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Private rented sector reforms take shape

publication date: Sep 24, 2009
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StreetGovernment concern about private rented housing was given legislative expression in the Housing Act 2004. Local authorities now have increased powers to deal with Houses in Multiple Occupation and the selective licensing scheme enables local authorities to tackle sub standard properties and anti-social tenants. Also all deposits taken by agents and landlords of assured shorthold tenancies have to be protected by an authorised deposit protection scheme.

Reform in this area is unlikely to end there, however. The private rented sector is growing but problems remain relating to quality of accommodation, management standards and security of tenure. In October 2008 Julie Rugg and David Rhodes of York University Centre for Housing Policy presented a report to the Department of Communities and Local Government (DCLG); The Private Rented Sector: Its Contribution And Potential.

Julie RuggThe Rugg Report outlined six policy “directions of travel”:

• Government and local authorities lack a proper understanding of how the private rented sector works. Policy has been based on biased evidence from lobby groups for both landlords’ and tenants’ respective interests. A review of governmental information should be undertaken with more pertinent questioning of landlords and tenants.
• Managing agents should be subject to mandatory regulation. Registered social landlords should be encouraged to sell their rental management skills to private landlords and investors. Institutional investment should be more readily forthcoming if good quality agencies were available to manage properties.
• Changes to the tax regime should encourage landlords to view their letting activity as a business rather than an investment. Buy-to-let mortgages should only be available subject to a business plan. Lenders should be encouraged to allow tenants protection if a landlord defaults on mortgage payments. Stamp Duty Land Tax relief should be available so that the highest rate is not automatically applied to larger acquisitions if properties bought include lower value units.
• A real choice between a social or a private let should be available to low income families. Social letting agencies should deal with all private renting procurement required by statutory agencies, such as the UK Border Agency, charging a standard management fee and reducing the housing benefi t related incentives on offer to landlords.
• A licence would be required by all landlords in this sector but would be available without hurdle or criteria on a payment of a fee. The licence would be nationally administered by an autonomous agency but would be revoked if the landlord did not meet statutory requirements on housing management and quality. The fee income could contribute to a housing justice network, which should be effectively linked to the licensing framework. A single property tribunal might be easier for tenants to access and could be connected to a specialised housing court.
• No changes were recommended to security of tenure regime. The authors found that tenants generally leave their properties when they are happy to do so. Problems with insecurity often reflect inadequate policing, difficulties with housing benefit, or poor support for vulnerable tenants. However:
• Landlords should be encouraged to offer longer term lets if intermediary agencies are in place to mitigate risks with a tenant.
• Landlords who evict tenants for simply complaining about their accommodation should be removed from the sector by means of the licensing regime.

The DCLG said it would respond to this report (and others) early in 2009, triggering speculation that the Government would adopt the proposals for landlord licensing. The Opposition argued that the scheme would add to bureaucracy and cost and be a deterrent to prospective landlords. Some change has already occurred. On 5 May ARLA launched its licensing system which requires all their members to be licensed with the following implications:

• All members will hold a standard professional qualification relating to lettings and undertake continuing professional development.
• Client money protection schemes must be in place to protect all tenant and landlord funds. • Client fund accounts must have an annual audit.
• Professional indemnity insurance must be held.
• Agents must belong to an independent redress scheme.
• Agents must abide by a strict code of practice.

None of the above is compulsory for letting agents at the moment which means that in many cases both landlords and tenants are without redress.

Margaret BeckettThe Government Response

The private rented sector: professionalism and quality
Government response to the Rugg Review

On 13 May Housing Minister Margaret Beckett announced proposals for a package of measures to strengthen consumer protection in the private rented sector.
The proposals now move into a consultation period (any interested party may contribute) which is now open, with a closing date of 7th August 2009. Much follows Rugg’s recommendations including:

• Introducing a light-touch national register of every private landlord in England to increase protection for both vulnerable tenants and good landlords. Landlords will need to include their registration number on all tenancy agreements and could be removed from the register for persistent poor performance like failing to carry out essential repairs, or not protecting tenants’ deposits.
• Full regulation for private sector letting agents. Letting and managing agents do not currently need to have professional credentials. This means that both tenants and landlords have no realistic redress when things go wrong. To tackle this, the government proposes creating an independent regulator for letting and managing agents.
• An improved complaints and redress procedure for tenants. For the first time, the Government will look to set up a mechanism whereby tenants are able to register official complaints about sub-standard landlords, and if these complaints are substantial and proven then landlords may be removed from the national register.
• Greater local authority support for good landlords. Local authorities will be encouraged to create ‘local lettings agencies’ to better facilitate tenancies in the private rented sector for those in housing need, including Housing Benefit recipients.

The Government also announced its intention to change the law to ensure that tenants have a minimum two months’ notice if they have to leave their home because their landlord has been repossessed. At present, a gap in legal protections means that some tenants could be evicted at short notice if their landlord is repossessed – sometimes with less than two weeks to move their belongings.

Margaret Beckett said: “With almost three million private tenants in the country, the private rented sector plays a vital role in providing choice and flexibility in the housing market. That’s why we need to ensure tenants have the protection they deserve, the many decent landlords receive the support they need, and those landlords whose performance is inadequate, improve or leave the sector.

“The proposals we’ve announced today will create a system that retains its attractiveness for those who choose not to buy, but also embraces greater professionalism without creating unnecessary burdens on landlords. It is not right that tenants through no fault of their own can be forced to leave their home at a moment’s notice if their landlord is repossessed, which is why we are intending to change the law. In the meantime, I hope that lenders will move quickly to safeguard tenants in their homes.”


This 35 page document presents proposals for changes to the way the Private Rented Sector is governed, primarily suggesting that it will introduce both licensing for all private landlords and regulation of all letting agents. No information on a legislation programme will be available until at least 2010. The full document may be downloaded at www.propertydrum. com/articles/govtrugg

The Industry Reaction
PROPERTYdrum gathered opinion from the professionals:

Christopher Hamer
The Property Ombudsman

“I support the concept of licensing of sales, lettings and management agents as such an approach will, especially if linked to an entry qualification and perhaps continuing educational development, build on the professionalism of those operating in the industry. That greater professionalism will bring about enhanced standards generally but potentially in particular in the field of customer service and that can only be positive for agent and consumer alike.

“There are currently several initiatives by various bodies in different sectors of the property world looking at licensing or registration. That displays the level of interest in and acceptance of such a regime. It would seem sensible that if those bodies are not working together they should at least co-ordinate activity to ensure that their approaches are consistent across all agents.”

Ian Potter
Operations Manager at ARLA

“ARLA launched the Licensing scheme before we were aware of the Government’s plans to regulate the industry. The Association is nevertheless pleased that we seem to have influenced the Minister’s thinking on the issue.

“The report is a further discussion document and there are still many issues to be debated, such as who will leading on the licensing of agents. However, the report does indicate that it will be an independent body. There is clearly more lobbying to do but this doesn’t take away from the fact that the Government’s stance is moving in the right direction in this key area.”

Caroline Pickering
Chairman of NALS

“We are very pleased that the Government overwhelmingly agrees with the Rugg Report’s call for independent regulation of lettings and management agents. We fully agree that it is absolutely necessary that any regulatory body is not bound or led by the industry, although it must work with the industry to ensure that any licensing framework sets achievable, accessible standards for all good agents operating in the sector.

“There is a need for tighter regulation and accountability among lettings and management agents; a national registration scheme for landlords and mandatory regulation of lettings agents will propel the sector forward in achieving best practice and increasing consumer protection. But agents don’t have to wait – they can demonstrate to consumers now that they fully meet industry standards for customer service by gaining NALS accreditation.”

Nigel Terrington, Paragon Group Chief Executive, also welcomed the proposals but urged that more be done to enable the landlords that form the backbone of the sector to access finance to help grow their businesses and expand the stock of private rented property to meet rising tenant demand.

“Institutional investment is not the answer. The PRS is dominated by individual landlords who have the knowledge and expertise to meet the demands of their local community. Local tenant demand drives their investment decisions.

“The foundations for the growth of the market are already in place but those foundations can’t be built on until finance is made available to landlords through buyto- let lenders. More needs to be done to give those landlords access to the finance needed to help grow their business.”

Rupert DickinsonRupert Dickinson
Chief Executive of Grainger plc and Chair BPF Residential Committee

“As the UK’s largest listed residential landlord, we welcome the Government’s response to the Rugg Review and their commitment to the professionalisation of the private rented sector. Owneroccupation has been upheld as the tenure of choice for far too long and a new framework for the private rented sector is long overdue. In order for any reforms to be effective, further regulation must not be restrictive and we welcome the Government’s emphasis on light-touch licensing. Our own research published last year in the Cowans Report, made additional recommendations that highlighted the benefits of practical incentives, such as VAT relief for registered landlords to support the implementation of a licensing regime. The overall aim should be to reward good practice.”

David Salusbury
Chairman, The National Landlords Association (NLA ), labelled the recommendations on the proposed database of rental properties as well-meaning but flawed:

“The Government proposes to introduce a register of English landlords to include not only a landlord’s name and home address but also the addresses of their rental properties.

“The most controversial part of the national register would be the requirement for all landlords to submit details of their property holdings at the time of registration and re-registration each year. It is possible to see some benefit to a ‘no hurdle’, low-cost, easy-to-use register for landlords as part of a concerted drive to root out rogue operators.

“However, the NLA would be opposed to the collection of rental property addresses. We consider this to be overly intrusive and of no direct benefit to tenants or landlords. Any changes must not be seen as the ‘thin end of the edge’ in terms of further, burdensome regulation.

“Reform must be workable for landlords and not damage the private-rented sector. The challenge now for Government should be to focus on incentives and encouragement."