It is well known that government favours redress schemes as a means to regulate industry and the property sector is no different – indeed new changes govern the way lettings and managing agents must now operate.
New regulations to improve standards in the private rented sector1 ("the Order"), require people working as lettings agents or property managers to belong to a redress scheme and set out those excluded from the requirement, and provide enforcement powers.
The Order came into force on 1 October 2014, and it is therefore vital that all those affected ensure that they have complied with the requirements.
Who is a lettings agent?
A person is engaged in lettings agency work if, in the course of a business, they act on the instructions of a private rented sector landlord seeking a tenant or, conversely, a tenant looking to rent a property in the private rented sector.
There are exclusions however and these need to be considered carefully, and on a case by case basis.
Accordingly, unless excluded, people working as lettings agents for the purposes of the legislation must be members of a redress scheme to address complaints connected to assured tenancies (which will include assured shorthold tenancies) granted by private sector landlords. The redress scheme will deal with complaints by a current or previous prospective landlord or tenant across a wide range of issues.
What property management work is caught
Property management work is work undertaken by a person in the course of a business under the instructions of another person who wants to deal with any aspect of the management of premises consisting of a dwellinghouse let under a long lease (for more than 21 years, granted under right to buy, or a shared ownership lease), an assured tenancy under the Housing act 1988 or a protected tenancy under the Rent Act 1977.
Again there are wide-ranging exclusions set out within the Order and associated legislation, and those concerned should seek advice as to whether they might be able to benefit from an exclusion.
If a person is not excluded , then they were required to register with a redress scheme prior to 1 October 2014 (whether they be involved in lettings agency work or property management work). Anyone required to register but has not done so should now do so urgently (failure to do so has serious ramifications).
There are three schemes that letting agents or property managers may join - The Property Ombudsman, Ombudsman Services Property or Property Redress Scheme.
The rules for member agents vary across the different schemes but all are effectively underpinned by a government-approved code of practice. Complaints to the scheme can result in sanctions ranging from an apology to compensation of up to £25,000, fines and potentially expulsion from the scheme. Members who are expelled are unlikely to be accepted by another scheme, and so will be unable to operate legally – these are not therefore issues to be taken lightly.
How are regulations enforced?
Under the Order breaches of regulations can result in enforcement authorities imposing a fine of up to a maximum of £5,000. This may arise when the authorities are satisfied that someone undertaking letting or property management work, who was required to join a redress scheme, has failed to do so.
Non-registration is therefore critical and those affected need to ensure they understand the enforcement process or risk repeated enforcement and, potentially, being "shut down".
What follows is that those affected by the scheme will now have to operate in a very different world and subject to far stricter regulation. It is therefore vital that managing and property agents throughout England address the redress.
1 The Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc) (England) Order 2014
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.