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Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc) (England) Order 2014

Volume 755: debated on Wednesday 16 July 2014

Motion to Consider

Moved by

That the Grand Committee do consider the Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc) (England) Order 2014.

Relevant document: 4th Report from the Joint Committee on Statutory Instruments

My Lords, the private rented sector now represents the second most common form of tenure in England, providing for 4 million households. We believe that there are more than 3 million residential leasehold properties in England. I declare at this point that I am both a leaseholder and a landlord.

Approximately one-third of letting agents and a minority of property managers are not members of a redress scheme. This means that people using these services do not have ready access to an independent complaints procedure if they receive poor service from their agent. The majority of letting agents and property managers provide a good service. However, for people living in or owning property in the private rented and leasehold sectors, who rely on these agents, the inability to seek redress can have a significantly detrimental impact on their quality of life.

The Enterprise and Regulatory Reform Act 2013 gave the Secretary of State the power to require all residential letting agents and property managers in England to be members of a government-approved redress scheme. The first order, laid before this House on 25 October 2013, gave the Secretary of State the power to approve redress schemes and to set out requirements for them. As stated when that order was debated in November, a second order was to be made, making the requirement mandatory, once the Secretary of State was satisfied that all agents were able to join a redress scheme. The Secretary of State is satisfied that we have now reached that stage and we propose that the duty to belong to an approved redress scheme will come into force on 1 October this year.

In April 2014, the Secretary of State approved three schemes: the Property Ombudsman, the Ombudsman Services Property and the Property Redress Scheme. These three schemes provide an independent, transparent and competitive source of redress for landlords, leaseholders and tenants. Furthermore, the performance of these redress schemes will be monitored, ensuring that a high level of service and standards is maintained.

The redress schemes will have a range of options to tackle poor service by letting agencies. They will be able to require apologies, explanations, compensation, making good and even expulsion from the scheme. To ensure that all letting agents join a scheme, councils will be able to fine agents more than once for failing to join one. Yet the order is fair, in that should an agent or property manager feel that the fine is wrong or unreasonable, they will be able to appeal to the First-tier Tribunal.

We recognise that enforcing the requirement for membership of a redress scheme will entail a new burden for local authorities, so we will make additional funding available. Furthermore, councils will be able to retain the fine, enabling the proceeds from tackling cowboy agents to be used to tackle yet more rogue agents, where they exist, thus continually driving up standards in the industry. Councils will also be assisted by the redress schemes working together and with trading standards, minimising the capacity for rogue letting agents and property managers to hide.

The definition of what constitutes letting agent and property management work is very broad. We have therefore provided some exemptions where there is already a suitable mechanism for customers to seek redress or there is existing regulation. For example, universities helping to find student accommodation or operating halls of residence, legal professionals, managers of refuge homes and mortgage receivers are all engaged in work that could be covered by this order but are subject to existing regulation.

The order will bring a source of redress to the individuals who use around 3,000 letting agents and property managers. It will complement and strengthen existing provision in both the leasehold and private rented sectors. It will also complement the requirement that we are introducing through the Consumer Rights Bill for letting agents to publicise their fees both in their offices and on their website. This will encourage competitive fees, deterring agents from charging tenants and landlords for the same service.

Overall, we want to raise standards for landlords, tenants and leaseholders. Mandatory redress and transparent fees will go a long way to achieving this. I commend the order to the Committee.

My Lords, I welcome the noble Baroness, as I think that this is the first time that we have done this. For me, this is a great delight because, as I am sure that she will not need reminding, it implements the amendment that I managed to secure, against the Government’s wishes, in the House. Needless to say, therefore, I warmly welcome the order. However, I want to make some comments and pose some questions to the Minister. I understand that my questions landed her on desk a little late and that some of the answers may have to be by letter.

First, the scheme will work only if all landlords and tenants become aware of their right to take any unresolved complaints against letting or property management agents to an ombudsman. What plans are there to raise such awareness? Will these include requiring every agent to publicise the relevant ombudsperson on their headed notepaper, website or whatever?

Secondly, in other retail areas, the consumer can shop around between providers, so normally transparency of fees is of great assistance. However, this of course is a different industry, where that does not apply to tenants, 60% of whom find their home via an agent. The tenant can choose only between properties; they do not select the agent. It is the landlord who selects the agent. What plans do the Government have to encourage landlords to shop around and thus drive up standards? Tenants simply cannot do that.

It is obviously too much to expect that the redress scheme itself will raise standards. It will certainly not be able to do it unless local authorities enforce the awards—although we are delighted with the incentive that the Government have made available, which I think local authorities will grab with both hands. In addition, standards will not rise unless there is some sort of feedback loop to ensure that bad practice is stamped out rather than continually requiring the consumer to suffer and then make individual complaints.

The Government may well say that they will oversee the redress schemes to make sure that they are effective, but I am more interested in how we oversee the sector to see that the lessons from those redress systems are brought together. Somebody should have responsibility for seeing what the common problems being complained about are and driving up standards in that way. It is, as we know, an industry infamous for instances of bad practice. According to Shelter, one in four people have been charged unfair fees. Reference checks can cost as little £10, which is very nice, but as much as £275, while renewal fees can cost up to £200. This is in a sector of 9 million tenants, where rents have increased by twice as much as wages since 2010. These unfair charges are hitting a group already suffering from high rents.

The Minister touched upon cases of agents double-charging; that is, charging both landlord and tenant for the same service. I am less relaxed than the Minister that simply putting up the list of charges will deter that. There is, furthermore, probably an interesting legal question as to whether tenants become clients if they pay an agent for a service. Can the Minister tell the Committee whether a payment for such a service makes the tenant a consumer under the Consumer Rights Bill? Would they therefore have the same consumer rights over those services, especially the right to have such a service provided with “reasonable care and skill”, as set out in that Bill?

It is clear that redress systems themselves cannot, of course, enforce their awards. If a letting or managing agent does not implement an adjudication, all the redress scheme can do is de-list the agency. The two existing schemes have an agreement that they would not take on an agency which has been debarred by the other, which is a pretty essential requirement to aid enforcement. Can the Minister tell the Committee whether the new, third scheme will undertake not to take on an agent that has been debarred from one of the existing schemes for not abiding by an adjudication? Without that, there will be no enforcement—unless the Government have something else up their sleeve they have not yet told us about. Can the Minister also tell us whether the new, third scheme will operate to an existing code, which the other two obviously already work to? What thought has been given to consistency of outcomes, which the two existing schemes strive to achieve?

On the selection of redress schemes, outlined by the Minister in her introduction, could she explain why, for the very first time in the development of statutory requirements to belong to an ombudsman, a profit-making body has been approved? All the others, across housing, energy, health, local government, telecoms, and legal and financial services, are either statutory bodies or not for profit. Why do the Government consider that this area of public policy should reside in the hands of someone out to make a profit? Why, anyway, did the Government want to add a third—a new, non-existent body—to two established, recognised and respected schemes? Is helping to set up a new ombudsman not at variance with Cabinet Office guidance that the Government should not set up a new ombudsman where there is already a satisfactory one in the relevant market? It would be interesting to know what risk assessment has been done of a “flight to the bottom”—in other words, making it as cheap as possible for landlords, when the majority of complaints will come from tenants—if there is a plethora of ombudsmen, with fairly obvious consequences for the quality of adjudications.

I understand that the new scheme is seeking to charge landlords considerably less than the established schemes, but does such competition on price—to be paid by the landlord, who will not be making the complaints on the whole—not risk compromising the quality of service provided to tenants? Will it not be confusing for consumers, tenants and landlords, to have to try and find out which is the appropriate ombudsman for their particular letting agent? Elsewhere, there is a move to rationalise and even reduce the number of schemes to make it easier for consumers, as we have seen from the report by the Select Committee in the other place. At the very least, should we not be working towards a common portal to help complainants rather than setting up ever more ombudsmen?

My concern is that this apparent government support for the fragmentation of the redress architecture with a plethora of ombudsmen may be a reflection of the lack of support for effective redress, particularly given the Government’s early resistance to this move. I would be interested to know what views they have sought from both landlords and tenants for their approach of supporting the increase in the number of schemes.

As the noble Baroness may know—I realise that she has taken this on very late—the Labour Party is against double-charging landlords and tenants for the same service. It would be interesting to know whether the Government share that view, and what assessment they have done of any conflict of interest where a letting or managing agent charges both contracting parties. To which does the agency owe a duty of care and other obligations?

Finally, how do the Government’s plans to implement the EU directive on ADR tie in with this particular order? Are we to assume that a similar pattern is to be followed for other markets? Are the Government setting out to allow private, for-profit companies to be the main suppliers of alternative dispute resolution? That is of course wholly different from our long and very advanced history of ombudsmen in this country.

My Lords, I thank the noble Baroness for her input on this debate, and I congratulate her on the part she has played in this area. I will go straight to the various questions which the noble Baroness raised. The first question was about raising awareness and agents publicising their fees. We expect scheme membership to be publicised by members, and all three schemes will publish a list of members. We expect the schemes to work with their members to publicise which scheme they have joined. This should be displayed on an agent’s letterhead and perhaps on a sticker in their windows, on their website and so on. As for what happens when an agent fails to display their membership details, all three schemes will publish a list of their members, which will enable the general public to search those lists. Alternatively, someone could contact their local authority, which will be obliged to investigate.

The noble Baroness asked what will prevent an agent being kicked off one scheme and then joining another without the public knowing. All three approved redress schemes have agreed to work together. They have the power to share information with the appropriate regulatory bodies and with each other to ensure that rogue agents do not play one scheme off against another. Should one of the schemes expel an agent, it must set the conditions for readmittance of that agent and tell the other schemes. An agent must then meet those conditions before they can join any of the schemes. Given that the majority of letting agents provide a good service, with only one-fifth of tenants and 17% of landlords dissatisfied with the service according to a Which? report of November 2012, this will only apply to a few exceptional agents.

The noble Baroness also asked whether tenants would qualify as consumers under the Consumer Rights Bill. I will write to her about that. She also asked whether the third scheme was working with the existing schemes and whether it will use the existing code. The answer to that is, simply, yes. The noble Baroness asked what the reason was for the third scheme. The DCLG will monitor the performance of the schemes through key performance indicators and will undertake a review of the policy in around a year, after the regulations come into force, to ensure its objectives are being met. The schemes were selected as they all met the conditions for approval, including demonstrating that they are independent, fair, effective, transparent and accountable. The first two are existing schemes, as the noble Baroness pointed out, which between them already have 60% of the total 11,560 agencies as members. The PRS is a new provider but is very much open for business.

The noble Baroness also asked whether approving a scheme which is run by the same company as one of the tenancy deposit schemes will create a conflict of interest. The PRS met all the conditions for approval, including that it should be independent. It indicated in its bid that it will apply for membership of the Ombudsman Association, which will demonstrate that it embodies the key characteristics of redress schemes, namely effectiveness, fairness, openness and transparency. I hope it will give the noble Baroness comfort that the DCLG will monitor the performance of all the schemes and will have the ability to withdraw approval should a scheme no longer meet the conditions for approval.

I think that addresses all the points that the noble Baroness made. If not, I shall write to her afterwards.

Some of those answers are particularly welcome, for example about publicity and working together, but the Minister has not commented on the use, for the first time, of a private for-profit company. I assume she took my comment as a comment rather than a question. I would be interested if she could respond to that but, if not, I will let it lie on the table.

Motion agreed.