Housing Minister, Grant Shapps, recently announced that the Coalition Government do not intend to implement more regulation for Lettings Agents, despite this being a clear recommendation of the Rugg Review into the Private Rented Sector (http://www.york.ac.uk/inst/chp/publications/PDF/prsreviewweb.pdf).
For landlords and tenants, this is surely a shame. Currently lettings agents have little or no regulation unless they impose it upon themselves through membership of professional organisations.
Why does this matter?
Anyone can open a lettings agency. Before long that agency can be holding a small fortune in landlord’s rents and tenants deposits and there is no one checking that such money is properly accounted for. If the agent isn’t trading profitably – say they are charging stupidly low management fees to attract customers – there are additional pots of ‘client’ monies that it’s all too tempting to dip into, to meet their own expenses. Because of the amount of money a lettings agent has coming and going from their accounts, this practice can carry on for a long time (maybe years) before anyone realises there’s a problem.
Another factor is the tenancy deposit. You would assume that if the agent takes it, registers it, then spends it, the agent is liable. Not so! A tenancy agreement is between Landlord and Tenant – if the agent acts negligently or dishonestly, it’s the landlord that is legally liable to his tenant for the full value of the deposit. There have been recent examples in both Rugby and Northampton of Agents ceasing trading, the deposit monies going missing, and Landlords having to compensate their tenants. It is true that the Landlord could then sue his agent for negligence, but if the agent has shut up shop, or spent the money already, the chances of success are slim.
What’s the solution for a landlord?
Ideally, all agents should be regulated and face frequent compulsory checks on their accounting procedures. I’d actually go a stage further and say that some sort of professional competence test would be useful, but in honesty we’re years away from this. The majority of decent agents, ourselves included, would welcome regulation as we have nothing to hide, and much to gain. It was on the agenda but with the change of government, is no longer.
The best bet for a landlord is to stick to an agent that is a member of a professional body such as the Association of Residential Lettings Agents (ARLA). To become a member, the agent has to firstly have their accounts audited regularly by a qualified accountant, and secondly has to hold Client Money Protection Insurance, so if there are problems, liability to clients is covered. ARLA won’t let an agent in without this, and checks all existing members frequently to ensure that standards are being actively maintained. You can check if your agent is in ARLA by searching at http://www.arla.co.uk/.
Is your agent handling funds correctly?
If they are an ARLA member, the answer is likely to be yes, as they will have undergone checks – you’re certainly covered if they do go under whilst they are a member. Other tell tale signs to look out for include:
- Rent not being quickly paid to you, despite the tenant having paid the agent. There’s one agent in Northampton currently that routinely pays landlords late, and by cheque, despite never having done this in 8 years previously – something is clearly not quite right here!
- Delays or failure to refund the tenants deposit.
- Delays or failure to administer repairs to your property – contractors don’t like working for agents that don’t pay them!
- Cheap management rates? – Belvoir has over 130 offices nationwide and the consensus is that it’s not really possible to manage a property for less than 8% + VAT. If your agent is charging you less than this, we’d suggest that either a) they aren’t doing everything you’re paying them for, or b) they aren’t doing it profitably, which long term is as much your issue as theirs.
Richard.
