Letting Agents: New Laws Needed to Protect Tenants and Landlords, says OFT
The government should consider new laws for lettings agents to improve the rights of tenants and landlords, the Office of Fair Trading has said.
The recommendation, which follows a review of consumer complaints about the burgeoning private rental market, comes alongside a call for lettings agents to be forced to provide a full tariff of charges before a tenant signs a contract.
The move to renting has been swift in recent years, as high house prices and stricter mortgage lending criteria have made it increasingly hard to get on the property ladder – in 2010/11 3.6 million households in England were renting, up 2 million on 1999's figure. According to the Council of Mortgage Lenders, 2012 saw the number of buy-to-let loans taken out jump by a fifth.
As the numbers of landlords and tenants have increased, so complaints have grown, with the Property Ombudsman seeing a 26% rise in inquiries between 2010 and 2011.
"This is a market where large numbers of landlords may lack expertise, and the complexity of housing law means tenants may not understand their rights and obligations properly," the OFT said.
"Agents can cause problems where they exploit customers' behavioural biases by not being transparent about their fees or what they have on offer … Further, agents' interests are not always aligned with those of landlords who instruct them or the tenants who may rely on them for guidance."
The regulator reviewed about 4,000 complaints made to Consumer Focus in 2011. It found that 1,557 involved fees and charges, 1,211 were about agents providing poor service, and 1,015 were about deposits.
The OFT said some of the complaints concerned "surprise" charges which were introduced or "drip-fed" once contracts have been signed. These included things like administration fees, and fees for checking in and out of a property.
It said some of the problems could be solvable if agents complied better with existing consumer protection legislation, but that government, industry, enforcers and consumer bodies needed to take action to empower tenants and landlords.
Among its recommendations were:
• Better compliance with legislation and in particular better upfront information. "Ideally we would like fees to be set out in a clear tariff of charges at the start of the process, and certainly before any contract is signed."
• A general redress mechanism so landlords and tenants can sort out problems when they occur.
• More consistency within the industry so common principles are applied throughout the industry, such as what information is used for pre-tenancy checks.
It also urged the government to consider "whether the level of consumer protection law coverage is right in the context of the lettings market, and if not whether any legislative changes should be made to deal with this."
The OFT said that by the end of the year it would produce and consult on a document providing guidance for letting agents on what constitutes unfair contract terms.
Cavendish Elithorn, senior director of goods and consumer at the OFT, said: "Our findings show that tenants and landlords are often dissatisfied with their agents, but we also know most agents want to do the right thing.
"It's important that tenants ask for key information, but we also believe that government, industry and enforcers working together can have a real impact and improve overall standards in the lettings market."
The consumer group Which? described the recommendations as "a step in the right direction", but said the government and lettings agents needed to go further.
The group's executive director, Richard Lloyd, said: "Information on compulsory fees should be provided upfront, in adverts, or at the first point of contact with an agent so people can shop around.
"And the government must act quickly to require all agents to sign up to a complaints scheme so tenants know where to turn to for redress when things go wrong. This should be done by amending the enterprise bill currently before parliament."