Letting agency services, charges and regulation

Some letting agents provide a basic matching service for tenants and landlords. This type of letting work is not subject to the requirement on the agency to join a government approved redress scheme.[1]

Other agents provide property management services for landlords, such as drawing up tenancy agreements and rent collection. Someone who uses a letting agency that manages property will probably have little or no contact with the actual landlord. They will deal with staff at the agency for queries relating to their tenancy including paying rent, requesting action to remedy disrepair and the return of their deposit.

Agencies have authority to act on behalf of a landlord but only to the extent agreed between the landlord and the agency. Matters that commonly form part of the agreement between landlord and agency include checking the credentials of a prospective tenant, negotiating the terms of a tenancy, preparing the paperwork involved and agreeing a lease, signing the contract with the tenants. This may include taking the tenant's deposit on behalf of the landlord.

Agents may also be responsible for carrying out right to rent immigration checks on prospective tenants and any other adult occupiers (when there is a written agreement between the landlord and the agent to that effect).[2]

The agent's role may end once the tenancy has been negotiated and entered into or, alternatively, the agent may be responsible for the ongoing management of the tenancy.

People who use letting agents to find and rent a home should seek independent advice before signing agreements or acting on the agency's instructions. Some agencies may not necessarily be familiar with, or close observers of, landlord and tenant law.

With effect from 1 June 2019, a letting agent is prohibited from charging a tenant, licensee or other 'relevant person' a fee, other than a 'permitted payment', in connection with:[3]

• an assured shorthold tenancy

• a licence to occupy housing (including to a lodger)

• a tenancy granted to a student by a specified educational institution

The prohibition does not apply where:[4]

• the tenant/licensee signed the tenancy/licence agreement (or agreed to it) before 1 June 2019

• a statutory periodic tenancy arises during the year after 1 June 2019

In these situations, the prohibition on fees does not apply until 1 June 2020.

Permitted payments

The permitted payments are:[5]

• rent

• tenancy deposit (up to maximum of five or six weeks’ rent)

• holding deposit (up to maximum of one week’s rent)

• a fee in the event of a ‘relevant default’

• damages for breach of agreement

• in connection with tenant’s request for a variation, assignment, or surrender of a tenancy

• in respect of council tax, utilities, communication services and TV licence

It is unlawful to charge other fees to a tenant, licensee or or other 'relevant person' (protected by the Tenant Fees Act 2019) for services such as reference checks and renewing tenancy agreements.

Local trading standards are responsible for enforcing the Act and have wide powers to take action to protect consumers in the most serious cases of malpractice and/or fraudulent trading by agencies. In one case where a group of letting agencies carried on their business for a fraudulent purpose by failing to protect tenancy deposits as required by law, by taking rent from tenants and failing to pay it to the landlords, and by failing to refund tenancy deposits to landlords or tenants at the end of the tenancies, a criminal prosecution led to imprisonment of the company directors and their disqualification for several years.[6]

The Accommodation Agencies Act 1953 makes it a criminal offence for any agency to charge for:[7]

• registering the names and housing requirements of prospective tenants

• supplying addresses and details of available accommodation

Under the Consumer Rights Act 2015, letting agents must display a list of relevant fees in a prominent position within any premises where potential clients are dealt with face-to-face, and on their website if they have one.[8]

Relevant fees are those payable by the tenant or landlord in respect of the agent's letting or property management work, for work done in the course of a business in response to either a landlord's request to find a tenant, or a tenant's request to find a property to rent. It does not include merely publishing adverts, nor facilitating potential landlords and tenants to meet and communicate directly with each other, where this is done by someone who does nothing else that could constitute operating as a letting agency. It also does not include lettings work carried out by local authorities.

Property management work involves responding to requests in relation to an assured tenancy for such things as services, repairs, maintenance etc.

The information on fees must include:[9]

• a clear description of the amount

• whether the fee is per tenant or per property

• what service or cost each fee relates to

In one case, where a letting agent described its standard fee as being an administration fee that could cover a variety of work, and gave examples of the types of work that may included, such as conducting viewings and verifying references, the Upper Tribunal held that the wording did not comply with the requirements of the legislation. A tenant would not know from the description what service or cost was covered by the fee, nor whether other items that were not listed might also be included.[10]

'Primary authority' advice on publicising fees

The rules concerning the display of letting agent fees are subject to primary authority advice. Warwickshire Council, working in partnership with Propertymark, is the primary authority for matters concerning the regulation of lettings and estate agents' work.[11]

Advice issued by the primary authority concerning the enforcement of regulatory standards in relation to property professionals must be taken into account by other local authorities when dealing with lettings agents in their area. This should reduce the incidence of different approaches to the same regulatory standards being applied across different local authorities.

Primary authority assured advice states that fees should be clearly visible on a poster not less than A4 size in the agents' offices, so that a prospective tenant should not need to ask to see them.[12]

Enforcement

It falls on the local authority enforcement officers in the area where the agent's properties are located to enforce the letting agent's duty to publicise fees. The enforcer may impose financial penalties for non-compliance.[13] Before a financial penalty can be recovered, there is a process of serving notice and allowing the agent to make representations and/or appeal.[14]

Safeagent Effective Enforcement Toolkit has a step-by-step guide for local authorities on the legal process to follow when taking enforcement action against non-compliant agents.

Where the agent is a member of a redress scheme for dealing with complaints, the name of the scheme must also be displayed.

A tenant or prospective tenant can make a complaint about charges made by a letting or property management agency.

From 1 April 2019, property agents operating in the private rented sector must comply with the requirement to belong to a government-approved client money protection (CMP) scheme or face a financial penalty of up to £30,000.[15]

The requirement to register applies to property agents letting and/or managing tenancies and licenses of 21 years or less. Property agents that let and/or manage rooms in shared properties are also required to register.[16]

Purpose of CMP schemes

The purpose of CMP schemes is to safeguard any money held by a property agent on behalf of the landlord, tenant or other client. If the funds are misappropriated or lost, the CMP scheme compensates the client.

Client money must be held in an account with a bank or building society that is authorised by the Financial Conduct Authority and property agents may be offered a ‘grace period’ until 1 April 2021[17] to comply with this requirement.

The government's guidance contains an up to date list of the approved schemes.

Which property agents must become members of a CMP scheme?

The requirement to join an approved CMP scheme applies to all letting agents and property managers in the private rented sector that hold client money received in the course of their letting and/or property management activities.

The definition of 'client money' does not cover tenancy deposits held in accordance with an authorised tenancy deposit scheme, but it covers tenancy deposits held by the agent prior or after protection.[18]

Letting agency work is defined as activities undertaken in the course of a business in response to instructions received from prospective landlords and tenants.[19] This includes, but is not limited to, facilitating meetings, charging holding deposits, carrying out credit and reference checks on prospective tenants. The definition specifically excludes activities undertaken by a person that are limited to publishing advertisements and providing opportunities for prospective landlords and tenants to contact each other directly.[20]

Property management work is defined as any activity undertaken in response to instructions received from another person in relation to arranging services, repairs, maintenance, improvements, insurance or anything else that relates to property management, in respect of a rental property. [21]

Individual employees of property agents undertaking any of the related activities as part of their employment contract are personally excluded from the requirement to join a CMP.[22]

Transparency requirements

Apart from registering with a CMP scheme, property agents are also under a statutory obligation to publish and/or provide clients with certain information in relation to their membership of a CMP scheme:

Membership certificate

If the CMP scheme administrator issues a membership certificate to a property agent, the certificate must be displayed at the agent’s office (or in each branch if the agent has more than one office) and on-line. A copy of the certificate must be produced and given free of charge to any person who may reasonably require it.[23]

Change of scheme/revocation of membership

A property agent must provide each client with a written notification if either the:[24]

• agent’s membership in a scheme is revoked

• agent changed scheme (in this case the notification must give the name and address of the new scheme)

In the case of ‘established clients’ the notification must be provided within 14 days of the date either of these events occurring. An ‘established client’ is a person who on the day the event:[25]

• has their money held by the agent

• has an agreement in place authorising the agent to hold money on their behalf, or

• is likely to provide the agent with client money

Enforcement and sanctions for non-compliance

Local authorities are under a duty to take enforcement action where a property agent is in breach of their statutory obligations under the CMP regulations. Further information on enforcement options is available in the statutory guidance for enforcement authorities.

Unless a different local authority is already undertaking enforcement action and has issued a notification of it,[26] a local authority is under a duty to enforce compliance with the regulations if either the:[27]

• agent has premises in their area

• accommodation to which the agent’s work relates is situated in their area

Enforcement action may be taken by way of imposing financial sanctions.The severity of a sanction depends on whether the property agent fails to register with the scheme or breaches the transparency requirements.

To initiate enforcement, a local authority must be satisfied beyond reasonable doubt that the agent has failed to either:

• register with a CMP scheme

• adhere to the transparency requirements in relation to obtaining, displaying and providing the necessary certificate/notifications

An agent will not be penalised for a failure to obtain a CMP scheme membership certificate, if they can demonstrate they have taken all reasonable steps to do it.[28]

Notice of intent

Before any penalty is imposed on a property agent, the local authority must notify the agent of their intention to do so. This is known as a notice of intent and must be served:[29]

• within six months of the day on which the local authority has sufficient evidence of the breach (‘relevant day’), or

• within six months of when the breach last occurred, if the breach continues beyond the ‘relevant day’

The notice of intent must set out:[30]

• the amount of the proposed financial penalty

• the reasons for proposing a penalty, and

• information about the right to make representations within 28 days beginning with the day after the service of the notice[31]

If the property agent does not respond to the relevant notice within the specified time limit, the local authority must decide whether to impose a penalty and if it chooses to do so, decide the amount of the penalty imposed. If a local authority decides to impose a financial penalty, it must serve a final notice requiring the penalty to be paid within 28 days, counting from the day after the service of the notice.[32]

Final notice

The final notice must set out the:[33]

• amount of the financial penalty

• reasons for imposing the penalty

• information about how to pay the penalty

• period for payment of the penalty

• information about rights of appeal, and

• consequences of failure to comply with the notice

A local authority may at any time withdraw or amend any notices served to reduce the amount of the penalty.[34]

Most letting agencies must belong to a government approved redress scheme which can provide an independent investigation of complaints against its members.

In addition there are a number of self-regulatory bodies:

• the Association of Residential Letting Agents – this is the professional self-regulating body for letting agencies. Its website contains a list of its members and a checklist of what tenants should ask agencies. The Association of Residential Letting Agents may be able to help a tenant who complains about unacceptable conduct by one of its members

• the National Association of Estate Agents – this is the professional self-regulating body for estate agents who act as accommodation and/or letting agents

• the Royal Institute of Chartered Surveyors – this regulates and promotes chartered surveyors and technical surveyors and is required to act in the public interest

National Approved Letting Scheme – Safeagent

Safeagent (formerly the National Approved Letting Scheme) is an accreditation scheme for lettings and property management agents.

Members of the Association of Residential Letting Agents, National Association of Estate Agents and Royal Institute of Chartered Surveyors, as well as private registered providers of social housing, can apply for membership of the scheme and must meet defined minimum standards governing the service provided by the agency to the landlord and the tenant.

Member agencies are required to:

• visit each property to arrange safety checks

• explain the rights and responsibilities of the tenant and the landlord

• provide a written tenancy agreement

• set out the services they will provide and what they will cost (for example, how much they will charge for drawing up the tenancy agreement)

• give greater consumer protection, to both tenants and landlords, than agencies who are not members of the National Approved Letting Scheme

• provide a complaints procedure

The scheme does not usually deal with disputes between landlords and tenants.

Membership can be withdrawn or refused to agencies who do not comply with its rules of conduct.