Letting Agent Regulation - What will it really mean for landlords?
The Letting Agent Code of Practice (Scotland) Regulations came into force at the end of January. The code can be viewed here.
So all agents in Scotland should now be adhering to the prescribed code of practice, but landlords should still be selective when choosing an agent. In this blog, we'll try to explain why.
What it's all about?
In response to evidence of significant levels of poor or indeed unlawful practice amongst Scotland's Letting Agents, The Housing (Scotland) Act 2014 introduced a framework for the regulation of letting agents practicing in Scotland. This includes:
- a mandatory register of letting agents;
- an associated ‘fit and proper’ person test;
- a mandatory requirement for training;
- a statutory code of practice which all letting agents must follow;
- a requirement to have Client Money Protection arrangements in place;
- a requirement to have Professional Indeminity Insurance in place;
- a mechanism for landlords and tenants to resolve alleged breaches by letting agents of the statutory Code of Practice, through a new specialist First-tier Tribunal instead of the Sherrif Courts;
Until now, anyone could set up as a letting agent with no training, no knowledge of housing law, no insurance, no protection for the considerably large sums of cash involved, and assume responsibility for management of assets worth perhaps millions of pounds in total (assets possibly representing individual clients' most significant chunks of wealth) and in a field where legislation is extensive and complex. It's difficult to see how such a situation could have come about, but until now, that was the position (it still is in England). Landlords who didn't do any research, could easily appoint an agent who wasn't up to the job, and see their property suffer, their tenants have a poor experience, and their returns sub-optimised. There are reports in the press every couple of months or so of agents going out of business, with their landlord clients losing large sums of money as a result. There are reports of gas and electrical safety checks being ignored, with consequential dangers for tenants. With a shortage of accommodation for rent, it wasn't that feasible for tenants to shop around to make sure that the agent managing the property they wanted so much was properly regulated. All of that should now change, and we should see a steady improvement in management standards across Scotland. Wales has a similar system to Scotland and England is likley to follow much the same course before long.
How does this affect Simply Let?
To put matters in context, a little bit of backround:
Before they established Simply Let, directors John and Kathleen Gell had used the services of letting agents themselves and experienced mediocre service, with late rent collection and a less than thorough approach to repairs and maintenance. Rent arrears built up and properties began to deteriorate. They therefore decided to self-manage, drawing on John's property management expertise as a chartered surveyor and Kathleen's acumen for getting things done. It seemed a logical progression to extend that service to other landlords and so, back in 2004, Simply Let was born.
John and Kathleen were determined to provide a thorough and highly professional service and sought from the outset to be Regulated by RICS in order to underwrite those high standards and also evidence them to potential clients. Unlike most regulatory regimes, which are based on self declaration, RICS regulation involves periodic on-site audits when files and records are examined by external auditors and processes checked for thoroughness and reliabilty. Simply Let voluntarily chooses to pay a hefty annual fee for such regulation and takes pride in having those records and processes signed off as fully fit for purpose. It's important to our business model to evidence our reliabilty and professionalism. Regulation by RICS provides Client Money Protection backed by RICS and places a requirement on John as a director which is at least equivalent to the Scottish Government's "fit and proper person" test. Simply Let is also Licensed by ARLA Propertymark, which places a similar requirement on Kathleen as co-director. RICS Regulation also requires the firm to have approved professional indemnity insurance in place.
As the firm grew and started to employ staff, investment in professional training for staff became policy, in order for their to be competency in lettings managment in Scotland across the entire team. The directors have a mandatory requirement by RICS and ARLA Propertymark respectively to undertake Continuing Professional Development, as do the staff through their individual ARLA Propertymark memberships. The new statutory requirement is less onerous.
As a firm of chartered surveyors we are obliged, and by inclination want, to work to a strict code of ethics and to run our business on transparent and business-like lines. Our operating procedures are already more thorough than those set out in the code of practice and we are repeatedly told our management style generates great client experience and protection. (Take a look at our Google reviews)
We explain all of this to make it clear that some agents deliberately set out to be regulated by a professional body, when there was no necessity to do so, whereas now all agents are obliged to seek regulatory status in order to continue to trade.
The new statutory requirements won't require anything further of us, other than an obligation to pay an additional regulatory fee, the size of which is yet to be announced. Already paying in excess of £1500 per year to be Regulated by RICS and Licensed by ARLA Propertymark to a standard higher than that set by government, we will not be best pleased if this further fee is anything other than token.
The introduction of the code of practice has necessitated revising our client terms of business, and we have devoted much unproductive time to that to the cost, we have to say, of developing the business for the benefit of clients and tenants. We look forward to getting back on course with that development.
How will it affect letting in Scotland?
The code of practice should vastly reduce poor and unlawful practice by letting agents and offer much better protection to landlords and tenants. Some firms who don't want the hassle and disciplne compliance entails, may decide to give up, and so we're likley to see some coalescence in the sector. This will leave fewer firms, but these are likley to be operating more professionally. Unless adequately enforced however, the improvement government seeks, and the improvement we all need to see, may not come about. (We're aware of firms practicing letting management in the Highlands who were recently still charging unlawful fees to tenants - unlawful since 1987 -and, in the absence of enforcement, getting away with it). Unlike RICS regulation, there is unlikely to be any pro-active monitoring and so enforcement will be triggered only when an aggrieved landlord or tenant refers an alleged breach to the new tribunal. So, poor or unlawful practice could well continue unless such references are made. So, putting our cynical hats on, we may see a Scotland where all agents on the register could place a notice in their window - "Registered Letting Agent" or "Regulated by the Scottish Government" but, in the absence of enforcement, what will that mean in practice?
Let's assume however that all agents are now working within the law and abiding by the new code of practice. But there's much more to successful property management than following a set, albeit an extensive set, of prescribed rules and it will be those agents who engender trust, inspire confidence, and add real value for their clients who will thrive. Those features flow from the attributes of the individuals comprising the business, but can can be achieved only with sound business practices, robust and thorough back-office systems and procedures, and rigorous compliance cross-checks. As the market inevitably comes into play individual landlords will work out which agency best fulfills their requirements.
Just as hotels, while offering the same range of services, vary hugely in the guest experience, so it is with letting agents. It's still going to be up to the public to do their research and identify the truly professional firms. Perhaps a starting question might be "What made you decide to become regulated?" Answers could be revealing.
There's more on due diligence when appointing a letting agent here.