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How to be a better lettings industry?

improving-lettings-man-squashed-underfootDuring the recent Commons debate about banning letting agent fees, something unusual occurred. Both sides of the House seemed to be largely in unison!

What was the issue that brought them together? Something that has troubled many of us in the lettings industry for a long time. Transparency. They also agreed that, not only were there insufficient homes for sale, but also to rent. At the same time, the government is working with Labour on a longer-term tenancy agreement which may encourage more institutional investment in the sector while at the same time offer more security and certainty to tenants.

Maybe our politicians are beginning to recognise that, if they want to increase quality and choice as well as moderate rents in the longer term, then the private rented sector must be fit for purpose. The poor reputation of the industry is certainly a barrier to entry in my view.

Customers need to be protected against the minority of rogue landlords and letting agents while supply has to be significantly increased. On the other hand, capping rents at “average” levels, as has been suggested, rather than say, linking them to the Consumer Price Index, is hardly likely to result in a flood of new landlords.

POSITIVES AND NEGATIVES

Another positive outcome from the Parliamentary discussions was the government announcement that letting agents will be fined if they fail to publish full details of charges on websites AND in their offices. This obligation as part of an amendment to the Consumer Rights Bill could be in place as early as this autumn and fortunately goes beyond the present “naming and shaming” requirements for non-complying agents on the Advertising Authority’s website.

Back door regulation is preferable to no regulation especially when it was reported recently that the Ombudsman was powerless to help over a third of over 10,000 plus complainants about lettings last year, as the agents involved weren’t members of the scheme.

More than 40 per cent of approximately 8,500 letting agents in England and Wales still don’t offer compulsory redress, client money protection or professional indemnity insurance. Unscrupulous agents are clearly continuing to profit from the absence of effective regulation and enforcement!

REGULATION

It seems inconceivable that letting agents, who increasingly handle large amounts of other people’s money – and often cash – still don’t have to be properly accredited, unlike financial consultants for instance. Many overcharge for simple jobs, insist on landlords and tenants paying for the same work but fail to provide an adequate service for either.

In my opinion, all letting agents should belong to one of the regulatory bodies and be required to hold a minimum practising qualification.

Successive governments have been reluctant to introduce licensing as a way of improving and enforcing standards – probably fearing that an increase in their regulatory burden would deter even law- abiding landlords at a time when supply is so short.

Sales agents, who are subject to much more regulation, can still in theory be struck off one day and start in lettings the next!

Another reason why more regulation is essential is to help agents protect themselves against money laundering, especially as the property market is such an attractive target for those seeking to hide funds.

THE FUTURE

The bottom line is that the supply of newly built or existing property to rent – especially of affordable, well-managed homes – is not rising fast enough to satisfy demand in many areas despite improvements in Build-To-Rent and other incentives.

Renting has now become a lifestyle choice for over nine million people – including 1.3million families – reflecting increases in population, immigration and household formation as well as demand for more flexible working and social arrangements.

In the circumstances, compulsory redress via the Ombudsman scheme as well as greater transparency of agents’ and landlords’ charges should be regarded as a minimum requirement. But that is still trying to deal with a problem after it has arisen rather than preventing it happening in the first place.

Redress and regulation are different issues. Furthermore, it’s unclear what, if any, teeth the Ombudsman will have to obtain redress for consumers. The OFT’s regulatory role in private rentals, such as the issue of warning and banning orders was recently transferred to Powys County Council after winning a competitive tender. But will a budget of £170,000 per annum for the next three years be sufficient to effectively oversee 8,500 UK letting agencies?

The proposed London Rental Standard – a voluntary scheme which the Mayor of London expects landlords, managing agents and letting agents to follow – may represent a reasonable start, especially if copied elsewhere.

The cross-industry Code of Practice, due to be published in the summer of 2014, should result in agents being judged more strictly if a complaint reaches Court or tribunal – irrespective of whether or not the firm is regulated. Renegotiation of ‘sacred cow’ tax advantages, said to be worth £6bn per annum to landlords, may not be so unwelcome if easier, but fairer, tenant evictions, more build-to-rent incentives, longer term tenancies, some form of agent/landlord licensing, better enforcement as well as consolidation of over 100 relevant Acts of Parliament and 400 separate regulations into a simpler format, were to result.

THE LAST WORD

There’s no doubt present arrangements neither target nor incentivise higher standards or property improvements, which must constitute a huge missed opportunity.

So let’s hope politicians seize these rare moments, of consensus and work together to deliver some of the long-overdue reforms required in our increasingly important industry – before it’s too late!

Jeremy Leaf

Jeremy Leaf

Jeremy Leaf BSc FRICS Jeremy@jeremyleaf.co. uk . Jeremy is principal of Jeremy Leaf & Co, a North London firm of chartered surveyors and estate agents.

In 2005 Jeremy was elected Chairman of the RICS Residential Faculty and continues to sit on the RICS Professional Board.

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