A short new inquiry, launched in February 2024, will examine whether letting agents will need further regulation.
The idea of regulating property agents isn’t new. If you’ve been an agent for a while, you will likely have experienced more regulation and legislation.
Over the last ten years, there have been multiple steps to further professionalise the sector, including introducing an Ombudsman and legal obligations such as the Tenant Fees Act.
In February 2024, this was taken a step further, when the House of Lords Industry and Regulators Committee began its inquiry to examine how property agents are currently regulated, and whether there should be a new industry regulator.
Now, in March 2024, the committee wrote a letter to Michael Gove, Secretary of State for Levelling Up, Housing and Communities, asking for legislation and change for the proposed regulation.
This blog gives an overview of the regulation that letting agents must follow, and what is now being called into question in 2024.
- What are the minimum entry requirements for property agents?
- How are letting agents currently regulated?
- What fees can letting agents charge?
- Is additional regulation of property agents needed?
- What is the Regulation of Property Agents (RoPA)?
- What is happening about the regulation of property agents in 2024?
- What about the Renters (Reform) Bill?
- What was found in the inquiry for the proposed regulation of property agents?
What are the minimum entry requirements for property agents?
Put succinctly, the role of a letting agent is to help a landlord find tenants for their property, or to manage that property on behalf of the landlord.
However, letting agents do not have to exclusively deal with finding landlords or managing properties to be defined as one. The Consumer Rights Act 2015 states that as long as a person “undertakes [in some of letting agents work] they are a letting agent regardless of what else they do”.
Letting agents do not currently need specific qualifications to operate in England. In 2017, a call for evidence report revealed that three-quarters of respondents were in favour of further regulation to improve standards.
However, in January 2023, Labour Shadow Housing Minister Matthew Pennycook reopened the debate as part of the Leasehold and Freehold Bill, stating that estate agents should have at least one A-level.
Is it reasonable to ask letting agents to have an A-Level? Goodlord experts give their view.
How are letting agents currently regulated?
Currently, there are no statutory regulations for letting agents in England and they do not need any requirements to operate. This differs from Scottish and Welsh agents, who have different licensing and registration requirements.
In December 2013, a national Redress Scheme was introduced for letting agents. As part of this scheme, the Property Ombudsman, Ombudsman Services Property and The Property Redress Scheme were introduced. Since 2014, it has been a legal requirement for agents to be members of a Redress Scheme.
A redress scheme for agents provides a way for tenants and landlords to lodge complaints against letting agencies so they can be dealt with independently. Letting agents can face fines of up to £5,000, which is enforced by local authorities.
According to Propertymark, the most common complaints from tenants are unfair or excessive letting fees. Its report states: “complaints can often arise when Consumers believe they have been misled by their Agent about the charges incurred for using their service.”
Unfair or excessive fees means that an agent should be transparent on their charges over a wide variety of topics, including: the fee an agent charges to a landlord, the need for agents to highlight any unusual charges (e.g. ‘check in or check out fees’ or ‘security deposit handling fees’), and repair and maintenance fees.
Find out five ways the government is planning to crack down on rogue landlords in 2024.
What fees can letting agents charge?
Letting agents currently have to adhere to two strict rules and legal obligations to protect their landlords and tenants: The Tenant Fees Act and Client Money Protection.
The Tenant Fees Act refers to whether a letting agent can legally retain and return a holding deposit from tenants in England. Unless a fee is “permitted”, or the tenant has failed certain checks during referencing, a letting agent cannot retain a holding deposit. This act applies to all assured shorthold tenancies, student accommodation and licences to occupy housing in the private rental sector.
> Everything you need to know on retaining and returning holding deposits under the Tenant Fees Act.
Letting agents must also join a Client Money Protection scheme if they hold a tenant’s or landlord's money during a tenancy. The Client Money Protection scheme was introduced to ensure landlords and tenants will be compensated if an agency cannot repay the money originally given.
It must be clear whether or not a letting agency is part of a Client Protection Scheme. If they are not part of a scheme, they could be fined up to £30,000.
> Read Your Guide to Client Money Protection.
Is additional regulation of property agents needed?
There have been numerous reports from the government and industry experts on the lack of confidence and trust in letting agents within the sector. Ever since the introduction of the Property Ombudsman, there has been a growing number of complaints from landlords and tenants to letting agents, with just under 14,000 raised issues in 2022.
In November 2012, Which? published research they conducted within the lettings industry, finding four “widespread” problems:
- Tenants are disempowered and dissatisfied
- Unexpected and unfair fees
- Widespread bad practice
- Tenants and landlords losing money
The Government continues to develop legislation and regulations that help protect landlords and tenants but further action has been introduced, such as the Tenant Fees Act and Client Money Protection schemes, but there are calls for wider regulation in the sector.
Goodlord and Vouch's State of the Lettings Industry report surveyed nearly 800 property professionals. It found that 74% of agents felt confident that they could cope with future legislation change - meaning that one-quarter of letting agents do not feel confident with juggling current legislation.
What is the Regulation of Property Agents (RoPA)?
In 2019, Lord Best chaired a working group and published a report of their recommendations to further professionalise the property sector.
The recommendations included:
- The need for an independent property-agent regulator
- A legally-enforceable Code of Practice for property agents
- Minimum entry requirements and mandatory professional development for property agents
The regulation has not yet come into force but in 2022 the Department of Levelling Up, Housing, and Communities maintained that they will “continue to work with the industry on improving best practice.”
What is happening about the regulation of property agents in 2024?
In February 2024 Industry and Regulators Committee kicked off an inquiry into the regulation of letting agents, meeting with tenants and leaseholders.
The inquiry, chaired by Baroness Taylor of Bolton, aims to examine:
- The current approach to the regulation of property agents
- Whether there should be a new industry regulator
Industry representatives representing tenants and landlords were asked questions on topics such as:
- Whether a new regulator of property agents should be introduced
- Whether the current redress schemes are working effectively
- Whether the regulator should cover landlords and freeholders, as well as property agents
Conor O’Shea, policy and public affairs manager for Generation Rent, gave evidence on behalf of tenants, raising issues that tenants can have with letting agents such as raising the rent, multiple tenants looking for properties, and the difficulties of bidding wars.
He stated that there were numerous conflicts between tenants/agents - particularly a “crisis” in the setting of pre-tenancy and tenants acquiring a home.
Sebastian O’Kelly, director for Leasehold Knowledge Partnership, spoke of the current situation of leaseholds and freeholds within England.
He gave evidence and presented arguments on offshore freeholders, management agents and the issues this causes for tenants “who simply want to live in their home without being pushed around and monetised”.
When asked what the main problem and challenges are for leaseholders, Sebastian O’Kelly stated: “It would be nice, but it's secondary, to regulate managing agents. But regulation by itself will do nothing to change this imbalanced relationship. Leaseholders pay for services, arbitrarily arrived at, and invariably excessive, to provide profit to a property manager who has been imposed on by a landlord”.
What about the Renters (Reform) Bill?
The Renters (Reform) Bill is a key piece of legislation that is generally assumed to be published before the next General Election. The Bill covers numerous topics - such as abolishing Section 21 “no fault” evictions, giving more rights for tenants to have pets, and a blanket introduction of rolling tenancies over fixed-term contracts.
The Renters (Reform) Bill focuses primarily on providing more rights to tenants, and more regulation for landlords. For example, the introduction of an Ombudsman for tenants to seek redress from their landlords, similar to what already exists for letting agents.
In the Industry and Regulators Committee, Conor O’Shea from Generation Rent, mentioned the Renters (Reform) Bill, stating that “as long as Section 21 exists, complaints won’t be able to be addressed.”
What was found in the inquiry for the proposed regulation of property agents?
Following the inquiry, the Lords committee addressed a letter to Michael Gove, Secretary of State for Levelling Up, Housing and Communities, warning that any Government delay impacts tenants, leaseholders and others who are exposed to malpractice.
Baroness Taylor, Chair of the committee stated: "During our inquiry, there was near unanimous evidence from consumers, industry and existing bodies on the need for statutory regulation of property agents and the establishment of a new regulator".
The committee is also calling for legislation or a published response from the Government to the report establishing:
- Mandatory qualifications for property agents
- Industry codes of practice, including focusing "on achieving good outcomes for consumers", operated by the new regulator
- A single ombudsman for property agents and landlords
- A new regulator funded by "modest fees or charges on those that it regulates"
The Government has yet to respond to this open letter.
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