Letting Agents and the New Fee Transparency Rules
On 26 March 2015 the Consumer Rights Act (CRA) received royal assent. The Act contains specific provisions relating to letting agents and a new duty requiring them to publicise details of their fees. In comparison to other professions, letting agents are currently subject to relatively low levels of regulation. Most of the law governing their operation is contained in consumer protection legislation and there is no overarching statutory regulation scheme which applies specifically to the industry. However, as the private rented sector grows in size and letting agents’ key role in shaping the housing market becomes more prominent, increasing layers of regulation are being applied to the profession. First came the Letting Agents Redress Scheme in 2014 and now new rules on fee transparency. It is important that letting agents are aware of their responsibilities as alongside the new duties come stricter sanctions for non-compliance.
From 27 May 2015, letting agents will be under a specific duty to publicise a full tariff of their fees. Hidden charges and misleading fees are longstanding complaints made by consumers against letting agents. Since November 2013, the Advertising Standards Authority (ASA) has required letting agents to be upfront about compulsory fees and charges in their advertisements. The Competition and Markets Authority (CMA) has also made it clear in its recent guidance to letting agents that hidden charges are an unfair commercial practice and that they breach the Consumer Protection Regulations. Although many letting agents do already publish their fees and charges, up until now they have not been under an express legal duty to do so. This has now changed and letting agents who do not comply with the new duty will face financial penalties.
The new statutory duty relating to letting agent fees is set out s83 of the Consumer Rights Act 2015. It requires letting agents to display a list of fees at each of the agent’s premises at which the agent deals face-to-face with persons using or proposing to use services to which the fees relate. The list must be located in a prominent place where it is likely to be seen by such persons. Agents are also required to publicise a list of their fees on their websites.
The list of fees must contain the following information:
1. A description of each fee which sufficiently enables a person who is liable to pay it to understand the service or costs that is covered by the fee
2. Where the fee is payable by tenants, the list must indicate where the fee relates to the property as a whole or whether each tenant is liable to pay the fee
3. The list must clearly state the amount of each fee and the figures quoted must be inclusive of any applicable tax such as VAT. Where the fee amount cannot be determined in advance there must be a description stating how the fee is calculated
Quite simply, the objective is for the consumer (either a landlord or a tenant) to have full details, in advance, about what charges are likely to be levied by the agent so that he or she can make a fully informed decision about whether or not to enter into the contract.
Clearly a tenant looking for a property will want to know the total cost of the rental at the outset before signing the tenancy agreement. A lack of transparency around fees is a common complaint raised against letting agents and one of the key causes of consumer dissatisfaction in this area.
The new rules seek to address this problem by requiring the agent’s list of fees to be displayed clearly in each office and on the agent’s website so that the consumer can see the information without having to ask or search specifically for it.
The list of fees must be complete and clearly defined; there is no longer any room for surprise or hidden charges. Vague language such as ‘administration fees’ cannot be used and all costs must be stated inclusive of tax. Agents will need to provide a breakdown of the fees that relate to individual services such as marketing the property, conducting viewings, carrying out credit references and tenant checks and producing the tenancy agreement and the property inventory.
Letting agents are only under a duty to publicise details of ‘relevant fees’. These are specifically defined in s85 of the Act as meaning fees, charges or penalties payable to the agent by a landlord or tenant-
· In respect of letting agency work carried on by the agent
· In respect of property management work carried on by the agent or
· Otherwise in connection with an assured tenancy of a dwelling or a dwelling that is proposed to be let under an assured tenancy.
Rent payable to a landlord under a tenancy, tenancy deposits and fees, charges or penalties which the letting agent received from a landlord under a tenancy on behalf of another person are not relevant fees for the purposes of the legislation.
Letting agency work is defined in the Act as meaning things done in the course of business in response to instructions received from:
· A private sector landlord seeking to find a tenant to rent a property under an assured tenancy, and having found such a tenant, granting such a tenancy (‘a prospective landlord’)
· A tenant seeking to find a property in the private rented sector let under an assured tenancy and having found such a property, obtaining such a tenancy (‘a prospective tenant’)
It does not include situations in which the only thing done by the person is to publish adverts of disseminate information or provide means by which a prospective landlord and prospective tenant can communicate directly with each other in response to an advert. This appears to apply to internet sites such as Spareroom and Gumtree which will be exempt from the regulation. It does not apply to local authorities assisting tenants find private sector lets.
Property management work is also defined as meaning things done by the agent in the course of business in response to instructions received from another person relating to arranging services, repairs, maintenance, improvements or insurance, or dealing with any other aspect of the management of the premises. The premises must consist of a dwelling-house let under an assured tenancy. This means it would apply to agents who are instructed by private rented sector landlords to manage properties on their behalf.
Client Money Protection and Redress Schemes
Furthermore, letting agents engaging in letting agency or property management work in relation to residential dwellings in England are subject to a couple of further provisions. If the agent holds money on behalf of their client, they are under an additional duty to display or publish, with the list of fees, a statement setting out whether the agent is a member of a client money protection scheme.
Also, if the agent is required to be a member of a redress scheme, the agents are under a duty to display or publish, with the list of fees, a statement that indicates that the agent is a member of a redress scheme together with the name of the relevant scheme. This will apply to most agents as since 1 October 2014 it has been a legal requirement for all letting agents and property managers in England to belong to a government approved redress scheme.
Enforcement and Penalties
The Act contains tougher financial penalties for non-compliance with the rules. If a letting agency is found to have breached its duty, the local authority may impose a financial penalty. The local authority has discretion to determine the amount of the financial penalty but it cannot exceed £5,000. Only one penalty may be imposed on the same letting agent in respect of the same breach of the duty. However, a national letting agent who has not published a list of its fees may be fined at each of its offices where there is a failure to comply with the legislation.
Letting agent fees have long been a controversial subject with some suggesting that they should be abolished altogether. In Scotland letting agent fees have been unlawful since 2012. Consumer protection law and guidance have up until now paved the way in regulating this area. However, the government’s decision to step in and legislate on fee transparency demonstrates that letting agents are not immune from direct statutory regulation. These new rules come into effect today. Letting agents who have not previously published their fees and charges will need to make sure that they now do so.