Can an amendment to laws prevent the questionable actions of some letting agents?

3.8 million of us are now renting from private landlords or letting agents. That’s over two million more than in 1999 – but complaints are also rising.

Published 15 May 2013:

Since 2008 estate agents have been legally required to be part of an approved redress scheme. But the same law hasn’t applied to letting agents.

As the law stands anyone can set up as a lettings agent. No qualifications required. No minimum standards and until last month, nothing to make them join a redress scheme.

New laws have been passed which will require all letting agents to register with an Ombudsman which sets out best practice and a code of conduct.

In the past the lack of regulation in the lettings market has meant that tenants were falling victim to agents who didn’t always play fair.

As actor Nigel Havers knows from first-hand experience.

Last year he moved to Manchester for work on Coronation Street and signed up for a six month tenancy with Medlock Apartments. He paid his six months' worth of rent upfront to Medlock Apartment directors Umer Ali and twin brother Adnan.

However, five months into his tenancy, his apartment was sold from right under him – by an owner he had never met nor spoken to.

Nigel reluctantly moved out early after the Ali brothers assured him that he would be refunded his last month’s rent but despite several attempts to contact them Nigel was unsuccessful.

He decided to take his matter to court.

Although the Ali brothers were ordered to pay Nigel more than £1,300, he has never seen a penny of it. So what now?

He came to Watchdog for help in tracking them down.

We combed company files, the electoral roll and social media only to find differing addresses, PO Boxes and deactivated phone numbers.

But eventually we got a lead. We found two working phone numbers for one of the directors, Adnan Ali, via his eBay account.

But we too were given the run around and Nigel was left with a hard lesson.

Like Nigel many tenants have fallen victim to the unregulated lettings industry - but will new laws demanding that all letting agents register to an Ombudsman scheme make a real difference?

Firstly the new laws will not dictate who can become a lettings agent – so what happened to Nigel could potentially happen again.

In the UK around 60% of lettings agents are already registered with the Property Ombudsman, which regulates the housing market.

It received more than 8,000 complaints about letting agents in 2012. A rise of 123% over five years.

And Watchdog has learnt that even with the new laws, there are still unhappy tenants out there.

Darryl Croft part owns part rents his apartment in London. It’s serviced by a voluntarily regulated property management firm. But that doesn’t stop them charging whatever they want in maintenance fees.

'The service charge when I first moved into the flat was £62 in 2009. It increased the next year to £85 a month. And this year it increased again to £166. It's had a huge impact on me financially, we're trying to save for a wedding this year, it’s very difficult when you are having to pay an extra 100 pounds each month.'

Darryl’s story is just one example of an industry-wide problem. Despite being regulated, there are no hard rules on what companies can charge in service fees. The law only says that charges must be ‘reasonable' but doesn’t actually define what 'reasonable' is.

Management fees are not the only concerns of tenants as it seems some letting agents are making money from them in other ways.

Big names such as Foxtons, Your Move and Reed Rains who have been registered with the Property Ombudsman for years, have been automatically signing tenants up to their preferred energy supplier – Spark Energy - by writing it into their tenancy agreements.

Lee Harrison started renting his flat through Foxtons in September last year but found he’d been signed up as a Spark Energy customer.

'The first bill I got which would have been for five weeks' worth of gas was for over £500…'

We’re all encouraged to switch if we’re not happy with our provider but Lee discovered it wasn’t that straightforward.

'It's virtually impossible to leave Spark Energy. You get an enormous bill, so you try to contact them to talk about that bill. And when you finally did get through they said they look into it, they made me pay a certain amount of money there and then. That was than ignored, I got than another bill. For exactly the same amount. So you have to do the same process and that continues and continues and continues, so you are in the never ending circle.'

Because of the problems he had been experiencing with Spark Energy he decided to check his contract.

'it was then that we saw that in the Foxtons contract the spark Energy were written in as the supplier that you had to use... I felt like I was being held to ransom.'

So why are Foxtons and other agents such as Your Move and Reed Rains automatically signing tenants up to Spark Energy?

All three agents are partners of Spark Energy. For each property signed up to Spark Energy, the agent receives a commission.

In the past year Watchdog has received around 200 complaints from customers of Spark Energy complaining about poor customer service, inflated bills and a struggle to switch providers.

So while lettings agents gain their commission – tenants are left with the hassle.

Company Responses

 

A FOXTONS SPOKESPERSON SAYS,

Regulation of the lettings industry Foxtons is a supporter of a regulated lettings industry as we believe it will improve standards among less professional agents.

Foxtons has been a voluntary member of The Property Ombudsman (TPO) Scheme for both sales and lettings since its inception. It is also a member of the following organisations, each of which have strict codes of conduct to which Foxtons adhere:

• The Association of Residential Lettings Agents (ARLA).

• The National Association of Estate Agents (NAEA).

• Safe Agent Fully Endorsed (SAFE) (founding member).

• The National Association of Landlords (NALS).

• Mydeposits tenancy deposit protection scheme.

Foxtons and Spark Energy

In common with many estate agencies, Foxtons uses Spark Energy to make tenants’ lives easier when moving into a new rental property by removing the hassle of setting up utilities at what is typically a very busy time for them.

Tenants are informed that the incumbent energy supplier at their property will be Spark Energy prior to the commencement of their tenancy and in the move in pack they receive from Foxtons.

Spark offers highly competitive rates which are currently cheaper than the equivalent tariffs from the Big 6 suppliers but tenants are free to change supplier once they move in. We ask them to notify us before switching so that that their landlord can be kept informed and we believe this is in line with the OFT's guidance you have cited in your letter.

Because Spark offers a good service for tenants and landlords, we receive very few complaints about them. Although your letter states that Mr Harrison complained to Foxtons about his issue with Spark Energy, we have no record of this. We would therefore be grateful if you could provide us with a copy of his complaint, and indeed any other complaints which you have received so that we can consider and respond to them.

A YOUR MOVE SPOKESPERSON SAYS,

Obviously we are very disappointed about the comments made particularly as our main objective is to help tenants make their move easier and as part of this assist them in avoiding the often very expensive costs associated with incumbent utility suppliers.

We do not hide the fact that Spark Energy is the ‘default’ utility supplier. An offer letter advises prospective tenants that Spark Energy will supply gas and electricity at the date the let commences and staff are trained to advise tenants and supply them with a Spark Energy Welcome booklet on signing the tenancy agreement. We also advise tenants that they can switch from Spark Energy at any time if they wish to do so which is now highlighted in their tenancy agreement.

Why do we suggest Spark Energy? It is because they are Ofgem licensed and they provide numerous benefits to tenants including guaranteeing that prices are at or below those of the 6 leading energy suppliers and offer one of the cheapest tariffs in the UK for customers paying in advance by direct debit. However our tenants are free to switch at any time.

We do receive a small administration fee from Spark Energy but this is only to cover the costs involved in setting up and managing the utility accounts.

Ultimately as a member of the Association of Residential Lettings Agents (ARLA) and as founding members of the Property Ombudsman Scheme we are committed to regulatory compliance and wholeheartedly welcome further Consumer Protection Regulation guidance to ensure ongoing protection of customers.

In the meantime, however, we strongly believe that our contract with Spark Energy is within the requirements of the OFT and OFGEM guidelines in that our tenants do have the option to choose their long term supplier and are not prevented by us to change it.

A REED RAINS SPOKESPERSON SAYS,

At Reeds Rains we put customer service at the forefront of everything we do. We are voluntary members of The Property Ombudsman Scheme, members of the UK’s leading lettings association, ARLA and members of the National Association of Estate Agents. We comply with all legislation and codes of conduct. We actively train our staff to ensure we offer the highest levels of compliance and customer service.

At a time when there is a lot going on in moving house for a tenant we help make the move as simple and easy as possible. So to help our tenants we set up arrangements with the only Ofgem accredited supplier of energy, who specialise in supplying tenants - Spark Energy – although tenants are free to leave Spark Energy and switch to an alternative supplier at any time.

Spark Energy provide an array of benefits to tenants including smart meters and a ‘promise’ that their prices will be at or below those of the 6 leading energy suppliers. We believe Spark Energy provide very competitive rates for our customers including their payment by direct debit method which means Spark Energy offer one of the most attractive tariffs in the industry. We receive a small administration fee from Spark Energy to cover costs in managing the utility accounts.

Prospective tenants are advised that Spark Energy will supply gas and electricity at the date the let commences and that they can switch from them if they choose. Tenants are and always have been free to choose their own energy supplier and they are not prevented from doing this. If, however, any customer is experiencing difficulties in contacting Spark Energy or in switching from them, we would be pleased if they would contact us.

We continually look to improve our service and communication with our customers and to this end we have already taken the decision to re-iterate and re-enforce in the wording of the tenancy agreement that tenants are free to switch supplier at any time in addition to the other methods already in use.

Our contract with Spark Energy is in compliance with the OFT and OFGEM requirements. As voluntary members of The Property Ombudsman scheme and the Association of Residential Lettings Agents (ARLA), we take our regulatory responsibilities very seriously.

You mention in your letter the number of landlords in the private rented sector rising by 2ml to 3.6ml. This is a rise of 125%. You also state that complaints are up 123% over 5 years. While any complaint is disappointing they have actually tracked slightly below the market growth using your statistics. TPO started taking Lettings complaints in 2006 and the number of agents subscribing to that scheme has grown over time which has also in part driven the growth in the number of complaints received by the scheme.

We continue to welcome further Consumer Protection Regulation guidance to ensure the ‘well being’ of customers can be assured. We would also support the whole lettings industry being properly regulated and we continue to lobby for this to be put in place.

A SPARK ENERGY SPOKESPERSON SAYS,

1. Overcharging:

Spark Energy designs its tariffs to ensure that tenants inheriting our supply receive lower prices than they would otherwise do from the Big Six energy companies. New tenants default to our Direct Debit tariff which is set to be cheaper than the equivalent tariff from the Big Six. Our pre-payment meter tariff is the cheapest in the UK. Excessive bills can occur if customers have not provided a meter reading as we are reliant on using the estimations provided to us by the previous supplier. We also send meter readers to visit properties on a quarterly basis.

2. Poor Customer Service:

Spark is a young challenger company to the Big Six energy companies and has serviced over 300,000 tenancies to date. Most tenants are happy to inherit Spark Energy. However, we accept that things can go wrong and that in a small proportion of cases we have fallen short of the high standards that we, our customers and our letting agent partners expect from us. We have recently appointed a Director of Customer Service to oversee that we set the highest standards for customer care and will be making service improvement announcements very soon.

3. Hard to leave:

Tenants are free to move to an alternative supplier once they have moved in and this process is standardized between energy providers. We specifically designed our processes to be in line with the OFT and OFGEM guidance.

We will check that all our partner agents and customer facing staff are conforming to this and that their leases contain the clauses making this clear to tenants from the outset.

4. Commission to agents

To clarify, we pay a commission of £10-£15 per property for choosing Spark as the incumbent supplier. No commission is earned or lost when tenants subsequently move in or change supplier. This covers the cost to the lettings agency of administrating the utilities when the property is empty and transferring to Spark. 

5. New Legislation

We work with the top high street letting agents who are signed up to redress schemes and compliant with relevant industry regulation.

Re case studies you have supplied:

Both cases are in the process of being resolved and we pledge to complete this process quickly and to their full satisfaction.

AN ARLA SPOKESPERSON SAYS,

ARLA has long been calling for regulation of the sector. While the new legislation is a step in the right direction, it is not as extensive as it could be, and requires secondary legislation to be enabled. ARLA would like to see a fuller, formal model of regulation put in place which covers issues like training and client money protection, to better protect consumers.

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