CABevidenceonlettingagents andtheircharges · finding themselves in this situation as repossessed home owners are forced to rent instead, would-be first time buyers are unable to

CAB briefing May 2009

Let downCAB evidence on letting agentsand their charges

Summary

For many people looking for somewhere to live, the private rented sector is their first and, foran increasing number, their only option: home ownership is financially out of reach and thedemand for social housing far outstrips supply. As the recession bites, even more people arefinding themselves in this situation as repossessed home owners are forced to rent instead,would-be first time buyers are unable to get mortgages, and Government plans to expand thesocial housing stock are hit by the collapse in the house building programme.

Around three million households live in the private rented sector and the majority (60 per cent)of private rented homes are now let via an agent rather than directly from the landlord. Therecession is likely to make this more common as home owners who cannot afford theirmortgage or who need to move and are unable to sell, become ‘reluctant landlords’ who thenchoose to engage an agent to let and manage their property rather than do it themselves.

Letting agencies are becoming more powerful in the market for private rented accommodationbut are not subject to positive statutory regulation governing their prices or service quality.Anyone can set themselves up as a letting agency, without the need for professional expertiseor experience, any requirements about how they hold and manage the steady stream of moneythey handle between tenants and landlords, or any redress scheme for when things go wrong.

This report details how tenants are let down from this lack of regulation. It also focuses on thewidespread practice of imposing often substantial additional charges on tenants for serviceswhich are simply part of the routine process of letting and managing a property and shouldtherefore be covered by the rent the tenant pays.

It calls for urgent action by Government to introduce statutory regulation of letting agents, toprotect the interests of both tenants and landlords. This must include measures to preventagents from imposing charges on tenants in addition to the rent.

�� Introduction Page 2

�� Methodology Page 4

�� Service failure Page 6

�� Additional charges Page 11

�� Agents’ willingness to rent to people in receipt ofhousing benefit/local housing allowance Page 20

�� Conclusions and recommendations Page 23

Inside

have adequate client money protectionarrangements and operate a system forhandling complaints and redress.

� Regulations should also specify that noadditional charges should be made totenants for activities which are part of theroutine letting and management process.The cost of this work should be included inthe rent paid by the tenant and/or themanagement fee paid by the landlord.

� The regulator must take a pro-activeapproach to compliance and should havean appropriate range of regulatory tools toenforce this. The ultimate sanction shouldbe the withdrawal of an agent’s licence tooperate.

� The Departments of Work and Pensions(DWP) and Communities and LocalGovernment (CLG) should consider howhousing benefit reform can address thereluctance of letting agents and landlordsto let to tenants in receipt of housingbenefit.

Introduction

A CAB in Berkshire advised a youngcouple who had moved into their rentedaccommodation in November 2008.They paid £329 in administrationcharges to the agent, as well as adeposit of £850. Almost immediatelythey had problems with things goingwrong in the house but were unable toget the agent to do anything to remedythe matter. Problems included aninsecure front door, only very hot waterto the shower and bath, no smokealarm, water penetration, mould andrats. When in frustration they contactedthe landlord, they found that he hadalso written to complain about theservice he was receiving from the agent.Whenever the clients contacted theagent, they were told that the relevant

Key points:

� The absence of any statutory regulation ofletting agents means that using an agentcan be a costly and risky business fortenants.

� An online survey of 1,289 tenants whovisited the Citizens Advice website overa three month period, found that 73 percent were dissatisfied with the serviceprovided by their letting agent.

� Common concerns included difficulties incontacting the agent, serious delays ingetting repairs carried out, inadequacies inthe protection of clients’ money and theimposition of additional charges.

� A survey of 424 letting agents found that94 per cent imposed additional charges ontenants on top of the tenancy deposit andrent/rent in advance. There was hugevariation in the size of these charges. Thecharge for checking references rangedfrom £10 to £275 and the charge forrenewing a tenancy ranged from £12 to£220. In some cases additional charges fora tenancy amounted to over £600.

� Less than a third of agents willinglyprovided full written details of theircharges to CAB workers when asked.

� Sixty one per cent of the tenants in thesurvey said that paying these charges wasa problem. Some had to borrow themoney, others had difficulty paying otherbills or went into debt.

� Almost a quarter of the agents said theydid not let to tenants in receipt of housingbenefit – a figure which rose to 48 percent in the South East.

� This report calls for the statutory regulationof letting agents. In order to obtain alicence, agents should be required todemonstrate professional competence,

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of rental income for a full letting andmanagement service, their property will belooked after, the tenancy will be professionallymanaged and their rental incomesafeguarded.

Regrettably however, as demonstrated in thisreport, this is often not the case. IndeedGovernment statistics indicate that tenantswhose property was being managed by anagent were less satisfied (71 per cent) thanthose who rented directly from a landlord(81 per cent).7 This is despite extensive selfregulation by the industry: Governmentstatistics indicate that 71 per cent of agentsare members of professional and accreditationmembership bodies, such as the Associationof Residential Letting Agents (ARLA), theNational Association of Estate Agents (NAEA),Royal Institute of Chartered Surveyors (RICS)and the National Approved Lettings Scheme(NALS).8

There has therefore been growing pressure,not least from the industry itself, for thestatutory regulation of all lettings agents. Thispressure intensified during the passage of theConsumers, Estate Agents and Redress Act2007 which strengthened the existingnegative licensing regime for estate agentswhen conducting their property sellingfunctions, and provided the requirement for astatutory redress scheme. However the Act didnot provide for any regulation of the lettingand management of rented properties. Asmany of these agents also deal with lettings,we therefore have the unsatisfactory situationwhere an agent has one part of his/her worksubject to statutory regulation and not theother. Moreover the case for the regulationof agents’ lettings function is in some waysstronger than for sales. Letting agents areresponsible for handling significant sums ofmoney over the length of the tenancy in the

person was on holiday and no one elsecould make decisions.

Around three million households live in privaterented accommodation in England. In recentyears there has been a slow but steadyincrease in the size of the private rented sector– from a low of 9 per cent of dwellings in1992 to 13.9 per cent by 2007/08.1 The sizeof the sector varies around the country, risingto 20 per cent in London.2 The sector has alsoincreased in Wales in recent years and nowaccounts for 10 per cent of the stock.3

At the same time there has been a significantincrease in the use of letting agents bylandlords, from 37 per cent of dwellings in thesector in 1993/94 in England to 60 per centby 2006.4 It has been estimated that there aresome 10,000 -12,000 letting agents in theUK.5 However this figure will fluctuate asestate agents move between selling andletting in response to market conditions.

A key feature of the private rented sector inthis country is the extent to which propertiesare owned by individual landlords rather thanby companies or institutions, a trend that hasincreased in recent years. Moreover averageportfolio sizes are small, with 58 per cent oflandlords owning fewer than five properties.6

The ‘cottage industry’ nature of the sector,together with the minimal security of tenurewhich most private tenants experience, makeschoosing who to rent from a risky business.

For the prospective tenant therefore, rentingthrough an agent may appear to be a saferoption, providing greater assurance that theywill receive a professional and reliable servicein return for their rental payment. Similarly,the property owner who chooses to letthrough an agent will expect that, in returnfor a management fee of typically 15 per cent

3

1 Communities and Local Government (CLG), Survey of English Housing Preliminary Report: 2007/08, January 20092 CLG, Housing in England 2006/07, Table 1.23 Welsh Assembly Government, Housing Strategy 20094 Rugg J and Rhodes D, The private rented sector: its contribution and potential, University of York, 2008, Table 3.85 Jones C, Government review of regulation and redress in the UK housing market, The Department for Business, Enterprise and Regulatory Reform (BERR), 20096 Rugg and Rhodes op cit, Table 2.57 Rugg and Rhodes op cit, Table 3.78 CLG, 2006 English House Conditions Survey, 2008

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form of deposits, service charges and rents.As well as this, they are responsible forcompliance with health and safety regulationswhich are vital to the well being of thetenants, and ensuring the proper upkeep andmaintenance of the landlord’s property. Also,due to the ongoing nature of the lettingsrelationship, there is greater need for tenantsto have access to a redress scheme in orderto avoid disputes ending up in court actionwhich can then easily lead to possessionproceedings.

Three significant reports were published in2008 – by the Law Commission,9 by theindustry10 and by the Governmentcommissioned independent review of theprivate rented sector11 – all of which havecalled for the regulation of letting agents.

These were followed in January 2009 by thereport of research undertaken by ProfessorColin Jones, which was commissioned by CLGand Department of Business, Enterprise andRegulatory Reform (BERR) following debateduring the passage of the Consumers, EstateAgents and Redress (CEAR) Bill. Jones’sresearch, which examined regulation andredress across the UK housing market,recommended the extension of the provisionof the CEAR legislation (which includes arequirement for membership of anombudsman scheme) to letting and managingagents, and that at least the principalprofessional in a branch should have anaccredited advanced qualification. Jones alsoargued that “there is a strong case forconsumer redress schemes in the housingmarket to be available on a universal basis”whilst also recognising that, to be effective,this would require assured shorthold tenantsto have protection from retaliatory evictionwhen they seek redress.12

Citizens Advice welcomes this consensus onthe need for the statutory regulation of lettingagents. Evidence from bureaux across England

and Wales shows very clearly the tenantdetriment which has resulted from the currentlack of regulation of letting agents. Thepriority now is to ensure that regulation isdeveloped which will effectively tackle theproblems which tenants as well as landlordscurrently experience in their dealings withletting agents.

Methodology

In 2008/09 bureaux in England and Walesdealt with 6,460 problems concerning lettingagents. As Figure 1 shows, these problemswere particularly common in the South East(25 per cent), East (15 per cent), London(15 per cent) and South West (12 per cent)regions.

Figure 1: CAB problems by region

North EastWales

Yorkshire and the Humber

East MidlandsNorth West

West MidlandsSouth West

LondonEastSouth East

25%

15%

15%

12%

8%

8%

7%

4%3% 3%

9 The Law Commission, Housing: Encouraging responsible letting, 200810 Carsberg B., Carsberg review of residential property, RICS/ARLA/NAEA, 200811 Rugg and Rhodes, op cit12 Jones C, op cit

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This report is based on evidence submitted bybureaux as a result of dealing with theseenquiries, along with the results of an onlinesurvey of tenants who had rented through anagent. In addition, 50 bureaux completedquestionnaires with letting agents in theirlocal communities, in order to collect moredetailed information about the range andscale of the charges made to tenants.

In order to explore the experience of tenantsrenting through letting agents, Citizens Advicecarried out an online survey on its website forthree months between August and November2008. Visitors to the Citizens Advice websitewho had rented through an agent in the lasttwo years were invited to complete a shortsurvey about their experience. There were1,289 respondents to the survey from acrossEngland and Wales. Although the survey wasparticularly aimed at tenants, a few landlordsalso responded with their views of their agent.

The second strand of the research involved asurvey of lettings agents. Fifty one bureauxacross England and Wales visited 424 lettingagents in their local area and asked a series ofquestions about whether additional chargeswere made, whether the agent acceptedpeople on housing benefit and whether theywere members of a trade body. Ninety six percent of the agents responded positively to thelatter question, indicating that there is a biasin the survey towards the more self-regulatedend of the sector which is committed tobetter standards.

Bureaux were also asked to evaluate howwilling the letting agent was to disclose theinformation requested, and to request writtendetails of the charges made. They alsochecked whether rents on offer were withinthe local housing allowance rate and thusaffordable to housing benefit claimants.

Table 1: Geographical distribution of responses

Percentage oftenant surveyresponses13

Percentage ofletting agentsurvey responses

Distribution ofprivate rentedsector householdsin England14

North East 4% 5% 4%

North West 10% 12% 11%

Yorkshire and theHumber

7% 7% 9%

East Midlands 5% 11% 7%

West Midlands 7% 3% 8%

East 7% 9% 10%

South East 21% 14% 17%

South West 12% 14% 11%

London 22% 18% 22%

Wales 6% 6%

13 Percentages are based on those respondents who specified a region.14 CLG, Housing in England, 2006/07, Table 1.2

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Table 1 shows the geographical spread ofresponses from both the tenants and theletting agents’ surveys. A comparison with the2006/07 Survey of English housing figuresshows the extent to which the surveys arerepresentative of the geographical distributionof the sector in England.

Service failure

The majority of tenants (65 per cent) wereinvolved with an agent for the full process,from signing up to the tenancy through toongoing management. The remainingrespondents received management servicesfrom their landlord rather than an agent –20 per cent had only used an agent for signup and a further 15 per cent signed up andalso paid their rent to the agent (Figure 2).

Figure 2: Role of the letting agent

A high percentage (73 per cent) ofrespondents said they were dissatisfied withthe service provided by their letting agent,

Agent let property plusfull management service

Agent let property, nomanagement service

Agent let property andcollected the rent

15%

20%

65%

whilst a further 19 per cent said they were‘fairly satisfied’. Only eight per cent reportedbeing satisfied. There is always likely to be abias towards dissatisfaction in a self selectingsurvey, as people who have had a badexperience will be more motivated to respondin the hope that this may result in change.However, as with CAB case evidence, it isfrom an examination of negative experiencesthat it becomes possible to build up a pictureof where practices are failing and reform isneeded.

From the comments made by respondents andfrom CAB case evidence it is clear that there isconsiderable variation between letting agentsin terms of the standards of service provided.

On the one hand, a number of respondentscommented positively on the service theyreceived from their letting agents.

“Agent was highly recommended to meand lives up to his strong localreputation.” (Tenant, East Midlands)

“The agency has been fantastic,providing a professional service andmaking no problems carrying out repairs.For example the vacuum broke and I wasadvised I could choose a new one forthe value of £80 and charge it anddelivery to the agency. As the agencymanages several properties they have ateam of companies to carry out repairspromptly.” (Tenant, West Midlands)

However, others who had been renting overa long period commented on the widevariability in standards of service. A commontheme was that whilst the agents came acrossas very helpful during the signing up process,the relationship deteriorated sharplythereafter:

“It’s a total lottery. Some agents are fine,others come across very professionally atfirst but once you have signed for theproperty and taken up residence theydon’t want to know. If they manage theproperty they are fully aware that you

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cannot take your business elsewhereso they don’t care about providing aservice.” (Tenant, Greater London)

“They were fine and friendly until wewere in the property... but when thingsneeded to be repaired they became anightmare to deal with.” (Tenant, SouthWest)

“Our letting agent was helpful whilsttrying to view the property but is almostimpossible to reach since. When you canspeak to him he rushes you off thephone and fobs you off. He makes myblood boil!” (Tenant, North West)

“Quick to take money but not so eagerto do repairs and sort out problems.Three monthly inspections but they stilldidn’t do the repairs needed. I did therepairs myself eventually but neverreceived the cost of materials eventhough it was promised by the agent.”(Tenant, Greater London)

Unresponsive

Being accessible and responsive goes to theheart of good customer care. However,difficulties in getting through to letting agentswas a repeated source of complaint fromtenants, with many commenting that whenthey eventually managed to do so, they werefaced with an unprofessional and un-cooperative response.

“They do not answer calls, constantlyputting us through to answer machine.When you do get through to someonethey have been quite rude…Theypromise call backs that nevermaterialise.” (Tenant, North West)

“Unprofessional, disorganised, hard todeal with. No replies to emails, noresponse to phone calls. Had to chaseconstantly…” (Tenant, Greater London)

“…hardly ever answered the phone.When they did they would promise tocall back but never would.” (Tenant,region not specified)

“…charged for an inventory checkwhich never took place. This became amajor issue when we movedout…Ridiculously difficult to speak toanyone as the staff turnover is incrediblyhigh. Spoke to owner yesterday whothreatened to ‘take me to the cleaners’and keep all my deposit. Will never usean agent again for as long as I live.”(Tenant, Greater London)

Inaction on repairs

The most common frustration related toproblems in getting repairs dealt with, withmany tenants forced to cope for long periodsin unacceptable, unhealthy and evendangerous conditions as a result of lack ofaction by agents. Agents can face difficultiesin responding promptly if they have to getauthorisation from the landlord beforecarrying out any works. However where theyare managing the property, agents areresponsible for ensuring compliance withhealth and safety legislation. They shouldtherefore ensure that the property meets therequired standards before it is let, and thattheir agreement with the landlord enablesthem to fulfil statutory maintenance andrepairing obligations, as well as provide thetenant with a reasonable standard of service.Some agents achieve this by requiring a floatof say £250 from the landlord to enable themto meet day to day expenditure, and byagreeing that prior permission from thelandlord is only required if the work exceedsthat figure.

“The agent did not do any repairs to theproperty as needed since before wemoved in. We have no heating, hardlyany hot water, the back door fell apartwhen I opened it, tiles are missing fromthe side of the bath and the taps fall offin our hands.” (Tenant, South West)

“If there was ever a problem it wouldtake them at least a month to comeround and fix it, I had to go without hotwater for six weeks.” (Tenant, SouthEast)

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“Fire doors didn’t shut, outdated firealarm system, fire extinguishers past dateof service, windows stuck shut, mould inbathroom due to lack of ventilation,sewage smell from toilets, no insulationin loft, unsuitable heaters – all ongoingissues reported on a weekly basis for thelast six months.” (Tenant, South East)

A CAB in Hertfordshire reported acouple with two children who had beenrenting a property for four months.During this time they had repeatedlycomplained to the agents about thewashing machine which had to bekicked to start, the TV which had noaerial connection, that only threeburners worked on the cooker hob, thatthe sink leaked, that there was onlysporadic hot water in the shower andthat the electric wall heater emittedsmoke so could not be used. The onlyaction had been one person who calledto attend to the washing machine butfailed to mend it. The client hadcontinually chased agents for repairs tobe carried out but to no avail.

In many cases tenants have been left living indangerous conditions as a result of inactionover gas and electrical faults:

“We have never been as unhappy in aproperty as we have in this one. Not onlywere we nearly killed when the agentsrefused to send someone out to mend aboiler that was known to be leakingcarbon monoxide, but they refused tocarry out repairs, lied to us continuallyand promised us a long term tenancywhen in fact from before we moved inthey were involved in the sale of thehouse… When we eventually went tothe authorities, [the agents] advised thelandlord to evict us. They seemed tohave no awareness of the law, ourdeposit was not protected and they wereincredibly rude. Letting agents like this

should NOT exist and should beprosecuted.” (Tenant, Greater London)

A CAB in Essex reported a client whohad recently moved into a house andfound a number of problems with theelectrical fittings. He had complained tothe letting agency which sent anelectrician who said the property wasunsafe. The client had spoken to theletting agency which appeared not tosee the matter as urgent. He and hiswife had not been able to use thecooker since moving in and were havingto buy take away, which was stretchingtheir finances.

A CAB in the West Midlands reported acouple with three small children whowere concerned that some plug socketswere not working. Despite the agentsclaiming to have carried out a safetyinspection before letting, a subsequentvisit by an electrician noted 20 faults inthe property, six so serious he labelledthem as deadly if used. The client wasvery unhappy that the property was letin such a state.

A CAB in South London reported a clientwho paid a deposit of over £1,000 plusrent in advance to an agent. When shemoved in she found there was noheating, gas or cooker but a strong smellof gas. She called the Fire Brigade whotold her to call her fuel company whocame and found a leak. She reportedthis to the agency who took no actionand told her to pay the £200 repairs billand the Fire Brigade charge. She movedout because of safety issues but theagent refused to refund any of themoney she had paid. She was left havingto live with friends and effectivelyhomeless as she could not afford adeposit for new accommodation.

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In some cases tenants were told that thedelays were due to the agents requiringlandlord approval before any work was done.This appears to cause particular problemswhere the landlord is based abroad:

“They said the landlord has to approveeverything (including getting me aworking smoke alarm) and the landlordlives in Turkey, and does not answeremails – the only way they have ofcontacting her.”

“...had to get permission from thelandlady who lived in Australia, for everysingle repair.”

In some cases, tenants and landlords hadmutually agreed to bypass the agentaltogether and communicate directly, in orderto get problems sorted.

“…they are unreliable, they are rude,and it’s almost as if I have no rights. As Iknow my landlords… we deal directlywith each other now although officiallythe property is still with the agent.”

No system for complaints and redress

Several respondents who had suffered poorservices from their agent commented on thefact that there was nobody responsible forregulating agents and there was no one towhom they could make a complaint aboutpoor practice.

In fact tenants renting from a voluntary self-regulating body such as ARLA or NAEA orNALS will have access to a complaintsprocedure and, increasingly, to anombudsman scheme, as both ARLA and NALSare now signed up to the Ombudsman forEstate Agents (OEA). However this still leavesmany tenants without any means of redress.Colin Jones estimated in his report15 thatwhilst the OEA now covers about 40 per centof the market, at least 40 per cent of agentsappear to have no redress scheme whatsoever.

Lack of money protection arrangements

Some of the most serious detriment related toinadequacies in the way agents handledmoney, resulting in both landlords and tenantslosing out:

“I am a widow who was unfortunateenough to let an agent manage myproperty. He collects the rent from thetenant but does not give it to me.”

“...the owner of our flat visited to tell usthey had not received any rent from theagent for three months. Now we cannotget in touch with him and he has ourdeposit.”

“[The agent] offered me a propertyknowing he was being declaredbankrupt and now has my deposit.”

A CAB in North London reported asingle parent with two young childrenwho was tricked into signing twoagreements with two different rents. Thecontract given to the client showed£1,820 monthly rent but the one givento the landlord showed £1,733.33. Theagent also collected six weeks depositfrom the client (£2,520) but told thelandlord the tenant had paid only fourweeks deposit. In addition the agent didnot protect the deposit in one of thestatutory schemes as required.

A CAB in Hertfordshire reported a clientwho had been given a final notice forcouncil tax arrears, or court action wouldbe taken. She had been paying hercouncil tax to the letting agent but itappeared they had not passed themoney on. She felt she would have topay the money again as she worked inbanking and was scared this wouldjeopardise her job.

“We were offered the house at the endof August, being told we had to wait till20 September before we could move in.The 20th came and we were told therefurbishments were not complete, but

15 Jones,C, op cit

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then four days later we were told we nolonger had the house. Later we learnedfrom the landlord that we never actuallyhad the house, that other tenants hadsigned contracts before we were evenshown it. We have asked for our £500holding deposit back but they have notgiven it to us.”

In some cases, tenants and landlords havebeen left significantly out of pocket as theagent simply disappears:

A CAB in North London reported thecase of an Italian family who viewed aflat and then paid £780 as a holdingdeposit to the agent. The client thenpaid £600 as part payment towards rentin advance, security deposit and ‘agencyfees’ and was due to pay a further £500a week later. However when she rang toarrange this she was told that it wasnow too late and she had lost herdeposit and the flat. The clientcomplained that she had not been toldthis and the agent agreed to repay themoney. When the client did not receivethis she went to the police. They phonedthe agent who said that money wasbeing credited to the client’s bankaccount. However the money didn’tarrive so she went to the office address,only to be told by the porter that thecompany were no longer operating atthat address.

A CAB in Hertfordshire reported a clientwho had paid a £700 deposit to anestate agency at the start of his tenancy.His landlord had now informed him thatthe agency had gone bust, taking withthem the deposit and several monthsrent. The client had receipts for all themoney paid to the agency but hislandlord was refusing to reimburse theclient or credit him with rent havingbeen paid.

A CAB in Buckinghamshire reported acouple who owned a property that theyrented through a letting agency whichwas well known to the bureau forcausing problems for landlords andtenants alike in the local area. Theagents had been taking the rent fromtheir tenants but not passing it on to thelandlords so that as a result landlordswere getting into debt for non paymentof their mortgages. The agents were nolonger trading. The clients had receivedcorrespondence from solicitorsrepresenting their tenants asking for thereturn of their deposit. They had alsoadvised the clients that they were liablefor compensating the tenants as theagent should have ensured the depositwas placed in a tenancy depositprotection scheme. This amounted to£3,450 in total. The clients had paidtheir letting agency in good faith to dealwith all the tenancy and deposit issuesand believed the agency wereresponsible for giving their tenants allmonies owed. They felt very let down bythe poor service but had no way ofclaiming compensation.

It cannot be acceptable for letting agents tobe able to handle large sums of money onbehalf of tenants and landlords, without anyregulation over how the money is held. Thegrowing consensus on this is graphicallydemonstrated by the recent decision of theinsurance-based tenancy deposit protectionscheme (TDS) that, at the insistence of theirinsurers, from April 2009 they will onlyprovide deposit protection to self-regulatedagents with client money protectionarrangements. This will remove the risk to theinsurer of facing significant costs relating toprotected deposits in the event that an agencyceases to trade.

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Additional charges

“Generally, tenants under short term orperiodic tenancies expect that rent willcover costs associated with taking on atenancy other than those whose amountis determined by the tenant (such asheating, phone bills and so on), andcouncil tax…”16

An issue of further significant concern to bothtenants and landlords is letting agents’practice of imposing a variety of additionalcharges on tenants and landlords on top ofthe landlord’s management fee and thetenant’s rent, for services which are no morethan part of the routine letting andmanagement of the property. This has been alongstanding source of client complaints toCitizens Advice Bureaux and is an issue whichCitizens Advice believes must be addressed aspart of any regulatory reform. Under theAccommodation Agencies Act 1953, it isillegal for an agency to ask for money forregistering a prospective tenant and thensimply provide her/him with a list ofproperties. However there are no limits on thefees an agency can charge once a tenant hassigned a contract to accept the tenancy of aproperty.

The CAB service believes there is a strong casefor regulating the extent to which additionalcharges can be made, as they hamper the fairand open operation of the market:

� They are not transparent – tenantsshopping around for somewhere to livewill focus on the location of the propertyand the rent/deposit required. They areunlikely to be given details of anyadditional charges until they have investedconsiderable time and energy in viewingand deciding on a property to rent, andare about to sign the contract. As a result,such charges are not exposed to effectivemarket pressures.17

� In other areas of the agency market, suchas employment agencies and estate agencyproperty sales, it is the party on whosebehalf the agent is operating (i.e. theemployer/house seller) who pays for theagent’s services, not the potentialemployee or house purchaser. Consumerstherefore assume similar principles operatein the letting market, and expect that therent charged will cover the costs associatedwith setting up and managing the tenancy.

� There is significant scope for doublecharging, as the agent will have alreadynegotiated a charge with the landlord –typically 10-15 per cent of the rentalincome – for letting and/or managing theproperty. However if double chargingoccurs, this is likely to go unchallenged byeither the landlord or the tenant, as therewill be minimal contact between them.

� When a tenant rents direct from alandlord, it is rare for any additionalcharges to be imposed. It is uncleartherefore why agents make additionalcharges for functions which landlordsundertake within the rent charged.

� Charges can present a significant barrierfor people on low incomes seeking to rentvia an agent. Whilst housing benefitprovides means-tested help with the costof rent, there is no equivalent helpavailable with the cost of agent charges.

� The only means of challenging suchcharges is by reference to the Unfair Termsin Consumer Contracts Regulations 1999(UTCCRs). However the UTCCRs do notprovide a remedy which is easy or effectivefor the individual consumer to use in orderto obtain redress, as she/he would need totake court action in order to get a decisionthat a term was unfair.18 OFT has produceddetailed guidance on how the regulations

16 Office of Fair Trading (OFT), Guidance on unfair terms in tenancy agreements, 2005 para 5.1317 Moreover it seems likely that this practice will not comply with the draft Consumer Rights Directive from the European parliament which would require contract

terms to be “made available to the consumer in a manner which gives him a real opportunity of becoming acquainted with them before the conclusion of thecontract”. (Article 31 (2))

18 Nor does the draft Consumer Rights Directive provide an easier remedy for the consumer.

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apply to tenancy agreements19, but this isaimed at Trading Standards officers ratherthan at tenants. We suspect that very fewtenants are even aware of the existence of

these regulations and OFT officials haveconfirmed to Citizens Advice thatindividual tenants rarely raise such issueswith Trading Standards officers.

Table 2: Extent and size of charges/deposits

Type ofcharge/deposit

Percentageof tenantspaying acharge

Percentageof agentsmakingcharges

Averagecharge asreported bytenant

Averagecharge asreported byagent

Range ofchargesreported byagents

Tenancydeposit(returnable)

91% 97% N/A £808.18£108-

£4,200

Non returnableholdingdeposit

60% 48% £220 £231.14£12-

£1137.88

Combinedcharge20 5% 42% £244 £140.62

£25-£335.34

Depositadministrationcharge21

14% 13% £10122 £30.92 £23.50-£50

Referencecheck

70% 69% £99 £70.20 £10-£275

Administrationfee

75% 75% £121 £118.26 £8-£341.25

Check ininventory

13% 22% £80 £71.18 £25-£99

Check outinventory

14% 23% £78 £66.11 £25-£160

Tenancyrenewal fee

35% 42% £78 £59.88 £12-£220

Total charge(excludingdeposits)23

£201 £180.11 £25-£693.27

19 OFT, Guidance on unfair terms in tenancy agreements, 200520 In their responses, some agents said they charged a combined fee. This usually included administration and credit referencing.21 Some agents now charge for the cost of complying with the tenancy deposit protection legislation.22 This figure is probably unreliable as a result of some respondents confusing the deposit itself with the deposit administration charge.23 The total charge was calculated by adding up all of the charges except for the holding deposit and security deposit. Agents which asked for a holding deposit as

part of a combined charge were excluded, as there was no way to distinguish what proportion of the combined charge made up other charges. Also excludedwere those agents who did not provide a figure for any one of the charges they made (as the total would exclude this charge and therefore be artificially low).

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� Moreover given the minimal security oftenure which most private tenantsexperience, they would in any event bewary of challenging a charge for fear ofprecipitating a notice to quit in retaliation.

Both surveys revealed the significant extent ofagent charges: 84 per cent of the tenantrespondents said that they had to pay chargesin addition to the rent and 94 per cent oflettings agents said that they imposedadditional charges (not counting deposits) ontheir tenants. Table 2 provides details fromboth surveys about the nature of thesecharges/deposits and the amount of moneyinvolved. Whilst inevitably the figures differ,there is a reasonable amount of concurrencebetween the two data sets.

Table 3: Average rent and charge by region/country

RegionAverage monthlyrent for 2 bedproperty

Average chargereportedby tenant

Average chargereportedby agent

Greater London £1081.69 £236 £224.98

South East £843.28 £248 £221.19

East of England £757.66 £217 £164.40

South West £637.58 £198 £194.27

Wales £532.69 £126 £125.73

East Midlands £492.33 £158 £145.68

West Midlands £487.50 £495 £125.00

North East £480.96 £195 £272.06

Yorkshire and theHumber

£410.61 £129 £155.69

All areas £702.00 £201 £180.11

It is striking how much variation there is in theagents’ survey in the size of individualcharges. For example, the charge for carryingout a reference check ranged from £10 to£275 and for renewing a tenancy from £12 to£220. Yet it seems unlikely that the workinvolved in carrying out these activities couldvary to such an extent. Both data sets alsoshowed considerable variation betweenregions with, in the case of the tenants’survey, the size of charges varying roughly inline with the rent (Table 3). This could suggestthat the charges may not reflect the amountof work undertaken but rather the agents’perception of what the market will bear.

14

Let down

Accessibility of information on charges

Under the requirements of the UTCCregulations, information about charges mustbe transparent and clearly presented to thetenant/consumer prior to contract.

As part of the agents’ survey, bureau workersspecifically asked for written details of anycharges made, and subsequently evaluatedhow willing the agent had been to disclosethis information. As Table 4 shows, even whenthe agent was specifically asked, less than athird willingly provided full written details oftheir charges. In a further 57 per cent ofcases, the agent did not provide a writtenhandout but was happy to provide verbalinformation on charges, and three per centgave details over the phone. In seven per centof cases, the bureau reported a reluctance,inability or refusal to provide this information.

If this was the response to a bureau workerasking a direct question, it is perhaps notsurprising that only 50 per cent ofrespondents to the tenants’ survey agreed that

Table 4: Willingness of agent toprovide information on allcharges made

Full written details willinglyprovided

31% (112)

Full written details providedafter some prompting

2% (8)

Nothing in writing butrespondent was helpful

57% (203)

Respondent was reluctant/unable to provideinformation

5% (17)

Respondents refused toprovide the information

2% (5)

Information provided overthe phone

3% (12)

Total 100% (359)

their letting agent had provided them with“full written information about all the chargesthat would be made before you signed thetenancy agreement”.

An examination of the written details ofcharges which bureau workers were givenrevealed wide variation in tone, content andformat. Some agents produced a one pagenotice of charges and others provided theinformation as part of a more detailed initialapplication form.

Some were very short and simply set out thecharges, some read more like a promotionalleaflet whilst others were written in morelegalistic and less accessible language. Theclearest notices listed all the charges on thefirst page, explained what they were for andthe total amount payable at each stage of theapplication process. Lists or tables madecharges more explicit than embedding them inthe text. Some agents highlighted in bold orcapitals that the holding deposit was nonrefundable.

However many of the documents failed toexplain what charges were for, focussing onwhat the applicant must pay rather than whatthey should expect from letting agents inreturn.

Tenancy deposits

As Table 2 demonstrates, the most common‘charge’ made was for a tenancy or securitydeposit. It is common practice amongst bothlandlords and agents to require a tenancydeposit, in order to provide some protectionagainst financial loss due to damage to theproperty by the tenant or rent arrears. Thedeposit is not really a charge as it should bereturned at the end of the tenancy as long asthe tenant has not breached the terms onwhich it was charged. However it wasincluded in the questionnaire for completenessand because it is usually the largest and themost common sum which tenants will have topay up front to rent a property.

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In the past, issues around the non return ofdeposits were amongst the most commonproblems which tenants faced. Given the scaleof the problem and amount of moneyinvolved, there was significant pressure for theintroduction of legislation to protect depositsand establish free and independent alternativedispute resolution. Legislation on this wasfinally introduced in April 2007, requiring anylandlord or agent who charges a deposit toprotect it in one of the three Governmentapproved schemes24 within 14 days ofreceiving the money.

The agents surveyed were asked, if theycharged a deposit, which of the threeschemes they belonged to. Not surprisingly,the majority (55 per cent) said they belongedto the Tenancy Deposit Scheme – theinsurance-based scheme which is specificallytargeted at agents. However 31 per centbelonged to the Deposit Protection Scheme –the custodial scheme – and 10 per cent to theinsurance-based mydeposits.co.uk which ismore targeted at landlords. The remaindereither did not know or did not respond. Theaverage size of the deposit charged was £808.This varied across England and Wales in linewith the variation in rent levels, from a high of£1,154 in London to £470 in Yorkshire andthe Humber.

According to CLG, over 1.5 million depositswere protected in the first two years of thelegislation, totalling £1.4 billion. Despite thissuccess however, bureaux have continued toreport many instances where landlords andagents had failed to protect the deposit, andthe tenant was left empty handed at the endof the tenancy.

A CAB in Sussex reported a client whosedaughter had paid a deposit of £550 toa letting agent in September 2007. Thiscompany went into liquidation eightmonths later. His daughter thendiscovered that her deposit had not beenprotected, and that she may now havelost the whole £550. She would need to

take action against the landlord throughthe court in order to try and recover themoney.

A weakness of the tenancy deposit protectionlegislation is that there is nobody whose job itis to promote the tenancy deposit protectionlegislation and monitor and enforcecompliance by agents and landlords. It is leftup to the tenant to face the cost andinconvenience of taking action through thecourts when they find out that things havegone wrong. One advantage of introducingstatutory regulation of letting agents is thatthe regulator would then be able to overseecompliance in this sector, thus reducing theburden on tenants.

Deposit administration charge

When the tenancy deposit protectionlegislation was introduced, the Governmentwas always clear that both the protection andthe dispute resolution would be at no cost tothe tenant. Moreover the custodial DepositProtection Scheme is also free to landlordsand agents, and interest may be paid alongwith the returned deposit at the end of thetenancy. However if the agent or landlordchooses instead to use one of the twoinsurance-based schemes (the Tenancy DepositScheme or mydeposits.co.uk) then a fee ischarged to the landlord or agent who thenbenefits from being able to retain the depositduring the length of the tenancy.

However bureau evidence indicates that someagents are charging for the administrationassociated with protecting the deposit or arechoosing an insurance-based scheme andthen passing on the cost of the fee to thetenant in the form of a ‘deposit protectioncharge’. Although not unlawful, this practiceundermines the Government’s intention thatdeposit protection should be free to thetenant. Fourteen per cent of surveyrespondents said that they had been chargedsuch a fee.

24 These are the Deposit Protection Scheme (DPS), The Tenancy Deposit Scheme (TDS) and mydeposits.co.uk

16

Let down

A CAB in East Sussex reported a clientwho was charged £35 by their lettingagency for protecting their deposit usingthe free Deposit Protection Scheme. Thiswas in addition to £100 for checkingreferences (which they did not actuallydo) and further fees for keys and forchecking the inventory.

A CAB in Hertfordshire reported a clientand three friends who had been askedto pay a total of £35.25 for their depositto be registered with the TenancyDeposit Scheme (TDS). However whenthe tenancy came to an end they weretold by TDS that they had no evidencethat the letting agency had protectedthe deposit with them.

Holding deposits

Sixty per cent of tenants said they werecharged a non-returnable pre-contract‘holding’ deposit. Typically this charge is thenoffset against the rent or other charges shouldthe tenancy proceed. However holdingdeposits can give rise to unfairness if thetenancy is not granted for reasons beyond theprospective tenant’s control and the money isnot then refunded.

The OFT Guidance on unfair terms in tenancyagreements indicates that the non-return of aholding deposit may be unfair if the suminvolved was ‘substantial’ and/or the termsprecluded refunds under any circumstance(paragraph 3.41–3.43). It also states that itmay be unfair to refuse to return a deposit onthe grounds that a tenant’s reference isunsatisfactory (paragraph 3.68). Bureauevidence indicates that agents are notcomplying with this guidance even when theholding deposit charged is far from being justa token amount.

A CAB in Wales reported a young Polishwoman who was charged a fee of£352.75 by a letting agent as an‘application fee’. She was told that as

long as she did not refuse theaccommodation then the fee would berefundable. The letting agency theninformed the client that they wereunable to offer her the tenancy, so sheasked for her money back. She was thentold that the money was non refundableand that she had signed a declarationstating that the money was non-refundable if she refused the tenancy orif the agency declined to grant thetenancy. The client claimed this was notwhat she was told. She was also givenno reason why they decided not to granther the tenancy. She was left seriouslyout of pocket and with nowhere to live.

A CAB in central London reported aclient in low paid work who paid aholding deposit of £500 havingpreviously informed the agent of herincome. The agent subsequently rejectedthe client after carrying out creditchecks, saying her income wasinsufficient to pay the rent, but refusedto refund any of the deposit. The bureaucommented that the client appeared tohave no redress apart from court action.

A CAB in East Sussex reported a Polishclient with imperfect command ofEnglish who agreed a rent and paid aholding deposit to the agents. Howeverwhen he returned to the agent after afew days the agent said that the renthad increased. The client did not wantthe flat at the increased rent, but theagent refused to return his deposit.

The qualitative analysis of the writteninformation provided by agents showed thatonly a minority fully explained what wouldhappen after the holding deposit was paid,and that the deposit might be refundedshould the references not prove to besatisfactory. Indeed in some cases theinformation provided appeared to be in directbreach of the OFT Guidance by explicitlystating that the holding deposit would NOT

17

be returned if the references provedunsatisfactory. The following extract from oneagent’s tenancy guide demonstrates this:

“Holding deposit. In addition to theapplication fee, you will need to pay£100 per person to hold the property.This holds the property for 10 days fromthe date we apply for references… Afterthis time, if the references have notcome back satisfactorily, then thelandlord is within their rights to put theproperty back on the market and to lookfor new tenants. In this scenario any feesyou have paid will not be refunded.”(our italics).

More commonly, analysis of the documentscollected from agents showed that thereference fee was subsumed within an‘administration’ or ‘application’ charge, whichis then described as non-refundable shouldthe tenancy not proceed. This might then beless likely to be deemed an unfair term,although the financial impact on theprospective tenant would be identical.

Administration charges

Seventy five per cent of the agents said theycharged an administration fee. Often this wasin addition to more specific charges asdetailed below. Moreover, if deposits areexcluded then this was the most significantcharge made, averaging around £120 andover £300 in some cases. However there wasrarely any detail about precisely what thischarge covered and, as one bureau workerundertaking the agent survey commented:

“…although agents were able to tell mehow much their handling fee was, fewwere able to tell me how this figure wasarrived at or break it down.”

This view was supported by the analysis of thewritten information provided, which rarelyexplained what the administration fee (alsocalled an ‘agreement’ or ‘reservation’ fee) wasfor. In a few cases this was described as beinga fee for setting up the tenancy, in other cases

it was described as being for takingreferences. One document stated explicitlythat:

“…in the event of the tenancy notproceeding for any reason, thisadministration charge will not berefunded.”

Whilst transparent, it is not clear that such astatement complies with the unfair termsregulations. The OFT Guidance states that:

“…we are likely to consider a term thatdeprives the tenant of everything paid inadvance, regardless of the actual costs orlosses caused by the cancellation, to bean unfair penalty.” (paragraph 3.40)

and

“We would expect there to be a fullrefund of all pre-payments where therehas been no breach of the agreementby the tenant and the landlord choosesnot to proceed with the tenancy.”(paragraph 3.69)

It also seems likely that the scope for doublecharging in relation to administration chargesis high, as the agent will also be charging thelandlord for the administrative work involvedin setting up a tenancy. The agent typicallyspecifies in the terms and conditions of theagreement with the landlord that, in returnfor the management charge, the agent willfind a suitable tenant, obtain references andset up an assured shorthold tenancyagreement. It is therefore difficult to see thejustification for also including these elementsin an administration fee charged to thetenant.

Reference checks

Sixty nine per cent of the agents said theycharged the tenant a fee for obtainingreferences, despite the fact, as outlined above,that this is commonly specified in the workthat the agents will carry out in return for thelandlord’s management charge.

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Let down

It was also unclear whether charges were fairwith reference to the costs involved. Theaverage fee charged by agents in the surveywas £70.20 and yet Experian Ltd, one of thethree credit reference agencies in the UK,provides a comprehensive checking service foragents for an annual fee per agent of £152+VAT, plus £21.70 +VAT for each reportprovided. These reports include employmenthistory and previous tenancy checks as well asindicators regarding identity, fraud andadverse data and ability to afford the rent.Bureaux report cases where significantlyhigher charges are made:

A CAB in Staffordshire reported a couplewith a small child who have someoutstanding debts and are both in lowpaid work. They were charged £250each for credit reference checks, andwere told that they would have to pay afurther £250 each if they wanted toremain in the tenancy beyond the sixmonths fixed term.

A CAB in Dorset reported a client whowas considering renting a three bedroomproperty. He was shocked to find a termin the tenancy agreement that requiredhim to pay a fee of £94 every six monthsfor ‘search fees’.

Renewal charges

Tenants often feel aggrieved at the impositionof renewal charges, which can be as frequentas every six months. There is no legislativenecessity to renew an assured shortholdtenancy at the end of a fixed term as it canrun on as a periodic tenancy. Nor is it likely toinvolve any work on the part of the agentbeyond printing off a new standardagreement and getting the tenant to sign it.

A CAB in Hertfordshire reported a clientwho was being charged £88 each timeher agreement was renewed. This wasthe same amount as she was charged todraw up the original agreement and she

considered the charge excessive as allthat was involved was photocopying theoriginal document.

A CAB in West Sussex reported a clientwho was told that her rent would risefrom £600 to £625 per month at theend of the year, and that this constituteda new tenancy agreement from whichthere would be a charge of £82 as wellas a further £75 to pay on her securitydeposit.

A CAB in Buckinghamshire reported acouple on a low income who had livedin a privately rented property since 2001under a series of assured shortholdtenancies with the same landlord. Therehad been no problem with the tenancyuntil a new letting agent took over thebusiness. On renewal of the tenancy inJune 2008 the letting agent levied acharge of £60 as an administration feeas well as increasing the rent. The clientfelt this charge to be unfair andexcessive. They would have been happywith a periodic tenancy and it was thelandlord who wanted the renewal of thesix monthly assured shorthold tenancyagreements. Following CAB advice, theclient challenged the charge and theagent agreed to waive it in his case. Theclient was incensed that a renewal feewas imposed on them as tenants ratherthan being paid by the landlord.

Very few agents in the survey commentedthat the renewal fee was optional and onlyapplied if the tenant chose not to move ontoa periodic tenancy.

The charging of a fee to renew a tenancyagreement has been a long standing concernof landlords as well as tenants. Indeed theNational Landlords Association published areport on its members’ experiences of this fee,which is often charged on top of the existingpercentage-based management or letting onlyfee.25

25 National Landlords Association, Renewal fees member survey report, NLA, 2008

19

A CAB in East Sussex reported a clientwho was a landlord and had signed anagreement with a letting agent to findtenants for the property, for a fee of£1,200. At the end of the one year fixedterm the client drew up a newagreement with her tenants. Howevershe was then informed by the lettingagents that the ‘continuous clause’ inher agreement with them meant thatshe must pay them £1,200 every yearthat the tenants remained in theproperty, although no additional workwhatsoever was required by theagents.26

Again, double charging may well be occurringwhere tenants are also charged a renewal fee.

Forty two percent of agents in the survey saidthey charged tenants renewal fees, at anaverage cost of £59.88. Fees were highest inthe South East where they averaged £86.92.There was also a significant range in theamount charged – from £12 to £220 for thisoperation.

Check-in/check-out charges

Separate charges for check-in and check-outcosts (including the taking of inventories), arealso commonly imposed on both landlordsand tenants. These may well be in addition tothe administration charge. The agents’ surveyindicated that around one in five imposedsuch charges, at an average cost of around£70. The provision of inventories have takenon new significance since the introduction ofthe tenancy deposit protection legislation, asthe agent and landlord may have to justify anydeduction made from the deposit in thealternative dispute resolution process. Again itis unclear why this activity is not seen as partof the routine management process andtherefore reflected in the management chargenegotiated between the landlord and agent.

A CAB in Cambridgeshire reported atenant who decided to leave a propertywhen he was notified of a 10 per centrent increase at the end of the first year.Three weeks after leaving, he received aletter from the agents demanding a £55administration fee and a £37.50 checkout fee. His deposit of £650 had notbeen returned. Neither fee wasmentioned in the tenancy agreement.

The overall burden of charges

Taken together, these additional charges,payable on top of rent in advance and asecurity deposit, undoubtedly create anadditional barrier for many people seekingto rent in the private rented sector.

A CAB in Staffordshire reported the caseof a couple with two children who hadto rent privately following the loss oftheir owner occupied home. Due to adelay in securing the accommodation,the letting agent had charged them asecond credit check fee on the groundsthat six weeks had elapsed since theprevious check. The clients felt that theywere being exploited but had no otheroption. When they were later servednotice to quit, they faced the probabilityof having to pay credit check fees againto obtain another property to let.

Additional charges also make it more difficultto compare overall costs between differentproperties and between agents, asinformation on charges is usually presentedlate in the process, after the tenant has beeninformed about the rent and has invested timein viewing the property.

Moreover there is no help available throughthe benefits scheme with these charges,unlike that provided through housing benefitfor the rent. The agents’ survey indicated thatthe average total charge was around £180.11,

26 At the time of writing, the outcome was awaited of High Court proceedings issued by the OFT against Foxtons Ltd, seeking an injunction under the UTCCRspreventing the agency using similar terms in lettings agreements with landlords.

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Let down

and within this figure there was very widevariation between agents with, in some cases,additional charges mounting to over £600.

In the tenants’ survey, respondents were askedwhether paying these additional charges hadcaused them problems. A majority (61 percent) said that it had: of these, 51 per centhad to borrow from family or friends, 40 percent had difficulty paying other bills, 29 percent went overdrawn on their bank accountand 11 per cent had to take out a loan.(Figure 3)

Figure 3: Consequences for respondentswho had difficulty payingadditional charges

Even where prospective tenants are able toafford the rent, the additional chargesimposed can prove to be an overwhelmingfinancial barrier, effectively preventing anyonewho does not have a significant amount ofready cash from renting a property through anagent.

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50

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Problem

A CAB in Surrey reported a couple andadult son who had been landlords of alocal pub. They had been declaredbankrupt and had therefore had to leavetheir accommodation. They had found aproperty to rent and had obtained helpfrom a bond scheme with the depositand had a crisis loan to help with rent inadvance. However they then found thatthey also had to find the money for anadministration fee of £325, creditreference fees totalling £90 and a check-in fee of £70. As they were in receipt ofjobseeker’s allowance they could notafford these costs and so wouldprobably lose the property.

A CAB in Nottinghamshire reported aclient who is registered blind, whoapplied to rent a property convenientlylocated close to shops and buses.Although he could afford the rent, hedidn’t realise that he and his guarantorwould also have to pay £86.25 each forcredit checks plus a further £86administration fee. This was on top ofthe £450 bond plus £350 rent inadvance. He didn’t know how he wouldbe able to raise the money for theseextra charges, which he had not takeninto consideration when giving notice tohis current landlord, leaving him at riskof homelessness.

Agents’ willingness to rent topeople in receipt of housingbenefit/local housingallowance

A very common concern raised in bureauxevidence is that letting agents are unwilling tolet to people in receipt of housing benefit(HB). Given the large and growing proportionof the private rented sector which is let viaagents, this can significantly restrict the abilityof people on low incomes to access privaterented housing.

21

A CAB in Wales reported a woman withtwo children who was looking for privaterented accommodation. She contactedevery estate agent in the town acting asletting agents but they all refused to letto her because she was in receipt of HB.

The letting agent research explored the extentof this reluctance to let, and the reasons givenfor it. Agents were asked for the average rentof a two bedroom property on their books,and the bureaux then checked whether thisrent was within local housing allowance rates.This revealed that 82 per cent of agents wereoffering some properties potentially affordableto HB claimants.

However, when asked ‘do you take tenantswho are in receipt of housing benefit?’, only12 per cent of these agents gave anunqualified ‘yes’, whilst a further 65 per centsaid that they did but with conditionsattached. Twenty three per cent simply saidthat they did not accept claimants (Figure 4).

Figure 4: Letting agents’ willingness totake people in receipt of housingbenefit

Accept people on HB,but with conditions

Do not accept people on HB

Accept people on HB

23%

12%

65%

The proportion of agents refusing housingbenefit claimants varied between areas, withthe largest proportion of agents saying no toHB claimants being in the South East (48 percent).

Of those who said they imposed conditions,15 per cent said that they would only takehousing benefit claimants if they couldprovide a guarantor. Other conditions imposedby some agents were:

� that they would only take people on HB ifthey were working

� that HB claimants must pay three monthsin advance, because the local council canoften take this long to process an HBapplication

� that if the claimant could not satisfy thecredit check, they instead would be askedfor six months rent in advance.

In practice these conditions are likely to beimpossible for claimants to meet.

A CAB in Northamptonshire reported aclient who had rented accommodationwith her partner and child for the lastfour years from a letting agency. Herpartner had recently left and she wasthen living on means tested benefits.The letting agency was evicting her,giving the reason that they do not rentto people on income support unless theycan provide six months rent in advance.She had tried other letting agencies butthey also refused to take people onincome support.

The agents who qualified their responses wereasked for their reasons for imposing additionalconditions on HB claimants. By far the mostcommon response, given by 57 per cent, wasthat their decision was dependent onlandlords, who often did not want to rent topeople on housing benefit. Seventeen percent commented that people on HB were notgood rent payers, got into arrears or that theyhad had bad experiences in the past with

22

Let down

them. One agent said that they had lostseveral landlords because their tenants (whowere on housing benefit) got into arrears withtheir rent. However most did not attempt tojustify their decision not to let to claimants.

Another common response was that theproblem lay with the structure and delivery ofhousing benefit rather than with the claimantthemselves. In terms of delivery, 10 per cent ofagents who were reluctant to or did not takepeople on housing benefit, said this wasbecause the local council took too long toprocess housing benefit applications or therewere other problems with administration. Oneagent dealt with prospective tenants from twodifferent local authorities but only acceptedthose from the authority which processedtheir applications in a reasonable time.

A CAB in Oxfordshire reported a womanin low paid work whose son was movingout. As a result she could no longerafford the rent and so was looking fornew accommodation. When she visitedlocal letting agents they told her theywould no longer deal with housingbenefit claimants because the localcouncil was too far in arrears withpayments.

There were also a number of criticisms of theway the HB system operated. These includedthe fact that housing benefit is paid in arrearswhereas landlords require rent paid inadvance, shortfalls between housing benefitand the rent owed, and the fact that housingbenefit is paid four-weekly whilst rent is dueon a calendar monthly basis.

Finally seven per cent said that mortgagerestrictions meant that landlords were not ableto take people on housing benefit.

In contrast, only two agents expressed positivesentiments about letting to housing benefitclaimants, commenting that they representeda guaranteed income stream. One agent said

that they encouraged landlords to take themon as they were a ‘safe bet’ and less likely toget into arrears.

Local housing allowance

Agents were asked whether the introductionof the local housing allowance (LHA) in April2008 had made a difference to whether theywould let to people on housing benefit. UnderLHA, housing benefit is calculated using a flatrate allowance depending on the size of thehousehold and the area, and is normally paiddirect to the tenant rather than to thelandlord. The LHA rates are publicly availableon local authority websites.

Of the 348 agents who answered thisquestion, the majority (79 per cent) said it hadmade no difference.

However, 16 per cent said that it had madethem less likely to rent to people on LHA. Themain reason given for this was the fact that itis paid directly to the tenant instead of thelandlord, and one agent said that problemswith the payment of rent had become morefrequent since the change. Other agentsexpressed dissatisfaction with the detail of thenew system, rather than with the principle ofmaking payments direct to the tenant. Fouragents mentioned that they did not like thefact that the tenant had to be eight weeks inarrears before the landlord could ask to bepaid directly and another commented thatgetting the payments switched to be paiddirectly to them was time consuming andinvolved a lot of paperwork. One agentcommented that the LHA did not reflectmarket rents in the area.

Only five per cent of the agents said theywere more likely to rent to people in receipt ofLHA as a result of the change. Five agents saidthat they were not aware of the introductionof LHA or were not aware of what the changemeant in practice.

23

Taken as a whole, these findings do notsuggest that the introduction of LHA has doneanything to encourage more agents to let totenants on housing benefit.27 One of theoriginal DWP objectives for the LHA was thatit would make it easier for tenants on benefitto ‘shop around’. However this will not beachieved if letting agents, which increasinglydominate the market, are not prepared to letto people in receipt of housing benefit.

Conclusions andrecommendations – the casefor regulation

The evidence presented in this report hasclearly demonstrated how renting through aletting agent can be a risky business fortenants. Whilst many tenants undoubtedlyreceive a good service, others are not so lucky,finding they are paying rent – and oftenadditional charges on top – for anunprofessional and unresponsive service, andat worst, forced to live in dangerousconditions and/or losing large sums of moneyif the agent goes out of business.28 Whilst notthe specific focus of this report, it is clear thatlandlords can be similarly affected.

The majority of private tenants now rentthrough a letting agent – a figure that hasgrown sharply in recent years. It is notacceptable to leave so many tenantsunprotected, with even the self regulatingschemes providing only around 71 per centcoverage. Citizens Advice thereforerecommends that, as part of its plans forprivate rented sector reform in responseto the Rugg review, CLG should bringforward legislative proposals to providefor the positive regulation of all lettingand management agents as a matter ofurgency. The recently proposed crossdepartmental Consumer White Paper which is

aimed at providing practical help forconsumers in the current recession, couldprovide one means of achieving this.

We believe that such regulation is central tothe Government’s broader aim to drive upstandards in the private rented sector. Thoselandlords who fail to manage their propertiesprofessionally could then be required to use aregulated letting agent to undertake thesetasks.

Regulations should set out the entrycriteria which prospective agents wouldhave to meet in order to obtain anoperating licence. These should includebeing able to demonstrate a level ofprofessional knowledge and competencewhich is adequate to deliver a servicewhich complies with legal requirements,adequate client money protectionarrangements, and internal complaintshandling arrangements along withmembership of an ombudsman scheme todeal with complaints and provide redress.This would have the effect of bringing theregulatory requirements for lettings agentsmore in line with those required of estateagents.

However regulation must go further. In orderto ensure that it genuinely addresses theconcerns of consumers/tenants, and in thelight of the evidence presented in this report,Citizens Advice recommends that theregulation of letting agents shouldinclude provision that no charges may bemade to tenants for functions which arepart of the routine letting andmanagement process. Such functionsinclude setting up the tenancy agreement,checking references, carrying out inventoriesand renewing fixed term agreements, and it isclear from this report that the imposition ofadditional charges for this work is widespread.These charges hamper the effective and

27 A recent report by the National Landlords Association indicates that the LHA has also made landlords less likely to rent to claimants. (NLA, Local housingallowance, 2009)

28 To some extent tenants can mitigate these risks by renting through an agent that is a member of a professional body requiring client money protectionarrangements and membership of an ombudsman scheme. However they may still face problems with property standards and the quality of service on repairs,whilst also having to pay additional charges.

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Let down

transparent operation of the market as theymake it more difficult for the prospectivetenant to make comparisons between theoverall costs of different properties availableto rent. They also add to the barriers faced bylow income households seeking to rent, asthere is no help through the benefit systemwith such costs.

Moreover the only recourse for consumersseeking to challenge such charges is via theUnfair Terms in Consumer Contracts (UTCC)legislation, which is not an easy remedy forthe individual tenant to use. Whilst an unfairterm is unenforceable against theconsumer/tenant, she/he will first have to goto court to prove that it is unfair. In addition,the evidence presented in this report indicatesthat the UTCC regulations have been oflimited effect in preventing the use of unfairterms in relation to charges in tenancyagreements.

For these reasons we consider that all suchroutine costs should be reflected in themanagement charge paid by the landlord andin the rent paid by the tenant. Separateadditional charges should only be made forexceptional, non-routine tasks and must thenbe fair and open to challenge in terms of theamount of work involved and costs incurred.

As part of the regulatory process, all agentsshould be required to comply with rulesof conduct regarding the day to dayoperation of their business with boththeir landlord clients and with theirtenants. In drawing up the rules of conduct,it would be important to work withprofessional bodies such as ARLA and NALSwho already have detailed codes in operation,as well as with organisations representing theinterests of tenants, in order to ensure thatthe Rules fully reflect the concerns of allparties. In terms of defining an appropriatelevel for service standards, it would also beuseful to consider the regulatory requirements

which the former Housing Corporation (nowthe Tenant Services Authority) sets for itsmembers.

The rules of conduct would be an importantmechanism for driving up standards ofmanagement. CAB evidence indicates that thefollowing elements must be priorities forinclusion in the rules:

� The rules must require that, prior toletting, the agent ensures that theproperty meets basic statutoryrequirements regarding health andsafety, particularly with regard to gasand electrical safety and fireprevention.

� The rules must also set clear standardsregarding speedy and effectivecommunication arrangements betweenall parties regarding the authorisationof repairs work, along with cleartimescales for carrying out repairsdepending on the risk to health andsafety involved.

� A longstanding concern of the CAB serviceis that private tenants’ lack of securityleaves them vulnerable to the threat ofretaliatory eviction should they seek toenforce their statutory rights bycomplaining to the landlord/agent or tothe local authority.29 This problem goesto the heart of private tenants’disempowerment, and also acts as asignificant brake on strategies to improvethe quality of private rented housing. Inorder to tackle such unprofessionalpractices, the rules of conduct mustmake it explicit that a tenant may notbe threatened with eviction becausethey have made a complaint or soughtto exercise a statutory right. Withoutthis, there will be little merit in regulationwhich requires complaints and redressprocedures, as tenants will fear retaliationif they make use of them.

29 See Crew D, The tenant’s dilemma, Citizens Advice, 2007

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� A further issue which is of growingconcern in the current economic climate isthe absence of rights for private tenantswhen their landlord is repossessed. CitizensAdvice, along with others, has called forlegislative reform to address thisproblem.30 However in the interim, itwould be important that the rules ofconduct require agents to ensure thatlandlords have the permission of anylender with a charge on their propertyto rent out that property, in order thattenants do not lose their basic rightsto a notice period and court actionwhere a property is repossessed. Thiswould go some way to correct the currentimbalance between landlords and tenants,whereby tenants are commonly subject toextensive reference checks (for which theyoften have to pay), but are not providedwith any information about their landlorddespite the fact that his/her financialsituation could undermine their tenancyrights.

It would be necessary to establish anindependent regulator to oversee theregulatory process and to monitorcompliance with the statutoryrequirements and the rules of conduct.A pro-active approach to compliance will beessential, with a regular programme of risk-based spot checks being carried out to ensuretenant and landlord confidence in the process.Reliance on complaints data to act as earlywarning of problems will not be adequate, astenants’ lack of security means they will bewary of raising concerns. Inevitably such anapproach will increase the cost of regulation,but by pricing the licence in relation to the riskof non-compliance, it should be possible toincentivise good practice.

The regulator should have an appropriaterange of regulatory tools to enforcecompliance. The ultimate sanction should bethe withdrawal of an agent’s licence tooperate, and procedures would be needed toensure that landlords were able to make

alternative arrangements in suchcircumstances, with minimal disruption tothe tenants concerned. In addition, in linewith current trends in consumer protectionenforcement, an escalating system ofwarnings and regulatory action should bedeveloped. The regulator should have thepower to impose undertakings on licenceholders and levy civil penalties. The greaterpowers given to the Office of Fair Tradingunder the Consumer Credit Act 2006 couldbe a model for this. These measures shouldbe combined with advice and support onremedial action needed, in order to minimisethe necessity to remove an agent’sauthorisation to operate.

Finally there is a need to tackle thereluctance on the part of so many agentsto let to tenants in receipt of housingbenefit, even where the rent is affordablein terms of the local housing allowance.If action is not taken to address this problem,then low income tenants will be excludedfrom the benefits which the regulation ofletting agents will bring. This would clearly beunacceptable. Obviously agents need to besatisfied, through credit and other referencechecks, that the tenant is reliable and able toafford the rent charged, but it cannot beacceptable to impose blanket bans onhousing benefit claimants or to imposeconditions such as payment of six monthsrent in advance which are clearlyimpossible for claimants to meet. It wouldbe important that this is addressed in therules of conduct.

On the other hand it is also important thatDWP does not set the parameters of thehousing benefit scheme in such a way thattenants are unable to meet the reasonablerequirements of agents and landlords. CitizensAdvice believes there is an urgent need formore joined up policy making between theDepartments of Communities and LocalGovernment (CLG) and Work and Pensions(DWP) with regard to the structure of housingbenefit, to ensure that it does not act as a

30 A private matter? Private tenants: the forgotten victims of the repossessions crisis, joint briefing by Citizens Advice, Crisis, Shelter and CIH, 2009

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Let down

barrier to claimants seeking to find goodquality accommodation to rent. We thereforerecommend that, as part of the currenthousing benefit review, DWP inconjunction with CLG establishes astanding committee of representativesfrom organisations representing privatelandlords, agents and tenants, in order toconsider how future reforms can addressthe longstanding concerns of thesebodies which have resulted in areluctance to let to tenants in receipt ofhousing benefit.

Research by

Nina Mackellow

Written by

Liz Phelps

Published by

Social Policy DepartmentCitizens Advice115-123 Pentonville RoadLondon N1 9LZTelephone 020 7833 2181Fax 020 7833 4371www.citizensadvice.org.ukRegistered charity number: 279057