Is it appropriate ‘to let’ residential letting agents in Northern Ireland away with lighter touch regulation?
The private rented sector plays a vital role in the Northern Ireland housing market. There has been a focus on the regulation of the sector in recent years in the form of landlord registration, tenancy deposit schemes and new Houses in Multiple Occupation (HMO) legislation. Given recent regulatory developments in England, Wales and Scotland, how does the strength of the regulatory framework of letting agents in Northern Ireland compare?
A 2016 poll by Ipsos MORI reveals that estate agents remain the third least trusted profession by the general public in Great Britain, with just 25% of those surveyed stating that they would trust estate agents to tell the truth. This may not of course come as a surprise to estate agents as their profession has been perceived negatively for a considerable number of years. However, the results of the poll do raise a number of interesting questions – do consumers sufficiently recognise the difference between an estate agent and a letting agent? Why is it important to distinguish the two? Is the negative perception of such businesses justified? And, why is public confidence in letting agents particularly important to the housing market in Northern Ireland?
Why is it important to distinguish between an estate agent and a letting agent?
Residential letting agents tend to come under the auspices of an estate agency but there are important distinctions between the two, particularly in terms of consumer rights, regulation and enforcement. Estate agents are involved in the buying and selling of properties. Letting agents are involved in the renting of properties with many intensively involved in the letting process e.g. advertising the property, finding a tenant for the landlord, managing the tenancy agreement process, and managing the property in terms of collecting rent and arranging repairs. Whilst it is common for estate agents to also run a letting and property management business, there are also businesses that offer letting and property management services only. It is very important that both landlords and tenants in Northern Ireland delineate the two roles as it has important consequences for their consumer rights, most importantly the right of access to a formal redress mechanism when something goes wrong.
What is the current system of regulation for letting agents in Northern Ireland?
There is a range of existing legislative provisions that protect the rights of tenants when dealing with letting agents. For example:
- Consumer protection legislation in relation to unfair trading practices and unfair terms in consumer contracts (unfortunately it would appear that many tenants are unaware of this).
- Tenancy Deposit Scheme – protects tenant’s deposits should, for example, an agency experience financial difficulties or go into administration. TDS NI provides an example whereby a local letting agent has been prosecuted and received a substantial fine for failing to protect deposits.
- Houses in Multiple Occupation legislation – requires HMOs to be licensed, any managing agent of the HMO to be specified in the licence, and that agent must be a ‘fit and proper’ person.
- Landlord Registration Scheme – although letting agents are not responsible for ensuring landlords register with the scheme, they do have an important role to play in encouraging landlords to meet their legal obligations.
However, despite these provisions, the regulation of letting agents in Northern Ireland is perceived to be considerably ‘lighter touch’ than that applied to estate agents (although much criticism has also been levelled at the robustness of the regulation of estate agents). Unlike estate agents, there is a lack of a comprehensive legal framework to regulate letting agents in Northern Ireland including no legal requirement for such businesses to belong to a professional trade body.
It is in this regard that Northern Ireland is lagging significantly behind the rest of the UK and why the Department for Communities has proposed in its recent consultation document ‘Private Rented Sector in Northern Ireland: Proposals for Change’ to introduce a new regulatory framework for all letting agents including bringing forward legislation to ban all letting agent fees for tenants and to require all letting agents to be a member of an approved professional body (e.g. the Association of Residential Letting Agents (ARLA), the Royal Institution of Chartered Surveyors (RICS)).
The lack of transparency, especially with regard to the advertisement of fees, has been identified as a particular problem for both landlords and tenants. Research into ‘The Hidden Costs of Private Renting in Northern Ireland’ conducted by Housing Rights revealed that the vast majority of letting agents surveyed were charging additional fees for general administration costs, credit checks, tenancy renewal fees and inventory charges and most did not advertise these additional costs on their websites. This is problematic for low income families who, in addition to these charges, usually have to find a sizeable deposit and one month’s rent in advance.
Is the negative perception of letting agents deserved?
A report by Professor Michael Ball into the lettings market in Great Britain, ‘Residential letting agents: the issues and the options’, suggests that many letting agents are not unscrupulous and strive to offer a professional value for money service. Many letting agencies voluntarily sign up to professional bodies, adhere to their codes of practice and attend training courses. However, he also acknowledges that there is evidence of significant cases of poor quality services.
A recent tenant survey commissioned by the Department for Communities confirms that this is also the case in Northern Ireland. The survey found a significant majority of tenants surveyed (72%) dealt directly with letting agents rather than their landlord. There were many references made with regard to tenant dissatisfaction with poor services delivered by letting agents particularly around fees for various checks (e.g. for completing an application form, general administration costs, credit checks, tenancy renewal fees and inventories). Landlords had similar concerns around the transparency of fees and felt that this required greater regulation.
Almost anyone can set themselves up as a letting agent and can either deliberately, or through lack of experience, run a substandard service and face limited recourse due to the lack of a robust legislative framework. Professor Ball notes that operating as a letting or property management agent is not a straightforward matter and that agents require a wide range of skills e.g. an understanding of complex housing law; the ability to account for substantial flows of funds; negotiation and people management skills; and the ability to manage a network of providers (e.g. businesses providing repair and maintenance services). Those agencies acting irresponsibly and who are operating outside these parameters are damaging the reputation of the sector. This is unfair to tenants and to landlords. It is unfair to those letting and property management agencies who are acting in a responsible manner, who are actively engaging with professional trade bodies and participating in training and accreditation opportunities.
Why is public confidence in letting agents important to the Northern Ireland housing market?
The private rented sector in Northern Ireland has grown significantly over the past 25 years with around 17% of households currently living in the private rented sector. A report by the Northern Ireland Housing Executive predicts that high levels of unemployment, rising numbers in part-time and temporary employment, affordability issues for first time buyers and substantial social housing waiting lists will ensure that the private rented sector will continue to play an increasingly important role in the Northern Ireland housing market in the longer term.
The private rented sector provides accommodation for a significant number of vulnerable households such as those on low incomes, young single households, migrant workers, black and minority ethnic families and people who have experienced homelessness. For the sake of their tenants and to protect their own assets, landlords who use the services of letting agents should ensure that the fee schedule is transparent and clearly advertised; that they are member of a professional body; they have a satisfactory internal complaints process; they have well trained staff and have access to professional repairs and maintenance services.
The question remains as to whether further regulation of letting agents in Northern Ireland is required. ‘Facing the Future’, the Housing Strategy for Northern Ireland 2012-2017, places a focus on making the private rented sector a more attractive tenure of choice by improving standards and regulation. Ensuring landlords and tenants have confidence in the professionalism of letting agents including access to an effective redress mechanism and accredited training programmes will be critical if the strategy’s aim in relation to the private rented sector is to be realised.