Report to the Tyne and Wear Trading Standards Joint Committee 7 November 2019 Regulation of Property Agents Working Group. Final Report July 2019

Anneliese Hutchinson, Service Director, Communities and Environment, Gateshead Council

Purpose of the report

To update the Committee on the publication of the Final Report on the Regulation of Property Agents Working Group in July 2019.

Context

On 12 October 2018, the Minister for Housing and Homelessness announced that a working group would be established to help Government develop the details of its proposal for a new approach to the regulation of property agents.

The working group, under the leadership of the Chair, Lord Best began meeting in November 2018 and formally met a total of eight times. They have also conducted four sub-group sessions; for each of these we invited oral and written representations from a wide range of stakeholders to allow those not included in their nominal membership to have their say.

Best report

The Government has proposed that property agents be regulated by an independent regulator, with mandatory qualifications and a code of practice. The Best working group in its Final Report, published in July 2019, has agreed that a new approach is needed: regulation will provide the opportunity to prevent bad practice and drive cultural change within the industry. The approach is in several parts, including proposals for:

the scope of a new system of regulation

a new licensing regime

a framework for codes of practice

mandatory qualifications

transparency and use of leasehold and freehold charges

the set-up, functions and relationships of a new regulator

assurance and enforcement under the new system

Scope of New Regulation

Taking account of devolutionary matters, a new proposed regulatory framework should cover estate agents across the UK and letting and managing agents in England. It is recommended that all those carrying out property agency work be regulated (including auctioneers, rent-to-rent firms, property guardian providers, international property agents, and online agents).

Regulation should not extend to property portals (e.g. Rightmove) – which do not perform agent functions, the short-let sector (e.g. AirBnB) – which would add complexity to the new regulator as it becomes established, and local authorities acting as letting or managing agents.

However, the Report recommends that the legislation required to regulate property agents should allow for future extension to the scope of regulation (e.g. to include at a future point regulation of landlords, freeholders and developers – as well as retirement housing managers and Right to Manage companies).

To clarify the functions of a property agent, the Government should create a list of ‘reserved activities’ which can only be performed by a licensed property agent at a regulated firm. The new regulator’s scope should extend to both licensed agents (as individuals) and regulated agencies (as firms).

Licensing

To confirm appropriate qualifications and credentials, property agencies and qualifying agents should be required to hold and display a licence to practice from the new regulator. Before granting a licence, the new regulator should check that an agent has fulfilled its legal obligations (such as belonging to a redress scheme and submitting a copy of their annual audited accounts to the new regulator) – and that they have passed a fit-and-proper person test. It is recommended that the new regulator should be able to vary licensing conditions as it sees fit and that it maintains accessible records of licensed property agents.

Codes of Practice

Codes of practice set out clear standards of behaviour. The Government has already committed to requiring that letting agents adhere to a code of practice, and it is recommended that all property agents be required to do so. There should be a single, high-level set of principles applicable to all property agents which is set in statute: the ‘overarching’ code. Then, underneath, ‘regulatory’ codes specific to various aspects of property agent practice, binding only on those providing these types of services.

Key principles for the ‘overarching’ code should include that agents must act with honesty and integrity; ensure all staff are appropriately qualified; declare conflicts of interest; and have an effective complaints procedure in place. To develop and maintain the ‘regulatory’ codes, the new regulator should establish a working group for each sector of property agency to work up sector-specific detail.

Qualifications

11.	Qualifications provide agents with the skills they need, provide a mark of competence to reassure consumers, and require commitment from agents.

12.	In the new regime, it is envisaged that every property agency should be responsible for ensuring their staff are trained to the appropriate level and clear oversight arrangements are in place for junior staff. To ensure levels of qualification are appropriate yet proportionate, the working group recommend that licensed agents should be qualified to a minimum of level 3 of Ofqual’s Regulated Qualification Framework; company directors and managing agents should be qualified to a minimum of level 4 in most cases.

13.	While there are many roles within property agency businesses, mandatory qualifications should apply only to licensed agents who carry out reserved activities.

14.	The new regulator should set and periodically review a modular syllabus for property agent qualifications, to be delivered by separate providers. The new regulator should also work closely with Ofqual to develop a robust system of quality control. Continuing professional development should also be a mandatory requirement for licensed agents.

Leasehold and Freehold Charges

15. The new regulator should be given a statutory duty to ensure transparency of leaseholder and freeholder charges, and should work with the sector (property agents, developers and consumers) to draw up the detail of the regulatory codes to underpin this aim as it applies to property agents. The regulatory code should include standards for transparency; potential conflicts of interest (e.g. mandatory disclosure of commissions and management fee charges); communication and use of service charges; administration charges; permission fees; use of covenants; and protection of client money.

16.It is recommended that the new regulator takes over from the First-tier Tribunal the power to block a landlord’s chosen managing agent where the leaseholders have reasonably exercised a veto. It is recommended that the new regulator provides information on managing agent performance to allow landlord freeholders - and where relevant, leaseholders - to make an informed choice of managing agent. As Government considers broader reforms to the leasehold and freehold charges regime, it is also recommended that the new regulator has a role in enforcing compliance with any new requirements that apply to managing agents.

17.The Best working group has also provided suggestions for Government to consider around boarder reforms to the leasehold and freehold charges regime. These include introducing a standardised form for service charges; revisions to major works consultations; extending the use of sinking funds and asset management plans to help avoid surprise or large one-off bills for leaseholders; improving transparency and protection of client money; setting a framework around the use of administration and permission fees; and reviewing the process for replacing an under-performing managing agent.

The New Regulator

The Best working group does not consider that an existing body could take on the role of the new regulator. Therefore, Government should establish a new public body to undertake this role. The new regulator should be established and run regarding general principles of good governance, including: independence, openness and transparency, accountability, integrity, clarity of purpose and effectiveness. The new regulator, through its board, should be accountable to the Secretary of State for Housing, Communities and Local Government. It should publish an annual report on its progress in raising standards of property agents, using agreed key performance indicators – including customer satisfaction.

19. The new regulator should be funded by the firms and individuals it regulates – but Government should provide ‘seed corn’ funding to support its creation and help with its operation for an initial period. It is recommended that it should be for the new regulator to determine whether professional bodies could, subject to an approval process, deliver some regulatory functions. No such delegation should be given without firm guarantees as to the professional body’s suitability.

20.	It is recommended that the new regulator take over responsibility for the approval of property agent redress and client money protection schemes. The new regulator should have the power to appoint a single ombudsman for property agents, rather than competing redress schemes, if they believe this to be the best way of improving standards.

21. There are numerous potential sources of complaints against property agents (e.g. other agents, whistle blowers, accountants) that have few if any places to go to raise concerns. The new regulator should be able to consider complaints from all sources. Where solicitors, lawyers or other professionals have evidence of possible illegal agent behaviour, they should be obliged to present it to the new regulator.

Assurance and Regulation

The Best working group recommends that the new regulator should have a range of options for enforcement action according to the seriousness of the infringement and how regularly it has occurred. These options should range from agreeing remedial actions and issuing warnings up to the revocation of licences and prosecutions for unlicensed practice. The new regulator should publicise infringements and the enforcement action taken. For those wishing to dispute the new regulator’s decisions or sanctions, there should be a right of appeal through the First-tier Tribunal. Furthermore, the First-tier Tribunal should also be granted in law the power to consider applications for judicial review against the new regulator.

The new regulator and other bodies (such as Trading Standards and redress schemes) will need to share information and work together effectively. There should be a system of flexible working between the new regulator and Trading Standards teams, and the new regulator should set out guidance clarifying their own and Trading Standards’ roles with regards to enforcement action to avoid duplication.

Recommendation

The Committee is asked to note the information as contained within the report.

Contact: David Ellerington, City of Newcastle Council on (0191) 2116119 or email: david.c.ellerington@newcastle.gov.uk