UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as H C 953-iii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

COMMUNITIES AND LOCAL GOVERNMENT COMMITTEE

Private Rented Sector

Monday 4 March 2013

Mark Hayward, Jason Freeman, Geoff Fimister and Caroline Kenny

Peter Bolton-King, Christopher Hamer and Louisa Darian

Evidence heard in Public Questions 145 - 251

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Oral Evidence

Taken before the Communities and Local Government Committee

on Monday 4 March 2013

Members present:

Mr Clive Betts (Chair)

Simon Danczuk

Mrs Mary Glindon

James Morris

Mark Pawsey

John Pugh

Andy Sawford

John Stevenson

Heather Wheeler

________________

Examination of Witnesses

Witnesses: Mark Hayward, Managing Director, NAEA, representing the Association of Residential Letting Agents, Jason Freeman, Legal Director, Goods and Consumer Group, Office of Fair Trading, Geoff Fimister, Senior Policy Adviser, Citizens Advice, and Caroline Kenny, Executive, UK Association of Letting Agents, gave evidence.

Q145 Chair: Good afternoon, everyone, and welcome to our third evidence session on private rented sector housing. Before we start with your evidence, I am going to ask Members of the Committee to put on the record publicly any specific interests they have with regard to this inquiry. I have one flat that I rent out privately, which is recorded in the Register of Members’ Financial Interests.

John Pugh: I have a tenancy in London.

Heather Wheeler: I have a tenancy in London.

Simon Danczuk: Three properties that I have a share in are rented out.

Andy Sawford: My wife has a small interest in a private rented property.

John Stevenson: I have a small interest in a private rented property and a tenancy in London.

Mrs Glindon: I have a tenancy in London and my husband is a councillor on North Tyneside Council.

Q146 Chair: You are all most welcome. For the sake of our records, could I ask you to say who you are and which organisation you represent? Perhaps we could move down the table.

Geoff Fimister: I am Geoff Fimister. I am a Social Policy Officer with Citizens Advice.

Jason Freeman: I am Jason Freeman. I am a Legal Director in the Goods and Consumer Group at the Office of Fair Trading. I was the project director of our recent report on the lettings market.

Mark Hayward: I am Mark Hayward. I am the Managing Director of the National Association of Estate Agents. I am representing ARLA here.

Caroline Kenny: I am Caroline Kenny, the Executive at the UK Association of Letting Agents.

Q147 Chair: Thank you very much. If comments are made that you agree with, you do not have to repeat them. There are four of you on the panel; it will take quite a long time to get through it if that is what happens. You can say, "I agree with what somebody has said." If you disagree, we are happy to hear those alternative views as well.

Do you think, in general terms, the private rented market is functioning well in this country? If you have a quick suggestion as to how things might be improved, what would be the one thing you would put your finger on to say that we could do better?

Geoff Fimister: Obviously, people come to Citizens Advice bureaux for advice because they have problems. They do not come to tell us that things are going swimmingly. Obviously, we see the problems, and we see quite a lot of problems from the private rented sector. It is obviously a very important sector and is growing impressively. This makes it all the more important that we try to address the problem. At the moment, the big issue is probably around rent levels and affordability. The developments in housing benefit and rising rents are creating gaps and problems, but we have a steady stream of other issues as well, such as the condition of properties and issues around letting agents.

Jason Freeman: We looked at a number of complaints from 2011. We looked at about 4,000 complaints, so we have some idea of where we think there are problems and where people are complaining about problems. It is fair to say there are many people who are not complaining. It would be wrong to extrapolate, from looking at complaints, that the whole market is not working well. However, we see problems around people not having easy access to redress. Perhaps there are areas of law that exist that are not being enforced, or professionals in the sector are not necessarily aware of how the law should apply in daytoday situations.

We think there is a problem around the level of customer engagement, i.e. landlords and tenants not being sufficiently aware of their rights and responsibilities, and not being engaged with complying with their obligations and demanding their rights.

Mark Hayward: We would agree on the redress issue. Unfortunately, letting agents are not compelled to join or be regulated by a redress scheme as estate agents are. Therefore, the redress is probably down to the Trading Standards Institute, who are sadly understaffed at the moment.

I do not think people are necessarily aware of the regulations and the rights they have. Of course, this is driven by an imbalance in supply and demand, with far greater demand than supply. The first issue is to secure the property; they then start worrying about the other issues that will come forward after they have secured it.

Caroline Kenny: I would agree there is an issue. We need to look at raising standards within the industry, although we need to put it in proportion. After all, there are 3.8 million households within the PRS at the moment. I know the Property Ombudsman received over 8,000 complaints, but if you put that in proportion, it is 0.2% of those households. We need to look at the context.

Q148 Chair: I did not get many suggestions for improvements; we will probably come back to that later on. Mr Fimister, you referred to Citizens Advice and the very large number of enquiries you get every year about the private rented sector, and what some of those complaints were. Do you have a breakdown of how those complaints divide? There may be complaints about the state of the property and, obviously, there may be some complaints that refer to several issues. How many apply to the agent and their practices, and how many are about the landlord, if you can separate that out?

Geoff Fimister: If you leave aside the benefit issues, which is a very big area, and you look at the rest of the issues around the private rented sector, it is quite a wide spread. It is quite diverse. We are looking at issues around the condition of properties, the availability of properties, and issues around tenancy deposit protection, for example. Letting agents, as a separate category, are probably not a huge proportion, but you find letting agents coming into other areas as well. A letting agent may be involved in other questions around repairs, maintenance and so forth. There is quite a broad spread in terms of the categories of issues relating to private rented sector housing. It is when you look over at the benefits and affordability side of it that the numbers are clearly focused.

Q149 Chair: We will come to the issue of tenants on benefits later on. Is the number of complaints going up or is it holding steady?

Geoff Fimister: That is an interesting question. We have trouble identifying trends at the moment, because our statistical system is obviously based on the number of people coming in with enquiries and the number of enquiries they have. The problem, of course, in looking at trends at the moment is that the number of advice outlets is actually going down because of funding reductions-particularly in terms of funding from local authorities.

Comparing year on year does not tell you anything very clear about a trend. What is striking is that in spite of the reduction in advice outlets, we are finding that housing enquiries are holding fairly steady, and benefit enquiries are going up.

Q150 Chair: Mark Hayward and Caroline Kenny, you represent the good guys, don’t you? I mean the people who do not cause problems for anybody-the people who are responsible and well behaved. You never have any difficulty with any of your members. What do you do to find out about the activities of the bad guys? We are never going to get them sitting in front of us to give evidence.

Mark Hayward: You are not going to get rogue agents sitting in front of you. They are not members of either of our organisations. Our members have to qualify technically; they must have clientmoney protection, public indemnity insurance and adhere to our code of practice. The rogue agents have none of that. They are not sufficiently policed. I do not think Trading Standards feel that letting agents come under their focus necessarily.

There is great difficulty out there in dealing with rogue agents. We all see the headlines, but there does not seem to be much happening to bring them into line. Of course, anybody can be a letting agent.

Caroline Kenny: Likewise, in the UK Association of Letting Agents all of our members are covered by clientmoney protection. They abide by a very similar code of practice. There is a commitment to professional development; there is a thorough complaints process with independent redress; and they are all required to display and produce in writing their fees-there is a requirement for the transparency of fees.

However, I would echo what Mark said: there is an issue around enforcement. There is not enough enforcement of existing regulations, as they stand at the moment.

Q151 Chair: To each of you, what proportion of letting agents throughout the country do you represent as an organisation? How many of your members did you expel last year because they did things you did not accept?

Mark Hayward: We have about 6,500 members. Our members will create or handle in excess of 600,000 tenancies in a year. I do not have the figure for the number of people we expelled. We do expel people and we have a very strict disciplinary code. We have laypeople on our disciplinary committee, to make sure justice is seen to be done. Even if we expel them, however, they can continue to practise as a letting agent.

Q152 Chair: Perhaps you could get that figure and let us have it.

Mark Hayward: Yes. We publicise that we have expelled them; we put things in the local paper. There is, however, nothing to stop them continuing.

Chair: The figure would be helpful.

Caroline Kenny: UKALA actually relaunched last year. Although we were established in 2002, we relaunched in September last year in response to the increasing significance of the PRS in the market. At the moment, we have roughly 10 agents joining us a week. Our membership number stands at 250 at the moment. We are processing 70 applications. We are pleased with the way that membership has been taken up. At this moment in time, we have not actually expelled any agents. There has been just a handful of complaints, which have been of a fairly nonserious, servicelevel nature.

Q153 John Stevenson: I would like to pick up on your fees and charges. Can I start with you, Jason? In your review, your sample said 30% were complaints about fees and charges. Could you give some examples of exactly what you mean by complaints about fees and charges?

Jason Freeman: Yes, indeed. Mainly, the complaints were around what we would call drip pricing, when a tenant is going into a transaction. They are interested in a property; they might see it in the newspaper or on the internet, and they want to rent it, so off they go. Until they sign the lease, the charges they then have to pay in order to get the lease will be revealed throughout the process. We call that phenomenon drip pricing.

The effect tends to be that people become increasingly committed to the transaction psychologically, if you like. They do not have the opportunity to appraise the whole cost of the letting at the time they are going to compare properties. They might compare based on the level of rent or the amount of security deposit they need to pay, but they would not factor in the many other fees that they might need to pay. That is one area-drip pricing.

The other area that the complaints focus on specifically is around holding deposits: "What is this deposit for? How will I get it refunded? In what circumstances will it be refunded? It has not been refunded. Why is that? Is there some reason for that?" There seems to be quite a lot of uncertainty around what holding deposits are for and how people are going to get them back.

Q154 John Stevenson: The logical thing, if you are a tenant looking for a property, is to say to the letting agent, "What are your charges? What will I be charged by you for you to perform your job?" Why do people not do that?

Jason Freeman: One of the things we identified is that people are not necessarily as engaged on the fees as we would like them to be. They are not necessarily as engaged on their rights and responsibilities as we would like them to be.

Ordinary people who are trying to rent a property are entering a complex legal transaction, which is a necessity. People are not necessarily approaching it as a businessman would approach a commercial transaction; they do not get legal advice and so on.

Q155 John Stevenson: Can I interrupt? If you were going along to, say, a solicitor or you were getting some work done on a house, you would obviously ask for a quote to know exactly how much you were going to be charged before you went down the road of entering into a transaction. Why should it be something different for rented property?

Jason Freeman: One of the things we would like to see is information being made more accessible to people. For example, if you are looking for properties on the internet, which many tenants would be doing at the early stages of looking for a property, one question you could ask is how easy it is for them at that stage, when they are comparing properties, to find out how much it would actually cost them to move into that property.

We will probably find that it is quite difficult for a tenant, at that stage, to get information. The question then is at what stage they should be given the information. Many agents would give the information at the viewing stage, but it may perhaps be too late for people to properly shop around. It is a practicality; when are they going to be given the information?

One of the things we think would be of benefit in this market would be for agents’ fees, which tenants are going to be charged, to be much more transparent and to be presented in a clear and accessible way-perhaps through a tariff of charges-at the earliest possible stage in the transaction, so the tenant can see how much the transaction is actually going to cost them.

Q156 John Stevenson: Mark, your organisation believes in transparency and demonstrating how much it is going to cost either the landlord or the tenant, but if you go to some of the websites of your members, it is not transparent. What can you do about that?

Mark Hayward: At the moment, we are going through a very large education process with our members. I am speaking at a number of events to educate them. This is particularly about the transparency of the fees but also, more importantly, about them declaring the level of their fees at the earliest opportunity.

You will be aware of the Consumer Protection from Unfair Trading Regulations 2008, which very clearly state that anything that would affect someone’s transactional decision-fees would affect their transactional decision-needs to be declared at the earliest opportunity. Probably, this would be before viewing. The problem is that people rent and buy properties with their heart, to start with; the head only kicks in at a later stage.

Unfortunately, if you have an imbalance of supply and demand, there are a lot of people chasing property thinking, "I don’t want to know; I’ve secured the property," before they even think about or look at the charges.

Q157 John Stevenson: How would you like to see charges structured? Would they be fixed fees or percentages?

Mark Hayward: There must be charges for credit referencing and inventories, etc. They need to be made very clear at the beginning as an actual amount of money, not a percentage, so that people really know how much it is going to cost to get into a property.

Caroline Kenny: My observations would be that a lot of the charges levied on tenants can be quite variable: for example, the inventory fee. An inventory check-in fee charged to a tenant for a onebedroom property would be significantly less than if he were entering into a threebedroom furnished house, for example. There are restrictions as to what the letting agent can actually disclose to the prospective tenant until the offer is put forward, because you need to assess each individual case.

This applies to referencing fees as well. Depending on the tenant themselves, there may be a guarantor’s reference fee requested in addition to a tenant’s reference fee. We agree, and it is in our code of practice, that tenants should be provided with a written breakdown of the fees. This is prior to the offer being accepted, when the actual fees can be assessed.

With regard to landlords’ fees, every agent usually has their own standard percentage fee they will charge, but an agent may negotiate on that fee-dependent on market conditions and the number of agents that are going to carry out a market appraisal. There are some complexities involved in that process as well.

Q158 John Stevenson: Out of interest, do you think agents should even be charging a tenant for the inventory? Should that not be a charge allocated to the landlord?

Caroline Kenny: Usually, the charge is split between the landlord and the tenant. The landlord is responsible for the inventorymake, which is the master document that can be used and reused for subsequent tenancies. The checkin and the checkout charges are usually split between the parties. This is because both parties benefit from that process.

Q159 John Stevenson: Do you think tenants should be charged fees in the first place? Secondly, do you think the fees and charges-not necessarily the amount, but the disclosure and the transparency-should be underpinned by legislation?

Geoff Fimister: Yes, the last substantial piece of work we did on this in terms of research was back in 2009, when we produced the Let down report, which drew on evidence from bureaux and all sorts of specific surveys. Fees and charges, lack of transparency, unexpected fees and their high levels were the main themes of that report in terms of issues that affected tenants.

Certainly, the conclusion we drew was that fees should generally be levied on the landlord, rather than on the tenant, and then reflected in the rent. That would make it a far more transparent process. It would also mean there would be some ability, on the part of the tenant, to receive some help towards the cost through housing benefit. Of course, since 2009 that has become somewhat more restricted. We would like to see some sort of regulatory framework, of which this would be an aspect.

Q160 John Stevenson: Should that cover private landlords as well as letting agents?

Geoff Fimister: In terms of formal positions that we have taken in the past, we have proposed the regulation of letting agents. In the context of the much higher profile the private rented sector has had in recent years and some of the work we have done more recently, we think there are strong arguments for a wider regulatory framework for private landlords in general.

It was interesting to read the transcript of one of your previous sessions. I think it was Professor Partington who made an interesting point. He said that if letting agents were effectively regulated, then it would only be necessary to look at regulation of those private landlords who were not signed up with a regulated letting agent. I thought that was an interesting point.

Q161 Simon Danczuk: I have a quick supplementary question to Mark and Caroline. Of these complaints, the greatest proportion is about letting agents’ charges and fees. Why do your members not put their fees on their website, so that it is very transparent?

Mark Hayward: As Caroline said, the fees will vary sometimes from property to property.

Q162 Simon Danczuk: I will stop you there. I do not accept that. You could provide examples of fees for a standard onebedroom flat or a twobedroom flat. You could have a formula. There are lots of different services that are bought and purchased for which fees and costs can be readily identifiable on a website. Why do you not make it a compulsory aspect of membership of your organisation that your members put it on their website?

Mark Hayward: We ask them to be completely transparent about fees, but I certainly take that comment on board. It is where it is on the website, because there is a lot of information on a lot of our members’ websites that people will not drill down to. They will just see the property and the rent, and that is all they want to know. "Is it available? I need to see it."

Q163 Simon Danczuk: You are blaming the tenant.

Mark Hayward: I am not blaming the tenant.

Q164 Simon Danczuk: You are saying they will not drill down and find it on the website. Your members can design a website that is very explicit, transparent and clearly shows the costs and fees that tenants will pay. I am asking why you do not do this. Why do you not say to us today that you will make it compulsory for your members to do it?

Mark Hayward: I cannot say that I will make it compulsory, because it is not down purely to me. I will certainly take that back and we will discuss it fully. What I am saying, though, is that because of the climate with lettings at the moment, the urgency to secure a property is such that people will not read the small print.

Simon Danczuk: Do not make it small print; that is the point.

Mark Hayward: Even if it is bold, compelling and specific, they will not necessarily see it.

Q165 Simon Danczuk: This sounds like an excuse to me. Caroline, what is your view?

Caroline Kenny: I cannot give you that commitment here and now. In terms of tenants’ fees, there should be one nonvariable element to the tariff of fees, which would remain constant. That should be the administration fee relating to the drawingup of the tenancy agreement. In principle and in theory, as far as tenants’ fees are concerned, there is an element that agents could perhaps display on their website, but other fees will be more complex and would need to be calculated according to individual circumstances.

Q166 Chair: Could you explain that? It runs completely counter to the argument about having upfront transparency of fees. You are saying that two different tenants will get charged different amounts for the inventory.

Caroline Kenny: Yes, because inventory costs relate to the size of the property.

Q167 Chair: But you are advertising a property with a rent; why can you not say at the beginning, "This is what it is going to cost for the inventory to be done for that property"?

Caroline Kenny: I suppose you could do that, but in terms of the practical daytoday running of an agency, properties become available and are rented sometimes within 24 hours. As an agency, it would be quite onerous to do that.

Q168 Simon Danczuk: That is what you get paid for; that is why you are an agent. That is what the fee is for.

Caroline Kenny: I note that comment, but when you are calculating a particular fee relating to one property, you may have up to 50 properties that you are advertising at that time. They are rented so quickly because of market conditions that it may be quite onerous for agents to do that, to be honest with you.

Chair: You manage, however, to find the rent for those properties and advertise that. Anyway, maybe you can go away and have a think about that one.

Caroline Kenny: I certainly will.

Q169 Heather Wheeler: Mark, ARLA favours compulsory control of letting agents. Could you give us a broad outline of what you think this control would look like? Is your call for compulsory control a sign that selfregulation has failed?

Mark Hayward: No, I do not think selfregulation has failed as far as our members are concerned. They have to go through considerable hoops to become a member and stay a member. However, it is not a level playing field. As we know, nearly half the letting agents in this country are not members of any professional body; therefore, they do not fall under a redress scheme. Our members do. However, we need an overarching regulator-preferably someone like the Property Ombudsman-who could, on behalf of the professional organisations involved in lettings, invoke and supervise a redress scheme, as they do for estate agents.

Q170 Heather Wheeler: That is an interesting answer; thank you very much. Caroline, if I could come to you next please, you are opposed to a central regulator and instead favour a series of minimum standards. How do you think that would work? What would happen to agents who refuse to abide by those standards?

Caroline Kenny: Yes, we have a slightly different position there. We do not believe a central regulator is essential to ensure standards are met. UKALA members and those of other trade bodies obviously abide by the minimum standards that I outlined earlier and already provide those reassurances to consumers. If there were a central database-supported by the Government, consumer groups and industry bodies, and searchable by consumers-that listed all the selfregulating agents, this would provide the best incentive, in our opinion, for nonregulated agents to join a professional trade body.

In terms of rogue agents, I would go back to the other mention of the enforcement of existing regulation. Enforcement is the issue there.

Q171 Heather Wheeler: I understand. Jason, if I could finish with you please, we have talked a little bit today about redress; is it really an important issue? Is a decent quality home of greater importance to tenants, perhaps, than a couple of hundred pounds’ worth of compensation?

Jason Freeman: The advantage of redress is around being able to sort out problems as they arise. To some extent there is redress already built into the system around tenancy deposit protection. There are going to be certain issues that can be resolved at that stage. On the whole, for what it does, that works well, does it not? It is a useful system.

The downside of it is that you have to resolve the dispute at a time when the tenant perhaps needs the money to get the next property. It is a stressful experience. It would be better if things could be resolved during the life of the tenancy rather than at points of crunch. There is a good reason for getting things sorted out. If you can resolve problems with your home, it is a more enjoyable experience all round.

Redress is an important aspect. Having looked at this-and we looked at the complaints-it is one of the areas where we felt that the Government could certainly think about whether legislation would be a good idea. It is important, of course, to bear in mind all of the potential downsides in terms of cost and precisely how the system would work, but we felt the idea of there being a redress system that is accessible to everybody would be an area where there could be some real change delivered.

Q172 Andy Sawford: I want to explore some issues around tenure and security of tenure. We have conflicting evidence from witnesses, and I want to ask a little bit about why you have different views. Geoff, Citizens Advice tells us you support the Whitty inquiry’s recommendation that we move towards 24 months as the norm for tenancies. Why is that?

Geoff Fimister: We were quite closely involved in the Whitty inquiry, giving evidence to it and discussing those issues. As I said, we obviously tend to see situations where there are problems. One of the problems is around security of tenure. With shorthold tenancies, the balance of power is very much against the tenant in the sense that they can be moved on quite easily.

That is a problem anyway, but as the nature of the private rented sector changes and there are more and more families and children involved-there are all the issues around support networks, schooling and so forth-the idea of a very insecure tenancy form becomes more and more problematic.

We said that we supported the Whitty inquiry’s two years as very much a step in the right direction. Of course, Shelter have also done a lot of work on this. They are proposing a fiveyear model, which, as far as I can see, would be better than two years from a tenant’s point of view. Shelter have done a lot of work on how that might be incentivised; clearly, there are lots of issues, because landlords may have perfectly good reasons to want short tenancies.

Andy Sawford: Tenants also might want short tenancies, like students.

Geoff Fimister: Indeed, that is right.

Q173 Andy Sawford: What I cannot understand is what the mechanism would be. If there is an aspiration to move towards 24-month tenancies, what would be the mechanism to realise that aspiration? Would you favour legislation?

Geoff Fimister: We have not done the detailed work on this that Shelter have, but in the discussions we have had internally, and also in Shelter’s deliberations and the Whitty report deliberations, the idea of trying to tackle the question through tax incentives and positive support of that kind seems, certainly, to be the first step. I think I am right in saying Shelter would see a longerterm objective as being a move towards some sort of regulated arrangement.

Q174 Andy Sawford: The regulation would underpin this shift to longerterm tenancies.

Geoff Fimister: It could. It may be that incentives could achieve it without regulation; that is a debatable point. But if we had a regulatory framework, it would be a relatively straightforward matter to say, "The tenancy normally would be two years and landlords could apply for a different term if they had a good reason to do so."

Q175 Andy Sawford: RICS tell us that the average tenancy is around 18 months. UKALA say that 66% of tenants are there for longer than two years. There is not really a problem with this, is there? The exception could become the shorter tenancy, rather than that being the norm.

Caroline Kenny: The initial term may have been agreed as a shorter term, but obviously tenancies can roll over to periodic tenancies, resulting in longer tenancies.

Q176 Andy Sawford: Would it be fine if the norm were to shift to longer tenancies, for all the good reasons that Lord Whitty and the CAB have set out?

Caroline Kenny: There should be flexibility in tenancy durations. Obviously, the agent negotiates the terms internally with regards to the duration of the tenancy, according to what the tenant has requested and what is suitable for the landlord. The problem is that there is a restriction from mortgage providers, restricting the initial term to 12 months. The agent has to carry out the instructions from their landlord if they have that restriction.

Q177 Andy Sawford: The Property Ombudsman’s evidence tells us, though, that tenants need to be better educated to understand that they can request a tenancy for a period of time that suits their circumstances. What do your members do to make sure that tenants understand they can request a different length of tenancy? Is it prominent on the website, for example, alongside the fees?

Caroline Kenny: No, but a trained letting agent should know they have to listen to the requirements of the tenants. If the tenants are requesting a longer tenancy and the landlord does not have this restriction from their mortgage provider, the agent should be the facilitator and try to achieve the tenant’s request, if it is suitable for the landlord to release the property for a longer duration.

Q178 Andy Sawford: Would the question be asked by default by an agent, "Does the length of tenure the landlord is offering suit you and your circumstances, or do you wish to negotiate?"

Caroline Kenny: It should be asked by a proper letting agent who abides by our code of practice. I was a letting agent-prior to this position-for 10 years, and that was common practice. You are the facilitator and negotiator; it is up to you to get the terms agreed.

Q179 Andy Sawford: One issue that has been raised with us-this is connected to tenants having security in their relationship with their landlord-is this worry of retaliatory evictions. Would you care to comment on the extent to which you see that as a problem and what you could do to mitigate that? Would, frankly, a longer tenancy give the tenant greater confidence that they could raise complaints or issues with their landlord and not face a retaliatory eviction?

Geoff Fimister: Certainly, a longer tenancy would help in that respect. We did some specific work a few years ago, in 2007, on retaliatory evictions. It is a fairly persistent theme that comes into bureaux. There are a couple of examples in the written evidence we gave. One claimant was required to withdraw his housing benefit claim under threat of eviction. Another tenant had to drop a request to have a radiator fixed in a cold room. It is that kind of problem that does keep coming in.

Q180 Andy Sawford: The tenant had to drop the request because he or she was expressly warned they might be evicted.

Geoff Fimister: Yes. That sort of thing happens. I am not saying this is something that is typical, because as I have said a couple of times, we get problems by definition. However, retaliatory eviction is one of the persistent things that comes through in housing cases.

Interestingly, DCLG set up a working party to look at this in the context of the Green Deal. I was involved in that. The conclusion that we eventually came to was that there was not a lot of largescale evidence on this and that it would be useful if DCLG could possibly commission some.

Nevertheless, it is a persistent theme in terms of bureaux. In the work that Debbie Crew did for us on this back in 2007, she also looked at what happened in some other countries. In Australia, New Zealand and a number of American states, there is a system whereby tenants who feel that an eviction is retaliatory can go to a tribunal and have it looked at, which is something that could be explored.

Q181 Andy Sawford: Mark, what does ARLA do to make sure that retaliatory evictions do not take place?

Mark Hayward: I do not think this happens in a great deal of cases. Firstly, our members must act fairly. There is a code of conduct to which they have to adhere. Again, this is very much with the consumer or the tenant in mind, as well as the landlord. They will advise their landlord that this is not the action to take.

Q182 Andy Sawford: Jason, is this something you could comment on? Have you seen any evidence of retaliatory evictions?

Jason Freeman: There are some complaints; it is not a very large percentage. It is very small; I think 0.2% of the total cohort were around harassment issues. There were not many of them, but those would be perhaps landlords making unnecessary visits. There may be some evidence, but in the complaints we looked at, we did not see much about retaliatory evictions.

It is, however, something that has been raised. We had a meeting with various stakeholders in Northern Ireland and this was an issue they raised with us. The ability of tenants to be demanding, as we think they should be, means they can be on the receiving end of retaliatory action of that kind. It is clearly a concern, but it is not something we saw in the complaints that we looked at.

Q183 Andy Sawford: My final question is about the placement of homeless households in the private rented sector. We have had some quite different views. There was some very strong criticism from RICS around local authorities discharging their duty to the homeless in relation to the private rented sector. There was a question from CAB about whether this is the right way forward. I think you said it was an "unsatisfactory option". Could you comment on those points-perhaps from the point of view of your members, Caroline or Mark-around the experience of engaging with local authorities in the discharge of their homeless duties?

Caroline Kenny: This is a business decision that landlords need to take. It is not really within the agent’s remit to comment on that.

Q184 Andy Sawford: Presumably, you seek views from your members about changes in the private rented sector, and one of those is the likelihood that there will be an increase in the number of homeless people that local authorities seek to place.

Mark Hayward: Yes, we do.

Caroline Kenny: We have not had anything raised.

Mark Hayward: Certainly, in some areas it is increasing. The problems are in terms of rent arrears and providing suitable accommodation. We must not look at this as a Londoncentric issue; it is happening around the country. Our members will be engaging. As Caroline said, it depends upon the landlord, and whether or not they will look at people on benefit. Some will; some won’t.

Q185 Andy Sawford: Finally, in a local authority seeking to house a homeless person where social housing is not available, which is the assumption if they are looking to place in the private rented sector, how would the CAB advise someone who needed to be housed, given your position that this is not a satisfactory option?

Geoff Fimister: We clearly recognise that local authorities in certain areas-particularly London, of course, but not exclusively London-are in a very difficult situation in terms of the possibilities available to them. This is a good example of why it is very difficult to look at the private rented sector in isolation from what is going on in the social rented sector. But the reason why we worry about it is partly the security issues we have already discussed and partly the affordability issue.

When the DCLG guidance on suitability appeared in draft, we were critical of the fact that it did not explicitly refer to affordability of accommodation in the PRS. It refers back obliquely to the main homelessness guidance, which is actually good on that. It says that you should not be putting somebody somewhere where they cannot afford to pay the rent without being reduced below basic benefit levels. Because affordability is such a growing problem-with housing benefit increasingly restricted and increasingly not reflecting rental movements-we think homeless people should not be put into that situation; even if the rent is affordable to start with, it may not stay that way for too long.

To some extent, there is protection if the tenant becomes homeless again within two years. The homelessness responsibility is reactivated, but it still seems to be an insecure and potentially unaffordable context for tenants to be moved. But we are realistic: we recognise that some local authorities do not have a lot of room to manoeuvre.

Q186 Andy Sawford: To finish this point, Geoff, do you think it would be helpful for there to be some guidance or regulation for local authorities-which I am loth to call for, as a localist-specifically in relation to placing homeless people in the private rented sector? For example, this could be for longer tenancies to be arranged or some guarantee around rent increases.

Geoff Fimister: Certainly, we hope that local authorities would seek to negotiate the best possible terms in that sense, because it is not in their interest for people to be returning to homelessness. That would be good practice. We already have the suitability guidance and the main homelessness guidance.

Q187 Heather Wheeler: I have a quick question for Geoff. Have the CAB named and shamed judges who have agreed to an eviction order on a tit-for-tat basis? I find it quite astonishing; if you pay your rent, I cannot imagine a judge agreeing to an eviction order. I am stunned.

Geoff Fimister: In the context of retaliatory eviction, for assured shorthold tenancies you do not have to give a reason as to why you are bringing the tenancy to an end. That is what makes tenants particularly vulnerable in that sense.

Q188 John Stevenson: The tenancy must have come to an end. You cannot just kick somebody out of an assured shorthold tenancy unless the term has actually come to an end. Even then, you have to give your two months’ notice.

Geoff Fimister: You give two months’ notice; this is what I am saying. If the landlord only has to give two months’ notice without a reason, it makes it quite easy to evict a tenant.

Q189 John Stevenson: That is nothing to do with retaliation; it is just a fact of the law.

Geoff Fimister: The motive could be retaliatory.

Q190 John Stevenson: It does not matter what the motive is; it is a point of law. There is a sixmonth tenancy; it comes to an end; the landlord has to give two months’ notice. End of story.

Geoff Fimister: If you have not offended the landlord, the landlord may well readily renew the tenancy, whereas if you have, you can be given two months’ notice.

Q191 John Stevenson: And? That is just a fact. The landlord does not need to give any reasons for that. It is a matter of law that the tenancy comes to an end. If the tenant wanted a longer term, he should have negotiated that at the outset or when the time for renewal came up.

Geoff Fimister: That is my point: it puts tenants in a particularly vulnerable situation. If you refer to the point I was making about what goes on in other countries-about raising the possibility that the notice to quit is related to an attempt to assert rights, for instance-clearly, if we legislated to achieve that, it would have to be co-ordinated with the notice-giving provisions of assured shorthold tenancies.

Q192 Chair: Do lettings agents not have a vested interest in shorter tenancies? Every time a tenant moves, you get the inventory fee and the reference fees. Even if you renegotiate an existing tenancy, you get the administration fees. There is no incentive for you to advise longer tenancies, is there?

Caroline Kenny: I would contend otherwise, because when property becomes available there are marketing costs and staff have to go out, physically, to show the property and call at the property. That outweighs the other costs involved. In terms of the inventory costs, usually an independent inventory clerk is appointed so that the agent does not benefit from that charge; the inventory company does.

Q193 Chair: The best position, then, is to have a tenant in for six months, and every six months you redo the tenancy and charge them an administration fee with no extra work for yourselves at all.

Caroline Kenny: No.

Mark Hayward: It is better to have a good, steady tenant. A lot of our members are managing agents as well. Both an agent and a landlord who has a good tenant will wish him to stay, even if it is at less than current market rent, because of the hassle of moving over-the time and the void. It is not in agents’ interests to churn property.

Q194 Chair: No, but, certainly, to keep redoing the tenancy every six months, to sign them up for another six months, means you get the administration fee, do you not, from both parties?

Mark Hayward: I do not think they are in a position to implement that. They are acting on behalf of their landlord; they are not acting on behalf of themselves. They are acting on behalf of the landlord, and they should take their client’s instructions.

Q195 John Stevenson: On that point, when you have a tenancy that comes to an end, do you make a conscious effort to do a new lease for, say, six months or 12 months, or do you just let it run over into the statutory period?

Mark Hayward: It becomes periodic.

Caroline Kenny: It all depends on the landlord’s instructions.

Q196 John Stevenson: What do you do as a letting agent as a matter of policy? Do you go to the landlord and say, "The tenancy has run out," or do you just let it run?

Caroline Kenny: Usually, if it is a year’s tenancy, three months prior to the end of the tenancy you will contact the tenant and the landlord. You will ask the tenant whether they want to stay on for an additional term; you will ask the landlord if they want the tenant to remain in the property. If that is the case, you would negotiate possibly a rent increase, according to the market conditions, or possibly not. It is all according to your landlord’s instructions and the tenant’s request.

Q197 John Stevenson: More often than not, a new tenancy would be put in place.

Caroline Kenny: It all depends on the circumstances.

Q198 Simon Danczuk: Following that point, when you advertise a property on your website, do you specify for that property whether it is only a shortterm, sixmonth or 12month let, or whether it can go on for a longer period?

Mark Hayward: No, it would not. It would just be available; there would be no reference to the length of it.

Q199 Simon Danczuk: Why would you not do that?

Mark Hayward: At the moment, there is an assumption that it is an assured shorthold sixmonth renewable. There would not be a reason to state anything else. That is the assumption.

Q200 Simon Danczuk: Whose assumption is that?

Mark Hayward: It is the tenant’s assumption.

Simon Danczuk: It is the tenant who is assuming this.

Mark Hayward: A lot of tenants assume that they have six months and they can renew thereafter or it goes periodic.

Q201 Simon Danczuk: There is no responsibility on you to inform the tenant.

Mark Hayward: They will be informed. We will not actually say on the advertisement.

Caroline Kenny: My experience is slightly different. If it were a very short initial term-say, for three to six months-I would specify that within the advertising particulars. I think a lot of agents would do the same. Otherwise, you will get a lot of prospective tenants presenting themselves to you looking for a 12 to 18month tenancy, and you will just be wasting your time. It is in the agent’s interest to specify that if they can, with very shortterm tenancies.

Q202 Simon Danczuk: I do not think you are providing enough information for tenants to be able to make a reasonable decision before they even pick up the phone and make an appointment. I do not understand why you would not do that to be transparent and helpful to people who are looking for a longerterm tenancy.

Mark Hayward: If they are looking for a longer-term tenancy, in most instances they will inform the letting agent that that is what they are looking for.

Q203 Simon Danczuk: Surely, they would search on your members’ websites for all properties where they have a longerterm tenancy. That would be the simplistic, easy way of assisting them and being transparent with tenants and potential tenants, wouldn’t it?

Mark Hayward: As I say, we try wherever possible to be transparent; our members have to be.

Q204 Simon Danczuk: Moving quickly on, I have been reading some research done by Which?, the consumer organisation. It says they have found fairly high levels of dissatisfaction amongst tenants. One in five tenants was found to be dissatisfied with their agent. One of the reasons for that is that agents are not safely and fairly handling the security of deposits. This research also showed that some landlords were dissatisfied with their agents, particularly around agents not putting the tenant’s deposit in the protection scheme and the landlord being liable. Starting with you, Geoff, do you think the arrangements for the protection of tenants’ money are adequate?

Geoff Fimister: The main problems that we get coming up through the bureaux are around tenancy deposit protection and landlords or agents failing to protect the deposit or the deposit not being refunded, or disputes around how much of it should be refunded. DCLG will say that the system works pretty well overall in terms of the big picture. Of course, we see the problems. I would regard tenancy deposit protection as a subcategory in the overall issue of how you achieve decent standards of practice, which takes us back to questions of whether you should have a regulatory framework.

I should also declare an interest, in that my daughter had a landlord who disappeared with her deposit and I had to pay the deposit on the next flat as a consequence.

Q205 Simon Danczuk: Is the situation good, bad or adequate?

Geoff Fimister: We see the problems, and we think that those kinds of problems are another argument in favour of having some sort of regulatory framework for landlords and letting agents.

Jason Freeman: When we looked at this, issues around the security deposit made up 20% of the complaints. It is a fair percentage of the issues that are complained about. It is fair to say that most tenants do not necessarily have a problem with the security deposit. To say the system is not working would perhaps be a step too far. The system has some failings; they are mainly around people not properly securing deposits when they should.

How do you solve that? To some extent there is perhaps an enforcement agenda that could be discussed: should there be an enforcement priority for local authorities? I express no particular view on that; it would be a matter for local authorities. However, landlords and tenants need to be empowered and enabled to demand what their rights are, and to know what their obligations are, if they are the landlord.

There is a structural issue in the market whereby a lot of landlords are individuals. A lot of landlords are not perhaps as aware of their obligations as perhaps they should be. Providing them with sources of information so that they can find out what their obligations are is an important building block to making this work well; landlords would know, if they were taking the deposit, what the consequences of that are. Similarly, they and tenants would be able to check, if they are relying on an agent to secure a deposit, that the agent has in fact done so.

We certainly saw complaints by landlords who believed that the agent had secured the deposit and unfortunately that was not the case. It then becomes an issue of who is going to repay the deposit. Sometimes you can have a dispute between the tenant and the landlord as to whether the deposit is going to be repaid. It becomes quite a difficult situation. If tenants and landlords could be more aware of what is necessary-what the agent and the landlord should be doing-we think that some of the problems would be rectified.

Mark Hayward: I can only speak for our members: they have to belong to a depositprotection scheme and all our members are covered by clientmoney protection as well.

Q206 Simon Danczuk: Do all your members have to belong to a depositprotection scheme?

Caroline Kenny: Yes, that is correct. They are all also covered by clientmoney protection.

Q207 Simon Danczuk: Finally and briefly, the Royal Institution of Chartered Surveyors does not have a very high view of SAFEagent, the recognition scheme that exists. What is your view in relation to that? They say it is just another logo and does not really do very much for tenants. What is your view?

Mark Hayward: It is a good logo. It says what it does on the tin. Everybody within SAFEagent has to have some form of clientmoney protection; unfortunately, they are not all the same. It is not necessarily what it says on the tin.

Q208 Simon Danczuk: It is not as secure as it may seem.

Mark Hayward: Some of the policies are different. Some of the client-money protection rules are different. In ours, there is run-on; your money is secure. In others, if they are expelled from the membership organisation, which they might be at the first sign of trouble, the tenant or the landlord is not covered.

Geoff Fimister: We thought that SAFEagent was very useful as far as it went as a kitemark scheme. We were quite concerned that with pressures upon more tenants to move, again because of the housing benefit situation, there might be a problem of more people being vulnerable to dubious agents. We were quite keen to bring SAFEagent to the attention of bureaux. As far as it goes, it is useful; however, if you are a tenant who is operating right at the bottom of the market and trying to find very cheap accommodation, those are the sorts of agents who are not going to be signed up to SAFEagent anyway.

One brief thing I forgot to mention on tenancy deposit protection is that one thing we would like to see is a common webportal between the different schemes. Tenants would be able to easily check whether their deposit has been protected, rather than having to check all the different websites, as they do at the moment. This is something that we, Shelter and the NUS have suggested to DCLG.

Q209 John Pugh: I have a question for all of you about housing benefit but, before that-with the Chairman’s indulgence-can I ask you something that has been nagging away at the back of my mind? It is a question I asked in the Westminster Hall debate last week. It is a fact that all estate agents have to belong to a recognised redress scheme. It is a fact that letting agents do not. Can any of you find a justification for that?

Mark Hayward: I cannot find a justification for it. They should be.

John Pugh: That is fine. Nobody can find a justification for it.

Jason Freeman: If I could jump in, there are some justifications. In general, we are generally reticent about getting traders to sign up to schemes. You can enter into business and you do enter into business. As soon as you put legislation in place to say, "We are now going to create a facility to remove people from a particular industry," it arguably requires a certain amount of justification.

Q210 John Pugh: That is a general argument against having schemes of registration; I am merely asking you whether there is an argument for having estate agents subject to a recognised redress scheme, but not letting agents.

Jason Freeman: The justification for regulating estate agents in that way has tended to be around the risks around propertysale transactions, particularly the risks around secret commissions and profits of that nature and failing to disclose personal interests, which is a particular feature of estate agency services.

Q211 John Pugh: It does not apply to letting agents.

Jason Freeman: It does not apply in the same way to letting agents. The amount of commission the estate agent is likely to get if they are doing a letting is significantly smaller than if they are doing an estate agency. This is one of the reasons why there are a number of provisions in the Estate Agents Act where there are particular risks. Those are not necessarily the same in the lettings market. They both involve property, but there are some slightly different issues.

Q212 John Pugh: Mr Fimister, in your evidence you said that landlords should not be permitted to refuse to accept housing benefit claimants as tenants. Why not? It is their property. There are additional risks now that housing benefit is paid directly to the individual, rather than to the landlord. Why do you say that?

Geoff Fimister: It seems an enormous problem at present. It is becoming more and more widespread for two main reasons. One is the fact that housing benefit is increasingly coming adrift from rents in the private rented sector. Shortfall is becoming more widespread and more substantial. Clearly, that is going to make landlords worried, as you say. There is also the proposal under Universal Credit that the default position should be that the payment for rent should be made to the tenant normally, rather than to the landlord.

You can see what the worries are, but the social consequences are really quite alarming. You will hear Ministers saying that 30% of tenancies in the private rented sector will be available to housing benefit claimants. The reason they say that is because the 30th percentile is now used, or was used, to establish the local housing allowance levels; it was the 30th percentile of the rent distribution in a particular local rental market area, although local housing allowances have now been frozen and they are going to be uprated by CPI and then by 1%. It is coming adrift again there.

That is where the 30% figure comes from, but it takes no account of the fact that increasingly landlords will not let to HB claimants. The de facto availability of accommodation is quite minuscule in many areas. That is enormously worryingly. I take your point about landlords having good reasons to be concerned. It seems to us to be a form of discrimination against people on the lowest incomes. It is causing enormous problems.

Q213 John Pugh: Does anybody else have any ideas about what we can do to encourage landlords to take on housing benefit tenants, or are we going to accept this as an inevitable fact of life?

Mark Hayward: I think it is a fact of life at the moment because, as I said earlier, the imbalance between supply and demand means they do not necessarily have to in a great deal of areas. As Caroline said, it is for the client or landlord to decide whether they will do it. In some areas, they are very happy to do so. There needs to be more awareness out there that this is an option.

Q214 John Pugh: Is it a fact of commercial letting life that a landlord, all things being equal, would prefer not to have a housing benefit client? Some landlords, in the past, felt differently when it was a pure form of income passed over to them, didn’t they?

Caroline Kenny: I do not have much experience in that sector, to be honest with you; it is a business decision for landlords to take.

Q215 John Pugh: Following on from that, do you not have much experience of it because the sorts of landlords who are dealing in the housing benefit market basically do not deal with letting agents?

Caroline Kenny: There are a huge number of landlords that do, but it does vary regionally.

Q216 John Pugh: Do agents not wish to handle cases where housing benefit is involved?

Caroline Kenny: Agents are facilitators; if their clients wish them to do so, they are quite happy to do so.

Chair: Thank you all very much indeed for coming to give evidence to us this afternoon.

Examination of Witnesses

Witnesses: Peter Bolton-King, Global Residential Director, Royal Institution of Chartered Surveyors, Christopher Hamer, the Property Ombudsman, and Louisa Darian, Senior Policy Adviser, Which?, gave evidence.

Chair: Good afternoon and thank you very much for joining us.

Q217 John Stevenson: I will start with the issues of fees and charges. You have made some criticism of the charges that are imposed on tenants, but could a counter-argument be that it is the responsibility of the consumer, whether it be the landlord or the tenant, to find out what the fees are going to be from a letting agent before they go down the road of signing any contracts or terms and conditions?

Louisa Darian: It is a very fraught process when you are looking for a property. Tenants are often moving quite quickly because of a change in circumstances, so having to think through all the questions you need to ask and all the things you need to consider in that short timeframe is quite difficult. I would also say that in leaving it to the consumer to ask the agent later down the line, if fees are not presented in a written format, then the research we have done suggests that it is very difficult to get accurate information on fees.

Even when we have done mystery shopping-the results of some will be published tomorrow-we have found that you would have to be a very savvy consumer to get clear and accurate information on fees. So it is agents citing fees without VAT included or different people being told different things in the agency. We do think it is really important that that information is provided when consumers are considering the property-in adverts on internet portals-so that they can assess fairly whether or not they can afford a property. Also, this would put a bit more price competition on fees because, at the moment, without that information being clearly presented, there is no incentive for agents to lower their fees. You have some agents charging £500 for an admin fee and some agents £100. We think that would help put pressure on prices too.

Q218 John Stevenson: Regarding the charging of fees, it is a competitive market, so it is up to each individual letting business how much they should charge. Are you suggesting, therefore, that there should be some pro forma statutory framework for fees and charges?

Louisa Darian: I am not suggesting that this is a legislative requirement. We would be very happy to work with the industry to think about how information could be presented to help consumers make a very informed choice. There is some way of standardising that information so that people can look at the rent and the deposit that is required of them, and assess whether it is more affordable to go to Agent A or Agent B.

Q219 John Stevenson: Peter, you are a member the RICS; in landlord and tenant situations, and letting agents, who does the letting agent act for? Who is their client?

Peter Bolton-King: The client of the letting agent is the person who is paying them and who asked them to do the job in the first place. Of course, one has to bear in mind that one of the things about consumer protection regulation is that it introduces the concept of "the consumer". The consumer, as far as the agent is concerned, can be any number of people they come into contact with, but the person who is paying you is your primary client.

Q220 John Stevenson: Would this be, effectively, the landlord?

Peter Bolton-King: It is the landlord.

Q221 John Stevenson: Do you think it is right, therefore, that agents should be charging the tenants anything?

Peter Bolton-King: We heard earlier, sir, that there is a multitude of different situations out there. You have some agents who are charging and some who are not. Generally, you have the situation that while we think there is a standard tenancy agreement-that they are all the same-that is actually not the case. The feedback we have had from our members is that, in the majority of cases, there is something that needs altering to accommodate that particular tenant, whether it be a pet or whatever it might be; that comes at a cost.

Q222 John Stevenson: Surely that is part of the negotiation between a landlord and a tenant and, ultimately, that should be the landlord’s cost, you would have thought. They are the ones drawing up the letting agreement.

Peter Bolton-King: They are the ones drawing up the letting agreement but, again, it is all about transparency, as far as we are concerned. Right at the front, as we heard earlier, tenants, and landlords for that matter, must know as early as possible what their costs are going to be, and we feel very strongly that providing they have that information available, they are able to come to a decision as to whether or not they, personally, are prepared to pay them.

Q223 John Stevenson: Do you think that should be underpinned by statute?

Peter Bolton-King: The requirement to be transparent, as far as our members are concerned, is already there, sir. We expect all our members to be totally transparent. The problem, of course, is the 40% of people who do not belong to any organisation, as we have heard before. There is nothing to stop those people being totally untransparent.

Q224 John Stevenson: We are talking about the regulation of letting agents. The danger you then have is the private landlord. How would you deal with that?

Peter Bolton-King: The situation that we have at the moment is that the whole approach to regulation seems to me to be very inconsistent, fragmented and confusing for the consumer, not to mention burdensome on business. I do not think you can just look at sales agents, letting agents, new home agents, managing agents and landlords in individual pockets. We feel that we should have a holistic approach to the whole thing. This may or may not require landlords, in some shape or form, to be in some scheme. As you will be aware, there are boroughs in London, and various towns and cities around the country and in Scotland and Wales, which are introducing some elements of landlord licensing or regulation.

Q225 John Stevenson: Christopher, what is your view on charges and fees, and their transparency or otherwise?

Christopher Hamer: I would agree with Peter that transparency is the key here. The important thing is that the charges are reasonable in the circumstances and, most importantly, are fully disclosed and explained before the tenant-or indeed the landlord-is committed to the liability. By "fully explained", I do not just mean actively flagged, which is a current expression, but actually explained, and the agent ensures that the consumer has understood those charges: when they apply, what they are and that they are reasonable for the work that is being undertaken by the agent.

Q226 John Stevenson: Do you think it is reasonable for the letting agent to be charging the tenant certain fees and charges, given the fact that, in my view, their client is the landlord?

Christopher Hamer: I would take the view that the important thing is that if there is a charge to the tenant, it is properly explained and made very clear at the outset and, of course, it does not duplicate charges that are being imposed on the landlord.

Q227 John Stevenson: What about what I would call "referral fees", whereby you are a letting agent for a landlord and certain work needs to be done, and you use certain local joiners or other workmen and they give you a kickback? How would that be regulated?

Christopher Hamer: That is probably fairly common practice in the industry, as I understand it, and, as I also understand it, I do not think referral fees per se are illegal. However, if the agent is gaining a referral fee, it should be disclosed to the individual-not necessarily the amount, because that will vary, clearly-and certainly to the landlord, who will be the one ultimately incurring the cost; it should be disclosed that there is an element of the charge that is a referral fee.

Q228 John Stevenson: Do you believe this system should be underwritten by statute?

Christopher Hamer: As Peter said, 40% of the letting agents operating in the UK are not affiliated to my scheme, to RICS, or to ARLA. They are operating, one assumes, according to their own set of standards. The industry, along with consumer groups and other bodies, has been interested in some sort of voluntary, perhaps selfregulatory, situation. However, that can only work if there is something forcing the other 40%, beyond the 60% that are willing to sign up to standards, into that regulated environment.

Q229 John Stevenson: Does that mean you would support statutory underpinning?

Christopher Hamer: Yes, indeed.

Peter Bolton-King: Your point about referral fees, sir, is absolutely right. I carried out some research recently and I wrote down on a bit of paper all the different ways that, potentially, sales and letting agents could be giving or taking referrals. I ran out of paper. There are many opportunities. To that extent, RICS have just launched a consultation around the area of transparency on third-party referral fees. We believe they should be totally up front and open. Again, as the Ombudsman said, this will only ever affect the people who are already complying with our requirements anyway. That is the problem.

Q230 John Stevenson: Louisa, do you consider it legal for letting agents to charge tenants fees?

Louisa Darian: We have never gone as far as to say, "This is what a proportionate fee would be," or "Tenants should not be paying fees." This goes to the point you mentioned earlier: because tenants are paying fees, they think they are the customer. So when we asked tenants and landlords, both parties agreed that the agent was equally representing them both. There is some confusion that is created by the fact that tenants are paying fees. We would be very concerned about banning fees for tenants and that being added to the rent.

As a first step, we would like to see transparency of fees so there is greater price competition. This also means-sorry, I should have said this earlier-that the landlord should know what the tenant is being charged; it was really quite surprising from this research that landlords often did not know that their tenants were being charged fees and often did not agree that they should be, as they thought it would put the tenant off. If the landlord is the primary customer, they should be able to see the full set of fees being charged both to them and to the tenant.

Q231 Heather Wheeler: Christopher, could I start with you, please? Because you are the Ombudsman, you see all this pain that comes across your desk. What are the most common complaints that you see?

Christopher Hamer: In overall terms, the majority of my complaints are about what might be termed a misunderstanding or a miscommunication between the parties. Specifically, there would be things like claims of lack of diligence about referencing prospective tenants, so that the landlord ended up with a nonpayer of rent or, perhaps, some criminal activity. It is also the case that agents will not be diligent about the referencing process just to get somebody in the property, so that they get the fee for that, or they will ignore the conditions that the referencing agent requires.

There will also be, for tenants, the agent taking an unrealistic amount of deposit. This is not the security deposit. This is the holding deposit, when somebody is interested in renting a property; they are asking for that property to be removed from the marketplace, and referencing is carried out. A common scenario that I see is that the tenant fails the referencing or backs out, and the agent takes the whole of the deposit when, in fact, they have not incurred anything like the typical deposit of £500; they have incurred much less than that from the cost of referencing.

There will also be agents who collect rent and simply do not pass it on, or who make unsubstantiated deductions for repairs. It is not the majority of agents, I hasten to add, but these are issues that cause problems

Q232 Heather Wheeler: That is all very interesting. You obviously have very varied days in your life. Do you think that people who are not part of the scheme are even worse offenders, or do you think you have seen everything now?

Christopher Hamer: No, I would not say I have seen everything. Of course, I do not know what is happening with people who are transacting business with nonmembers. In my view, people who do that, whether they be landlords or tenants, are in a riskier environment. They are transacting business with an agent that is not operating according to a set of standards and perhaps does not have any client-money protection insurance, and should something go wrong with the business, or indeed if the individual runs off with the money, they are at risk. If they are not within my scheme or affiliated to one of the main professional associations, those agents are riskier to operate with.

Q233 Heather Wheeler: Louisa, your research found that tenants were reluctant to complain about agents for fear of repercussions; we have heard a little bit about that from the CAB. Is this reluctance well founded? We could not really drill down into the numbers we were talking about; they said it was 0.2% of the complaints.

Louisa Darian: I do not know how much of it is perception or fear of a complaint and how much this is happening. It was certainly the case that a third of the renters in our survey of 1,000 tenants said that it would have an influence on whether or not they would complain. They would fear doing that in case there was an implication for their tenancy. It is partly related to the fact that it is so difficult to find property now, especially if you have children and it is their home with the school close by; you are in a market where complaining without thinking about repercussions is a bit of a luxury.

Q234 Heather Wheeler: How do you think tenants could be given confidence to complain about bad service?

Louisa Darian: For us, one of the things that we think is absolutely essential is for all agents to be signed up to a redress scheme. We see that as basic consumer protection so that at least a tenant can make a complaint about an agent to someone like the Ombudsman and it could be considered fairly. That is one way of dealing with it. It is very difficult when there is such a supply issue; people will feel reluctant if they are in a family home and feel that it is going to have an implication.

Q235 Heather Wheeler: I find it fascinating that in all the evidence we have had today, not a single person mentioned going to the council and talking to the private sector housing officer. We employ these people to do stuff and not a single person has mentioned, "Let’s go to the council and knock on the door." A last question, if I may: a particular issue identified by Which? related to the protection of tenants’ deposits. Are deposit protection arrangements adequate?

Louisa Darian: Again, if you look at the DCLG data, the tenancy deposit protection schemes obviously have a massive effect, and they say the coverage is pretty large. There is obviously still an issue, because our review of Citizens Advice complaints said there was an issue. It is particularly problematic in the situation where the landlord thinks the agent has done it and does not realise that they are ultimately responsible for protecting that deposit. I am not sure how widespread that issue is. The issue around holding deposits is probably wider spread. There are obviously still problems.

Q236 Mark Pawsey: All of you-in some form or other-are happy to see more regulation in this sector, but the bad news is that the Government does not agree with you. The previous Government did not agree with you either, because in 13 years they did nothing, and the existing Government says in its evidence that the existing legislation is adequate and that new regulation would increase costs for landlords. They also point to 50% of landlords being members of a voluntary scheme, including yours, Peter. If you had the Minister in front of you, how would you seek to persuade him that he is wrong and you are right?

Peter Bolton-King: We have been told by politicians, "Industry, you are totally dysfunctional; will you please talk with one voice?" However, you have been hearing an awful lot of evidence over your hearing that the industry is trying to talk with one voice. The opposition parties have made it very clear where they stand on this. You know where the consumer associations stand.

The answer to your question, Mr Pawsey, is that we have to get across to the Minister that there are three principal problems at the moment. First of all, you have inconsistent regulation; you have heard, and are aware already, that it is a crazy situation that sales agents should have to belong to a redress scheme and letting agents do not, and I suggest managing agents should as well-you cannot forget that. Interestingly enough, if I cast my mind way back to when the Consumers, Estate Agents and Redress Act was being discussed, my memory tells me that there was every intention to include lettings agents-the Chairman is nodding. Actually, because the Estate Agents Act was used as the vehicle to introduce that-and the Estate Agents Act still says that an estate agent is purely a sales agent-it fell by the wayside. Clearly, as far as redress is concerned, it was clear that that was intended.

The second point, if I were talking to the Minister, is that we have poorly targeted regulations: no agent has to meet minimum competency standards, and lettings agents are outside the scope of the Estate Agents Act. The result is that the Office of Fair Trading can ban me operating as a sales agent-they do not ban many, but they can ban me-but they cannot stop me taking the sign down overnight, and putting it up again and opening the door the next day: "Peter BoltonKing, Lettings Agent". That is a crazy situation. We had another case, which the Ombudsman will be well aware of, of a lettings agent who recently absconded with a whole load of money. They were banned from operating as a company. He could not be banned from operating as a letting agent because the OFT does not have any power to do it, so he could not be a director. Actually, this does not stop him, to my knowledge, opening up a lettings company as a private individual. That is a silly situation.

The third point I would make to the Minister is that we currently have ineffective and inconsistent enforcement of even the existing legislation. That is leaving a whole great load of unregulated agents to quite honestly flout the existing law and often with few consequences for doing so. This lack of a level playing field is a real problem, and with the lack of money at the moment, I can only see enforcement activity decreasing rather than increasing.

Q237 Mark Pawsey: Mr Hamer, in relation to the points raised by Mr BoltonKing, how would you persuade the Minister that regulation is necessary?

Christopher Hamer: I would support and agree with everything Peter said. I would make one further point: this inconsistency between sales agents and lettings agents is becoming more and more pronounced as more and more people, because of the economic situation that the country faces, are moving into the private rented sector to provide a roof over their head. They have less chance to submit to redress if something goes wrong and they cannot resolve it between themselves and the agent.

Q238 Mark Pawsey: Why could we not just persuade more letting agents to join the voluntary schemes, and then persuade landlords and tenants that they should only deal with letting agents who are members of those schemes?

Christopher Hamer: This is probably a cultural thing, and it comes back to what has been mentioned on several occasions: the landlord and the tenant-the consumers-are ill equipped to understand who does what in the lettings process, the liabilities they are taking on, and the risks they are taking on. There is a lot of information given out by professional bodies-indeed, by my office and by agents themselves-as to what to look out for and what pitfalls may be faced. But when the information is given out, people are already in the web, if you like. They need to get it before they set foot in the agent’s office.

Q239 Mark Pawsey: Louisa, landlords are often savvy business people. Why do they need protecting by legislation?

Louisa Darian: They are not all savvy business people. We have calculated that there are about 1.2 million consumer landlords who have only a small number of properties or probably a couple of properties.

Q240 Mark Pawsey: But shouldn’t they understand that being a landlord involves responsibilities as well as rights? It is their obligation to make certain that they are well advised, and part of that is making certain they have a lettings agent who subscribes to a decent voluntary code.

Louisa Darian: I absolutely agree. There is a massive role in terms of information. The point is that although we have had SAFEagent in place for a while now, we know that 37% of the landlords we surveyed had not checked whether their agent was a member of a professional body. This means that their tenants are also very vulnerable to poor practice. It has implications for them if they make a bad choice, but it also affects the tenant whose home it is. Who their agent is determines how secure they feel in their home. Yes, it is essential that there is this minimum requirement to be signed up to an ombudsman scheme.

Q241 James Morris: Mr BoltonKing, you said in your evidence that you recognised the changing nature of the rental sector, particularly in relation to families coming in and looking for longer-term tenancies. Is there any reason why we should not be considering longer-term tenancy options?

Peter Bolton-King: Our members feel very strongly that there is nothing wrong with the current assured shorthold tenancy. This can be for any length, and you heard in the earlier session that it is really just in people’s mindset that it has to be six months. As far as I am concerned, our members, especially if they are managing a property, would be much happier to see a property let long term. I do not think there is an issue there. Tenants often do want the flexibility; they do not necessarily want to be tied down for the longer term. I know that some do, but you have already heard of the big problem with the lenders and the insurance industry, who say you cannot let your property for more than 12 months. That is an area that needs looking at.

Christopher Hamer: From my point of view as the Ombudsman, I look at what the likely pitfalls are of increasing the length of a tenancy. Yes, it would mean fewer people moving, so possibly there would be fewer complaints at the point of sale, but actually it would mean fewer people would be able to move if they were in a tenancy where the landlord was not being very amenable towards them or, indeed, if they were unhappy with the service they were getting from the agent. Additionally, there would be fewer landlords able to regain their property if, conversely, they were stuck with a poor tenant. While the landlord may be able to give notice to his agent, in fact he could find himself with a long tail of liabilities to fees lasting the length of the tenancy or even longer.

Louisa Darian: I agree with many of the points that have been raised. Some people are living in the private rented sector purposely for the flexibility that it gives, but there are also many families living in it who want a bit more security. Thinking of the survey, a third, or about 27%, of tenants do worry about being asked to leave before they are ready. One of the big issues, then, is working with buytolet mortgage providers to try to understand why an assured shorthold tenancy is a requirement.

Q242 James Morris: Isn’t there, Mr Hamer, a vested interest from letting agents in having shortterm tenancies, because they get repeat fees, and isn’t that just part of the vested interest of the industry?

Christopher Hamer: I suppose that might be a way of looking at it. As I said at the outset, if there are fees due for a particular piece of work that the agent is carrying out, he needs to make that clear to both parties, and those charges need to be reasonable. It might be realistic for a fee to be charged for the renewal of a tenancy, providing it relates directly to the work the agent has carried out.

Q243 James Morris: Mr BoltonKing, do you think there is a vested interest among letting agents to keep the status quo?

Peter Bolton-King: I keep hearing this, but I am really not convinced that this is a problem out there, although I am not saying that some agents do not like their churn. But you have to bear in mind, as was said earlier, that if you have a property that has come back on the market, it costs you money to market it, to advertise it and to have people viewing it. It is not necessarily in the agent’s interest to actually see a void period and all the cost involved in that. I still maintain that members do not mind, especially if they are continuing to manage the property; they are getting their fee, whatever is agreed, every month, and they are managing the property, so everyone is happy. Why would they want to go through all the effort of a void period again just to get a few more pounds, when there is that extra cost involved? We have to be careful as to whether that is a real issue or just a red herring.

Q244 Chair: I have one point about this issue of longer tenancies, which clearly would be helpful to families with children in particular; it would give them greater security and certainty. On the other hand, there might be the very reasonable concern of landlords that if something does go wrong and the tenant does misbehave, it is difficult or at least expensive to get them out; there is a court process, which is time-consuming and expensive. Is there any way you could actually improve that process, whereby those sorts of tenancy problems could be resolved more quickly and less expensively? Is that something you have looked at at all? This might fit hand in hand with longer tenancies.

Christopher Hamer: As we heard in the previous session, there is the ability of the landlord to provide two months’ notice with no reason-simply that he wants the property back.

Q245 Chair: That is at the end of the tenancy.

Christopher Hamer: That is at the end of the tenancy. Throughout the tenancy, a landlord can issue what is called a Section 8 notice, for various reasons. One might be nonpayment of the rent; it might be not treating the property in an acceptable manner, and so on and so forth. That is, if you like, an accelerated termination of the tenancy process. It still requires a court order.

Peter Bolton-King: There is a potential issue there. It sometimes takes far too long to resolve that sort of issue if there is a serious problem but, as you say, the system is in place to be able to take action. I do not think that is what is putting people off a longer tenancy.

Q246 Mrs Glindon: I am just going to ask about redress. The average amount of money that a tenant who made a complaint would receive as an award is about £300. This is just an amount of money and it is not going to do anything to give someone a better home. Can I ask you in particular, Mr Hamer, whether you think that the Property Ombudsman has any teeth?

Christopher Hamer: I would say "yes", wouldn’t I? In regard to rewards, my rewards are for what I perceive to be the aggravation, distress and inconvenience caused to an individual by the action of an agent. When we have a lettings transaction, it is important to point out that the contract between the agent and the landlord is the tenancy agreement, and if either party does not perform their commitments under that contract, they have to take action against each other. The agent, if you like, is the gobetween, communicating between one and the other and, in the cases I see, quite often the agent has, yes, done something wrong, and maybe even done something seriously wrong, but I am only looking at the effect of his-the agent’s-actions on either the tenant or the landlord.

As to my awards, I have an upper limit of £25,000 for compensation; these are not penalties. That is not what a redress mechanism does. If needed-if in a circumstance presented to me there was a very serious issue-I have the ability to make a significant award.

Q247 Mrs Glindon: What effect do you think that has on the agent or the landlord regarding doing something about the actual complaint? Do you usually find that you have an effect on that too?

Christopher Hamer: Yes, in a number of situations-through my annual report, the website and speaking at various conferences and so on-I try to relay to agents the sorts of issues that are causing problems. It seems to be preferable that they head those off themselves so that complaints do not arise in the first place. The positive element of my terms of reference is to try to introduce that best practice within the industry by feeding back what I have identified as issues and how I think they should be resolved, as I say, so complaints do not happen in the first place.

Q248 Mrs Glindon: Last year, 14,000 issues were reported to the Ombudsman, but less than 1,000 were investigated. Could you say what happened to the other 13,000 cases? Were they all solved simply by the provision of further information?

Christopher Hamer: The 14,000 figure relates to the individual complaints; within one referral to me, there might be seven or eight different issues. It was probably more likely that I had about 20,000 or so formal referrals, within which there would have been 40,000 complaints.

A lot of those are immature complaints. The important thing is that before my jurisdiction cuts in, the agent has the opportunity to respond to the complaint and issue what we call a final viewpoint or a deadlock letter. This is the trigger for me starting work on a complaint.

A lot of people write to me before they have gone through that process. What my office does is to guide them through the steps they have to take to progress the complaint; ultimately, if they need to come back to me, they can do so. About 20% of the matters that are within my terms of reference at that first contact stage come back to me as formal complaints. My own research indicates that around 60% are dealt with by the agent; around 10% or so give up, which is slightly unfortunate; and a small percentage take the matter through the courts. What we are doing in terms of the formal complaints is making a formal decision, so in 1,000 or so formal complaints that you refer to, I would have made a formal decision; in 74% of cases, that means an award against a letting agent. This decision would be binding on the agent, if the complainant accepted.

Q249 Mrs Glindon: Finally, do you think it is appropriate to have two rival redress schemes or does it lead to confusion amongst consumers?

Christopher Hamer: I have to say that it does seem an odd idea to have fragmentation in the redress world. It would imply that there is an element of competition, perhaps, which would be worrying. More particularly, yes, it could lead to confusion. It is the agent’s responsibility to direct the person to the right redress scheme, but a lot of people are usually in complaining mode before they speak to the agent, and they will be looking round for where to go. It is confusing, and it is probably not a good idea, when you are looking at a redress mechanism, to have two schemes.

Q250 Mrs Glindon: Could there be any future for merging the schemes? Have there been any discussions?

Christopher Hamer: There have not been any discussions in that respect. It is unfortunate that in the legislation the OFT have approved two schemes and allowed two schemes to operate.

Q251 Chair: You have also proposed that we have an industry council established, which seems almost like saying, "The Government will never regulate. We cannot persuade them, so let’s find a way for us all to sit round a table and have tea and biscuits and talk about things as though that might achieve our objectives." Is that a rather unkind way of describing your proposal?

Christopher Hamer: I do not think it is unkind. I am standing in my independent role as Ombudsman and I am looking at what is being presented to me in terms of complaints. I have been pursuing this idea of an industry council for some time. Yes, I recognise that the current Government does not see regulation as a priority in the property sector. In fact, the message that has been coming over from Minsters is: "Industry, you need to sort yourselves out."

Taking my independent hat, I have promoted the idea that there could be an industry council, which would involve the industry, consumer groups, landlord associations and so on, and there is a great deal of enthusiasm from those parties to pursue that. Of course, the ones that are not necessarily enthusiastic or are silent on the matter are the 40% of agents who are not affiliated to any trade association and probably do not like the idea of some control over their business. But I think it is a valuable move forward to have some sort of council, not an executive body, which takes a wide view to ensure that there is proper redress in place and consistent codes of practice and licensing schemes within the industry-not just one licensing scheme, but that all meet certain standards. Above all, it should answer the question I mentioned earlier on the consumer education angle. We have heard in the various sessions today about consumer engagement; to my mind that is something that needs to be almost the top priority for any council that comes into being.

Peter Bolton-King: Chair, just on that very last point, the consumer research that we recently had carried out, in which we talked to 1,000 tenants who had rented in the last year, showed an appallingly low lack of understanding about their basic rights. There is a big education element out there. RICS certainly stands by to work with Chris and others to look at the whole question of a council and how it would operate. But I have to say, Chair, you are still stuck with the 40% who do not want to play ball. This is why recently, as you are aware, we carried out an impact assessment, which showed a payback period of two and a half years, which I think is phenomenally short, and a £21 million per annum benefit of bringing some of the things we have been talking about to fruition.

Louisa Darian: There is certainly benefit in the sector working together to try to minimise the many different Ombudsman schemes or standards; that is confusing for the consumer. It is not a replacement for redress. There is certainly demand out there; 25% of complaints to the Ombudsman this year related to agents outside a scheme, so that consumer could not get any redress. It is "yes" to the sector working together, but we also need legislation so there is a minimum standard of consumer protection.

Chair: Thank you very much indeed for coming to give evidence this afternoon.

Prepared 11th March 2013