Following my previous post on letting agent regulation the Government has introduced a form of “diet regulation” as part of the Enterprise and Regulatory Reform Bill. Continuing its theme of avoiding direct regulation of any area of business the plan is really more of a compulsory redress scheme which has parallels in those operated for estate agency work. This bill is now pretty much in its final form and so this appears to be the way things will stay.

The new sections in the Bill actually create a power for the Secretary of State to make an order which will introduce compulsory redress schemes at a later date so much of the detail will remain uncertain until this Order appears. The Government has said that it will wait until after the review being conducted by a Parliamentary Committee into the sector and that it will also hold a consultation so there is clearly scope for significant change. However, the Bill contains a surprising amount of detail and it is easily possible to gain useful ideas about how things will look. Headline points are as follows:

  • The system is a compulsory consumer redress scheme rather than a regulatory mechanism. Therefore there is unlikely to be requirements for agents to carry insurance, client money protection bonds, or have a minimum training standard. That said, a robust redress scheme can have an element of regulation of it sets minimum standards of service which it expects everyone to adhere to.
  • There are a number of clear limits on the scheme. It only applies to Assured and Assured Shorthold tenancies under the Housing Act 1988. Agents in London with high-value property portfolios can relax completely! There is also an exemption for businesses that only offer advertising or which provide a means of bringing landlords and tenants together. So, some of the new Internet based introduction businesses are also off the hook. However, it should be noted that the Secretary of State can add new tenancy types by making a further Order if he wishes so this may change.
  • Property Management is covered. This includes management of shorter residential tenancies as well as block management work and the management of long leases. Some block management companies will not be happy about this and there is the potential for a flood of complaints and litigation from residents on this issue.
  • To make this work there must be some form of enforcement. This is difficult because there is no central register of letting and management agents. The Bill mentions both civil and criminal penalties so the Government is clearly keeping its options open. However, I suspect they are considering a system of “civil fines” rather like those operated for tenancy deposit protection so agents who do not stay up to date could find themselves feeling the pain of landlords who have failed to wake up to the deposit protection regimes. The penalties must also allow for appeals to a Court or Tribunal and it will be interesting to see how the Government apportions responsibility for this. The Court or Tribunal involved may find themselves handed a poisoned chalice which results in a lot of time-wasting claims and defences being put forward.
  • The Bill makes reference to approved redress schemes and also schemes run on behalf of the Government. There are, of course, already redress schemes in place for estate agency and, on a voluntary basis, for letting agency work. These schemes will, no doubt, wish to become approved under this Bill. However, the Government is clearly thinking of operating its own scheme, presumably in the tenancy deposit protection mould.

There is still a lot of detail missing and there is no indication as to whether current schemes will seek or obtain approval or whether other parties will enter the fray. The apparent following of a tenancy deposit protection model is a concern as that legislation was not well drafted and led to a large amount of wasteful litigation in several levels of court. Hopefully that will not be repeated.

The full text of the amendments can be found in Hansard.