What is the distinction between an estate agent and a letting agent? Why is it important for consumers in Northern Ireland to distinguish between the two? Are the negative perceptions of such businesses justified? How does Northern Ireland compare with the rest of the UK? 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 often, but not always, 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 offering both letting and full management services 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? How does this compare with the rest of the UK?
The regulation of letting agents in Northern Ireland is perceived to be considerably more ‘light touch’ in comparison to that in the UK. The Department for Communities proposed in its consultation paper ‘Private Rented Sector in Northern Ireland: Proposals for Change’ (published in January 2017) to introduce a new regulatory framework for all letting agents including bringing forward legislation to ban all letting agent fees for tenants.
The lack of transparency, especially with regard to the advertisement of fees, has been identified as a particular problem for both landlords and tenants. Two recent court cases in Northern Ireland have called into question the legality of certain administration fees charged by letting and managing agents. The charging of fees are particularly 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. Northern Ireland arguably lags behind the rest of the UK with regards to legislative provisions that provide clarity over the charging of fees, and indeed in terms of other regulatory measures:
- In Wales, many fees associated with renting a property have been banned for tenancy agreements starting after 1 September 2019. These include fees associated with signing a contract agreement, renewing a tenancy; inventory checklists; accompanied viewings; administration fees; fees to reserve a property and inspection fees when moving out. The Welsh Government has recently published guidance on letting and management fees for tenants. In addition to this, agents who engage in lettings or property management work must obtain a licence from Rent Smart Wales and must adhere to a Code of Practice. They must also undertake approved training to receive a licence. Agents are not compelled to be a member of a professional body, such as ARLA or RICS, but will receive a discount on their licence fee if they are. Additionally, a licence will only be granted if an agent can prove that the client’s money is protected in an approved scheme, that they have professional indemnity insurance, and that they are members of a redress scheme.
- In Scotland, letting agents have been unable to charge tenants’ fees (except for rent and a refundable deposit) when granting or renewing a tenancy. Additionally, letting and managing agents must be registered on the Scottish Letting Agent Register and adhere to the Letting Agent Code of Practice. The Code sets out the standards that agents are expected to meet including responsibilities for repairs and maintenance, relationships with contractors, and complaints resolution procedures. They must also take steps to protect clients’ money and have adequate professional indemnity insurance.
- The Tenant Fees Act in England, prohibits most letting fees and caps tenancy deposits paid by tenants for new or renewed tenancy agreements signed on or after 1 June 2019. Although agents are not compelled to join a professional trade body they must sign up to a redress scheme in order to assist in resolving disputes between agents and their customers. The agent must clearly display the name of the scheme they belong to in their offices and website. A working group on the regulation of property agents, chaired by Lord Best, has been tasked with providing advice to government on a model for an independent property agent regulator and a single mandatory code of practice for property agents. The working group’s report was published in July 2019. Its proposed new regulatory framework would cover sales agents across the UK, and letting and managing agents in England only.
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 tenant survey commissioned by the Department for Communities confirms that this is also the case in Northern Ireland. The survey found a significant number of tenants surveyed 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.
It is perhaps concerning that 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 noted in his research 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).
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 also unfair to those letting and property management agencies who are acting in a responsible manner. Some of these agencies 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 two decades, with an estimated 17% to 18% of occupied properties being in the private rented sector. Factors such as the prevalence of part-time and temporary employment, affordability issues for first-time buyers and substantial social housing waiting lists will mean that the private rented sector will continue to play an 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. The 2016 House Conditions Survey also reports an increase in the proportion of households with dependent children living in the private rented sector since 2011.
For the sake of their tenants and to protect their own assets, landlords who choose to use the services of letting agents should ensure that the fee schedule is transparent and clearly advertised; that their agents are a member of a professional body and/or redress scheme; that they have a satisfactory internal complaints process; and that they have well trained staff and have access to professional repairs and maintenance services.
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 Schemes – protects tenant’s deposits should, for example, an agency experience financial difficulties or go into administration;
- 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;
- Houses in Multiple Occupation legislation – a new licensing regime for HMOs came into operation on 1 April 2019. There is a new Code of Practice for the Management of Houses in Multiple Occupation applicable to both landlords and those managing HMOs. The Housing Rights advice website provides further information on the rights of tenants under the new standards. It also provides useful information on ‘complaining about your estate or letting agent’.
However, a question remains as to whether further regulation is required. The Department for Communities’ consultation paper ‘Private Rented Sector in Northern Ireland – proposals for Change’ set out the Department’s vision for the sector as one ‘which is professional, well managed, affordable, sustainable and which provides a viable housing option with security for both tenants and landlords‘. 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 important if this aim is to be realised.