To Regulate or Not to Regulate

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To Regulate or Not to Regulate

Published 2 November 2017

Last week saw the government launch its latest consultation paper aimed at housing reform, with the "Protecting consumers in the letting and managing agent market" paper and its call for evidence of current practices and recommendations for tighter regulation. Signally the government's commitment to protecting everyone living in the rented and leasehold sectors from abuse and poor service, the link takes a closer look at the detail and considers the implications for professionals active in the sector in the future.

This latest Consultation Paper, launched on 18 October 2017, is consistent with the government's ambitious housing reform programme and reflects the fact that the growth in the private rented sector has fuelled the growth of a multi-billion pound property agent market.

The paper says that there is "overwhelming evidence of the harm that some people experience, with claims that consumers could be overpaying for managing agents services by up to £1.4bn. Generation Rent found that the average fee paid by two tenants to letting agents is £400 with costs ranging from £40 to £780. Letting agents also have no contractual responsibilities to the tenant, despite the fact that they are the primary beneficiary of the service. Where property agents under-manage in order to squeeze costs, leaseholders and tenants can suffer due to late and poor quality repairs and services".

There is also tacit admission that measures previously introduced to address the imbalance of power; particularly around service charge levels and through tenants obtaining control of the management directly, are frequently undone in a tribunal system that is too daunting, costly and uncertain.

At last week's launch, the Secretary of State, Sajid Javid, commented that "This is supposed to be the age of the empowered consumer – yet in property management, we’re still living in the past. I’ve already announced plans to regulate letting agents, including banning fees for tenants. I’ve also made clear that I want to see an end to unjustified use of leasehold in new-build houses. And today I’m setting out a plan to fix the problems in the property agent market.”

Hence the call for evidence, seeking views on whether an overhaul of regulation is needed and what measures can be taken to empower leaseholders by making it easier for them to choose and switch agents, particularly reducing costs. The consultation is open until 29 November 2017.

Since 2014 all letting and managing agents have been required to belong to a redress scheme. In April 2017, tougher measures were introduced to target rogue landlords and agents and the government remains committed to legislating during the life of the current parliament to introduce banning orders against rogue landlords/agents, to ban letting fees paid by tenants and to force all agents to be a member of a client money protection scheme.

The paper poses a number of questions, ranging from asking what regulatory measures could better empower leaseholders to manage the quality and costs of the services they receive, whether a new regulatory approach is required and, if so, what its scope and objectives should be, through to invitations as to what minimum standards / qualifications / training requirements / codes of practice should apply to being allowed to practice as a lettings or property management agent, what the regulators powers should include and what steps should be taken to enable leaseholders to challenge unfair fees and charges and switch agents / obtain control of the management process.

Where is all of this heading? Whilst too early to express definitive views, it seems highly likely the changes are coming and that these will be enshrined in legislation. It seems likely that steps will be taken to introduce minimum service standards which are transparent, to introduce mechanisms which make it far easier / swifter to challenge all fees and penalties imposed, to make it even easier to wrestle control of the management function in housing blocks from the landlord's appointee (perhaps even outside the current Right to Manage function) and to create a statutory regulator that sits above all accredited trade bodies with effective powers of enforcement.

The government's call for evidence has been widely welcomed by the leading practices and trade bodies active in the sector as changes are seen as entirely positive; proper regulation empowers consumers and ensures that rogue practices are brought to an end through effective enforcement. Obviously those who take best practice seriously, and they are in the majority it must be said, will already be acting to a level that ought to satisfy any new regulator / watchdog and eliminating the rogues will undoubtedly create opportunities for growth.

The trick will be to ensure that those agents are not bogged down with red tape and, of course, do not themselves fall victim to a pricing war as consumers tout for alternatives. Easy access to service providers and the ability to switch based on transparent price comparison is certainly to be encouraged, but care needs to be taken to not risk commoditising the sector to a level which creates an aggressive aggregator style model.

Quality of service is clearly a very politically sensitive area, and rightly so given the number of people now living in rented accommodation, but a careful balance has to be struck. Some have already made the comment that if letting agents' fees charged to the tenant are banned, the cost will not disappear but emerge elsewhere and the bill payer will undoubtedly look to offset that additional outlay via another means, i.e. rent.

Finally, this consultation paper also comments, in passing, about the leasehold reform paper issued in July 2017. Unsurprisingly this attracted over 6,000 responses and a government response has been promised shortly. This is, of course, aimed squarely at the practice of leasehold titles for houses (as opposed to flats and apartments) and the recent media attention around rapidly escalating ground rents. This is the subject of a separate article in our Autumn Briefing 2017.


Naomi Park

Naomi Park


+44 (0)113 251 4793

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