
- They are not required by law to have a separate client account
- They do not have to get their accounts independently audited
- There is no regulatory body
And yet these people can hold thousands and in some cases millions of pounds of other people’s money. To do with as they like.
Problems are not just financial
As well as the financial side of things, incompetent agents can cause endless misery by
- Failing to do proper or any checks on new tenants (resulting in unsuitable tenants being accepted, generally resulting in substantial financial losses for their landlords)
- Failing to do regular inspections of properties, meaning that problems do not get picked up
- Failing to deal with tenants requests for repairs
- Failing to protect deposits under an authorised scheme
To mention just a few things.
Confusion for the public
Not all agents are negligent or criminal. Not by a long stretch. There are many, many agents who provide an excellent service. Firms who are regulated voluntarily by joining organisations such as ARLA and RICS. Or the forthcoming SAFEagent scheme (website here).
However excellence does not come cheap. And if the firm further up the street offers what appears to be a more competitively priced service, they will attract customers. Who will have no idea that the firm they have selected is unregulated and inefficient. Until the problems start.
Calls for regulation
There have been calls for agent regulation for many years, in particular from ARLA. Understandably, as rogue agents taint the entire industry.
The report commissioned by the last government from Dr Julie Rugg recommended agent regulation and the last government indicated that they would be bringing this into effect.
However the current administration seems to be happy with things the way they are and see no need for additional regulation in the private rented sector. This is maybe understandable for standard lettings law. But in the case of agent regulation? I think that they are wrong. Very wrong.
What do you think about it?
A couple of weeks ago Grant Shapps called on council’s to stop being so red tape-ified and get modern and with the programme. Many council’s are currently looking at starting their own letting agencies.
Given the growing relationship between the council and their local landlords it really makes sense and would set new standards, that if letting agents wanted to compete with would seriously have to raise their game and hopefully, in the process, cause the rogues to get into a different line, like blackmail or drug dealing, more in their area of expertise.
A few months back I doorstepped one of our worst agents to remonstrate with him over his staff entering a woman’s flat while she was in the shower and he said to me “In my view, all tenants are scum”. Nice attitude for a letting agent!
Tessa, you could add to the regulated professionals list the RICS, all Chartered Surveyors handling clients money are pretty much as regulated as Solicitors and the money is protected to some degree by the RICS. One immediate way for landlords to protect themselves would be to ensure that the use estate or letting agents who are members of the RICS
Steve
In my view, the biggest problem is the general perception that landlords are ‘consumers’. They aren’t, the role of a letting agent is that of a business to business activity. So, with the protection of tenants deposits largely under control – they are the only consumers to this arrangement, if a landlord chooses to use an unaffiliated agent (RICS, NFoPP, NALS – forget the Law Society) that is a commercial decision they take and for which they must take the responsibility if it goes wrong?
@Laurie But surely many landlords plainly are not businesses. For example accidential landlords, people renting their home while they are away for a year (eg working abroad), and people who have bought a couple of properties for their pension.
Banks and solicitors act for both business and consumers and are regulated. Why not letting agents? Just because someone is running a business that does not mean that they should be denied protection.
I would also question that the protection of deposits is largely under control. There are still many landlords and agents who flout the law – as you can see from the blog clinic posts here, and the questions to my Landlord Law Q&A page http://www.landlordlaw.co.uk/q-and-a.
To deal with the deposit issue first, I don’t entirely disagree. However, I am afraid that it is the drafting of the legislation by HMG’s legal advisers that is to blame rather than the legislative intent which was sound in my view.
As to the consumer v. business issue, any use of an asset to generate an income which is subject to HMRC concessions allowances etc is de facto a business. Landlords in general will be the first to acquaint themselves with maximising their income stream establishing all the angles. The same due diligence would reveal the dangers of not dealing with an accredited letting agent?
The real reason why there is still a problem with deposits is not so much the wording of the legislation but the dishonest and ignorant landlords and agents who fail to protect. This is just about understandable (although still unacceptable) for landlords but completely inexcusable and unforgivable for agents who are supposed to be professionals.
So far as regulation is concerned, I do not accept that all landlords are businesses but even if they are, why is it then all right to have an unregulated lettings industry? Why should consumers be the only ones entitled to protection?
Why should *any* business which holds other people’s money escape regulation?
I see your point Laurie, it has merit. Your position seems to be that nobody should enter the lettings business without, treating it as a business and I think that is appropriate.
The trouble is in the perception of the lettings business in the UK, that it is a casual affair.
With the severe shortgage of properties available we really need the buy to let amateurs to fill the gap. The problem is, most of them havent got a clue.
Amateurs dont realise that the minute they hand over the keys to the smallest of studio flats, they are governed by the same rules and regulations as a local authority with 10,000 properties on their books.
That is where the agents should step in. The property professionals who help the amateurs. But what do you do when so many of the agents are even more clueless than the amateur landlords? or are even just criminals?
Did you read just today that major national agents Foxtons have again fallen foul of underhand dealings?
Most landlords arent professionals, they are amateurs, as Tessa says, looking for a safe alternative for their pensions, rather than trusting some slimy be-suited hedge fund creep.
We should be helping these people, not casting them to the wolves for lack of knowledge
As you may appreciate, my position is slightly ‘devils advocate’ really. In reality, on the tenant deposit situation, in my view, there should only be a ‘custodial’ scheme and the penalties for failure to comply, whatever the excuse should be as the legislation intended.
As to the collection and misappropriation of rent, there is no doubt that ARLA’s original ‘first resort’ CMP offering, on paper at least, was the best protection landlords could ever have wished for. Quite why, post ‘merger’ with NFoPP, they reverted to the NAEA ‘last resort’ cover is a mystery to me. Though to be fair, it was the main thrust of ARLA’s marketing strategy for years, but no one took very much notice.
However, if you are going to allow a third party to collect monies owing to you on your behalf, I think there is enough freely available information to guide the unwary without the need for formal regulation.
OK, so had there been number of robust headlines in the media, where dishonest or ignorant landlords were penalised to the extent of 3 x the deposit, might have brought some ‘regulatory’ focus to the problem? Nothing focuses the mind more than that?
As to your second point, why is the letting industry unique? For example, if I decide to carpet my house and am asked to pay say, 30% of the cost in advance which I do and the retailer goes into liquidation before the goods are delivered ….. aren’t they holding my money …
Ben, no, what dirt on Foxtons is this? Links?
A super complaint by Which JS http://www.metro.co.uk/news/867769-airlines-to-face-ban-on-surprise-credit-card-charges £25 credit card fee for tenants that wasnt made clear.Foxtons should know better, having had their wrists slapped last year
Tessa well written piece and I’ve tweeted it out as I’m sure have many.
When I set up I made sure I had NALS and TPOS and I’m now a SAFE agent too. As you say this all comes at a cost but I’m happy to do it to show that I care about my business and my service.
Thank you for your very informative article.
I’m an accidental landlord. My parents have both died, leaving their ex-council flat to both my sister and myself. We’re unable to sell it because the area is being redeveloped, as neither of us live in the area we decided to employ an agent to collect rent and deal with any repairs, having first cleared it with me. The agent is a member of ARLA, and NAEA. He’s a small independent agent who appears to be more interested in opening new branches than in taking care of his existing properties.
I had to phone every month to ask where the rent was, only to be given the runaround by his staff, who made me feel that I was a nuisance constantly chasing the rent. Eventually I sacked him, and now manage the property myself. I was tempted to report him to NAEA after one of my tenent’s cheques was lost by his staff…it was eventually found, having fallen down the back of the safe, for his incompetence, but they have no teeth. The agent my father used, a different one, failed to collect any rent after his death. We reported him to NAEA who rapped his knuckles. No compensation for our financial loss.
Would I use an agent again? Not on your life, without proper regulation in place first.
As requested:
Twelve months ago, I thought of the possibility of rogue agents. I returned the tenant’s deposit, got them to sign an amended ASTA and collect the rent myself. I’m £82 p.c.m. better off, the VAT man loses his 20% and my tenant is happy; he had a holiday and gets hisrepairs done instantly.
Entirely agree with you, it’s appalling that there is no regulation. ARLA charge us a small fortune every year in membership fees yet they don’t seem to work very hard or spend any of that money raising awareness so that landlords and tenants are aware of the pitfalls of renting through an unregulated agent.
I attend the regional meetings and hear of pathetic attempts to persuade government to introduce regulation. ARLA has no teeth when it comes to lobbying and publicity. God knows where all the subscription fees go.
I think NALS has the best standards overall. I hadnt heard of Safe Agent until Tessa’s article so I went straight ont their site and put in the name of one of our well know dodgy agents and lo and behold….there they were, so I’m not sure how meaningful it is.
Apart from the Accommodation Agecies Act of 1950-something there arent any major laws governing.
My view is mandatory licencing, annual exams to keep licence, money protection.
My missus is a self employed travel agent. Every year she spends a day doing an exam so she can keep her licence just to sell travel insurance. My mate Eamonn is a plumber who has to do 2 yearly exams to keep his certficiate that enables him to install central heating. Why shouldnt agents have to do the same?
I currently have a case of a decent landlord with some rubbish tenants. He decided to put something back and take on some difficult young tenants who have damaged the place and owe him money. He lives abroad and a local agent manages. I am trying to get a meet with the agents and the tenants to untangle the mess and help out but the agents are saying they wont meet unless we pay off the tenant’s arrears and advising the landlord that he can lawfuly change the locks.
I have emailed the landlrod with the correct legal position but he doenst know what to do and is taking instructions from his agent who is advising him to committ a criminal offence. if he does I will have to seek legal action against him, which I dont want to do.
He has ignored my advice and is listening to his agent, who after all, is the one he is paying to look after hs affairs.
Ben SAFE agent really just says that you have all the right processes in place and a client account. As you know being a member of NALS you have to get your bank to send a letter saying that you’ve a client account and operate it properly. Your accountant has to sign to say that you manage your accounts properly. Insurance company have to sign that you have the right insurances in place. You also have to pay a fee to belong to the client money protection scheme.
Unfortunately it doesn’t say that you know about legislation and keep up to date with it.
Sitting an exam each year to show that you are keeping up with legislation and can offer best practise would help. I’d be more than happy to do this.
Sandra, Safe agent is certainly a way forward but occurs to me that all the different requirements of different accreditation schemes are maybe part of the problem in some respects, in that there isnt an overarching standard and things get misleading.
As I mentioned above, my Missus is in travel. many people feel safe signing up with agents who are ABTA regulated but as she has told me this is to misunderstand how ABTA works. ABTA will merely re-imburse the agent if a company goes belly up, not the traveller apparently.
A national standard is what is needed in my view money protection is a crucial component, although even on its own it goes a long way to helping, especially given what happened in the last few weeks about that Plymouth firm that ripped off both tenants and landlords.
In the past few years, on top of my harassment illegal eviction stuff I also deal now with mortgage borrowers in difficulty. I have been a landlord and a homeowner myself and am now a vry very very reluctant tenant haha. I also have the opportunity of traveling up and down the country training housing workers and housing lawyers so I hear the word on the street as it were, right across the board and have developed quite a holistic view of what needs to happen for everyone’s benefit but everything seems to be fragmented and needs drawing together into a coherent whole
Ben I agree whole heartedly. If there was one standard/ regulatory scheme that agencies conformed to (if not could be prosecuted for), not only would it make our sector safer for all concerned but it might save a fortune in membership fees.