Letting agents going bust - three top tips for landlords to protect your position

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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Rumour has it that quite a few letting agents (although not all by any means) are in financial difficulties. What does this mean for landlords, and what can they do to protect themselves? Here are some tips:

1. Make sure that your agent has payment protection.
Ideally all client money should be kept in a special clients account, separate from the agents own money. If this is done, the money will still be available even if the agent becomes insolvent. Most reputable agents will do this, and it is a requirement of codes of practice, for example that for ARLA members.

If you are worried about this, perhaps if your agent is not a member of one of the agents professional organisations and there have been serious delays in the payment of rent to you, you might want to consider changing the arrangements for payment of rent so it is paid direct to you in future, by the tenant.

For information, the main professional bodies are:

ARLA - the Association of Residential Letting Agents
RICS - the Royal Institute of Chartered Surveyors
NALS - the National Approved Letting Scheme
NAEA - the National Association of Estate Agents
The Guild of Letting & Management

2. Check what the situation is regarding the tenancy deposit
All tenancy deposits taken after 6 April 2007 in respect of assured shorthold tenancies need to be protected in a government authorised tenancy deposit scheme. Failing this, section 21 notices will be invalid, and the tenant can claim the return of the deposit and a 'fine' of three times the deposit amount. You, as the landlord, will be liable for this, even though it may be the agent who is at fault. So you need to check both that the deposit has been protected, and the tenant has been served the relevant notice containing the prescribed information. Failure to do either of these can trigger the penalty.

Another problem is if the agent becomes insolvent and the deposit is not held in a trust/client account. The tenant will be protected, as the tenancy deposit scheme will pay the deposit to them. However the scheme will then look to the landlord (ie you!) to refund them. Under the law of agency you are liable for the acts (or omissions) of your agent. This sort of situation is most likley to occur now with My Deposits, as the Tenancy Deposit Scheme run by the Dispute Service now only accepts agents who are members of recognised professional bodies, and these all require client money protection.

The safest scheme, so far as the landlord is concerned therefore, for the agent to use, is the Deposit Protection Service. Here the money is actually paid over to the scheme administrators, so there can be no question of the agent running off with it.

3. Keep copies of all paperwork
My final point is regarding the paperwork. If your agent goes under, you will need either to take over the management of your properties yourself, or arrange for another agent to take over. This will be much easier if you have copies of all the relevant documents. This should include, particular:

• The tenancy agreement. This is essential. Make sure that you have an up to date copy of the signed agreement for all your tenants
  
• Notices served. For example the tenancy deposit notice, and any possession and other notices served, ideally with details of how and when they were served and by whom

It would also be useful to have:

• Any referencing documentation. You should be provided with copies of this when the tenant is chosen, so you can satisfy yourself that the tenant found is suitable. This information may also be helpful at a later stage if the tenant defaults on his rent payments.
  
• Other documents regarding the management of the property, such as gas certificates, letters of authority regarding housing benefit, records of servicing or maintenance work done at the property, and the like. Agents are unlikely to provide copies of these unless you ask for them. However if you do ask, they are supposed to provide you with what ever documentation you want (if is your property after all and they are your agents).

If your agent proves evasive about passing over copies of documents requested, a visit to his office might help, particularly if you indicate that you will not be leaving until you have them. Strictly speaking the paperwork is yours and you are entitled to it.

Hopefully your agent is financially sound, of impeccable integrity, and your properties are safe in his hands. However there is no harm in taking a few precautionary measures.

Discrimination against East European workers in rented property

A recent report on the BBC website highlights the fact that many letting agents are discriminating against migrant workers when renting property. In particular against Polish, Portuguese, Latvians, and Lithuanians.

This question of discrimination against ‘foreigners’ in letting property is not new, and is not confined to the UK. If it a difficult topic. On the one hand, no landlord should not be forced to let to someone he does not want to let to. On the other hand it is illegal for him to discriminate on the grounds of race, religion, colour, religious beliefs, national or ethnic origins. How can this be reconciled?

I suppose one answer is that, if the landlord keeps his opinions to himself and does not tell anyone why he is rejecting a particular applicant, particularly if has a reason for rejecting them which is not connected to their race/national or ethnic origins, there is not a lot anyone can do about it. However if he specifically tells his letting agent ‘No Eastern Europeans’ and the agent goes along with this, then it is clearly against the law.

One question I have not seen answered is why Eastern European migrant workers are being discriminated against in this way. Those I have come into contact with personally, have been decent hardworking people. Is it perhaps because it is more difficult to reference recent migrants? Or do landlords fear that they will up sticks and go back to their home country without warning, leaving large rent arrears? Or do landlords find it more difficult to weigh up and judge foreign nationals, and assess their suitability (particularly if they do not speak English well), in the same way that they do with people of their own nationality?

It has to be said that none of these are entirely unreasonable fears. However, applying blanket judgments against a whole nation is not only unfair but obviously wrong.

One final point. The BBC article refers to this sort of discrimination being against the National Association of Estate Agents mandatory code of practice for its members. However many agents are not members of the NAEA. This is perhaps yet another reason why we should have mandatory regulation of letting agents.

What do you think?

Advice for landlords seeking to recover commission post OFT v. Foxtons

You are a landlord. You are not a 'professional landlord' (i.e. you do not have a large portfolio and landlording is not your main business). You have paid commission to your agent (who may or may not be Foxtons) in the past, even though they were not managing the property. The commission was charged under a clause which was buried in the small print of your agency agreement and not drawn to your attention before you signed. In the light of the Foxtons case decision, you want to reclaim it. What should you do?

Initially, the answer is "not much", as the recent decision is not necessarily the end of the story. First, the Judge states at the end of his judgement that the practical consequences of his decision are yet to be either agreed between the OFT and Foxtons, or will be the subject of a further hearing. So that needs to be sorted out.

Second, this was a High Court decision, and High Court decisions can be overturned on appeal to the Court of Appeal, (and possibly then again on an appeal to the House of Lords). At the present time, we don't know whether Foxtons will appeal or not.

Whether Foxtons appeal will probably depend on the decision in the other big (even bigger) OFT unfair contract terms litigation, which is the case against the banks on bank charges. There is a House of Lords decision due out at some stage on this (the case was heard at the end of June), so we all need to wait and see what happens.

So overall it is tricky to predict the final outcome in the Foxtons case and how it will affect other clauses providing for commission on renewals in non managed agency contracts. My gut feeling is that Mr Justice Mann got it right in his decision in the Foxtons case, so far as it went, and I think it is unlikely a court will want to substantially alter his judgement (other than perhaps to take it further).

However I am not so sure that the House of Lords (or the Supreme Court as we will shortly have to call it) will feel very happy about coming to a similar sort of decision in the banks case, if this will require banks to pay back millions of pounds in charges to customers, at a time when most of the banks are still a bit fragile after the crash. It is not unknown for HL decisions to be influenced by politics (for example Lord Hoffmans judgement in Birmingham City Council v. Oakley [2001]).

So what should landlords do? Well I agree with others posting on this subject (for example the National Landlords Association and the Residential Landlords Association) which is that they should send a letter now to their agents, requesting them to return the commission paid within 14 days, to establish their claim. However once this is done, my advice is then to wait and see what happens. I will keep posting on this topic, and will try to keep you up to date, as will the landlords associations.

If though, your agent was Foxtons under one of their old agreements criticised by the Judge, or if your agent had a very similar clause which was buried in the small print of your agency agreement, and you don't want to wait, you could consider issuing proceedings now to get a place in the queue of similar cases in the County Court that is no doubt building up. However, no-one can be certain of anything at present, and always bear in mind that if you lose your case, you may have to pay your agents' legal costs.

Letting agents - instead of renewal fees

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

I was a bit shocked, although I suppose not entirely surprised, to read in the excellent 4wallsandaceiling property tribes forum about what some greedy letting agents are doing to replace the renewal commission they are going to lose as a result of the decision in the OFT v. Foxtons case.

They are contacting tenants and persuading them to leave at the end of the fixed term, so they can earn commission on finding a new tenant for the landlord.

In fact they will be gaining twice from this manouvre, as they will presumably get commission from the landlord of the property the tenants are moving too also, having done little work for it.

The agents on the 4walls forum (who don't do this) ask whether this practice is legal. The answer is no. This is probably a good time to take a look at the law of agency, which most people have either forgotten or think does not exist.

Trotting over to the bookcase to get out my book on agency law, I find this rather good quotation from a Judge in an agency case:

"The position of principal and agent give rise to particular and onerous duties on the part of the agent, and the high standard of conduct required from him springs from the fiduciary relationship between his employer and himself. His position is confidential. It readily lends itself to abuse. A strict and salutary rule is required to meet the special situation."

The fiducuary duty is an important one. I have sourced a nice definition from Gillhams Solicitors LLP which you can read here. Agents would do well to study it.

Under agency law there are a number of principles and rules, which are in essence as follows:

• The agent must perform his contractual duties, and follow his principals (ie the landlord's) instructions
  
• He must do this with 'due care and skill' appropriate to the type of work he is doing
  
• He must not delegate his duty (without the principals consent)
  
• He must not put himself in a position where his duties to the principal conflict with his own interests
  
• He must not take bribes
  
• He must not take advantage of his position or his principals property in order to obtain a benefit for himself, and
  
• He has a duty to account (ie he must keep his principals money separate from his own, and hand it over, together with all relevant documents and accounts when asked)

I am sure many landlords will smile ruefully on reading this, their experience having been quite different. From what I hear about many agents (not all of them), they seem to have no idea that they are acting in a fiduciary capacity and appear to be acting in their own interests only.

So what can a landlord do if he finds that his agent has acted against his interests, and persuaded his tenant to leave so he (the agent) can earn a new commission finding a replacement? Well I would that thought that, as this is a clear breach of the agent's fiduciary duty, the landlord can go to court and claim both a refund the commission received by the agent for re-letting the his property, and the commission received by the agent respect of the property to which the tenant moved, along with a refund of all expenses incurred by him as a result of the tenant vacating.

It might be an idea, if a clear example of this practice is found, for a test case to be brought (possibly funded by one of the landlords associations??), so these agents are made aware of their responsibilities.

OFT victory in Foxtons unfair contract terms case

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

Landlords up and down the land will be jumping with glee at the Office of Fair Trading (OFT)’s victory over Foxtons regarding their unfair contract terms. To read the background to this, see my previous posts here and here. The OFT was challenging the clauses under the Unfair Terms in Consumer Contracts Regulations 1999 (The Regulations).

The court hearing took place over three days at the end of April/early May 2009 and the judgement was published today. It has already at the time of writing been reported fairly widely, including of course the OFT press release. These are my comments after reading the report (which you can see online here).

There are basically three types of clause which were looked at:

1. A clause providing for Foxtons to receive commission if the tenancy is renewed or extended
2. A clause providing for Foxtons to continue to receive this commission from the landlord even if he has sold the property, and
3. A clause providing for Foxtons to receive commission if the property is sold to the tenant

Foxtons claimed, in essence, that these clauses were fair as they were their just reward for finding a long term tenant, which provided the landlord with an income stream and no voids.

The first thing which struck me on reading the report was the eye poppingly high price charged by Foxtons for providing a tenancy agreement, of £320. Bearing in mind that you can get a perfectly good agreement in the High Street for under a fiver, and that unlimited access to my agreements are available online for £80 pa (together with all my other annual member benefits), this strikes me as exorbitant!

Returning to the case, the Judge confirmed that although the Regulations only apply to consumers (i.e. not to professional landlords whose main income is from landlording), as this agency agreement is used for both business and consumer landlords, it is subject to them. Examples of consumer landlords are those who are letting their home where they are posted abroad for their job, or who have invested in a couple of properties in lieu of a pension. A substantial proportion of landlords only have one or two properties and therefore will normally come within the ‘consumer’ category.

1. Commission on renewal.
The Judge spent most of his time looking at this point.. He found that Foxton’s clauses were unfair, and made the following comments:

• He made it clear that he was not saying that renewal commission would always be unfair. It would depend on the circumstances of the case and how clearly the renewal commission clause was presented to the consumer.

• The Regulations specify that they do not apply to clauses which are part of the ‘core bargain’ of the parties. However the Judge held that this is not the case here, as the average consumer would not consider the renewal clauses to be part of their core agreement with Foxtons (which was primarily for getting a tenant for a specified fixed term)

• Even if the clauses were ‘core terms’ they would still need to be plain and intelligible and be subject to the fairness test.

• The clauses concerned are not plain and intelligible as the language used would not be clear to the average consumer (even though businessmen and lawyers reading the contract closely would pick up on the points)

• 11% of the rent over an extended period of time is a significant sum and a very significant part of the rent, and the typical consumer would not realise that this was part of the agreement, particularly as it is nowhere mentioned in the sales literature provided by Foxtons about their service

• Compared to the initial work finding the tenant, where quite a lot is done by the agents, very little work is done by them for renewals, other than the provision of a tenancy agreement, which is charged for separately anyway

• Unless it is clearly spelled out at the time the agreement is made so the landlord is fully aware that it will be charged, a renewals clause becomes a trap, or a time bomb (these are the words used by the Judge)

• Although a typical consumer is familiar with the concept of commission, normal commission arrangements (such as with an Estate Agent) do not include commission extending long term into the future, as here

• A consumer would not expect important obligations of this nature with ‘likely and significant impact’ to be tucked away in the "small print" only, with no prior flagging, notice or discussion

• Most normal consumers would be surprised at such a clause, and if they were represented by lawyers, it is something that their lawyer would very likely request be removed (a further indication of unfairness)

• Although the Judge accepted that the lack of a void is good for landlords, he held that the important thing is that the landlord would not, (in this case), normally be aware, from this agreement and the pre contract information provided by Foxtons, that he would be paying ongoing commission on renewals in this way

I think that these are the main points made by the Judge, although anyone particularly interested should go and read the decision for him or herself.

2. Commission when the property is sold.
The Judge merely said here that having found that the renewals commission clause in itself was unfair, it would be even more unfair if the landlord was having to pay it after the property was sold on.

3. Commission on sale to the tenant.
The Judge also found that this would be unfair and therefore in breach of the regulations. The main reason for this was the such a situation was not being considered or contemplated by the consumer landlord at the time he entered the contract, and in most cases he would be astonished by its inclusion. He was instructing Foxtons to find a tenant, not to sell the property.

The Judge also made the point that the clause would impose a potentially large financial liability on the landlord in circumstances where Foxtons had not actually done anything. If such a clause were to be imposed on him, a normal landlord would consider that he had been ambushed. It was clearly unfair.

Although it is arguable that this type of clause would also be allowable if it was properly explained to the landlord, and he understood and accepted it, before signing the agency agreement.

Conclusion
The case report ends by saying that there will be a further hearing to consider how this decision will be implemented in practice, unless the parties (i.e. Foxtons and the OFT) are able to reach an agreement first. Of course there is also the possibility that the case will be referred to the Court of Appeal so this is not necessarily the end of the story. However to summarise

• Unless they are very clearly flagged up to the landlord at the time he signs the agency agreement, and given equal prominence to the fees for the initial letting, clauses providing for commission on renewals will normally be unfair and therefore void under the regulations.
  
• Clauses relating to commission for sales in a contract for agency services for lettings are likewise almost invariably going to be void, unless they are made very clear indeed to landlords at the time they sign the agreement and given prominence in the agreement

This decision is very good news for landlords, although it could be catastrophic for Foxtons and any letting agents who have used similar clauses in their agency agreements in the past. They will now be faced with claims by landlords for recovery of charges paid, and it is going to be difficult to see how they can successfully defend these (assuming the decision is not appealed and overturned).

The OFT also say in their press release "The OFT expects the letting industry to comply with this ruling, and will take the necessary steps to ensure this where appropriate.". You are warned!

Possible scam with tenants' deposit money

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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There has been quite a bit of publicity over the last few months about agents and the unjust charges they impose on both tenants and also the landlords they represent. The CAB did a report on this which I wrote about here. I have now been contacted by a tenant telling me about what he suspects may be another scam by agents (and potentially also landlords), although it is not something he can prove. I copy his email below:

I recently quit a tenancy in Bath and moved to London. The deposit on the Bath flat was held by the DPS [Deposit Protection Service]. I couldn't remember how much the deposit was, but I had the DPS letter saying it was £1050.

While clearing out some boxes, I found some more paperwork: the receipt from the letting agent that showed I'd paid £1575 deposit. I keep my bank statements, and these confirmed the deposit was £1575. The letting agent had placed £1050 with the DPS and kept £525.

A percentage of tenants - especially after a long tenancy - are going to forget the amount of the deposit and / or lose their original paperwork. At the end of their tenancy, they ring the DPS, establish themselves as entitled to the deposit and are told how much was lodged with the DPS. If the letting agent or landlord only lodged part of the deposit with the DPS, the letting agent / landlord get to keep the rest. If the tenant knows how much the deposit was and can prove it, they just apologise and agree to return it.

In my case, the letting agent accepted immediately what had happened, said they'd made a mistake and apologised.

I think it would be hard to detect this happening. I can't prove it wasn't a mistake. I should have checked the DPS letter when it arrived but even if I had, the letting agent would have apologised and placed the correct amount with the DPS.

The scam only works when the tenant forgets the amount and in that situation, they don't even know they've been robbed. The landlord / letting agent get to keep a percentage of deposits they handle. This can be a lot of money if only a small proportion of tenants "forget".

If nothing else this story emphasises the point that tenants must check everything so as to protect their position (and I would add that the correct amount of the deposit should be set out in the tenancy agreement). The agent in this case could have made a genuine mistake of course, but did they? Have any other tenants experienced this?

Take your complaint to the Property Ombudsman

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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I stumbled upon this excellent article on the BBC website today, which is by the Property Ombudsman about his service in respect of letting agents. Due to the problems in the property market, many agents are now turning to lettings and, if they are unfamiliar with this area of work, their customers may have some cause to complain about them. The Property Ombudsman (TPO) is one person they can complain to.

Not all agents are members of the TPO scheme. However you can identify those who are as they will normally display the TPO logo.

Members of the TPO scheme are required to abide by a code of conduct which you can find on the TPO website, and the TPO can award compensation of up to £25,000 in any one case. Alternatively if the complainant is unhappy about the TPOs decision he can still go to the courts.

It is worth looking out for the logo when choosing an agent, either as a landlord or as a tenant, and it is good to know that there is an alternative method of complaint about rogue agents. Since October 2008 all estate agents are required to be registered with an approved redress scheme such as TPO (and can be fined by Trading Standards officers if they are not) although this is not the case with agents who only do lettings. However as always, the worst problems are likely to be with the agents who are not registered.

Landlord licensing and agent regulation – impact assessments now published

Those interested in the governments consultation paper issued in response to the Rugg Report, will also be interested in the impact assessments which have now been published by the Department for Communities ands Local Government .

Impact assessment for regulation of Landlords
This is available to download from here. This shows that there are two options under consideration. The first is full licensing, which would involve a five year fee of £500 per property. The second is a web based national register. This will involve an annual fee of £30-50 per landlord.

Although both options are discussed in the report, it is clear that it is just the second option, the web based register, which is being seriously considered. All landlords will be required to sign up to this, although landlords who are members of existing organisations (presumably landlord associations) will be passported into the register. In return for signing up to the register, landlords will be offered benefits such as free documents e.g. tenancy agreements, and property advertising.

The report analysis is on the basis of 1 million landlords with 3 million properties.

Impact assessment for regulation of Agents
This is available for download from here. There are only two options discussed in the report, doing nothing and mandatory regulation. Regulation is the favoured option.

The report states that there are around 8,000 letting agents, only half of which are members of a professional organisation (such as ARLA or RICS). The large number of unregulated agents is undesirable as they are not compelled to have any client money protection or undergo any training on property management. Apparently some 60% of landlords use letting agents to manage their properties, so many landlords are at risk of poor practice by unregulated agents.

The report estimates that existing members of professional organisations will be passported into the scheme. Others will have to pay a joining fee in the region of £180 pa, and all agents will then have to pay an annual fee in the region of £120 pa.

Implementation of this (which has been widely called for across the industry) will protect both landlords and tenants from fund misappropriation, and will provide a more 'level playing field' for those agents who are currently operating properly (with the associated costs which this involves).

Note that I have set up an answer form for those wishing to respond to the governments consultation paper here. This now provides links to these two impact assessments.

Landlords out of pocket for deposits - DPS may be best after all!

A report published in The Times today highlights the growing problem of landlords having to pay up for deposits, when agents go bust.

Under the two 'insurance based' tenancy deposit schemes (MyDeposits and the Tenancy Deposit Scheme run by the Dispute Service) if the agent deals with the deposit on behalf of the landlord, the agent holds the deposit money. If the agent becomes insolvent, this does not affect the tenant (other than perhaps a delay in getting paid) as the insurance company pays out.

However it will have a serious effect on the landlord. This is because the deposit schemes are entitled to recoup their losses by claiming the money back from the landlord, on tbe basis that the landlord is the employer of the failed agent.

The Times report states that "hundreds of letting agents have ceased trading in recent months" and goes on to report that "MyDeposits has received 279 notifications of a letting agent going into liquidation and being unable to return the deposit". In the majority, if not all of those cases, the landlord will have had to pay.

The problem is more likley to occur with MyDeposits as the Dispute Service are now refusing to accept agents who are not members of ARLA, RICS or a similar professional body.

Landlords letting through non regulated agents should therefore think carefully before allowing the agent to manage the deposit unless it is protected by the Deposit Protection Service where the deposit money is actually lodged with the company so there is no possibility of it being lost.

CAB report highlights unfair charges to tenants by letting agents

An item on the BBC news site has alerted me to a new report from the Citizens Advice Bureau on fees to tenants by letting agents. The report comments that many letting agents are regularly making unjustified charges to tenants for "tasks that are no more than the routine business of letting and managing a property" (and sometimes for items they are also charging to landlords). For example, the report states:

"Charges included a non-returnable holding deposit, a deposit administration charge, a reference check charge, an administration fee, a check-in inventory charge, a check-out inventory charge, and a tenancy renewal fee."

Of these, I would comment that one inventory charge is fair if the landlord pays the other (ie one paying check in and the other paying check out) provided the fees are reasonable and reflect the actual cost of the work. Reference checks are probably also reasonable, if they reflect the actual cost of referencing. However, the holding deposit should be credited to the rent or damage deposit if the tenant rents the property, and 'renewal fees' have long been considered unfair by many.

The CAB is right to draw attention to these fees. Often tenants feel that they have no choice but to pay as they fear that otherwise they will lose their home. Many agents act responsibly and only charge for what is fair, but there are a large number who do not. The CAB report comments "charges often bear little or no relation to the cost of the work involved and in some cases letting agents appear to make them up as they go along."

The report also mentions the change in attitude of many agents towards tenants before and after they have signed up. This is no doubt true in many cases - to get a flavour of what tenants think of agents you only need to do a search on 'Foxtons' in twitter.

Hopefully things will improve if the agent licensing plans put forward by the government in their recent report go ahead.

Stand your ground on damage deposit claims

In my last post I talked about the case of my poor clients, evicted by their landlords’ mortgagee. In fact the situation was worse that I let on, as not only were they evicted, they also didn’t get their deposit back!

My advice to them was (inter alia) to threaten the agents with an application under the Tenancy Deposit Protection Scheme regulations for the return of the deposit and three times the deposit sum ‘fine’ provided for under the regs. The deposit after all had been paid to the agents. In my view the fact that they had passed it on to the landlord (which turned out to be a dodgy company - almost certainly without assets) did not excuse them from their responsibility to protect the deposit. Otherwise this would be driving the proverbial coach and horses through the regulations. My letting agent client had told me that they would never pass a deposit on to a landlord unless they were 100% certain that it was going to be protected.

Initially the agents tried the brush off – “nothing to do with us, we just found the tenants, you need to claim the deposit from the landlord”. My client then spoke to the Deposit Protection Service, who told him that the agents were right, and that they could not claim the deposit from them.

Thankfully, although initially knocked back by this, my client decided to send a stiff letter to the agents, threatening court proceedings, and claiming the deposit, the 3 x fine, all his expenses (including an item I had privately told him was not really recoverable), and substantial compensation. The agents consulted their solicitors and their insurers, and, to my clients surprise and delight, agreed to everything except the compensation!

So a happy ending and champagne all round! But what a good thing my client took no notice of the DPS and decided to send the letter anyway. Otherwise they would now be several thousand pounds poorer.

The Rugg Report – the governments response

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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The government published a consultation paper yesterday in response to the recent Rugg Report and the other various reports that have been published over the past few years.

Supporters of the Law Commissions long project and reports, will be pleased to see that this is acknowledged and referred to in the response which confirms that many of the Law Commission’s ideas are being considered. However it also states that they do not think the time is right for the extensive changes in tenure proposed in the Renting Homes report.

No doubt further comments on the paper will be made later, but on a preliminary reading, the following points stood out for me.

The report acknowledges that most tenants are satisfied with their landlords and that the majority of landlords provide a good service. The main thrust of the proposals therefore are intended to support good landlords, improve standards generally across the sector, and drive out the persistent bad landlords.

National Register
The paper proposes a national register for landlords. This will be 'light touch' and mostly web based. Landlords will need to register their name and address, and details of their property holdings, and pay a small fee annually. They would then be given a number which would have to be used in all landlord related paperwork such as tenancy agreements, tax forms, benefit claims, and court proceedings etc. The register would be run by an independent organisation.

The benefits of the register for government is that it would give them accurate statistics, and they could use it as a way of disseminating information to landlords (such as regarding energy efficiency standards). It would presumably also (although this is not specifically stated) help the revenue with tax collection.

Landlords who fail to comply with the regulatory regime or where there are 'persistent abuses' will be removed from the register, be unable to let out property by themselves, and will probably be ineligible to receive housing benefit.

Tenancy agreements
They are considering introducing mandatory tenancy agreements, as suggested by the Law Commission, and are seeking views on how this should best be implemented.

Rent Limit
They propose increasing the limit above which tenancies are not longer ASTs to £100,000 pa (currently it is £25,000 pa)

Regulation of letting agents
The paper concludes that voluntary regulation of the letting agency sector has not worked, and propose full compulsory regulation of all letting agents. This would include

• entry requirements
  
• a code of practice
  
• business and consumer protection (e.g. indemnity insurance, client protection schemes, complaints procedures)
  
• monitoring of compliance by an independent body
  
• enforcement powers and sanctions

Dispute resolution, Courts, etc
The Law Commissions proposals put forward in their Proportionate Dispute Resolution paper are being considered in conjunction with the Ministry of Justice.

Encouragement of investment
They are considering setting up a Private Rented Sector Initiate to encourage institutions to invest on a large scale and in the long term

Support for tenants being evicted by landlords mortgagees
They will be looking to change the law to ensure that tenants in this position are given at least two months notice to find alternative accommodation.

Tax changes
Significantly the report simply says that the treasury is aware of changes proposed (e.g. by the Rugg Report) to the tax system to support the private rented section, and will keep them under review. Which presumably means that nothing will happen.

Local Authorities
They discuss how local authorities can better engage with local landlords, perhaps by dealing with them through their small business unit rather than via environmental health, and by giving better training to staff. Many local authorities are of course already doing this sort of thing.

Accreditation
They would also like to build on the various current accreditation schemes for landlords, perhaps with a view to developing a national standard.

There is a lot more in the report (which runs to 37 pages) but the above gives a flavour of what it says.

The full report can be found here

The paper is also a consultation and various questions are asked at various stages for feedback on particular points. These should be submitted to the department by Friday 7 August. Note that I hope to be able to set up one of my online answer forms for this shortly, so watch this space.

Agents letting property subject to a re-possession order

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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There is quite a lot of discussion about tenants evicted unfairly by landlords in retaliation for something that they have done, such as complain about repairs. However there is another type of unfair eviction where tenants do not even get the benefit of the two months notice under section 21 which tenants receive in a retaliatory eviction. I am talking about tenants who get evicted by the landlords mortgage company when the landlord fails to meet his mortgage payments.

I was consulted by tenants on one of these cases recently. They had rented what they believed to be their dream home, only to find two months later, the bailiffs at the door. It was a complete surprise to them because the possession order had been obtained before the property had been let to them!

Yes, amazing though it seems, the possession order was made several weeks before the tenancy was granted, and the date for possession in the order had actually expired the day before my clients tenancy started (by the way they know I writing this and have given their consent). Therefore the notice which mortgagees are required to serve on occupiers of properties did not help them, as it had been served over six months ago!

The property was rented via an agency and the question comes to mind – what is the agents obligation here? Under agency law an agent is generally not liable for the acts or omissions of its principal. However what if the property they are presenting to the public as a suitable home, is one which is vulnerable to repossession from the moment the ink dries on the tenancy agreement?

I had a word with one of my letting agent clients about the sort of checks that are generally done in the business against their landlord clients and the properties they take on. It seems that the answer is ‘not much’ Apparently landlords are sometimes asked to sign a form saying that they are authorised to let the property and that there are no legal problems or other problems with it. Well that’s not much good is it? A dishonest landlord is going to sign that without a qualm.

I can’t help feeling that there should be some sort of obligation on agents to check this sort of thing. After all in this case the agent was offering to let through its business, a property which had a substantial defect – i.e. it was vulnerable to repossession at any moment. It seems wrong for the agent to be able to pocket its commission (taken from my clients rent) and then say “sorry gov, nothing to do with me”. Which is in effect what they are doing.

What do other people think?

Foxtons on Twitter

Having nothing better to do today, while messing around on the computer I did a twitter search on Foxtons. It was interesting to see what came up.

- There were a large number of moans from discontented tenants and landlords.
- There was the announcement of the Court of Appeal's decision (against Foxtons) in the preliminary point in the case brought by the OFT (see more here).
- Finally (and I had missed this earlier) there were, a couple of days after the CA decision announcement, tweets on the possible deal re-financing Foxtons and writing off their massive debt (see the report here on Reuters)

Could all these be connected?

My own view is that I don't want them to go bust before the case with the OFT has gone through to its conclusion. There are so few cases on the Unfair Terms in Consumer Contracts Regulations, we really need this one. Plus it is important now for the letting industry to know where they stand.

Refunds after Foxtons

One aspect of the Foxtons case which I have not seen mentioned is the impact this will have on the status of past payments.

To remind readers, a claim has been brought against Foxtons by the Office of Fair Trading, for a declaration that some of the terms in their landlord agency agreements are unfair under the Unfair Terms in Consumer Contracts Regulations 1999 (see my post here).

The OFT are objecting to clauses which require landlords to pay commission when tenants renew where Foxtons are not managing the property (and even if the landlord has sold the property), and also pay commission if the property is sold to the tenant where Foxtons pay no part in the sale.

We have had a preliminary Court of Appeal decision in the case which says that the ruling (when we get it) will apply to both current and future contracts. The High Court decision is expected shortly.

What I would like to know (and I am sure a lot of landlords would like to know also) is what then is the status of payments already made by landlords under these agreements. If the OFT win the case, then this will mean that these clauses were always unfair and unenforceable. Can landlords claim a refund?? Or offset payments made, against future commission?

Summary of posts on the Foxtons case

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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I wrote several posts on the Office of Fair Trading v. Foxtons case in July. As I find I am having to refer to these quite a lot in advice to clients, I have decided it would be helpful to have one page with links to them all.

OFT Victory in Foxtons unfair contract terms case.
This is my initial report on the case, and explains the judgment.

The OFT v. Foxton case - commission on renewals
This item looks specifically at what the judgment says on the question of commision on renewals, with reference to the status of these clauses now, and quotes extensively from the wording of the Judgement.

Letting agents - instead of renewal fees
This post discusses what some dishonest agents are doing to replace the renewal commission they are losing, and discusses also the 'fiduciary duties' of agents (which seem to have been forgotten by many agents).

Advice for landlords seeking to recover commisison post OFT v. Foxtons
This post gives some guidance to landlords on what they can do now (ie as at July 2009 to the date of this post) if they think they may have a claim against their agents as a result of the Foxtons case.

If you want me to advise on your specific circumstances, please see here for details of my advice services. Note however that I only do limited case work nowadays so I am not able to issue proceedings or act on your behalf in any court claim you may wish to bring against your agents.

Another devious agents ploy

At the recent Landlord & Buy to Let Awards ceremony, the presenter Konnie Huq had an interesting story about a ploy used by a large firm of agents she now regrets having used.

The told her that they had found a tenant who was willing to rent her flat for five years. 'Think of it' they said to her, 'Five years rent sorted, isn't that great?'. Agreeing that it did indeed sound good, Konnie signed the forms, only to find that agency then required their commission for the whole five years paid in advance! Even though she had not received any of the rent!

Of course later on, there were problems with the tenants failing to pay rent, which she had already paid commission on ...

Moral - don't ever sign up for more than six months with a new tenant you know nothing about. And be aware that not all agents are looking after your best interests. Even though they should be (as discussed here).

Have you suffered from any similar problems? If so, please leave a comment.

Complaints against letting agents are at an all time high, reports the Observer

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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Letting agents are supposed to be the experts in lettings. Many are excellent. Unfortunately however, there are a lot of 'cowboys' about. The growing level of dissatisfaction with many agents is made very clear by an excellent article in the Cash section of the Observer today, which states that a number of surveys show increased levels of complaints from tenants regarding incompetent landlords and (in particular) letting agents.

The Property Ombudsman's figures show that in July there were a record 1446 complaints about private lettings, more than 110 per week, and since summer 2008 there has been 44% increase in complaints about lettings. Which, as many people fight shy of making official complaints about problems, indicates that the real level dissatisfaction is far higher. Particularly as, unfortunately, it is not compulsory for agents to belong to a scheme such as his, or indeed any scheme.

The CAB reports that 73% of tenants were unhappy with their letting agent. Top complaints with them are the time taken to carry out essential reports, and additional charges levied, e.g. for referencing and renewals. Shelter also report a big increase in complaints, particularly regarding the return of tenancy deposits.

Surely it is time for letting agents to be regulated? Or at the very least, be required to be a member of the Property Ombudsman scheme.

Rogue letting agents

There is an interesting article in the most recent (July 09) issue of Property Investor News about rogue letting agents.

For example the journalist (Donia O'Loughlin) interviewed Paul Shamplina of Landlord Action. He reports a huge increase in instructions from landlords seeking to recover money from their agents, and it looks as if many of these are using landlords and tenants money to cover their own debts. For example there is a report of one landlord being owned some £24,000 (over 12 months worth of rent). Another case involved an agent defrauding over 30 landlords and tenants. The article even mentions a case where an agent had an online gambling problem!

To a certain extent agents using clients' money improperly, particularly tenancy deposits, has always been a problem. One (reputable) agent is reported as saying: "using the deposits happens a lot, and its not just small players either. Its looked on as an interest free loan." He goes on to say that since the introduction of the tenancy deposit scheme this sort of conduct has become harder, although 'not impossible'.

A number of those interviewed support recent suggestions by the government to introduce regulation for letting agents. As Mr Shamplina says in the article, "This can only be a good thing. It will stop decent letting agents getting a bad name due to the rogue agencies that often tarnish this industry". I am sure a lot of reputable agencies will agree with that!

So what can a landlord do to protect himself? The answer is to use a company which is a member of one of the recognised agents associations, i.e. ARLA, NALS, RICS or NAEA, as most of the problems occur with unregulated agents.

Although these organisations are not perfect (the article highlights some criticism of NALS, for example, regarding delays) cases are being dealt with, and affected landlords and tenants will (eventually) receive a full reimbursement. Assuming of course that the agent is a member of NALS. Whereas where an agent is unregulated there is often no redress for the landlord, who at best will be able to claim as an unsecured creditor. It seems that even if rogue agents are constantly shutting shop and reopening again, the police, and even trading standards sometimes, are not really interested.

The article ends with some very wise advise from Lucy Morton, president of ARLA

"ARLA would recommend that landlords do their own homework on letting agents and ask questions such as ‘Are they licensed? What protection for client money do they have in place? Is there a route to redress should something go wrong? If not then ARLA would recommend looking elsewhere to be certain that their money is protected."

Landlords should also consider the points made in my earlier post with tips for landlords on agents going bust.

For more information about Property Investor News magazine (and a trial subscription) visit the web-site.

The Dispute Service Annual Report

The Dispute Service have published their annual report, which can be downloaded from their web-site (a direct link is here) and it makes interesting reading. I list below the points which struck me.

Generally it looks as if the service has been under some strain during the year, due partly to the increase in tenancies covered and partly due to a huge increase in deposit disputes. Interestingly the report states that the majority of the disputes come from a small number of agents, which, they say, is going to be reflected in the subscriptions (presumably to the offending companies).

The case of Harvey v. Bamford (reported on this blog here) caused them some concern, resulting in a chance of their terms and conditions to reinforce the requirement for landlords and agents to both protect the deposit and serve the notice on tenants within 14 days of receipt of the deposit money. Which, they say was the intention of the act.

There is some discussion of the insolvencies among a few unregulated agencies, which between them resulted in lost deposits of over half a million pounds. The result of this was an increase in premiums and the withdrawal of cover from unregulated agents (reported on this blog here). Apparently half of the agents affected joined NALS and so were able to continue their membership.

There has been a massive increase in deposit disputes in the past year. This was not entirely unexpected, although the number is higher than anticipated, and has caused TDS problem. The report suggests that agents should make more effort to resolve these, rather than just passing the decision on to TDS. The majority of the disputes appear to be about standards of cleaning. TDS has suggested that tenants be given a list of approved cleaners so that if one of these firms are used, the tenants will not be held responsible if the level of cleanliness is subsequently criticised.

Even though all of TDS membership is now presumably regulated agents (save for a few landlords) it is surprising (or perhaps not) that the report complains about poor reporting and documentation provided by agent members. As many landlords will attest, even being a member of a professional organisation does not appear to give any standard of quality.

The report ends with a selection of interesting arbitration cases, which are worth reading.