Sharon Crossland: Landlord and Agent Licencing: The Bigger Picture

Since the Coalition Government came to power in 2010 the issue of licencing landlords and agents in England is as far away as its ever been (apart from the London Borough of Newham who want to licence all PRS landlords in their borough). The Housing Minister Grant Shapps has appeared to listen only to the landlord associations, who's members simply didn't want to be burdened by more 'red tape'. Unfortunately for the (larger) leasehold sector, he also applied the 'no more red tape' mantra to the  licencing of letting agents and managing agents for blocks of flats.

The idea for landlord licencing really kicked off in England with the Rugg Review into the private rental sector carried out by Dr Julie Rugg and Dr David Rhodes of the Centre for Housing Policy at the University of York in 2008.

To briefly recap the review: because there's no entry criteria to being a BTL landlord, Dr Rugg proposed that all landlords should pay a fee and be issued with a licence (like a TV licence). There would be no barriers to obtaining one and if a landlord received justifiable complaints then points would be entered onto the licence or it would be withdrawn. She saw it as being beneficial for keeping more accurate information on the number of landlords in the country which would in turn address the issues of visibility and 'rogue landlords'.

She made two points: if all landlords were required to have a licence, rogue landlords would be easily identified in that they would not be able to produce it if and when asked. This is key because such landlords operate under the radar, knowing they can get away with pretty much anything. Secondly those landlords operating with a licence but that were deliberately failing to follow the law in managing their tenancies could also be the first to lose it.

Potential

Initially the collective responses from various organisations and ministers to Dr Ruggs proposals indicated that they were 'in general agreement that her licensing idea had potential' but when the (then) government extended the proposals beyond her initial 'light touch' recommendations, the landlord lobbying groups were not in favour.

This was despite the recognition that 'whilst landlord associations were a vital source of advice, training and support for landlords, membership of these organisations represented only a minority of all landlords in England and prospective tenants have no way of getting any information about their prospective landlords up front unless they belong to any of these organisations'.

They also said that ‘out of the estimated 8,000 letting (and managing) agents in England, only around half belong to such organisations. Therefore the voluntary approach to regulation has not been successful in ensuring all agents reach the same standard and have the right protections’.

Accreditation

The trade bodies also voiced their support for accreditation but when the results of an e-mail survey conducted by LACORS (now Local Government Regulation), ANUK (who promote accreditation in the PRS) and the GLA were fed into the Review, the results made interesting reading. All 353 local authorities with a housing function in England were contacted and the results were fed into the Review. Whilst 232 Authorities responded, (65.7%) sadly only 19 of the 33 London Boroughs responded (57.6%).

NORTHERN IRELAND

Whilst it is often the perceived failure of the landlord licencing scheme in Scotland that is quoted when the idea of licencing English landlords is raised, it is even more interesting to look toward Northern Ireland. The following information has been sourced from 'Governing the Ungovernable: Private Sector Landlord and Anti-Social Behaviour'.

In 2004, the Northern Ireland Housing Executive proposed a compulsory registration and licencing scheme. This focused on HMO's and whether landlords should be responsible for the behaviour of their tenants (mainly students) outside of the property. Registration could be revoked or refused if the amenity and character of an area was adversely affected by a range of issues including excessive noise within the HMO, anti-social behaviour by occupants and guests of the occupants in the area in which the HMO was situated, etc. Landlords were required to take reasonably practicable steps, including having clauses relating to behaviour in the written tenancy agreement.

Whilst landlords didn't object to regulations on the whole, they did object to being required to act as policemen outside their properties, especially without any consultation.They sought legal advice on mounting a challenge but the cost of £120,000 was outside their ability to collect it locally. They needed to interest others so the issue was redefined from a dry legal issue to that of the 'human right' to be consulted on regulations that would affect them.

English Landlord Associations

They consulted a number of landlord associations in England, starting with the one that they were affiliated to. Using devolution as an argument, they basically said that Northern Ireland was a test case. Their human rights were being affected and anything introduced there would soon come here.

There was concern by both Irish and English landlords that Scotland were going to introduce some quite draconian laws. Therefore by challenging the NIHE on their proposals, (in which they were successful), Northern Ireland landlords with the help of the English associations, ensured that licencing in England and Ireland would go no further.

SCOTLAND

Scotland on the other hand saw landlord registration as being a key government policy to improve standards in the private rented sector. Even though there was controversy about it being introduced under anti-social behaviour legislation, currently the Register does have in excess of 175,000 private sector landlords, all of whom have been subject to a 'fit and proper person' test. Information collected through the scheme increases local authority knowledge about the sector and the success of the scheme relies on effective local administration. Local authorities have a duty to provide advice and assistance to both landlords and tenants.

Licencing Property Managers

The licencing of property managers (known as factors) is also coming into effect in Scotland from October 2012 with unlicenced agents being banned from operating. Licencing will be controlled by a new law, the Property Factors (Scotland) Act 2011. This Act will also introduce a body to resolve disputes.

MEANWHILE, BACK IN ENGLAND...

The NLA (National Landlords Association) have argued for years that more effective use by local authorities of existing enforcement powers is required to successfully prosecute landlords who continue to flout the regulations. So far out of the 86,000 complaints received by councils about so-called rogue landlords last year, only 270 of them were successfully prosecuted. Even allowing for the fact that the term 'rogue' is somewhat subjective, this is a pretty poor result.

Although we currently have two forms of statutory licencing, those of HMO's and selective licencing there is no protection for private blocks of flats and because selective licencing has received hardly any uptake (around 13 out of 300 local authorities) it doesn't affect the vast majority of private landlords.

ARMA: Letting and Managing Agents

In response to an article I wrote for News on the Block back in 2007, ARMA, the trade body for managing agents said that they were continually calling for the government to regulate the sector so that new entrants could be stopped unless they were competent and capable people. Today they are calling for legislation to ensure that both managing and letting agents have to 'at least' belong to a recognised independent Ombudsman scheme. Whilst this is a diluted call from 2007, it nevertheless reflects the view expressed in 2008 by Sir Bryan Carsberg who said in his review that "those involved in block management and lettings should be subject to a legislative requirement to belong to a regulatory scheme". He also felt that there was certainly a strong case for the regulation of landlords when they didn't use an agent and he also included those with one or very few properties. He also felt they should also be required by legislation to join a private sector regulatory scheme and he extended this to include leasehold managing agents.

Office of Fair Trading

Such a regulatory scheme would work in the same way as estate agents who were required to belong to such a scheme under the Consumers Estate Agents Redress Act 2007. The OFT can ban someone from acting as an estate agent and it has done so, because it has determined them as being 'not fit and proper' and convicted of fraud, dishonesty, violence or have failed to comply with certain legislation. However, not only has trading continued, there is nothing to stop that banned individual(s) from acting as a letting or a managing agent. This is because letting agents remain uncovered by the definition of estate agent associated with the Estate Agents Act 1979 so they cannot be banned.

CLG

I also asked the CLG in 2008 why leaseholders couldn’t have a single redress scheme similar to the one introduced for estate agents, and was advised that managing agents couldn’t be licenced because any scheme would be run by the trade bodies which would be a conflict of interest.

Leaseholder Landlords

When a flat is purchased as a rental, the buyer effectively takes on two roles: as a leaseholder who agrees to abide by his contract with the freeholder in the form of the lease (with the freeholder ensuring there are no breaches) and as a landlord, who provides housing for both private and social tenants. In turn, the tenants are bound by their own contract with the leaseholder landlord in the form of a tenancy agreement. This creates the leaseholder landlord and effectively links the PRS to the leasehold sector but the bigger picture, that of the management structure of a block at any given time is seriously overlooked. This is what such a structure can look like:

1. The freehold landlord (who may or not be registered on the Land Registry) who in turn uses a managing agent from an unlicensed and unregulated sector. A letting agent who has branched out into leasehold management may also be used, again sourced from an unlicensed and unregulated sector;
2. A Resident Management Company/RTM Company using the services of a managing agent or a letting agent (as above);
3. A leasehold BTL landlord who has ignored the Subletting Consent so doesn't have permission to sublet but still hands over the management of the flat(s) to a letting agent, sourced from an unlicensed and unregulated sector;
4. A leasehold BTL landlord who has signed a contract with the local authority, giving up the property to them under their Private Sector Leasing scheme. They in turn use managing/letting agents from the private sector (unlicenced and unregulated) who also do not check whether the leaseholder has permision from the freeholderto give up the property under such a scheme.

Information Up Front

Because there is no mechanism on the Land Registry to compel the disclosure of an alternative contact address when a flat is bought as a rental, all a search will reveal is the address of the flat(s) purchased, rarely an alternative contact address. When you consider that often the assignment /sale conditions of the lease haven’t been adhered to, a block can have new leaseholder/landlords and management doesn’t even know because reliance is placed on the individual landlord to provide such information. When they don't, information relating to service charges and any letters requiring action on the part of the landlord to deal with specific tenant issues, such as anti-social behaviour, get sent to the demised (sublet) flat!

My Block

The management structure of my block is that of the RMC company that owns the freehold.  We are registered on the Land Registry and we have a highly visible managing agent who  is an ARMA member. So far so good. We also have 19 out of the 22 flats sublet. The subletting consent that requires the permission of the freeholder to be sought before a flat is sublet is continually ignored, despite the fact it should be dealt with before completion. Whilst there was no-one to seek permission from before we took over, in the ensuing years, no such permission has ever been sought. Nor has retrospective permission been granted because they have taken no notice of repeated request to obtain it. These landlords do not belong to any trade bodies  and do not have any accreditation. They also use agents that are not ARLA members and those agents don't have any accreditation either.

We also have the involvement of local authorities and their agents housing the homeless under Private Sector Leasing. This involves landlords handing over their flats for a 3-5 year period to the local authority and getting a number of incentives in return, such as the management of the flat, rent paid for void periods etc etc. We have tenants on LHA, a number of whom have come with drink and drugs problems and been placed with landlords who have absolutely no wish to provide the extra support that such people invariably need. The over-use of Data Protection has also made it nigh on impossible to ascertain the full extent of such involvement. This is despite the ICO (Information Commissioners Office) stating that if a request for information is reasonable then Data Protection is not a reason for it not to be disclosed.

SUMMARY

Personally I can't see how self-regulation and accreditation are ever going to be enough without some form of licencing. It is the thread that would connect all these seemingly disparate elements which are not disparate at all!

Something else to consider is the response of smaller landlords(of which the PRS is mostly comprised) to the Law Commission's recommendations on buy-to-let reform. These were tabled in Parliament in mid-August of 2008 and landlords at the time were concerned at proposals that required them to join either accreditation schemes, or professional associations. They saw this as adding administrative burdens and higher costs.

Enough said!