Alok Sharma announces a consultation on proposals to regulate property agents to address service charges for leasehold and privately rented homes.
With permission, I shall make a statement on a call for evidence on protecting consumers in the letting and management agents market.
When our housing White Paper was published in February we committed to taking action to help people already on the property ladder or living in rented accommodation. The Prime Minister has also announced billions of pounds of funding for new affordable homes, including homes for rent. We are also taking action to create a fairer property management system that works for everyone. We have already announced plans to regulate letting agents, including banning fees for tenants, and we have made it clear that we want to see an end to the unjustified use of leasehold in new-build houses.
The time has come to address service charges. As the number of leasehold and private rented homes has grown, the market for managing agents has boomed. According to one estimate, annual service charges alone now total as much as £3.5 billion. While these managers provide an important service, the system in which they work is simply not suited to the modern age. Tenants and leaseholders—even some freeholders on new-build estates—hand over their money and receive services in return, but have little or no say over which agent provides them or at what cost. This matters because, while the majority of agents are honest professionals committed to delivering a high standard of service, a near total lack of regulation has led to the growth of a market where in places standards and safety come second to the pursuit of profit.
We have seen reports of broken windows being repaired with cardboard and sticky tape and of damp and mould simply being painted over. One landlord was billed £500 by his agent for repairing a shower door, while a group of leaseholders were charged 10 times the market rate to have a new fire escape fitted, with the £30,000 contract for the work being handed to the property owner’s brother.
People do not need any qualifications, training or experience to call themselves an agent. They do not need a criminal records check. They do not even have to know what a managing agent does. So it is no surprise that some experts believe such agents are overcharging by as much as £1.4 billion every year.
Today, we are setting out plans for fixing the problems in property management. We are publishing a call for evidence which outlines the challenges facing the sector, proposes some possible solutions, and asks for the views of the people who know the market best, from those who work in it to those who pay the service charges.
As part of this new call for evidence, the Government are seeking views on three key elements: first, whether regulatory overhaul of the sector is needed; secondly, measures to protect consumers from unfair costs and overpriced service charges; and, thirdly, ways to place more power in the hands of consumers by giving leaseholders more say over who their agent is.
The sector has done some good work to raise standards already, but there is more to do to professionalise the sector and root out poor practice, and through the call for evidence we will take views on whether we need an independent regulator to oversee property management. So today the Government are asking everyone who pays service charges and everyone who receives them to share their views on what is wrong and how we can fix it. We want to give power back to consumers, give agents a clear and consistent framework to operate in, and give landlords, renters and leaseholders the confidence they need to know that agents are complying with the rules.
As we build more homes, we need the right people to take care of them. That is why it is important that the Government act to recognise what works in the sector and fix what does not. Today’s announcement is about delivering better value and services for tenants, leaseholders, and hard-working people across the country.
The call for evidence will be open for six weeks and is the first step in creating a property management system that works for everybody. I commend this statement to the House.
I have not said this before, but I have enormous respect for the right hon. Gentleman. However, I am extremely sorry that he started his response to the statement with such rancour. There are 4.5 million households renting in the private sector. For them, this absolutely matters—it really does—so I hope he will reflect on how he started his contribution and on the fact that perhaps what we ought to be doing is working together on making this happen. He says we should do it. Of course, and that is precisely what we are doing, but I say respectfully that he was the Housing Minister—why did he not do it?
Let me talk about fixing the broken housing market. The right hon. Gentleman said that we are tinkering. We are not tinkering. He will have seen the work that has been done since the White Paper was published and he knows the announcements that have been made. I recommend to him that, instead of talking to his colleagues in the Labour party, he talks to the social housing sector to ask what it makes of the announcements made at the Conservative party conference—the £2 billion extra and CPI plus 1%. It will tell him that those announcements were a sea change.
I also say to the right hon. Gentleman that, in the work that we are doing, there is finally some joined-up thinking in Government. We have already announced—I am pleased he welcomes this—the ban on tenant fees from letting agents. We will publish the draft Bill very shortly, together with the consultation. He knows that, when it comes to rogue landlords, it has been possible since April to levy civil penalties of up to £30,000, and we are also looking at banning orders. A range of work is ongoing.
The right hon. Gentleman will also know that my right hon. Friend the Secretary of State made an announcement a few weeks ago on measures to help the private rented sector with landlords being required to be part of a redress scheme and housing courts being consulted on incentives to landlords for longer tenancies. We are doing a huge amount of work.
The right hon. Gentleman raised a couple of other points. He asked by how much leaseholders will benefit. He has seen the figures I talked about: £3.5 billion is charged, and some experts say £1.4 billion is overcharging, so if he does the maths he might be able to work it out for himself.
The right hon. Gentleman knows that we have just concluded a consultation on leasehold. I pay tribute to the all-party parliamentary group on leasehold and commonhold reform for all the fantastic work it has done. We have had 6,000 responses—a record—to this consultation, and we agree with him that this is an area that needs fixing, but I hope he will reflect and welcome what we are doing with this call for evidence.
Does the Minister agree that competition and choice are the best ways to drive standards up and prices down? Will they inform his work to empower tenants and to make the market function better?
My right hon. Friend is right. Of course competition is important, but we also need to ensure that there is the appropriate regulation in place to give fairness in the system for those who are renting privately. That is precisely what we are doing with a raft of measures, which I have already outlined, and this call for evidence.
The statement represents just another consultation on a proposal. People out there in the real world want action, because the problems in the housing sector are well known.
The Scottish Government legislated on this matter back in 2011, through the Property Factors (Scotland) Act 2011. The primary objective was to create a statutory framework to protect homeowners who used factoring services by providing minimum standards for property factors. This came into force in October 2012 and it applies to all residential property and land managers whether they are private sector businesses, local authorities or housing associations. A compulsory register of factors has been operating and registration helps to ensure that property factors are aware of the standards and that they comply with them. It is a criminal offence to operate as a property factor in Scotland if unregistered. Will the UK Government put that into legislation and follow that example?
A code of conduct sets out minimum standards of practice with which all registered property factors are statutorily obliged to comply. There is a route for redress to the Homeowner Housing Panel, which is an independent judicial body separate from Scottish Ministers and from local authorities. Homeowners can apply to the panel if they believe that their property factor has failed to comply with the code of conduct or otherwise failed to carry out their factoring duties.
That is another example of the Scottish National party leading the way for a progressive housing policy in Scotland and of how we are getting on with the day job while the Tories are off refereeing football matches.
Given that the UK Government are six years behind Scotland, will the Minister meet the Scottish Housing Minister, Kevin Stewart, to discuss what is already in operation in Scotland, what is working well, what we are doing and what the UK Government can learn from to represent homeowners across the UK?
I recognise that the devolved Administrations, including Scotland, have done work in that area, but this is a call for evidence and it is open to everyone to give their views. That is what we want—a comprehensive call for evidence. I do talk to the Scottish Housing Minister fairly regularly.
Will the Minister meet me and representatives of the three deposit protection schemes and of Shelter to discuss how we can better protect tenant deposits and put tenants in the driving seat when it comes to choosing the scheme that looks after their deposit?
Yes, I absolutely will. I know that my hon. Friend has a great deal of knowledge of and experience in this area.
When the Select Committee last looked at the issue of the arrangements for the regulation of letting agents, we recommended, simply as a first step, that letting and managing agents should be
“subject to the same regulation that currently governs sales agents.”
The Government response at the time was that this would
“impose a new burden on local authorities, increase costs for consumers”.
I welcome the Government’s change of heart, but that Select Committee report was published in 2013—four years ago. A consultation has been proposed, but today we want and need to know when we are going to have some action. Will the Minister commit today to act by a given date on the results of the consultation?
I am grateful that the Chairman of the Select Committee has welcomed this call for evidence. I hope that it demonstrates that we are open. He and his Committee should put forward any evidence that they have. As he knows, the consultation will last six weeks, finishing at the end of November. Once we have all the information in from the consultees, we will respond as quickly as we can.
Rip-off merchants, cowboys and those who seek to exploit often some of the most vulnerable people in our society have no place in a modern Britain, but does my hon. Friend agree that we must not throw the baby out with the bathwater? Lots of agents are thoroughly respectable and good—invariably estate agents who are small, independent, family-run businesses occupying important plots on our high streets. It is important that we do not destroy their businesses, but at the same time ensure that we have a proper system.
My right hon. Friend makes an important point, but I point out to her that support for regulation and the call for evidence has been welcomed by the Association of Residential Managing Agents, the Association of Residential Letting Agents, the National Landlords Association, the Residential Landlords Association and the Institute of Residential Property Management. Those are credible organisations and they are calling for reform.
Far from what the hon. Member for Broxbourne (Mr Walker) said, will the Minister have another look at the role of tenancy deposits and the way certain agents do not carry through their legal obligation to ensure that the money is safe? Will he ensure that landlords do not hold money back for ridiculous repair jobs that have nothing to do with the tenants? That is both unfair and a real slur as to how tenants have their money handled.
I am sorry if I was not clear, but I will meet my hon. Friend the Member for Broxbourne to discuss precisely those matters. We will of course keep this in mind.
Sorting out service charges once and for all means sorting out the section 20 process. Will the Minister update the House on his Department’s work on that?
I am happy to write to my hon. Friend to set out the details on that. More broadly, she should put forward whatever thoughts she has in the call for evidence and we will of course take them very seriously.
I encourage the hon. Member for Cheadle (Mary Robinson) to circulate her text book on succinct questions. It would be of great benefit to colleagues.
My constituents trapped in rip-off leasehold houses now look forward to swift action from the Government following the consultation that has just closed. Turning to this statement, more and more new estates are subject to management fees because developers are not transferring responsibility for common parts to local authorities, meaning that many homeowners are effectively paying twice for the same services. Will the new consultation examine ways of requiring developers to pass on those maintenance functions, which should properly be the responsibility of councils?
This is a call for evidence, and right hon. and hon. Members and others should put forward any evidence they have.
One good way of placing more power in the hands of consumers is to establish and support more mutual housing co-operatives, which work well in Germany and place real power in residents’ hands. Will the Minister consider steps to encourage the establishment of more such co-operatives here?
I am happy to meet my hon. Friend to discuss such matters. He knows a great deal about housing, particularly custom-building.
I declare an interest in that I own a property in Rochdale that is managed by an agent. Clamping down on rogue property agents is long overdue, and the consultation is welcome. However, whether regulatory reforms are successful will be entirely down to how well they are enforced. Self-regulation has failed, and local enforcement on the ground is under severe pressure due to public sector cuts. Will the Minister confirm that extra funding will be made available to make the necessary enforcement possible?
We have already made £12 million available to local authorities for enforcement since 2012. As I said in the statement, local authorities are able to levy penalties of up to £30,000 on rogue landlords and that money can be used for further enforcement.
I have an interest in the register. No matter how welcome the proposals, the Minister will agree that his proposals for vastly increasing the supply will be a much more effective defender of tenants’ interests.
As ever, my right hon. Friend is absolutely right. The measures will of course help, but at the end of the day we need to fix the broken housing market by building more homes.
I welcome the Minister’s statement. Will the Department also consider what steps can be taken to protect the consumer rights of freeholders who pay management fees on new-build estates where managing agents are failing to deliver value for money, such as in Lawley Village in Telford?
Yes. We will, of course, consider all these matters in the round, but if my hon. Friend puts her thoughts forward as part of the call for evidence, we will review them.
The all-party parliamentary group on leasehold and commonhold reform, which I co-chair along with the hon. Member for Poplar and Limehouse (Jim Fitzpatrick), will be grateful for the Minister’s remarks. We will submit more evidence.
I put it to the Minister that it will be quite important for people to be able to submit their evidence to the consultation confidentially. There are so many crooks and dodgy people around that there may be threats of legal action, such as the one I received from Carter-Ruck on behalf of Barry Weir when I was looking after a park home resident. Ordinary people cannot face that; Members of Parliament can.
Will the Minister also consider whether Dudley Joiner of Team Property Management can be investigated? He was going to be thrown out of his judicial property role, but he escaped hours before the report was announced.
Lastly, will the Minister please give serious consideration to whether the chairman of LEASE—the leasehold advisory service—can properly remain in his role, or whether it would be better to let him retire and have him replaced?
I pay tribute to my hon. Friend. He and the hon. Member for Poplar and Limehouse (Jim Fitzpatrick) have done brilliant work as co-chairs of the APPG. He talks about people being able to give information anonymously, and we will of course not release the individual names of those who give evidence when the consultation’s outcome is published.
As for the two references to particular individuals made by my hon. Friend, I suggest that we speak about those other matters after this debate.
In the 17 years that I have represented residents, both as a councillor and as an MP, this is easily one of the biggest issues that they have faced. Leaseholders are being ripped off left, right and centre, and the only defence is the right to manage. The best case scenario is that it is a complex process, but it is more often near impossible. Through the consultation, I hope that the Minister will prioritise empowering those residents who have suffered long enough.
As I said, we will publish the outcome of the leasehold consultation, but we will clearly be considering proposals to ban leasehold houses and, of course, to tackle onerous ground rents.
Leaseholders in Kettering will warmly welcome the launch of the Government’s consultation, particularly those who live in blocks of flats where multiple leasehold interests are involved. I am thinking in particular of a block in the middle of Kettering that is in an appalling state of disrepair and has become a magnet for crime. The leaseholders there have no possibility of selling their properties, so the Government’s announcement of proposals in this area will be warmly welcomed.
I welcome my hon. Friend’s comments. He refers to the power of leaseholders more generally, but I point out to him that we would also like to reinvigorate commonhold.
There is anger in Newark that the common areas and public spaces around almost every freehold property built in and around the town by major developers are subject to a management charge. As other Members have pointed out, such charges essentially mean that the community has to pay two council tax bills in perpetuity. National developers are profiting from the scam, and councils do not have the power to resist it. I am pressuring the local council to resist it—I think it actually enjoys the arrangement because it benefits from it—but we need to give councils powers so that local MPs such as me can say that the practice is unacceptable and has to stop.
My hon. Friend makes a powerful point. We will, of course, reflect on that matter when we respond to the leasehold consultation.
Is my hon. Friend able to reassure the House that any clampdown on excess service charges will not have an adverse impact on rents?
When we talk about the ban on letting agents’ fees and making the system fairer, the industry has talked about an increase in rents as a possible impact, but that did not come to pass in Scotland. We want to introduce fairness across the system, and I hope that that will ultimately mean lower charges and lower fees for tenants.
It cannot be right that those who visit a property agent to buy enter into an area of high regulation, but there is no protection for those who go to the very same agent to rent. Does the Minister agree that today’s announcement levels the playing field for homeowners on the one hand and tenants and leaseholders on the other?
I absolutely agree with my hon. Friend.
I welcome the Minister’s statement, but I urge him to widen its brief to the practices of housing associations. In recent weeks, constituents of North Dorset have been to see me after their housing associations increased charges without any prior notice and certainly with no justification.
The call for evidence relates to the private rented sector, but we will be putting out a Green Paper on the social housing sector and we will consider such matters.
I welcome the Minister’s statement, which many residents in my constituency will also welcome. More and more freeholders are subject to charges, so will he confirm that any new regulations will include the freehold market? Does he agree that a lack of transparency is at the heart of the issue? If so, will he ensure that any new regulations provide complete transparency for those who pay service charges?
We are all for transparency. As I have said, we will consider all the matters put forward as part of this call for evidence and in previous leasehold consultations.