Is this the end for cowboy letting agents?
The lettings industry has been described at the "Wild West" of the property market with many agents abusing the fact they don't have a code of conduct to stick to.
Common complaints from both landlords and tenants include agents charging a plethora of fees for basic administrative tasks, mishandling of deposits, not passing on rent to landlords and general poor service.
Letting agents can get away with these misdemeanours as they are completely unregulated. Anyone can open a letting agency and there's no formal register of people or companies acting as letting agents.
However, change is afoot. The government has announced all letting agents will "soon" have to join an approved independent redress scheme. Redress schemes have the power to order agents to compensate tenants and landlords they have wronged up to a maximum of £25,000 and also to ban someone from engaging in lettings agency or property management work.
How redress schemes help
Redress schemes can step in when a consumer and estate agent can't agree. They investigate complaints and decide what action, if any, should be taken.
At the moment, there are two existing schemes: The Property Ombudsman (TPO) and Ombudsman Services: Property. However, it's possible that new schemes may also be set up.
Currently, signing up to a redress scheme is voluntary for agents, and schemes can't rule on complaints where a letting agent is not a member. So forcing all letting agents to join a redress scheme is undoubtedly a positive move but the new legislation stops short of full regulation or forcing agents to belong to a code of practice.
Ed Mead, executive director of estate agent Douglas & Gordon, sits on the board of The Property Ombudsman. He says 59% of the ombudsman's cases last year concerned lettings and he believes all letting agents should be regulated in the same way estate agents selling property are.
"This should have been happening years ago, given that lettings agents handle money and sales agents don't. Lettings is a more immediate and emotional process, generating complaints that sales don't," he says."Redress is a good first step and the ability to make an award against an unscrupulous agent of up to £25,000 is a powerful tool already. Serial miscreants can be barred from the scheme and thus practising."
As things currently stand, both landlords and tenants can lose out at the hands of an unscrupulous letting agent that hasn't signed up to a redress scheme directly or through a trade body.
Many agents collect rent on behalf of landlords and a rogue agent could, in theory, not pass this on.
There's also the issue of protecting tenants' deposits. Since 2007, by law tenants' deposits must be protected in a recognised deposit protection scheme. Responsibility for this ultimately falls to the landlord and problems can occur if the agent takes the deposit from the tenant and agrees to protect it but then fails to do so.
Other issues with letting agents concern property maintenance. Many landlords pay for a "fully-managed" service but they often find that once they hand over their money, the service both they and the tenants receive is woefully inadequate. Tenants often complain about the numerous fees letting agents levy for tasks such as credit checks. These fees are banned in Scotland.
At present, the lettings agency business is "self-regulating" with letting agents having the option to sign up to a trade body such as the Association of Residential Letting Agents (Arla), the National Approved Letting Scheme (Nals), Safe Agent, or the UK Association of Lettings Agents (Ukala).
Membership of one of these voluntary bodies is supposed to offer assurance to landlords and tenants that they are dealing with a reputable agent that has met certain criteria.
Nals, for example, insists members have professional indemnity insurance, a designated client account, are part of a Client Money Protection Scheme and also have a written customer complaints procedure.
Isobel Thomson, Nals chief executive, says firms must also renew their Nals licence each year. "In addition to these conditions, Nals also undertakes random checks on firms' client accounts, as well as monitoring feedback from the ombudsman schemes operating in the sector on the complaints they deal with about Nals firms," she says. "All this information is made available to the Nals board, enabling them to review and revoke a firm's Nals licence if deemed necessary."
Members of Arla, Ukala, Safe Agent and Nals are also covered by the existing ombudsman services, which mean disgruntled tenants and landlords can use these schemes if they can't resolve a complaint with the agency.
However, Glenn Nickols, director of online tenants community The Tenants' Voice, says tenants generally perceive these bodies as being set up to protect landlords, rather than tenants, from rogue agents.
"Tenants think the recourse process and procedures are a waste of time and so they rarely, if ever, look for or care about memberships like these. It does seem that as long as an agent pays up for membership, then they get the stamp of approval. The existing bodies will
need to work hard to change that perception," he says.
Nickols' concerns are reflected in the fact that despite the stringent eligibility requirements, some letting agents with dubious pasts have held Arla membership.
Last year saw the high profile collapse of Unida Place, a ‘rent-to-rent' agency based in London run by Daniel Burton and Judith Mueller. The pair secretly shut down the firm's offices and disappeared, owing tenants about £60,000 in unreturned deposits. However, they went on to buy the franchise for Whitegates letting agency in Scunthorpe, an Arla-registered agent. The branch's Arla membership was revoked when Arla later became aware of the pair's history.
"If a member breaches the Arla code of conduct, their behaviour will be assessed by our disciplinary panel. Depending on the seriousness of the incident, sanctions can include a significant fine or expulsion from the association," says Ian Potter, Arla's managing director.
Property expert Henry Pryor says the problem with self-regulating bodies such as Arla is that expelling members is pretty much the only power they have. "They have laudable aims but they have no sanctions except to kick a member out. Not a huge deterrent to a letting agent who is feathering his nest," he says. "Since there are no minimum standards, it is not surprising that most see the selection process for membership of these organisations to be based largely on who can afford the annual sub."
What can landlords who are victims of rogue agents do?
Landlords should put any complaints about the letting agent in writing and ask them to respond by a deadline. If the agent fails to respond or solve the problem, the landlord should check if the agent is signed up a redress scheme, either via a trade body such as Arla or directly. If they are, the landlord can ask the redress scheme to look at the complaint.
If the agent isn't a member of a scheme and the landlord has lost money as a result of the agent's poor service, he or she could take them to the small claims court for amounts of £5,000 or less (in England and Wales).
Landlords and tenants can check whether a deposit is protected by visiting ismydepositprotected.com. There are a number of claims firms around offering to help tenants claim compensation (up to three times the deposit amount) from landlords who haven't protected their deposit. However, these companies only work on behalf of tenants, not landlords. The only option landlords have is to take the agent to court to recover any losses regarding non-protection of a deposit.
My letting agent withheld rent from me
Alan Bircher, 32, lost money after the letting agent he used to rent out his property went into liquidation.
The swimming coach and his wife relocated from Worcestershire to Shropshire for work reasons. They couldn't find a buyer for their three-bedroom house in Stourport-on-Severn, so rented it out through local letting agent Michelle Mosedale.
"The first couple of months were OK but then we started missing rent payments. I contacted the tenant directly and they had paid the rent to the agency but it had not been passed to our account," says Alan. "The company eventually went into liquidation in November 2013. It owed us about two months' rent that I doubt we'll get back as creditors."
But worse was to come – despite Michelle Mosedale's contract with Alan stating the agency would protect the tenant's £900 deposit, it failed to do so. In theory, the tenant could now claim compensation for this from Alan. "The agent said it would do it so I assumed they would – and I didn't check," says Alan, "We still have the same tenants and we manage the tenancy ourselves now."
Small claims court
Courts that sit in England and Wales (Sheriffs Court in Scotland) and used by the public to resolve most consumer and personal-related disputes. “Small claims” refer to action where the monetary value involved is £5,000 or less. You can claim for faulty goods or services and even for wages owed and also bring a personal injury claim, as long as the value is under £1,000. You can also use small claims court if you’re a tenant claiming against your landlord for repairs that total less than £1,000. It’s worth noting that, even if you lose your case, you won’t have to pay the other side’s costs.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.
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