Tighter regulation for the private rental sector

Landlords and letting agents will in future face tougher regulation after the government made a surprise U-turn to rein in the rogues at the Conservative Party Conference earlier this month. After years of rejecting calls to regulate private letting, Sajid Javid, Secretary of State for Communities and Local Government, announced that new laws were on the way to protect buy to let tenants and address mounting concerns over what he called “our broken housing market”. “Everyone has a right to feel safe and secure in their own home and we will make sure they do,” he said, describing the fact that so many people cannot afford to buy their own house as a “national outrage”.

He acknowledged that the barriers that currently stop young people owning their own property cannot be broken overnight and therefore focused on how the private rental sector could be improved upon to offer safe, secure and good quality housing.

He outlined four measures:

  • A mandatory ombudsman scheme for private landlords to provide tenants with an independent adjudicator to deal with their complaints
  • Letting agents will have to join a supervisory body and train to qualify before they open a business
  • Talks with lawyers aimed at setting up a new property tribunal to deal with disputes between landlords and tenants
  • A surprise package in Chancellor Phillip Hammond’s Autumn Budget 2017 to reward landlords who offer 12-month tenancies

What do these measures mean for the sector?

Mandatory ombudsman scheme:

Such schemes generally offer legally binding dispute resolution systems and often also require members to adhere to a code of conduct. The government hopes that by making landlords join an ombudsman scheme, renters will be given greater powers to challenge what they consider to be unreasonable behaviour from their landlords.
By law, all letting agents are required to join a government authorised consumer redress scheme. A strict complaints process is followed whereby letting agents are obligated to comply and the decision or award made by the scheme is final.

Explaining the decision, communities secretary Sajid Javid said: ‘For too long, tenants have felt unable to resolve the issues they’ve faced, be it insecure tenure, unfair letting agents’ fees or poor treatment by their landlord with little means of redress. We’re going to change that’.

Find out more about Hamilton Fraser’s Property Redress Scheme here

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Regulation of letting agents:

Mr Javid proposed that legislation be introduced to ensure all letting agents are registered and adhere to strict standards. The move was welcomed by ARLA Propertymark (formally the Association of Residential Letting Agents) whose CEO, David Cox, commented: “After 20 years of our campaigning falling on deaf ears, we’re very pleased the government has taken the decision to regulate the private rented sector.”

Similar systems are already in place in Scotland where the Scottish Government ensures that all letting agents have met specific training requirements and follow a code of conduct for best practice. In addition, Rent Smart Wales legislation already states that all landlords and letting agents must either register or licence themselves and their properties. Self-managing landlords and agents also need to complete a relevant training course and pass a ‘fit and proper’ assessment to obtain a licence.

Introduction of a property tribunal:

A dedicated housing court would solve one of the biggest challenges in the private rented sector facing both landlords and tenants. The system is currently being stretched to breaking point by an ever increasing number of cases going through overstretched courts. Mr Javid said the new Housing Court would mean tenants could “get faster, more effective justice”. He added, “This will mean that every tenant has the security of knowing that if they’re mistreated, or reasonable standards aren’t met, they’ll have somewhere to go… Somewhere with the power to put it right.” For landlords this measure could put an end to protracted disputes.

Longer tenancies:

In the final surprise component of his package of measures, Mr Javid suggested that landlords will be offered incentives to provide long-term tenancies of at least 12 months in order to offer tenants greater security. The Prime Minister Theresa May had previously raised the issue of short tenancies, acknowledging how unsettling these can be for renters. However, according to Shelter, it isn’t clear why the government plans to incentivise something the market is already delivering as the majority of tenants have 12-month contracts already.

The minister gave no clue as to why the government has had a sudden change of mind about private rental sector regulation; Javid’s announcement was hailed by some as an attempt to win back the vote of ‘generation rent’, a political force to be reckoned with. Whatever impetus may be behind it, this is a significant moment for the private rental market, much of which is no longer fit for purpose and in desperate need of reform.

The minister promised more details of his plans would follow soon – as ever, the devil will be in the policy detail – but we will have to wait until November’s budget speech to hear more about the full extent of the proposed changes, their likely impact, and whether there will be new incentives for landlords who are doing the right thing.

Addendum

Following the announcement of the proposals to tighten regulation of letting agents at the beginning of the month, on 18 October the government launched a ‘call for evidence’ to seek views on whether a new regulatory model is needed for agents in the leasehold sector. This is to help the government decide what form regulation of letting and managing agents should take and will enable the government to bring forward detailed proposals early next year. To find out more and add your voice click here before 24 November. The consultation closes on 29 November.