The Office of Fair Trading is consulting on draft guidance to the lettings industry on how to comply with a range of key consumer protection legislation, including the Unfair Terms in Consumer Contract Regulations (UTCCR) and the Consumer Protection from Unfair Trading Regulations (CPRs). While this guidance is still in draft form it is open for consultation and comment at the moment and so should be treated as subject to change. However, it also gives a good idea of where the OFTs thinking is and the main areas that agents should be thinking about. Given the recent interest in this area and comments about the kind of information that needs to be given to those purchasing or renting property this guidance is interesting and timely.
It would be pointless to rehash the entire guidance so I will concentrate on a few specific areas of interest.
Errors of Law
There are a couple of areas where the guidance expresses the law badly. The material on HMOs for example is poorly written and essentially incorrect.
One of the most interesting and useful areas of the guidance is the various discussions of what information should be provided to tenants in marketing. Contrary to some recent comments there is no suggestion that tenants must be told if previous occupants have died or committed suicide. They must be given information that is material to their decision making process and which permits them to make an informed decisions. The guidance is clear that this may not be everything the tenant might like to know, only what they absolutely require to make a reasonable decision. So, for example, it is not appropriate to inform a tenant that a landlord might accept a lower offer. This is something the tenant may well wish to know but it is not necessary for them to make an informed decision on the property. Equally, a full history of the property and its past occupiers is not material, although some tenants might wish to know. What I material is key points which detract from or undermine the property, such as the presence of a nearby motorway. The guidance also warns against the casual use of generic statements without proper investigation or which are deceptive, such as the property being in a quiet area, where this has not been investigated or where the area is quiet but the immediate locality of the property is noisy.
Charges to tenants
This is also an area that has been the subject of interest recently, after the decision of the ASA in relation to agent’s fees and the subsequent CAP guidance. The OFT has weighed into the area with a statement that failing to make fees clear to tenants in advance is misleading advertising and therefore a breach of the CPRs. This is not hugely surprising.What is more controversial is the suggestion that where an agent makes a profit from a fee charged to the tenant that this might be seen as a fee for providing property details and therefore a breach of the Accommodation Agencies Act (AAA). This simply cannot be correct. First the fees being discussed are charged much later in the transaction process and outside the ambit of the AAA. Second, the OFT cannot simply equate profit with unlawful charges. Any fee charged to a tenant must, by definition, include an element of the administrative time taken to actually carry out the specific work being considered. As with any professional service that costing will include a profit element. After all, what is the point to a business of employing staff if they do not contribute to the overall profit of the firm! The profit element should be reasonable but it will inevitably exist and, in reality, will be almost impossible to identify in the majority of cases. What the OFT are more likely to be getting at is where an agent massively inflates their charges beyond those which reasonably reflect the costs incurred and a reasonable fee for staff time. However, they need to be clearer about the as the current wording is simply silly.
Another surprising set of comments relate to the use of tenant reference data. The OFT suggests that a reference should be given to the tenant to take away. This is to misunderstand and misinterpret the Data Protection Act (DPA). It is by no means clear that tenants are entitled to references obtained about them under the DPA or, more correctly, it is by no means clear that they are entitled to get this from agents as opposed to the referencing agencies themselves. Where a person has given that reference, such as a previous landlord, and they can be identified from it then they also have rights under the DPA and this may preclude the reference from being passed on. The OFT is straying into territory here that is covered by a different statutory body and by areas of law that are far outside the remit of the OFT and they should stay clear.The second surprising comment is that the OFT suggests that tenants should be able to reuse a reference so that further agents would not charge for taking it again. This is possibly irrelevant based on what I have just said. However, it is also plainly ridiculous. This is no more realistic than me saying to a credit card company that they do not need to do a credit check on me before giving me a card because a previous credit card provider already did a check and here is a copy. Such a proposition violates commercial sense.The difficulty here is however one that is at least partly of the industry’s own making. The practice of charging tenants for a credit check and reference explicitly is not something that is carried out elsewhere. This inevitably leads organisations such as the OFT to a conclusion that the tenant owns that reference and that they should be able to use it as they wish.
The guidance takes a tour through the various management and repairing obligations and states that agents should deal with repairs promptly. However, it sensibly stops short of suggesting that agents can or should override the landlord’s wishes on repairs. There is also a mistake in that the guidance states that the repairing obligations in s11, Landlord and Tenant Act 1985 cannot be contracted out of. This is simply wrong although it is something which is strictly limited and will not be possible in most cases.
Fees to landlords
The guidance also discusses fees charged to landlords. The OFT has toned down some of its previous comments on the Foxtons case and confined itself to the agreed position that fees on sale to tenant are unlawful. They have been clear though that fees which extend beyond the immediate payment for work done (ie. renewal commission) must be clearly flagged. Interestingly, they also state that in their view a renewal commission will not be unlawful where the landlord has the option to pay it. In other words where the landlord has a choice between a higher commission now with no renewal commission or a lower commission now and a later renewal commission. I have advocated this before but, thus far, it has not seen much interest from agents.
The consultation is open until 10 December 2013. At that stage the OFT will finalise the guidance and presumably issue it in 2014.