As previously reported, from 1 October 2014 all agents who carry out letting agency or property management works will be required to join a redress scheme.
The legislation appears at first glance to be remarkably straightforward for brand new legislation. This is perhaps because it will be up to the schemes themselves to monitor complaints and provide redress within their rules. As such, all the legislation needs to do is ensure the correct people are caught and required to join. The legislation applies to England only.
The starting point is Part 6 Enterprise and Regulatory Reform Act 2013 and in particular sections 83 – 88. The Enterprise and Regulatory Reform Act 2013 basically requires persons involved in two types of property work to be members of a redress scheme:
- lettings agency work; and
- property management work.
Nothing within the Act actually requires a person to join a scheme as everything is simply allowing the Secretary of State to create orders authorising schemes and those orders will also require persons to join.
Creation of schemes
Under the Act, there may be two types of scheme:
- a redress scheme approved by the Secretary of State, or
- a government administered redress scheme.[s.83(1)].
A “redress scheme” is a scheme which provides for complaints against members of the scheme to be investigated and determined by an independent person [s.83(2)]. The “independent person” mentioned is to be known as the “ombudsman” [Article 2, The Redress Schemes for Lettings Agency Work and Property Management Work (Approval and Designation of Schemes) (England) Order 2013.] An approved scheme may allow other persons who are not subject to the requirement to join. The schemes may also deal with complaints voluntarily or refuse to deal with certain complaints [s.88(5)]. The detail in respect of the approval of a scheme is to be found in The Redress Schemes for Lettings Agency Work and Property Management Work (Approval and Designation of Schemes) (England) Order 2013 whereby a scheme will not be approved unless there are satisfactory provisions for:
- the appointment of an independent administrator
- the manner of becoming or ceasing to become a member of the scheme
- complaints may be made
- complaints relating to a code of practice (if one applies)
- the ombudsman’s duties and powers relating to investigation of complaints
- the powers of redress which must include as a minimum-
- providing an apology or explanation
- paying compensation
- taking such other actions as may be specified by the ombudsman
- the enforcement of any redress
- the manner and operation by which a person can make a complaint
- the provision of information to other schemes or other persons exercising regulatory functions; and
- the making and publication of annual reports[Article 4].
Requirement to join
A person who engages in “lettings agency work” or “property management work” must be a member of a redress scheme for dealing with complaints in connection with that work. Here we will consider the definitions of such persons.
Lettings agency work
Section 83 Enterprise and Regulatory Reform Act 2013 defines “lettings agency work” as-
things done by any person in the course of a business in response to instructions received from—
- a person seeking to find another person wishing to rent a dwelling-house in England under a domestic tenancy and, having found such a person, to grant such a tenancy (“a prospective landlord”);
- a person seeking to find a dwelling-house in England to rent under a domestic tenancy and, having found such a dwelling-house, to obtain such a tenancy of it (“a prospective tenant”).
However, “lettings agency work” does not include any of the following things when done by a person who does no other things falling within above-
- publishing advertisements or disseminating information;
- providing a means by which—
- a prospective landlord or a prospective tenant can, in response to an advertisement or dissemination of information, make direct contact with a prospective tenant or (as the case may be) prospective landlord;
- a prospective landlord and a prospective tenant can continue to communicate directly with each other.
“Lettings agency work” also does not include-
- things done by a local authority;
- things of a description, or things done by a person of a description, specified by order.
“Domestic tenancy” means-
- an assured tenancy for the purposes of the Housing Act 1988 (except where the landlord is a provider of social housing or the term is for longer than 21 years and a few other similar exceptions)
- any other tenancy as may be specified by order.
At the time of writing, The Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc) (England) Order 2014 is in draft form and sets out exclusions from activities being considered as letting agency works. As these are draft and likely to change we won’t go into too much detail for the moment but in its current form, exclusions include:
- where the prospective tenant is an employee or other specified worker connected to the agent
- where the letting is by certain student institutions
- or, where things are done by solicitors and the like (as defined by section 18 Legal Services Act 2007).
Property management work
Section 84 Enterprise and Regulatory Reform Act 2013 defines “property management work” as:
- things done by any person (“A”) in the course of a business in response to instructions received from another person (“C”) where-
- C wishes A to arrange services, repairs, maintenance, improvements or insurance or to deal with any other aspect of the management of premises in England on C’s behalf, and
- the premises consist of or include a dwelling-house let under any of the following tenancies:
- an assured tenancy for the purposes of the Housing Act 1988;
- a regulated tenancy for the purposes of the Rent Act 1977;
- a long lease (for which see section 7 Leasehold Reform, Housing and Urban Development Act 1993) other than one to which Part 2 of the Landlord and Tenant Act 1954 applies;
- any other tenancy as may be specified by order.
Like above, The Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc) (England) Order 2014 is in draft form and sets out exclusions from activities being considered as property management work. As these are draft and likely to change we won’t go into too much detail for the moment but in its current form, property management work does not include:
- things done where the land is registered as commonhold
- things done in relation to student premises where all of the following applies:
- the premises are owned or managed by-
- an institution as defined by paragraph 5 of schedule 1 to the Local Government Finance Act 1992 or,
- a body established for charitable purposes only
- and, the premises are a hall of residence
- the premises are owned or managed by-
- where the premises are not operated on a commercial basis by government department, local authority or charity and the premises are used for housing specified vulnerable persons
- things done by certain receivers, mortgage companies and certain legal advisors such as solicitors.
Rules of the scheme
Each scheme will have their own rules. For example, see the Property Redress Schemes Terms of Reference. The rules of all the schemes are likely to be similar in nature. We have used the Property Redress Scheme terms for the purpose of this part. The rules require the member to provide all consumers with a copy of their internal complaints procedures (if any) and information about the redress scheme when signing any agreement AND at the point of any formal complaint received. They require the complainant to first contact the agent to try and resolve the complaint without going to the scheme. But, if there is no success, the scheme will consider the complaint and issue its decision accordingly. The scheme will have power to award monetary penalties as well as requiring an apology or some other practical action to mitigate any detriment. There are even powers to award payments for distress or a payment “ in recognition of time and trouble taken to make the complaint”. If a member fails to comply with a decision of the scheme, after notification, ultimately the member can be suspended and then terminated. If suspended or terminated, that information will be publicised to the relevant body. Presumably, if a member is terminated (and fails to join some other scheme) and continues with letting or management work, that person will be in breach of the legislation and deemed to have failed to join a scheme. It is possible for the member to re-join the scheme but only after full payment of all penalties, compliance with the decision and re-paying the membership at double the standard amount of its class.
Enforcement and penalties
Section 85 Enterprise and Regulatory Reform Act 2013 allows for orders to be made making provisions for sanctions for any breach of the legislation. The Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc) (England) Order 2014 is in draft form at the time of writing but the following is shown in the draft:
- the enforcing authority is the local authority
- if a person has failed to join a redress scheme (on the balance of probabilities) a penalty notice for up to £5000 may be served
- a person may in the first instance make written representations within 28 days of the penalty notice
- after which, an appeal to the first-tier tribunal will be available
- any sums received by the local authority in respect of penalties may be used by the authority for any of its functions (which it is submitted will have the effect that they will be keen to issue penalty notices)
It seems fairly well locked down in our view that this legislation should catch all letting and managing agents as we commonly know them in the high street (and online). Exclusions are very limited indeed. However, it is worth noting that any company which simply advertises property for rent and only passes the contact details of prospective landlords to prospective tenants will not be required to join a redress scheme. However, any other letting agency work will be required to join. As too will property management and the functions listed which are regarded as property management work seem to include the general duties of property managers as we know them. Property management work also extends to those managing long leases (e.g. with a term of longer than 21 years). I often say on our help-line we nearly have as many questions about agents as we do tenants (but not about our agent members I should add). This will be welcomed legislation and for landlords, we can only hope that local authorities enforce properly. The schemes also have some clout in respect of the decisions they can award. Obviously as they are commercial and in essence the people who are being complained about are the same people paying the schemes wages it will remain to be seen how harsh decisions are. A balance will need to be struck between a commercial enterprise and ensuring a positive public perception.