“Cheshire Tenants owed thousands of pounds by luxury estate agent in Wilmslow” – one headline in the Manchester Evening News last month. Sadly, such tales of financial mismanagement by letting agents are becoming all too common.
The Manchester story concerns letting agency, Spencer Knight, which has shut its doors without warning, leaving dozens of tenants worried about how they will get their deposits back. The deposits were supposedly insured under one of the government deposit schemes but the insurers have now written to tenants saying that their deposits will not be covered after September 1st. Angry tenants have been unable to contact the agency owners.
And this is far from the only case of landlords and tenants losing money through incompetent or fraudulent letting agents. Earlier this year, former letting agent Peter Swatton was jailed for 36 weeks, suspended for 2 years, after fraud investigators uncovered an £85,000 black hole in the accounts of Abacus Accommodation Agency in Wrexham, North Wales. The money – mainly landlord funds – had been misappropriated by Mr Swatton in an attempt to keep the business afloat after it got into financial difficulties.
Another letting agent, Joseph Newman in Canterbury, left around 70 landlords out of pocket when the business went into liquidation. Liquidators say the agency owes a total of £413,000, including deposits handed over by 250 tenants.
Despite these cases, the letting industry remains almost entirely unregulated. Anyone can set up as a letting agent and collect money from landlords and tenants; there are no qualification requirements and no experience is needed.
In theory, tenancy deposits should be protected by one of the Government Deposit Schemes. But this too relies on the integrity of the agent in paying money into the scheme or taking out the appropriate insurance. When tenants hand over their money they are rarely given any form of proof that the deposit is protected.
And landlords are also vulnerable, since rent owed to them is often collected by agents on their behalf. Even if rent is paid directly to the landlord, the first month’s rent may well be paid to the agent when the tenancy is signed, often in cash. All too frequently, there have been cases of agents going into liquidation before the money is paid to the landlord. There is no requirement for an agent to ring-fence the money, or to pay it into a separate client account. There is no requirement for letting agents to insure against such losses.
Is it time for compulsory regulation of letting agents? Steve Harriott, chief executive of the Tenancy Deposit Scheme, thinks so. Writing in Letting Agent Today, earlier this week, he expressed his dismay that time and again, “fraudulent letting agents get away with a smack on the hand”. Harriott argues that if the government is unwilling to regulate, the industry should unite and introduce self-regulation.
Of course, one way of avoiding these pitfalls is not to use a letting agent. Rent direct from the landlord, missing out the middleman. Listing a property on RentFair is completely free and we even provide free tenancy agreements for download. Landlords and tenants can deal with one of the government approved deposit schemes direct.
If you must use an agent, make sure it is a reputable one. There are now websites offering reviews of agents, which may be worth reading before you hand over any money. And preferably check that any agency you use is a member of either the SAFEagent scheme, or the National Approved Letting Scheme (NALS) – both schemes offer assurance that agents displaying their logo have protected their clients’ money.