If you look at the number of letting agents operating in Scotland and you check out some reviews online you’ll see that there is a very wide range of standards of out there.
As it stands, anyone can set up a letting agency without any prior experience or knowledge in the field. This leaves the lettings sector open to bad practise, poor standards and, in extreme circumstances, abuse. We’ve all heard the horror stories of letting agents treating tenants and landlords badly and agents who disappear overnight with their clients money never to be heard from again. Landlords instruct letting agents to take the stress out of renting properties out, to provide professional expertise and to ensure they are kept ‘safe’ in terms of; how their property is maintained, making sure their property meets the legal requirements and to take care of selecting, vetting and managing tenants living in the property. But without a minimum professional standard, some agents are making a real mess of things and exposing landlords and tenants to huge risks…….Thankfully change is on the way….and not before time!
Letting agent regulation is currently voluntary in Scotland via the Association of Residential Letting Agents (ARLA) and it’s fair to say the letting agent sector is in a mess. Outside of ARLA, there are a couple of local bodies that agents can join but with far less rigorous requirements than ARLA. These include the Council of Letting Agents and Landlord Accreditation Scotland. With these other schemes, there is currently no obligation to be a member of an independent redress scheme such as The Property Ombudsman or crucially to have Client Money Protection in place…..more about this later.
Following the release of The Housing (Scotland) Act 2014 which introduced a framework for the regulation of letting agents in Scotland, The Scottish government has finally taken action and draft wording of this framework (read here) is now in place (albeit the timescales are still years and not months). It comprises a statutory code of practice which all letting agents must adhere to, along with training requirements that agents must meet. Once implemented, this will help increase the overall standards of service and professionalism within the letting industry and provide customers with an effective way to resolve complaints. It is expected to come into force in January 2018 and here are the main elements;
- Client Money Protection (CMP) – One of the most important aspects of the new code is a requirement for letting agents to have CMP in place. This is a BIG one and crucial to raising the bar in the sector and removing rogue agents. A CMP scheme protects clients’ money against theft or misappropriation by the member’s owners. Essentially it ensures that any members have tight financial processes in place, that they ring fence client monies separate from business funds and that their client funds are reconciled regularly to check that all is in order. CMP members’ client funds must be audited annually by a chartered accountant. Agents with CMP in place must ring fence all client monies (rents / floats / deposits) but CMP is not currently compulsory which raises serious alarm bells about the financial processes of letting agents who do not currently hold this accreditation (less than 20% of the sector!). We expect many agents are unable to meet this requirement as they’ve already spent their client funds. Many agents will exit the market as we get closer to this mandatory requirement in 2018. We saw a similar exodus of agents selling up when the Tenancy Deposit Scheme (TDS) legislation came into force in 2012 because they did not hold their client deposits that had to be transferred to scheme providers – they had spent their clients deposits on other things! We expect the same sort of ‘fire sale’ when compulsory CMP kicks in, in 2018. This will create higher standards and a barrier to entry. It means that letting agencies will have to be run efficiently and professionally; no more dipping into client funds to pay the business bills. If an agent is compliant with a CMP scheme they can display the Safe Agent logo to give consumers peace of mind.
- Written Procedures – Written agreements must be in place between agents and landlords and procedures in place for;
- Collecting and handling rent
- Tenants and landlords to notify repairs/maintenance (including timescales)
- Ending tenancies, managing the checkout process and serving relevant notices
- Dealing with cases where tenant’s refuse to vacate
- Handling client’s money
- Recovering unpaid rent
- Training – under the new code, training and qualifications around legal obligations, handling of money, arranging and managing a tenancy, managing repairs, communications, complaints and equality must be achieved and maintained. The most senior person in the organisation and all persons directly concerned with managing and supervising the letting agency work must be trained and qualified.
- Professional Indemnity Insurance – the new code requires agents to hold professional indemnity insurance to protect consumers in case of any bad advice given or decisions made by the agent.
If a letting agent does not comply with the code, their landlord or tenant can apply to the first-tier tribunal for a determination. The tribunal can issue an enforcement order setting out the steps the agent must take to rectify the problem within a specified timeframe. The enforcement order may also require the agent to pay compensation to the landlord or tenant.
Umega Lettings already meets these new requirements and more. We are members of ARLA, The Property Ombudsman and we have Client Money Protection in place, so we wear the Safe Agent ‘badge’ to demonstrate this. We are also member of the Council of Letting Agents (CLA, which, although not requiring the rigorous compliance of ARLA, benefits us in terms of the local lettings insights it offers). Over half of our lettings team hold the highest possible NFOPP qualifications illustrating the high levels of expertise our team hold and the standards we hold ourselves to.
David Cox, ARLA MD commented on the new framework; “ARLA welcomes the introduction of a statutory code of practice for letting agents in Scotland. We believe it will help to further professionalise the industry and drive up standards throughout the sector. It is also very pleasing that the Code has a requirement for agents to have Professional Indemnity Insurance and Client Money Protection. These are two requirements of ARLA membership and mandatory CMP is something we are campaigning for in England to provide greater protection for landlords and tenants if things go wrong. On the issue of training and qualification ARLA has long campaigned for greater regulation for letting agents and believe that mandatory qualifications will promote professionalism and basic standards within lettings that will benefit businesses and consumers. We look forward to seeing more detail from the Scottish Government in this area.”
We’ve carried out a bit of research to see how many letting agents are regulated and alarmingly only 15% of agents in Edinburgh are registered with ARLA and less than 10% of agents have Client Money Protection in place. This is shocking and putting landlords and tenants, who put their trust in unregulated agents, in an extremely vulnerable position, open to bad advice, exploitation and potentially financial loss.
These changes are a welcome relief for agents who do things right. At Umega Lettings we are proud of our high standards and uncompromising integrity. We’re leading the way in our sector in terms of what a great letting agent is and we are delighted that tougher legislation and a mandatory framework, including Client Money Protection and training requirements are being put in place. We lead by example and hope that the industry standards are raised across the board. Our industry has lagged behind the growth we’ve seen in the lettings in the past 10 years, with more people than ever renting properties in Scotland. Letting agent registration is great news for landlords and tenants in Scotland as there will finally be rules in place for letting agents to abide by and an effective way for consumers to challenge bad practice. This is a big step in the right direction and will help towards establishing a world leading Private Rented Sector in Scotland and, most importantly, protecting tenants’ homes and landlords’ investments.