Plans have been announced for tougher controls in the lettings and management industry with new measures to combat the scandal of inappropriate service charges and fees in England.
The Department of Communities and Local Government (DCLG) is seeking views on what form the future regulation of letting and managing agents will take in a consultation process that will end on 29 November 2017.
The move is in response to complaints that developers have been selling on leases of new homes to financial companies who have then been charging extortionate amounts to home owners for simple things like change the flooring.
Anecdotal evidence of poor management includes a group of leaseholders charged 10 times the market rate to have a new fire escape fitted with the £30,000 contract handed to the freeholder’s brother
One landlord was charged £500 by his agent for repairing a shower door and a London based property agent tried to charge a leaseholder almost £5,000 to transfer ownership of a parking space to other leaseholders.
Communities Secretary Sajid Javid said that he is determined to fix the problems in the property management industry, drive down costs and protect consumers from the small minority of rogue agents.
The Government will consider changing the law so that all letting and management agents, across both the private rented and leasehold sectors, must be qualified and regulated in order to practice.
The problem isn’t just for leaseholders, but for some of the 4.5 million tenants in the rental sector too with overcharged costs for repairs and services often passed down to tenants.
The Government is seeking views on whether regulatory overhaul of the sector is needed, what measures are needed to protect consumers from unfair costs and overpriced service charges and ways to place more power in the hands of consumers by giving leaseholders more say over their agent.
It will ask if a new independent regulatory body is needed and if separate bodies should be established, for both leasehold and private rented management, and letting agents.
Javid pointed out that while the sector is partly self-regulated through professional bodies such as the Association of Residential Managing Agents (ARMA) and the Association of Residential Letting Agents (ARLA) which have a code of conduct, other property agents operate outside of any system and can provide a poor deal for consumers.
‘This is supposed to be the age of the empowered consumer yet in property management, we’re still living in the past. Today we are showing our determination to give power back to consumers so they have the service they expect and deserve, as part of my drive to deliver transparency and fairness for the growing number of renters and leaseholders,’ he said.
‘Our proposed changes to regulate the industry will give landlords, renters and leaseholders the confidence they need to know that their agents must comply with the rules,’ he added.
He told the Association of Residential Managing Agents (ARMA) conference that in the future it will not be acceptable to skip repairs and to cut corners but likewise agents who deliberately do too much, over managing the property in order to rack up as many charges as possible and take the largest possible commission will also be outlawed.
‘Literally anyone can put on a suit, order some business cards, and call themselves a managing agent. You don’t have to any qualifications or experience, or a criminal records check. You don’t even have to know what a managing agent does,’ he said in his speech.
‘Leaseholders risk losing their homes if they fall behind on paying even a tiny amount of service charges. Freeholders on new build estates increasingly have to pay service charges for the upkeep of common areas. But they have absolutely no say over who provides services and at what cost, and no way of taking over management themselves,’ he pointed out.
‘Appropriate regulation, properly designed, will force rogue agents to either raise their game or quit the business. That’s good news for tenants and it’s good news for responsible, professional agents,’ he added.
Recent research by consumer group Which? showed that unfair practices can lead to as much as £700 million of unnecessary service charges being paid each year, and others such as the All Party Parliamentary Group on leaseholds believe the total could be as much as £1.4 billion.
Other measures are also being considered. In the summer the Government launched a consultation setting out radical proposals to cut out unfair abuses of leasehold to deliver a fairer, more transparent system for home buyers. Plans include banning new build homes being sold as leasehold as well as restricting ground rents to as low as zero.
Earlier this month the Secretary of State also announced measures to help make sure tenants are more secure in their homes requiring all letting agents to be regulated and consulting with the judiciary on the case for a new Housing Court, specialist court with the aim to save time and money resolving housing disputes.
Change is likely to be welcomed across the lettings industry. ‘The property industry has been campaigning for these changes for many years and it is not surprising that our voices are now being heard,’ said Glynis Frew, chief executive of Hunters Property.
‘Over recent months, as a member of the Lettings Industry Council and chair of the Regulation Group, I have seen so many people from various parts of the industry come together in their demand for more regulation, whether this be landlords, agents or redress and deposit schemes. It has been a privilege to see so many talented experts work together, not only to protect consumers from rogue practices, but also to re-establish the industry as respectful and trustworthy,’ he explained.
‘However, execution is key and whilst there is still a lot to do, the energy and positivity backing these changes is overwhelming. It is highly encouraging to have the resounding backing of ministers,’ he added.