Letting agents in England could unknowingly break the law
after the tenant
fees ban comes into force, due to a possible flaw that has been found by
lawyers.
The lawyers were helping a tenant referencing company review
its terms and conditions when they found the potential flaw.
The legal experts are warning that letting agents could be
caught out by using other industry services as part of their lettings
processes, for example, repairs reporting systems and inventory firms.
Tony Williams, the Managing Director of UKtenantdata, says: “Reviewing our
terms on an annual basis is standard practice for our company and, with the
tenant fee ban on the horizon, it made sense to identify changes that may be
required.
“Our
lawyers identified an issue that could place every single letting agent in
England in a position where they are unknowingly breaking the law.”
He
explains: “The current Bill states that an agent cannot charge a tenant a fee,
nor force an applicant to contract with a third party.
“However,
the agent would still be in breach of the proposed legislation, because the
applicant would still have to agree to our terms pre-application and, therefore,
would be contracting with us.”
Williams
continues: “So, in short, this would prevent an agent from performing any due
diligence checks on tenants.
“If the
Bill goes through in its current form, this will create a major issue for
agencies.”
The
Bill is set to have its third reading in the House of Lords today (15th
January 2019).
The
Bill states:
“Prohibitions applying to letting agents
“(1) A letting agent must not require a relevant person to make a prohibited payment to the letting agent in connection with a tenancy of housing in England.
“(2) A letting agent must not require a relevant person to make a prohibited payment to a third party in connection with a tenancy of housing in England.
“(3) A letting agent must not
require a relevant person to enter into a contract withthe
agent or a third party in connection with a tenancy of housing in Englandif
the contract is –
(a) a contract for the provision
of a service, or
(b) a contract of insurance.”
Letting Agents Could Unknowingly Break the Law after Tenant Fees Ban
Williams says that one point in the Bill is clear:“As an agent, you simply can’t take any money from the tenant if it’s connected to the grant of a tenancy. That is clear.
“Again,
point two is clear.”
However,
he says that it’s point three that is problematic.
Either
the letting agent or landlord will have absorbed the cost of the due diligence
process after the ban comes in, so that there are no cost implications for
either the prospective tenant or guarantor.
However,
it is what happens next that could cause difficulties.
Williams
explains: “The applicant receives their application link, enters the
application area and, before proceeding, agrees to our terms and conditions.
“Now,
believe it or not, the applicant has just contracted with us (the third party) and
the agent has broken the law. It really is that simple.”
He
believes that other providers will also be affected.
He
says: “The Government’s proposed legislation doesn’t just affect the applicant
due diligence process; it will knock on to other areas of the industry where an
agent outsources to third party providers where there is no cost involved to
the tenant.
“These
services could include inventory providers, who require the tenant to access
their platform to view the property inventory and post back comments, or where
agents have property issue reporting systems in place as part of their
process.”
Williams
points out that contracts are created when they require the tenant to agree to
the third party terms.
He believes:
“To both myself and our lawyers, it looks like the Government hasn’t thought
this through. Looking at the legislation now, it really is glaringly obvious
that this is a potential issue and, frankly, I can’t understand why this hasn’t
been picked up previously.
“This
really is an area of concern and will potentially cost letting agents thousands
in fines.”
Independent inventories and the clerks that create them
should back the upcoming Homes
(Fitness for Human Habitation) Bill, according to Danny Zane, the Chair of
the Association of Independent Inventory Clerks (AIIC).
Independent inventory reports already cover safety and
compliance throughout rental properties.
Renting, in both the social and private sectors, is not fit
for purpose, the AIIC claims. It has found that too many tenants live in unsafe
conditions. In total, over one million private and social tenancies (home to
about 2.5 to three million people, including children) have Category 1 hazards.
According to the 2015/16 English Housing Survey, the number
of properties with a Category 1 hazard under the Housing Health and Safety
Rating System (HHSRS), which is defined as a “serious and immediate risk to a
person’s health and safety”, included:
244,122 social rental homes
794,600 private rental homes
Zane says: “As such, as a profession, we believe this
Bill is hugely important for the future of tenancies in the UK, ensuring safety
and the protection of both private and social tenants. Furthermore, we believe
that we have a significant contribution to make in the implementation and
enforcement of this Bill as the sector moves forward.”
At present, inventory clerks function as safety and
compliance officers. At the beginning of tenancies, for instance, they:
Check all soft furnishings for the correct
labelling
Assure that all pull cords meet safety criteria
Note any potential trip hazards
Note any mould issues in the property
Zane claims: “Accordingly, it is clear that our role,
while enabling landlords to protect their investments and the tenancy itself,
is an essential part of the safety and compliance procedures for all aspects of
tenancies.
Independent Inventories Should Back the Fitness for Habitation Bill, the AIIC Insists
“As such, it would seem that the obvious next step
in the rented sector and tenancy legislation would be to make sure impartial
inventory reports are complied and agreed with by all parties at the start of
the tenancy, and ideally are made mandatory.”
In the meantime, Zane believes that, at the very
least, agents must be made to state who has compiled their reports, and be
transparent about their relationship with the organisation or person, and/or
the property itself.
Unfortunately, the upcoming introduction of the letting agent fee ban has left tenants
vulnerable to partial reports that would not stand up in disputes, as the AIIC
is now seeing agents making money through seemingly independent inventory
companies that are, in reality, not independent and, instead, serve to boost
the income of the agent.
Moreover, there is further discussion to be had around
transparency aiding tenants’ knowledge of their rights, so that they are aware
that inventory reports can be carried out by independent clerks where they may
have been organised and carried out by the agent or landlord themselves, and
can therefore be far from impartial and legitimate.
As an organisation, the AIIC serves the largest letting
agencies in the UK, and therefore believes that it has a powerful role to play
in this aspect of housing policy.
GDPR (General Data Protection Regulation) is embedded in UK law by the Data Protection Act 2018, and Brexit legislation will ensure that it continues to apply after March 2019.
GDPR is a step up from the Data Protection Act (DPA) 1998, but the Information Commissioner (the UK regulator for data protection) was keen to point out that compliance with the DPA 1998 was a good basis for compliance with GDPR. So, although some aspects are tougher, the basic data protection framework remains the same.
Personal data processed for domestic purposes is exempt
from data protection law. But, as a landlord, your activities with tenant data
are regarded as business activities and the law applies. So, what are the key points to review?
1 Security
Security is a key principle of data protection. Personal
data should be secured against unauthorised access, amendment or
deletion/destruction. This splits down into: IT security, making sure you have
adequate virus protection and secure firewalls to safeguard data;
organisational security, ensuring that staff know how to keep passwords secure
and to avoid phishing and other online scams; and physical security for
offices, paperwork and portable data storage, and access devices, such as
tablets, laptops, mobiles and hard drives.
GDPR states that businesses are responsible for
compliance with the principles, including the security principle. It also
states that organisations should be able to demonstrate how they comply. This
means having appropriate policies and procedures in writing around IT security,
password management and access rights, office security, bring your own device,
and mobile working. It also means training staff about their responsibility for
data security, and signposting these policies and procedures.
Personal data breach reporting
A new requirement under GDPR is mandatory security
breach reporting. Before GDPR, businesses were encouraged to report data
security breaches, but it was a voluntary reporting scheme. GDPR sets out that
personal data breaches (that is an incident that puts personal data or subject
rights at significant risk) must be reported to the Information Commissioner
within 72 hours of becoming aware of the incident. In some cases, where the
individual can take action to protect themselves, for example, by cancelling a
debit or credit card, the security breach has to be announced to data subjects.
Having a personal data breach reporting procedure for staff to follow if a
breach occurs is strongly recommended.
2 Risk management and whether size matters
A key feature of GDPR is that it encourages
businesses to adopt a proportionate approach and put in place security
appropriate to the circumstances of the processing. This does not mean that
small businesses can opt out, but businesses that do not process very much
personal data, or which have little sensitive data, perhaps just email contact
details, name and job title, for example, can be less stringent in their
security set up.
If you take an honest view of the data
that your business processes as a landlord, you will discover that you hold a
lot of information, some of it sensitive, about tenants and possibly third
parties associated with them, such as guarantors and household members. So, the
fact that you might have a small business is irrelevant; it is the amount and
type of data that informs risk management.
Data minimisation is another data
protection principle, and it is worth considering what personal data you
actually hold and how much of it needs to be retained long-term. If you carry
out Know Your Customer checks, do you need to hold onto copies of passports and
birth certificates in all cases, or just record that you have seen them? Do you
need to hold onto those copies forever, just until the next audit, or until the
tenant gives up the tenancy? Your answer will vary depending on the financial
regulations and proving the right the live in the UK.
If an agent is used to manage the day-to-day
administration of the property portfolio, consider whether the landlord needs
any information that is personal data above the basic name and contact details
of individual tenants. As long as the agent has complete records, the landlord
needs minimal information. Data minimisation is the key to data protection
compliance, as it necessarily reduces the risk of holding personal data.
How Letting Agents and Landlords Should Handle Tenant Data, in order to Comply with GDPR Changes
3 Changes to outsourcing arrangements
Under the Data Protection Act 1998, if
a business outsourced some of its activities involving data processing, it was
under a statutory duty to carry out security compliance checks and to have a
written contract in place. Under GDPR, both those compliance requirements carry
on, but the terms of the contract have been extended, so, if you use a mailing
house to send out rent invoices, or an agent to liaise with tenants, or a
payroll service to manage your staff payroll, you will need an update to the
contract terms.
4 Changes to subject rights
Most businesses are aware of the right
of Subject Access. That is the right of every one of us to access personal data
that relates to us that is processed by an organisation. That right continues
under GDPR, but the practical arrangements have been updated. A request
received electronically must be answered electronically, unless you can agree
otherwise with the data subject. Instead of 40 days in which to respond,
businesses now have one month and one business day in which to respond.
Importantly, the £10 fee for responding to a subject access request may no
longer be charged. To charge a fee for the exercise of any subject right is an
offence under GDPR, subject to the highest potential level of fine.
Other subject rights continue to apply:
the right to object to processing, the right to object to the use of personal
data for direct marketing purposes, and the right to object to automated
decision making. New subject rights have been introduced in certain
circumstances:
To allow data portability, where a data
subject decides to change from one online service provider to another;
Restriction of processing to require
organisations to lock down personal data or not to delete it if the data
subject requires it to be maintained;
Right to erasure of personal data that
is no longer required for the purposes for which it was being processed; and
Right to specific information about
what personal data is being held, the purposes for which it is processed, how
long the data will be retained etc. This is known as a privacy notice.
5 Accountability
Another aspect of Accountability is the
requirement to appoint a Data Protection Officer (DPO) where:
The controller is a public body
The personal data is processed for monitoring
individuals on a large scale
The personal data includes a
significant amount of special category data relating to mental or physical
health, race or ethnicity, religious or philosophical beliefs, political
opinions, sex life or sexuality, TU membership, genetic or biometric data
The processing presents significant
risks to the personal data or rights of data subjects
Note that Property Management was an
activity requiring registration under the 1998 Data Protection Act, so it has
always been recognised that the activity is not without risk. The number and
type of properties being rented will impact on the decision of landlords to
appoint a DPO. In general, a big rental business is more likely to require a
DPO, especially if there is CCTV in multi occupancy premises, than a smaller
undertaking, where perhaps just a couple of properties are rented out.
6 Consent
There was a frenzy of activity around
the introduction of GDPR, with organisations seeking to obtain consent to
marketing. This was an ill-informed reaction to GDPR and mis-timed. The
requirement to obtain specific, positive consent to direct marketing from
individual consumers was introduced back in 2003. GDPR simply clarified for us
that consent is an informed, positive action, not to be hidden in terms and
conditions, not to be conditional to enter a competition or receive a service,
not to be a pre-ticked box or assumption of consent (for example: “By
continuing to use this website we assume that you consent to…”) Consent is
also revocable.
In general, landlords are not relying
on consent when they process personal data relating to tenants. There is a lease agreement with a tenant,
which is a form of contract. Processing necessary under the terms of a contract
is the appropriate grounds for processing tenant data. Pre-contract, the
grounds are that the processing is necessary prior to entry into a contract.
This would also be appropriate in relation to guarantors. If personal data
relating to household members of tenants is required, then the appropriate
grounds would be processing in the legitimate interests of the landlord to know
who is in occupation at the premises for health and safety, and fraud
prevention purposes.
So, GDPR expands on some of the
existing data protection requirements, but the basic framework of security,
keeping people informed and data minimisation are still key aspects of
compliance. As landlords, you are data controllers, and you will be expected to
have policies and procedures in writing. This is a critical part of your
defence, should there be a security breach or complaint investigated by the
Information Commissioner. Demonstrating accountability is a statutory
requirement.
There has been a significant increase in the amount of private tenants using letting agents to find new accommodation, according to the latest State of the Property Nation report from Zoopla.
The property portal found that almost half (48%) of tenants used a letting agent to source their rental property this year, which is up from the 36% recorded in the 2017 edition of the report.
Of the 6,000 people surveyed for the study, 62% said that they expect to rent for at least the next three years, while 23% believe that they will rent a home indefinitely.
Meanwhile, the proportion of homeowners letting properties rose from just 2.4% in 2016 to 4.2% this year.
However, the research also shows that landlords are still facing a number of challenges in the existing housing environment.
Of those surveyed, 56% of landlords said that their biggest challenge is finding suitable tenants. The next greatest obstacle for landlords is ensuring that their tenants look after their properties (55%), followed by making sure that tenants pay their rent on time (47%).
Almost four in ten (39%) landlords confessed to struggling to keep up with increased regulation, while slightly more than a third (36%) are concerned about how future legislation will affect them.
Half of Tenants use Letting Agents to Find Accommodation, Zoopla Reports
Letting agents are also worried, as four in ten are expecting a drop in lettings revenue next year, Zoopla reports.
The fears arise as agents face the prospect of the tenant fees ban being introduced during 2019.
Zoopla found that 38% of the 600 agents polled are anticipating a drop in lettings revenue, in part because of the fees ban, but also over concerns about the number of rental properties coming to market.
Charlie Bryant, the Managing Director of Zoopla’s Property Division, comments on the report: “It’s certainly a challenging time for lettings agents, with the ban on lettings fees looming. However, our research shows that demand for agents’ services and rented accommodation are strong, and that should come as a welcome boost.
“As the market becomes more regulated and complex, the letting agents that adopt a more consultative approach with both their landlord and their tenant clients, to help navigate them through, will gain an advantage.”
He insists: “Staying ahead of the changing market and new rules is becoming more important than ever, and those who do it best are set to thrive.”
In April 2019, new rules will come into place with the aim in mind to protect rental money paid by tenants.
The rules will require all letting agents in the UK to be registered with a government-approved Client Money Protection (CMP) scheme. This will protect the rental money that a tenant pays to a letting agent, and should the letting agent go out of business, this money then still reaches the landlord of the property.
However, the Residential Landlords Association (RLA) has warned that there could be considerable risk to landlords. This is likely to have more of an effect on landlords with larger portfolios, due to a proposed cap in how much the CMP scheme has to pay out, in the event of an agent collapse.
Details of the CMP scheme’s policy, published by the government, suggests that:
The level of insurance held by the CMP schemes may not necessarily cover the full value of the tenants’ rental money held by letting agents
There are certain circumstances in which the insurance held by the CMP schemes may not pay out, or at least pay out in full
In the same way that the current Financial Compensation Scheme works, the CMP schemes will be able to cap the amount they pay out
David Smith, Policy Director for the RLA, said: “It is right that money provided to agents by tenants for landlords should be protected. It is disappointing that the Government’s plans will not offer full protection and we urge Ministers to think again or they will undermine confidence in the scheme.
“Otherwise we will encourage landlords to ensure that they do not put all their eggs in one basket and spread the risk.”
Whilst the rent protection could have less of a benefit to larger portfolio landlords, CMP schemes could go a long way to providing more peace of mind for landlords at the end of the spectrum.
Within a matter of months after its merger with Tepilo and Urban.co.uk, online estate and lettings agent Emoov has gone into administration. This has occurred after the business failed to find a buyer.
Russell Quirk, chief executive of Emoov, sent out an email to staff yesterday, stating: “They say that entrepreneurs should never give up, but at the same time one needs to know when efforts have been truly exhausted and when you simply have to call it a day.”
“Regretfully and despite my significant endeavours over this weekend to achieve such, the prospective purchasers that have been in the wings have not come through with viable offers to acquire the Emoov business.”
The online estate agent provided sellers with fixed fees, charging £895 to market a property, or £995 for those in London and the inner M25 area.
Quirk’s email continued: “At 1pm today (Monday 3rdDecember) I held a call with Emoov board members where it was agreed to appoint James Cowper Kreston as administrators.
“Once this intention is filed with the court later today they will take charge of the affairs of the company and its staff, customers and creditors and will work to secure an ultimate buyer.”
The Emoov website is still up and running at the time of posting this article. We are interested to see if another buyer does step forward. If not, those owed money by the business will have to wait for the administrator to hopefully arrange repayments.
The administrator has commented on the recent unsuccessful attempts to find a buyer for Emoov: “As a number of prospective buyers have indicated an interest in purchasing the client property listings, therefore, the administrators will be exploring the transfer of these to other providers as a priority.”
The administrator has stated that Urban.co.uk, also known as Urban Sales and Lettings Limited, has been unaffected by this development.
