ARLA asks government to reconsider regulation following census data

Hi Mary

I agree with most of what you have said. However, I think Scotland will have problems with their legislation and I sincerely hope your predictions are wrong in respect of similar legislation coming to England and Wales.

I made the following comments in this related thread >>> http://disq.us/8byajg

I have a strong belief that Shelter have not thought through the ramifications of what they've done by ensuring that Scotland enforces its old laws which prevent letting agents from charging fees to tenants. Shelter are certainly looking down the opposite end of the telescope to me, that's for sure!

Shelters intended knock on affect was no doubt to improve the position for tenants. Who did they think would take the knock for this lost income though? Did Shelter think that letting agents would provide the same service for less money or did they think landlords would pay more? I can't see either of those things happening, especially in Scotland where people are known for being careful with their money. What I suspect will happen is that landlords will try to self manage and many will make a complete pigs ear of it. As opposed to regulating a reasonable number of Letting Agents the role of the regulators will now become akin to herding cats if all those amateur landlords who previously used agents now turn "have a go hero's". The regulators will have no chance. My prediction is that the lettings industry will crumble in Scotland as a result of the recent changes and that standards will deteriorate generally. In my opinion the inspired amateur landlords will make so many costly mistakes that many will exit the business and the housing shortage will intensify. This will be great news for the rogue operators who never have and never will provide decent housing but they will get more business as supply will be massively outstripped by demand. We all now that Councils have no choice other than to deal with rogue operators in some areas as there is nowhere else to house people. I predict that will become even more common place.

It's not often that I praise the FSA but I think they did get one thing right in their regulation of promotions. They say that advertising must be "clear, fair and not misleading". Isn't that all we need in the lettings industry?

Let's have a look at what a letting agency does and pays for in addition to providing tenancy agreements:-

1) They advertise on the major property portals - that's not cheap
2) They conduct viewings - who knows how many they need to do
3) They deal with compliance, deposit protection, Gas Safety etc.
4) They produce inventories
5) They provide collection and deal with overdue accounts
6) They act as mediators
7) If they are SAFEagents they purchase Client Money Protection - again not cheap
8) They deal with the service of notices
9) They keep up to date with continued professional development.
10) They deal with referencing

I'm sure I've missed several things but let's stick with this list for now.

Let's say the average rent is £700 a month and the average agent charges 10%. Now lets assume that one person can deal with say 100 properties (I suspect that's top end too if they are doing the job properly). That provides £7,000 a month to do all of the above. By the time you strip out all of the costs I suspect that very few agents will make a profit on this model alone. The profit is in the fees they charge over and above the 10% full management fees and they need to split these costs between the landlord and the tenant.

I don't think £200 each from the landlord and the tenant is unreasonable at all as an average fee to charge at the commencement of a tenancy. So long as the charges are specified in a manner that's "clear, fair and not misleading" I can't see what all the fuss is about. If one agent charges £50 and another charges £300 to tenants and both have identical properties then market forces will win the day. We are all capitalists by nature at the end of the day, not just the providers of services but the consumers of them too.

If I were looking to let my properties through an agent who charged lettings fees of just £50 to me and £50 to tenants I would have to wonder what corners they are cutting or what the hidden agenda is. I know that charging £50 each is not a viable business model because I manage my own properties and I know what it costs and how much time it takes to do things right. If I could pay somebody else £50 a property to do what I do then I'd give them my business in a heartbeat. Before anybody offers to do just that, please don't bother, I know that you can't do it. Call me close minded if you like but if you're daft enough to do what I do to try and do all the pre-tenancy checks I do for £50 a property I still don't want to deal with you. Reason? If you're that daft I don't trust you to be able to manage my properties!

Regards

Mark

Mark One of the big problems that I deal with constantly is Letting Agents who get it wrong and drop their landlords in the doo doo. I am waiting for an explosion at the end of June 2013, I don't want to go into detail here because I don't want to inflame a bad situation but I can say that several Letting Agents, who did a let only for 100's of properties this year, have broken the law and the landlords may pay a very high cost.

These Agents charged the landlord around £500 and the tenants £250 each and many of the properties have 6-8 tenants. That is a lot of money. They did not do accompanied viewings - a potential issue if exisiting tenants "loose" items. They did not carry out references - by agreement with landlords. They used a Tenancy Agreement provided by an outside organisation. I could go on but surfice to say that the landlords agreed to the service that was provided and the cost of that service and this is not the issue. It is something that that did not do that is going to cause a BIG problem for landlords

I was always happy to pay an Agent for a let only and I paid around £600 for that service. They seldom showed a property more than twice and I used my own ASTs and other documents once they had found the tenant and referenced him. One day I found out from a tenant that he had been charged £240 plus VAT by the Agent and that is when I stopped using them and turned to the great online Letting Agent that I now use and who charges me less than £70 inc for all the services that I need and gets me good quality tenants. Mark I know that you support another online Agent but trust me I get far more than I pay for from my guys - they won an Award this year and every landlord I know that uses them agreed that it was very well deserved.

I agree that many landlords buy property with the intention of handing it over to an Agent for a full management service and there are some excellent Agents who do a really good service - ironicallly cost has no relationship with service in that business and many of the best Agents I know have no offices or just use little rooms above other businesses they have small teams of dedicated staff and are very user friendly for landlords and tenants. Some of the "chains" train their staff to a very high standard and work to a self impossed Code of Conduct but I am sorry to say that there are many bad Agents who neither know nor care about the business and they are the ones that are dragging the others down. In the Midlands we have accredittion based on eduction (Midlands Landlords Accreditation Scheme - MLAS) and many Agents are members because for the small cost of £150 they can get their staff trained in on day to know and understand all the legal obligations of the business, they sign up to the Code of Conduct of the Scheme and must continue to learn to keep their accreditation up to date. Landlords and Tenants who use these Agents can be confident that if they let them down there is a complaints procedure to deal with it and to make sure that the Agent sorts things out. I would like to see schemes like MLAS, LLAS, NLA etc used throught the UK because a Landlord or Agent only needs to join one to be recognised by all of them because all follow the same template

Turning to Tenants - I don't want my tenants to pay for the services that I choose to use, I am very happy to pay for them myself and when the day comes that I use a fully managed service I am happy to pay a fair price for a good service - 10% will not cover that service and I know this because I have been doing the job myself for 40 years. In my opinion a Tenant should pay the rent in advance and deposit and at the very most the Reference fee because asking a person to find thousands of pounds up front is a barrier to many people finding a nice home and I don't want barriers I want a good supply of decent tenants that enables me to choose who I let to and some of the best Tenants I have ever had were not big earners. It is a myth that people who can afford a lot of money upfront are better tenants - in my experience they often have high expectations and want me to be at their beck and call, where more down to earth tenants are respectful of the fact that I too have a life and that I cannot call an electrician at midnight because a light has failed.

Sorry to bang on but I do feel very strongly about this issue and I want to be in a business that allows me to thrive but not at the expense of my customers (tenants). I don't always agree with Shelter but on this one I do. We (Landlords and Agents) must stop being arrogant because demand outstrips supply because in 2013/14 things ARE going to change and this time next year I will refer back to this discussion and say "I told you so"

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Mary

IF Shelter get their way with their current proposals they will disrupt the free market economy in the Private Rented Sector in England and Wales. This has potentially devastating effects of the provision of housing in my opinion.

You are a very influential lady and I respect and agree with most of the things you believe in. I am, however, disappointed that you have fallen for Shelter propaganda in this instance and are supporting their proposals.

You have covered several topics in your above post and I agree with nearly all of them.

Please have a read of the discussion I've been having with Ben on the Guardian website to see what I mean about Shelter and my predictions for what will happen in Scotland, and indeed England and Wales if Shelter get their way and disrupt free markets by preventing agents from charging fees.

The link to the discussion on the Guardian is >>> http://www.guardian.co.uk/housing-network/2012/dec/04/landlord-survey-housing-benefit-claimants

If after reading the discussion Ben and I have have on the Guardian website you still believe that Shelter are right please come back and explain why you believe the PRS will be better of as a result of the recent laws in Scotland being implemented in England and Wales.

By the way, the online letting agent I use only charges £49.99 if I don't want her to do the tenant referencing. Like me, she doesn't believe in awards which are only ever won by people who nominate themselves and buy a table at the awards event. I know the awards you are talking about and nobody has ever won unless they purchased a table! Read into that what you will.

Regards

Mark

Mark Having never won an Award in my life I won't argue with you on that one hahahaha

I am going out now to watch all the silly people who did not do their Christmas shopping while the sales were on! When I get back I will read your discussion and post back.

To be clear I am not particularly supporting Shelter but I am supporting the many good tenants who cannot afford to rent in the PRS simply because they cannot get large sums of money together to begin with. I am also supporting landlords who are not getting the service from some Letting Agents that they are paying for and who do not realise that being a Letting Agent does not mean that they understand the law relating to letting. This is damaging the PRS and it must stop.

This subject is important but it is only a tiny part of the whole landlscape that is about to change the PRS forever. Some landlords will benefit from those changes but many will not survive!!

2013/14 will be to the PRS what the Equal Pay Act 1970 was to women in 1975

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Carrots and stick Mary - let's hope they get the balance right.

I'm worried that far too many sticks are being accumulated with which to beat landlords with. A few carrots would be nice, e.g. CGT rollover relief, allowing pensions to invest into residential property etc.

Surely the government must recognise that it needs not only to address problems in the PRS but also to influence its growth, particularly of good landlords. By attracting more good landlords people will have more choices. Viva the free market economy I say.

I look forward to reading your post later, now off to do my Xmas shopping LOL

Mark If some Landlords and Agents did not behave like
donkeys we would not need carrots or sticks.
We all suffer from those who do not do their job properly in this business
just as all good citizens suffer the cost of controlling the bad ones. Laws are written to protect us from those who cannot be trusted to behave correctly without them and our business is no different to any other. Do you remember holidays before ABTA and ATOL?

I have so often read posts that say “I could not walk out of a supermarket without paying but tenants can live in my property without paying” This simply is not true. All supermarkets suffer from shoplifters. A major Supermarket close to my home lost FIVE large screen TV’s a couple of years ago when individual customer simply walked out with them in a trolley. The problem for us is not that
there is no law to prevent tenants from not paying it is that the law is bad
legislation and needs to be changed to deal with reality. Supermarkets do not expect the law to prevent shoplifters they simply expect the law to deal with them when they are caught. Landlords have to accept that it is up to us to prevent bad tenants moving from one property to another and to work together to bring about changes in legislation. I see Universal Credit being the key to this and when RSL’s and Local Authorities are in the same game as the PRS, which they will be, I believe that there will changes in the Possession legislation.

To go back to the point of this discussion. Letting Agent are not part of Landlord and Tenant law, anything that they do or do not do is done on behalf of the
landlord who has chosen to use them. It is therefore the responsibility of the
landlord to choose carefully and not to put ourselves and our tenants in the
hands of bad Agents. At this moment it is very difficult to know which are the good Agents. I’m sorry to say that the organisation that “self regulate” Agents only concentrate on client money protection. No one regulates Agents when it comes to ensuring that Gas Safety Inspection are done on time and that tenants are given the correct documents. No one regulates Agents who constantly put unenforceable terms into tenancy agreements and then use these terms to break the law. A classic example of this is the Agent who thinks that a term in an AST allows them to show a property to a prospective new tenant without the consent of the existing tenant or to carry out inspections on the same basis. No one prevents Agents charging ongoing fees to renew tenancies that should not berenewed. Membership of regulatory bodies does not guarantee that an Agent will
be inspected and that the documents will be checked nor that their ASTs are
sound, nor how much money they make from undisclosed commissions and ongoing fees. Many Agents pay large fees to carry a badge in their windows or on their letter heads and that can lull a landlord into a sense of false security.
How many landlords actually know what the Logos stand for, what they can
actually expect from these organisations if things go wrong? Have they got complaints procedures that deal with the Agent who has wasted months and lost the landlord thousands because they don’t know that they need the landlord to go with them to court for a Possession Order?

Vanessa has posted an excellent video example of how an Agent really messed up an Inventory and lost the landlord a claim from a deposit. http://www.propertytribes.com/no-inventory-giving-your-tenant-an-unfair-advantage-t-6923.html. Inventories, in my opinion one of the most important documents we use, are not regulated or checked by any organisation.

Your excellent comments on that discussion sum up my belief that most Landlords and Letting Agents who get it wrong do so because they do not know how to do it right and it is only though compulsory education that they will learn.

“Given the choice between compulsorylicensing of landlords or compulsory Landlord Accreditation I would vote for Compulsory Landlord Accreditation and CPD every day of the week.

It's the inspired amateurs generally that earn us all a bad reputation. Get
them trained up before they are allowed to become landlords and that will, in
time, enable the authorities to deal with the real criminals operating in this
sector.”

Compulsory education based Accreditation of both Landlord and
Letting Agents along with a Code of Conduct, complaints procedure and possible
loss of accredited status will make a huge difference at NO COST TO THE PUBLIC PURSE. MLAS and LLAS charge around £150 and MLAS is self funding at that cost. This is tax deductable for the Landlord and Agent and the majority of those who attend find that is good value for money and makes them feel more secure. The local authorities who support Accreditation schemes know where to find the landlord when they need to and can use the arbitration system to save them time and money to sort most problemsout. Rehabilitation, through further education, is more often used than punishment/fines/prosecution. It’s a no
brainer

I don’t want to see “more regulation” I want to see regulation of Agents because there is none and that is damaging the good Agents who we need to survive, Tenants and Landlords. When Agents are regulated and are doing a good job I, for one, will be very happy to pay a fair fee for the work that they do on my behalf rather than see my Tenants /customers paying for a service that they have not chosen to use and have no control over.

Mark have a look at my piece here, written in October, with predictions about the future of Letting Agents http://www.lettingaproperty.com/property-blog/2012/10/will-the-high-street-letting-agent-soon-be-a-thing-of-the-past/

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Mark I have just Googled the Young Ones and came up with this video, if this is what influenced you I do not want you for a tenant. But it does answer some of the questions I had about you hahahahahaha

http://www.youtube.com/watch?gl=GB&hl=en-GB&v=xfjB3slAZBQ

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Hi Mary

I have read your article on "Letting a Property" and I think you have come to a similar conclusion to Julie.

There are a lot of separate issues that are getting bundled together here to make up Shelters propaganda.

The question I would like to raise at this stage is what constitutes a rip off?

To make my point let's take things to an extreme level.

If an agent charged £1,000 to the tenant at the start of the tenancy, and annually thereafter, and the same amount to the landlord would that constitute a rip off? I'd say it depends. If all parties entered into the arrangement knowingly then it's not a rip off, expensive YES, but not a rip off. Most landlords and tenants would baulk at those levels of fees and go elsewhere, that's the wonderful things about a free market economy.

Price and value are merely perceptions. If we can't afford something we say it's expensive, it's not, we just can't afford it. Just 20 years ago could anybody imagine paying £200,000 for a flat? It's quite common now. Very few would have paid that price 20 years ago but such is supply and demand that a lot of people do now. As I said, price and value are just perceptions.

Going back to my example of the £1,000 fees and looking at the scenario another way, if either party wasn't aware of the fees at the point of agreeing to a deal then that could be construed to be a rip off and challenged as an unfair contract.

We all have choices, let's not restrict our industry by removing the free market economy. That's what has happened in Scotland and we can but speculate on what effects it will bring over the next decade. Will rents go up, will the PRS in Scotland shrink? Only time will tell. I say let prices and values find their own levels. It's transparency we need, not the stupid laws which are now being enforced in Scotland.

With regards to the regulation of the PRS, the more I read and debate this the clearer the picture of what's needed becomes. My views and opinions are evolving.

This is what I now think is necessary:-

1) For agents to become legally responsible and accountable for their landlord clients compliance.Where landlords fail to pay to maintain their properties to adequate standards the agent then has Hobson's choice, i.e. refuse to act for the landlord or risk the consequences.
2) For it to be mandatory for agents to carry PI insurance and Client Money Protection Insurance. This would make it virtually impossible for agents to have a string of failed businesses. Also, they would go out of business if they were incompetent due to the rising costs of insurance based on claims history. This would also encourage agents to become better qualified too as, recognised accreditation would no doubt be reflected in insurance premiums. A good example of how this would work is Advanced Motorists getting cheaper insurance whilst regular claimants on car insurance policies paying a lot more than those with a good no claims history. The consequences of agents trading without insurance to become akin to the consequences of driving a car without insurance.
3) To replace deposit protection with compulsory blanket Client Money Protection for both landlords and their agents. I like the idea of choice, i.e. custodial deposit protection of insurance backed protection
4) For it to become illegal for media and property portals to accept advertising from unregulated landlords and agents
5) For all advertising to be "clear, fair and not misleading". This is a phrase and principle used by the FSA to regulate advertising of financial services. In terms of the PRS this would, for example, relate to the disclosure of charging structures.
6) For none payment of rent, damage to a landlords property and anti social behaviour to become criminal offences and not subject only to civil litigation. The laws which apply to hotels, guest houses, inns etc. seem pretty fair to me, i.e. break the rules and you're out - fail to leave and the Police will arrest you.
7) For Deeds of Assurance to become more popular amongst landlords who are looking for long term tenants. In this regard, the points made in 6) above would only be valid if the tenants were to fail to; pay the rent, respect the property or respect the neighbours. Landlords not offering a deed of assurance would be offering minimal security of tenure and in both cases I think it would be only right to make it compulsory for this to be disclosed in advertising, thus offering transparency to tenants and providing real choice, subject of course to supply and demand issues. Deeds of Assurance explained here >>> http://www.property118.com/?p=32440

What would you add to this?

I think you have just perfectly described how the lettings industry should proceed.
Point 6; however is the one that needs addressing before ALL others.
LL are losing 2.1 billion pounds a year from losses caused by point 6.
Address these issues immediately and there would be a rapid change in mindset amongst LLand tenants.
If for me to qualify for being able to enforce ALL of point 6 I was required to be accredited, insured, with CPD or whatever, I would.
Your suggestions are not onerous and the advantages of a LL being able to effectively rely on being in control of his property and being able to evict non-rent paying tenant immediately if he wishes are good ones.
After all as a lorry and coach driver I had to obtain vocational licences: and would not object to similar if this gave me the right to have removed by police any tenant that had NOT PAID ME RENT.
A CPC is now required by all Lorry and coach drivers if driving vocationally.
In April next year if I do not undertake 35 hrs of CPC accredited instruction I will no longer be able to drive for money
To have such a facility and to be expected to prove some level of competence is NOT unreasonable for LL if it gives us additional legal clout to remove non-rent paying tenants.
Non-rent -paying tenants are the BIGGEST risk a LL faces concerning his financial future.
The LAW as presently constructed conspires against LL and forces them to provide a service effectively for free to tenants until they are evicted.
Which we all know takes ages.
I quote my ongoing one on whom fortunately I have RGI on and am being paid the RGI rent, albeit in arrears and always about 4 days after the arrears date.
My tenant has not paid rent since March 2012 and the PO date is now 10th Jan
If granted the DJ will probably say 28 days to comply though she won't turn up to the hearing.
Then application for a Warrant of possession hearing will have to occur, with a date probably about beginning of March.
The eviction date will have to be arranged and as they are so busy the date could easily be end of April.
So that would have been a year to conclude removal of a non-rent paying tenant.
Plus if the flat is a mess and needs refurbishing I receive another up 2 months worth of rent.
How many LL could absorb such losses.
I know without RGI I would NEVER have done and would now be bankrupt and homeless.
All caused by 1 wrongun tenant working the system.
So ALL your points are good ones.
But can we first deal with point 6 first in the industry as this is where LL are most vulnerable.
Once tenants knew they couldn't work the system anymore or be escorted from their rental property by police, tenant behaviour would change overnight.
Chances of your point 6 EVER being addressed
ZERO!
And so it will go on with LL being continually ripped off by tenants working the system with that situation going to get considerably worse when UC is fully rolled out........................something to look forward to!!?..............NOT!!

Mark the reality for a group of students or sharers on my patch with some Agents is
6 tenants on a joint AST rent @ £85 a week each total £510
Agents charge landlords for a let only 3 weeks rent plus vat total £1836
and tenants £240 each total £1440 overall letting fee £3276
In addition the tenants need to find 6 weeks rent as a deposit and the first month up front a total outlay for each person of £1,090 and for the property £6,540. This is a lot of money for people who can only afford £85 a week in rent.
They hand out the keys to prosepctive tenants to view on their own
They use a standard AST bought for a couple of pounds from the University or provided free of charge by a landlords association
They sign up the tenants and get guarantors. They do not credit check the guarantors. They do not protect the deposits, once the contract is signed up they hand over to the landlord who wants to manage the tenancy himself.
All the landlords who use these agents know the charges up front as do the tenants but this is a very sensitive market with a short letting period and neither the landlords nor tenants have the nerve to go it alone. If a landlord took the risk and did not let within 4 weeks he may be facing a void of one year. If the tenants took a risk and did not go to these agents they are afraid that they will not find a nice house. Chicken and egg.
This is not just happening in my area. There is a free market in some areas for both landlords and tenants but in reality the areas where tenants have a real choice are becoming less and less all the time. If this was happening in any other business it would be called a monopoly. I agree that disclosure would be a good starting point but for the reasons stated above it would not help some tenants
There is no doubt that we need an increased supply of affordable homes and there is no doubt that this will not happen overnight. I agree that Government need to encourage investment in the PRS rather than raising more barriers but there is a fine line between barriers which prevent investment and barriers which prevent criminals preying on people who have no choice.
Mark I know that you are a big fan of Insurance products and many of them make perfect sense but they are not the whole answer they need to be combined with education and a compulsary Code of Conduct if the PRS is ever going to be a place where tenants feel confident that they will be treated fairly.
This time next year many landlords and Agents will be in am much weaker position and there will be change.
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