Q&A: A look ahead at lettings legislation in 2022 with Robert Bolwell

Robert Bolwell, Senior Partner at Dutton Gregory, joined Goodlord's CEO, William Reeve, in a CPD certified webinar, Lettings legislation in 2022: Looking ahead, to discuss the latest developments in the Regulation of Property Agents, the Renters' Reform Bill, and the Minimum Energy Efficiency Standards.

CONTENTS

1. Regulation of Property Agents

• How is the Regulation of Property Agents progressing?
• Will there be any form of financial support or training for people for the required qualifications?
• Is there a cut-off point where exams have to be retaken?
• Would you recommend going straight to level three or starting with levels one and two?
• Will admin and maintenance colleagues or residential agents and block managers be required to do this?
• What will be the qualifying body for these qualifications?

2. Renters' Reform Bill

• What are your thoughts on Renters Reform Bill and abolishing Section 21?
• Would the abolition of Section 21 be retrospective to existing tenancies or just on rolling forward with new tenancies?
• Do you see Section 21 being abolished or maybe just amended?
  
• Could there be a specific housing court given the backlog?
  
• How do you think lifetime deposits are going to work?
  
• Are we also going to see the concept of lifetime tenancies?
  
• Is it time that deposits were scrapped if Section eight was strengthened to compensate?
  
• Will all these reforms make it possible that landlords will just move their portfolio to students and HMOs?
  
• Is the impact of lifetime deposits negative since it doesn't give the tenants any incentives to look after the place?
• Could you imagine a tenant registry, where tenants who've left a property having incurred arrears or damage are listed?
  

3. Minimum Energy Efficiency Standards

• Jumping to EPCs and the band C requirements - what will happen if properties can't achieve this?
  
• What happens if landlords won't comply or won't complete their own EIRC on a property?
  

1. Regulation of Property Agents

How is the Regulation of Property Agents progressing?

The last thing in parliament that dealt with this legislation was a question and answer session in October, in the House of Lords. So, whether this is going to be in three months or six months time, I really don't know. Because when the report was published back in 2019, we all thought it would be pushed through quite quickly. We'd see regulation, we'd see qualifications coming in within a five year period. Well, of course that was 2019. We had the pandemic of 2020 and it's hit so many areas of political reform for a six. So we just don't know, but we can look at the individual details in a moment.

Will there be any form of financial support or training for people given the 120 hour expected requirement for the required qualifications?

If the question is, will there be any financial support from the government, I can't say for definite, but I think the answer's probably going to be, absolutely not. I think most employers would actually recognise the benefits, the value of having a fully qualified team in their office. It's a great USP compared to your competitors on the high streets. And I'm sure if you ask very nicely, the majority of the employees will be given some sort of financial support.

What about people where the original qualification was gained a few years ago - is there a cut-off point where exams have to be retaken?

At the moment, no. One of the things that did come out in the report was the fear that you might suddenly get a lot of older members of the profession disappearing overnight. And that's a fear which the committee actually had. And they said, no, what we are going to do is if people haven't got enough qualification, that they've got two, we're not going to make them go all the way through from beginning all the way to the end, we'll try and get them to do a top-up qualification, to get them to level three or perhaps level four if they're in their own business, but the idea is to introduce this over a number of years.

The term they use is grandfathering - where you've got so many years experience and that will count towards your qualification, but the report did make it absolutely clear that experience alone, without some sort of level three qualification, is not going to be enough If you did your level three qualification 10 years ago, you might have to do a refresher course. If you did your level three five years ago, you are probably all right. One of the things I would say as an examiner myself, is think about all the changes we've had over the last few years. What I wouldn't want as a landlord is to go to an agent who qualified 10 or 15 years ago and has done nothing since to keep up to date with all the changes. So there will be a cutoff point. I suspect it might be five years, but there will be a runoff period.

Would you recommend going straight to level three or whether you'd suggest actually starting with levels one and two?

I would probably try and go straight to level three, obviously do levels one and two. They're the introductory course. If you've been in the industry for a number of years, to be honest, you should be able to do level one and level two in your sleep, because it's really what you do every day of your working life. If you come straight into the industry, do level one, do level two. If you're working in the industry for a number of years, I'd have a look at level three. Talk to one of your colleagues who's got the worksheets to level three. See what you think the exam looks like. But if you've been doing the industry for four or five years, you should go straight to level three.

Will admin and maintenance colleagues or residential agents and block managers be required to do this?

Well, let's deal with who needs the qualifications first of all. What the report suggests is that we should recognise what they call reserved actions or reserved bits of work within a letting agency. So not every job in a letting agency is going to need a qualified person to deal with it. There are seven reserve bits of work. So the first one is viewings. If you conduct viewings, you will need a qualification. If you conduct appraisals, you'll need a qualification. If you are signing a contract on behalf of a landlord, yes, you need qualification. If you are giving direct advice to a landlord or to a tenant, you need a qualification. If you are instructing contractors, if you are handling money or if you are giving advice on health and safety compliance issues, yes, again, you will need a qualification. All those seven areas of work, you'll need to be qualified, but if you're not doing any of that, you don't need to worry about the qualification.

So if nothing else it's going to mean the larger agencies are going to have to think long and hard about job demarcation. Ideally, everybody should get qualified, so we don't have to worry about it. But I know there will be some agents who are a little bit worried about mass exits of staff or cost of all their staff. So job demarcation in the future is going to be probably a bit more important because it's a qualification thing than it has been now.

What will be the qualifying body for these qualifications?

It can be anybody that wants to put itself forward to have a comparable examination. Now, examination boards across the country can actually award the ability to organisations to run their own exams and get proper accreditation. But the idea of having these awarding bodies is that the exams will be broadly similar and certainly the same to degree of complexity, whether there is an exam set by say Ricks or by ARLA, maybe even by the National Landlords Association. So there will be lots of bodies putting themselves forward to actually run these qualifications. I guess that ARLA is probably the oldest, but it's wrong of me to concentrate on them just because they've been here the longest.

There are other organisations out there. And I think being quite nice about it, this is a way for different examination boards to expand their reach and for colleges, certainly colleges, higher education colleges across the country to actually reach a new clientele that they may not have done previously. If you think about it, there is a bit somewhere I think in the report about apprenticeships, there are a number of colleges now running courses in property management and estate agency. And of course these sort of level three qualifications would be perfect to complement the courses they're already offering to full-time students.

For someone who's got an honours BSC in estate management, has been in the industry for over 30 years, remembers the 1988 housing act - does that person get any level of exemption given that their degree covered all aspects of property, including law?

Almost certainly. But at the moment there is nothing concrete and these are just ideas. Hopefully I might get some exemption if I go to level three, but if you haven't done an exam for 30 years, you are going to have to do something to show that you are up to speed with the current legislation because the changes we've had year in, year out are just phenomenal.

But I keep on coming back to this point that I can't give definitive answers. I know what the report says. It's now up to the government to decide which way they'll want to go. But almost certainly people like you and me, we will get some exemption, but not total exemption.

2. Renters' Reform Bill

Let's move on to the renters reform bill and abolishing Section 21.

So the first thing to realise is that they've done this in Scotland already. If you are north of the border, you'll know in 2017, they effectively got rid of the Section 21 procedure up there and surprise, surprise, the industry hasn't fallen apart. We haven't seen rent in Scotland go through the roof. We haven't seen a mass exudes in the market.

But of course the big thing in Scotland is they changed the way all these cases are dealt with. In Scotland, you have a tribunal, a bit like a housing court. They don't necessarily have fully qualified judges sitting in these housing court. Often they have lawyers like me who have done a lifetime of landlord tenancy type litigation who know their way around the court system, know the way around the statutes.

If we do something like that here south of the border, if we could couple the abolition or the significant change in the way that Section 21 is operated, but again, give the landlord the right to get their property back and give them instances where you must have it back.

If you look at the Welsh experience, in Wales, they're changing the whole way tenancies are set up there and at the moment, and in future, their equivalent of a Section 21 is going to be a six month notice. So they've still got the ability to get a property back without fault, but it's six months. It could be that we have some sort of compromise halfway between what they've done in Wales, halfway between what they've done in Scotland. We just don't know.

I would hope we might get it in the first part of 2022. But if it doesn't come until the end of 2022, well so be it, but that white paper will crystallise the government's thinking. Now, normally the gap between a white paper and an actual bill can be anything up to 18 months or two years. So I've got to say at the moment, let's say we have a white paper Easter, I don't think we'll actually see the Bill until probably the beginning of 2023.

Key question asked on behalf of many: would the abolition of Section 21 be retrospective to existing tenancies or just on rolling forward with new tenancies?

Parliament in this country is supreme, it can do whatever it wants. So, in theory, it could back-date all the reforms. It hardly ever happens. If you think about the number of properties out there that have been funded by commercial mortgages, those commercial mortgages have all been put through on the basis that if something goes horribly wrong, the landlord can get that property back.

If we suddenly said to lenders: all this legislation is going to be retrospective, I think a lot of lenders out there will put more than a bit of pressure on the Tory party to change their mind. So, although I can't give a guarantee, I suspect what will happen is there will be a date announced in the bill or perhaps even the act, which says this legislation will come into force with effect from 1st of April, whatever it may be.

It tends to be April and October when legislation comes into force in our sector, which would give landlords a bit of a run in. Now, the problem with that of course is if you suddenly say to landlords from the 1st of October next year, you won't be able to serve a Section 21 notice, well, if a landlord is thinking of selling up, what's he going to do if he's got six months to get things sorted out?

You could see a flurry of Section 21 notices right the way across the country. And that would have a bit of a knock on effect to our industry. And of course, if we do take any significant number of properties out of the market, what's that going to do to pressure on rents? In many ways it's great that our industry rents go up, et cetera, et cetera, but it's not good from a tenant's point of view.

And I'm sure the government are going to take that into consideration, but the alternative of making everything suddenly retrospective, I just don't see the government doing it for all sorts of economic reasons.

Given the Coronavirus Act and the lengthening of the Section 21 notice period, do you see Section 21 being abolished or maybe just amended?

Well, it's a good question. I think that will be a great compromise, but it doesn't necessarily get round the problem all the main political parties have with a lack of security of tenure. Those on the left wing of the labour party would really like to have tenants given security of tenure for life. That's not going to happen. And we're not getting back to the old rent act days where, once you've got a tenant in, you simply couldn't get them out, but no political party likes the idea of every six months or 12 months or longer periods.

The landlord will have the ability to get rid of tenants and put somebody else in. What the government doesn't seem to appreciate is that as a landlord, and I speak as a landlord, personally, what you don't want is to keep churning new tenants. You actually want a tenant to sit for a long period of time. If you had a good one, you want to keep them.

The ones you want to get rid of I have to say, tend to be the bad tenants, which is why, if we are scrapping Section 21, we've got to have some sort of alternative, a strengthened Section 8 situation and a more streamlined court service. So we can properly deal with those bad tenants. Shelter has been incredibly vocal on behalf of tenants and on the ARLA side, the Rick side, the other professional bodies representing landlords, they've been vocal, but probably not vocal enough.

Could there be a specific housing court given the backlog?

They don't in Scotland and it works superbly. Judges tend to be solicitors like me who've got housing experience sitting there in court. It's a streamlined system and it's working really well. If we did that in England, my rhetorical question is this: would there be an additional budget to fund it properly or would the budget of the existing court system be slashed to fund the housing court?

The public coffers are just about empty for all the reasons we know. And although I would love to see a housing court, I don't think it's going to happen. It'd be great if we did, but I hope I'm wrong. I think the best we can hope for is some sort of accelerated procedure for a section eight notice.

Let's move on to lifetime deposits. How do you think this is going to work?

A loan scheme would be a great idea. But where would the loan come from? I cannot see the government putting any money into this. The government are going to expect us in the industry to come up with a solution. And of course we've already got My Deposits, TDS and DPS down in Bristol.

We have got three agencies that operate effectively under government license and they deal with deposits. So I think the government is going to be looking to those agencies to come up with solutions. Now, bear in mind that the majority, over 50% of tenants get back their entire deposit at the end of a given tenancy.

The issue I see is, number one, delays because when a tenant moves out on a Monday morning, there are always delays in getting the assessment of the property completed with the checkout clark, getting in the landlord to agree that there are dilapidations. So we've got that delay, which necessarily means that the deposit isn't going to be 100% available on day one to actually move to a new landlord.

We've then got the dispute. If a dispute is genuine and there is a deduction, where is the top up payment going to come from for that new landlord, that new deposit moving over? I think that the practical problems in actually having money moving around or sitting with a scheme and being created to one or other landlords are going to be such that most agents are going to have to say, look, can we go down the deposit replacement route, which is insurance?

You're going to say to majority of your tenants look, it's not going to work in the way you perhaps think it might, go down the insurance route, which is great - great for the insurance industry, not too bad for agents, because there will be commission to be earned, but of course insurance costs money.

And ultimately, if the insurers are making a profit on every insurance deposit scheme they sell, who's paying for that? Well, ultimately it's going to be the poor old tenant. So, I suspect one of the reasons we haven't seen more from the government is they're scratching their heads wondering how is it going to work in practice? Whether the government puts more pressure on the insurance industry to come up with better schemes, I simply don't know.

Are we also going to see the concept of lifetime tenancies?

Well, you can always have a lifetime tenancy. Technically speaking and a shorthold tenancy can be for any period of time you want, it could go on for life. I don't think we are going back to the rent act days where effectively a tenant was given a lifetime tenancy by default. No, we might have lifetime deposits, but we won't have lifetime tenancies, but deposits are going to have to be topped up because whatever scheme the government come up with, there will be times when deposits have to be used in part to pay off a landlord who's releasing a tenant from their obligations.

Inflation in rents means that if we keep it at the five week mark, which is the norm to place deposits, inflation in rent means they're going to be topped up as the deposit gets bigger. So yes we can, but how it's going to work, I really don't know at the moment.

Is it time that deposits were scrapped if Section eight was strengthened to compensate?

I'd be very reluctant to go down that route, to be honest. If you have a bad tenant who disappears, yes, you've got your property back. But very often, we in this industry, we're left holding judgements, court orders for outstanding rent, which we can never recover. At least if you've got a deposit, you've got enough money there, hopefully perhaps to pay the legal bills getting the tenant out, and you have something left over to pay towards your losses.

Having said that, I was a landlord of student property for many years up in York. I never took a deposit. I never bothered. I always went to the student's parents and got them to sign joint several guarantees. I have to say, not many parents understood what joint several guarantee was, but I found it much easier to deal with it that way than actually take a cash or an insurance type deposit.

And it could well be that those are some of the alternatives that as an industry, we need to look at, more guarantees and less in deposits. Certainly, if you've got pets, you can't take an enhanced deposit because you've got a pet, but you may want to take a guarantee from a third party to make sure you've got the money there if there are significant damages at the end.

Will all these reforms make it possible that landlords will just move their portfolio to students and HMOs, following your logic?

I mean, I rented my property to students. I have to say, you do tend to get a bit of a premium when you've got a small HMO and students in there. And the great thing about students, I'm not trying to persuade people to go down the street, but the great thing about students is by and large, they leave at the end of the academic year. So in all the years I had those properties, I never once went into court and I never once took a deposit and I had no problems, but it's horses for courses.

A lot of councils now, article four declarations, which say that you can't go from single family occupancy to even a small HMO without getting planning permission, which is a complete nightmare in some areas. But I think landlords need to look at the options ahead of them in the light of what we think is coming in 2022, maybe 2023.

And I think if you are a letting agent, you want to be alive to those possibilities, at least have the conversation with your landlord, because if you don't have that conversation, your rivals down the high street probably will be.

Is the impact of lifetime deposits negative since it doesn't give the tenants any incentives to look after the place?

I tend to agree that if a tenant is moving out of a property in a year's time and they think they're going to get their deposit back in a year's time, that does sharpen the focus as it were on what you are going to do to make sure the property's left in an acceptable condition.

If the tenant believes they're not going to get their deposit back for 10 years because they'll be renting for 10 years, I guess logically there's a smaller incentive looking after the property, although the effect of the deduction is going to be the same. So no, I totally get on that.

Could you imagine a tenant registry, where tenants who've left a property having incurred arrears or damage are listed?

Interestingly years and years ago, there was an organisation which set itself up to maintain a register of dodgy tenants. Some of you will probably recall that under current legislation, we have a register, dodgy landlords, rogues' gallery. We can't share it publicly, unless you go onto the London one, the rest of the country can only share between local authorities.

When they try to set one up privately for tenants, we run into all sorts of problems with disclosure, with what was the precursor of GDPR issues. And ultimately the server had to be taken down. So, what happens now is you tend to have discussions between agents in a given town and you all know who the bad tenants are, but you don't keep a proper record.

Great on the surface, but I will ask this one rhetoric question. If you do end up with one of those tenants in a rogues' gallery, which is a public document, how do you ever encourage that tenant to move on somewhere else. You have to go through the court process to get rid of them, because by definition, if they're on the register, they'll never get another tenancy in a town near you. So there are pros and cons, but I think a rogues' gallery of tenants will be an excellent idea.

3. Minimum Energy Efficiency Standards

Jumping to EPCs and the band C requirements. Any idea what'll happen if properties can't achieve this, any exceptions?

What I can say at the moment, is that these are proposals. What Boris does, is he floats all these ideas, waits to see what the reaction is from the industry. And then we get the legislation. So at the moment, the proposal is if you are going to be renting out a property new, new tenant, then from probably April of 2025, yes, you've got to hit the C, you've got to be a C.

And then from 2028, all existing properties that are tenanted must hit that C band. It was quite difficult a few years ago, going from the Gs up to the E where we are now. Most commentators say it's going to be a quantum leap to go from Es all the way up to Cs. I mean, the graph just gets steeper and steeper and steeper. What they're also talking about is having the cutoff point raise from £3,500 to £10,000.

They're saying that in 2025, to get up to a C you'll have to spend potentially up to £10,000 before you get that exemption. The figures are just absolutely horrendous. Ironically, if you are in England, where it's a bit warmer down here in the south and south coast, where of course properties are that much more expensive, capital value is higher, you might be spending only 2% of the capital value to get it up to scratch. So I wouldn't at the moment assume it's definitely going to be a C for new properties in '25, and definitely a C for existing properties in '28.

But again, you've got to have the conversation with the landlord. It's no good saying to the landlord, well, don't worry about it. It's not going to happen. We don't know. It probably will happen. They've got to start putting money aside now for those capital improvements between now and 2025.

What happens if landlords won't comply or won't complete their own EIRC on a property, for example? Is the agent liable if they continue to manage the house or should they disinstruct?

I think you've got to disinstruct. So first thing is to check your landlord's terms of business, there should be a clause in every terms of business saying if the landlord does not comply with current legislation, you disinstruct him.
If we turn to the fines and the penalties, at the moment, if a local authority wants to take action against somebody for breaching legislation, they can go against the landlord, which is fair game, or they can go against the agent, and the definition of an agent is someone who's collecting the rent.

So although you and I might not be managing the property in what we accept as the standard definition of the term, we may not be managing it. If we're collecting the rent, that in theory does make us vulnerable to action from a local authority.

Now, that having been said, if you go to relevant government websites, there are all sorts of guidance notes for local authorities, because the government recognises there are going to be times when you're giving advice to a landlord and they're just totally ignoring you. So in that sort of situation, if you can prove you've given the appropriate advice, most local authorities would go against the landlord, not against you.

But ultimately, if you are a landlord who will not play ball, your reputation is worth more than a single instruction. I would literally think about getting rid of that particular landlord. And that's where it's an EPC, where it's an EICR, whatever it is, you do not want to be in your local rag, thank you very much, as an agent that does not comply with legislation.

In the scenario where the landlord won't play ball and you can't get them to complete an electrical installation report, could the agent consider doing it on their behalf and deducting the cost from the rent even without consent? Or would there be sort of negative consequences on that?

No, you could do that if you've got the appropriate clause in your T&Cs. So just do it, but can I ask you a question? It's fine if the EICR comes back, good bill of health, property's absolutely fine, property safe. What if it comes back and says, there are dangerous parts of the installation, and you've got to take remedial work within 28 days, you've just opened a proverbial Pandora's box.
Having got the EICR do you then try and get the work done yourself, which may not be covered by your T&Cs, do you go back and say to the landlord, oh, landlord, we asked you to spend 150 quid on EICR, by the way, we've now got to spend three and a half grand getting the wiring redone.

So, I think in theory, it's a great idea. And if you know the property's going to pass well, no one's going to worry too much, but my question is, well, what if you don't pass the EICR? What if there are dangerous aspects to that property? What are you going to do next? I don't know if there's an answer for that one.

I have to say it's probably safe to disinstruct yourself and walk away. There are more landlords out there who will appreciate what you do than the one who just won't talk to you about any sort of breach of the regulations.

Watch the full Q&A in our on-demand, CPD certified webinar