19
Examination of witnesses
Andrew Bulmer, Luay Al-Khatib and Timothy Douglas.
Q16 The Chair: Good morning. This is the Industry and Regulators Committee of the House of Lords. We are talking this morning about property agents as part of our inquiry. Our three witnesses this morning are Andrew Bulmer, who is the CEO of the Property Institute, Luay Al-Khatib, who is director of knowledge and practice at the Royal Institution of Chartered Surveyors, and Timothy Douglas, who is head of policy and campaigns at Propertymark.
I would like to start by asking you what you think the key challenges in this area are. Perhaps you could say where your organisations are coming from when looking at these issues.
Luay Al-Khatib: RICS has operated a system of regulation for its 130,000 members and 9,000 regulated firms, which has independent governance and resourcing. I will elaborate later. That has been established since 2007. From our perspective, the number one challenge is that there is no consistency. Regulation occurs where firms and individuals opt into it. Where they do not, it does not. That results in an inconsistent playing field and therefore the potential for a lack of public clarity and clarity for consumers and inconsistent outcomes.
Timothy Douglas: Good morning, and thank you for the invitation today. As a professional body, Propertymark has members—residential sales agents, letting agents, commercial agents, valuers, auctioneers and inventory service providers—operating across the UK. Some of our members will do block management and some do land and new homes. Essentially, we provide membership on an individual basis, but we regulate individuals and the firms that they belong to. There are company obligations for the principal partner and director of those firms and individual declarations to enter membership.
As has been alluded to, in the absence of any government regulation outside of letting agents in Scotland and a day’s training course through Rent Smart Wales in Wales, we are providing a regulatory function and a supporting compliance and audit function on a voluntary basis. All our members signed up for that and must be qualified to get into membership.
The key challenges are compliance with legislation, meeting legal requirements, anti-money laundering—tackling money laundering risks to the sector—ongoing training and meeting minimum standards to ensure that the consumer receives a high level of service and is protected consistently across the sector.
Finally, operating as a sales or letting agent is not a straightforward matter; it requires a wide range of skills, including the ability to account for substantial flows of funds, an understanding of complex housing law, negotiation and people management skills, the ability to network with providers and repair, maintenance and services skills. That is where we come at it.
Andrew Bulmer: I am from the Property Institute. You may have known the previous organisations, the Institute of Residential Property Management, with about 6,000 individual professionals, and a former trade body called ARMA, with about 360 firms. Those two organisations got married about two years ago to form the new professional body, which is the Property Institute.
Before I go any further, I must declare a couple of interests. First, I was a member of Lord Best’s regulation of property agents working group. Secondly, I am a member of the statutory industry competence committee for the Building Safety Regulator, advising on competence and raising standards there. Thirdly, the body that I represent, the Property Institute, provides professional membership and Ofqual-accredited qualifications. Therefore, it could be argued that there is a vested interest in any testimony that I give promoting qualifications today.
As I said, we have 6,000 members and 360-odd firms, managing well over half of the UK leasehold housing stock, plus build to rent. We operate in the private rented sector. We also have members that operate in the regulated sector of factoring in Scotland. If it is a big, scary residential building, it is likely that our members are managing it. They are looking after well over £300 billion-worth of assets.
We are not for profit. We have a code of conduct for our members and proactively audit our firms, not just for protecting client money but for business practices. Soon we will also be looking at customer outcomes, ethical behaviours and well-being. We welcome the Leasehold and Freehold Reform Bill as far as it goes, but feel it is a missed opportunity in terms of bringing a regulator to the sector.
Why are we looking at that? What are the challenges in the sector? There are three things that are going in the block management sector at the moment. One is that it is pivoting towards the consumer. The days of being the landlord’s agent are long behind us. We have consumers who are paying for a service that they are in receipt of, and they should be treated as consumers or customers. I know you heard testimony on the definition of a customer earlier today, but if you are delivering culture change in the sector, the leaseholder is the customer; they are paying for the bills. Secondly, there is a pivot towards safety post Grenfell; I need explain that barely any further. Thirdly, we have leasehold reform coming down the track.
As a consequence, we have a profession that is moving rapidly towards graduate entry level. It is increasingly customer and consumer-focused. When it comes to safety, we need to be reminded that about half of the regulated buildings are RMC-controlled, so resident-controlled. Those residents are now the principal accountable persons and therefore the legislation drives those individuals into the hands of managing agents as their advisers.
It is similar with leasehold control, democratising the power and control over buildings and handing the power to the leaseholders. Again, that drives leaseholders into the hands of managing agents. Managing agents at the moment are self-regulated at best, with no minimum competency standards. We had a situation in the Building Safety Act where there was supposed to be a building safety manager, who was to be a graduate. That role has gone. Our members are now doing that role and without any legal requirement for a competency standard or any form of regulatory oversight.
There is a lot going on in the sector. It is relatively unhappy at the moment in its relationship with the customers. There is a trust issue, and we are seeking to rebuild that trust through competence, but regulation is required.
The Chair: You have outlined some of the limitations of self‑regulation.
Q17 Viscount Chandos: Segueing from that to my main question, Mr Bulmer, you referred to a code of conduct. I do not know whether the other associations have similar codes of conduct. In each case, how many members have been subject to inquiries, say over the last five or 10 years? How many have been expelled from membership?
Andrew Bulmer: This is reactive regulation as opposed to proactive regulation. It is the handling of complaints. Where it is a firm, conventionally it goes to the ombudsman or the First-tier Tribunal first, depending on whether it is a service complaint or a service charge matter. We have expelled one firm in the last 18 months.
The complaints against individuals are more complex, because there is no body other than us. Again, we have expelled one member. We have had a few resign when investigations have started, but in terms of taking somebody to expulsion, there has been but one. Our problem is that our sanctions are limited to expulsion and there is no requirement to be a member of our organisation. We know that one of the individuals who has left continues to trade, act and put leaseholders at risk.
Timothy Douglas: Likewise, we have a compliance and audit and disciplinary function. All our cases are on our website and published widely. I may be able to provide more specific detail to the Committee on numbers and cases.
Building on what Andrew was saying, the consumer needs to complain to the agent first. Then the consumer can go to the redress scheme and, ultimately, come to us if it is a consumer’s complaint. If we get intel against members, we can take action as well, but that is the process. As Andrew has alluded to, even if they are expelled from our membership, there is no power on our side to prevent them operating.
Luay Al-Khatib: RICS last year spent north of £11 million on its regulatory functions. They are independently governed by a standards and regulation board, which has a lay majority. We also operate a regulatory tribunal with a further degree of independence; it is independent from the prosecutorial functions of RICS.
In 2023, we expelled 62 individuals, we issued £302,000 in fines, and 99 hearings were completed by the regulatory tribunal. If you include the standard-setting functions, which we do in co-ordination with stakeholders and the profession itself to make sure those standards are fit for purpose and workable while being subject to independent sign-off at the end, the total resource comes to over £13 million a year.
We regulate 9,000 firms, and, as I said, about 130,000 individuals, of which just north of 100,000 are in the UK. Those are spread across a range of disciplines, and residential agency is only one of them, but that gives you a sense of the level of resource that we put into a population of that size. Bear in mind that we are talking here, in the context of this discussion, about a broad range of disciplines and functions. So we are probably talking about north of 100,000 individuals across the sector. That gives you a sense of the level of resource that goes in.
Q18 Viscount Chandos: Do you all therefore agree with the proposal for a new regulator? Does that reflect the limitations that you have found in what you can achieve through self-regulation?
Luay Al-Khatib: A lot can be done through self-regulation. Good outcomes with professionals start from them having a culture, a principle and a commitment to ethics. Being struck off means a lot. I would not want to underplay the impact and the importance that has. We will come to this later in the discussion, but we are certainly of the view that that plays a critical role in delivering good outcomes.
Where you have inconsistency is that, in all the work that we do to set defined codes of practice and guidance standards on how to practise, those are in effect only to the extent that the organisations and individuals take them up. That is the limitation.
Timothy Douglas: On the code of practice, Propertymark has moved away from having its own code of practice, because there are lots of codes of practice in the sector, to more membership conduct and rules and adopted the code of practice held by the Property Ombudsman redress scheme. That highlights some of the lack of consistency.
I am sure we will talk about redress and codes of practice. You have the two redress schemes, with only one working to a code of practice. There are other professional body codes of practice in place. From the outset, professional bodies could have a role and continue to have a role in co‑ordinating in the future a code of practice, overarching codes and separate sector codes, as was outlined in the report for the sector. That would allow for some consistency in practice but also consistency in redress for the consumer.
Andrew Bulmer: For completeness, the Property Institute has a code of practice for individuals and a consumer charter and standards for firms, which goes slightly above the de minimis service charge code, but it broadly aligns.
On the regulatory piece, there is a piece that is missing. I spoke of reactive regulation. The purpose of regulation is not just to be reactive when things go wrong. It is supposed to be there. I liken it to a poem—please bear with me—“The Ambulance Down in the Valley”. It speaks of a village with a cliff and people fall off the cliff. Should they put a fence at the top of the cliff or an ambulance down in the valley? Feel free to Google it. John Denver did it in Cedar Rapids in 1987.
It speaks of prevention being better than cure. If you have an effective regulatory regime, you are not just looking at what goes wrong and reactively taking away people's licences to operate; you are gathering data from other sources, such as professional bodies, ombudsmen and tribunals, seeing where the sector is performing poorly, and building that into a code of practice and reactive actions. You are holistically raising standards. You create a virtuous circle of data coming in, of learning outcomes and of improved and more targeted and proportionate codes that are then properly enforced. Being able to take away an operator’s licence becomes the ultimate teeth at the end of it.
Absolutely, there needs to be a regulator. It is good that we have ombudsmen and the tribunal, but by then you are already in a mess. You will soon be looking at the Leasehold and Freehold Reform Bill and you will see many measures designed to further close off loopholes and problems that are occurring. That is fine and right, but every time that piece of legislation is used you are dealing with another ambulance down in the valley. You are not dealing with the fence at the top of the cliff. That is why a regulator is so important.
Q19 Lord Clement-Jones: Good morning. You have started answering my question, so it follows very logically into my question. To what extent has the need for a new regulator been reduced by housing policy and regulatory changes since the working group’s report and further planned reform through legislation relating to the private rented sector and leasehold? Obviously we are thinking about the ground rents reform and the new Leasehold and Freehold Reform Bill. I will start with you, Andrew, since in a sense you were so adamant in your earlier answer. You said that the legislation was a missed opportunity.
Andrew Bulmer: The exam question is whether the new legislation and other measures reduce the need for a regulator. On the contrary, particularly in the leasehold space. There are trends. The macro trends I spoke about were the increasing democratisation of power, control over a building and letting leaseholders run their own affairs.
I need to be very careful when I suggest that leaseholders may not be fully competent property managers. I remind many audiences that the leaseholder could be the lead violinist of the London Philharmonic Orchestra, a brilliant individual, highly intelligent, but not a property manager. Managing big, scary residential buildings is really complicated, Lord Best concluded in his report that they needed to be qualified to level 4, not level 3, for that reason. We have leasehold reform where leaseholders will increasingly be in charge of their own affairs and to whom will they turn for advice? It will be the property manager.
Turning to the Building Safety Act where leaseholders are RMCs—remember, with that democratisation you will have more leaseholders in control of their own affairs—they will be not just an accountable person but the principal accountable person for the fire safety of their building. With the best will in the world, very few of them will have the technical competency to discharge the responsibilities that have been legally placed on them. To whom will they turn? It will be the building manager.
Those two pieces of legislation are driving potentially vulnerable customers into the hands of an unregulated sector. Surely we can see that that is a recipe for disaster.
Timothy Douglas: I agree. Recent legislation has only increased the need for a regulator and a more co-ordinated function for the sector. Why is that? It is for consumer protection. If you are a letting agent or a landlord renting a property in England, there are over 150 laws and counting, and 300 regulations that you need to comply with to make sure that that property is legally sound and safe.
That legislation is amended regularly and changes frequently. So if we do not have some sort of regulatory oversight and initial qualification and we are not licensing the individuals managing this property and providing them with ongoing training and continuing professional development, how are we expecting them to keep on top of it? As professional bodies, we are all playing our role in doing that, and half the sector has voluntarily signed up for that, but the consumer is getting a two-tier service.
Secondly, if we continue with the private rented sector, the Secretary of State said last year that all property managers in the social rented sector should be qualified. So why should a tenant, regardless of the tenure that they rent, not have access to a qualified, licensed and regulated property manager? We need parity there.
Under the Renters (Reform) Bill, agents can play a role in enforcing things like the decent homes standard. We are moving to more evidence-based grounds for eviction. Are we really expecting the 50% of landlords in this country who do not use an agent to stay on top of that, have a complaints procedure and be able to deal with consumers? We are asking a lot from the sector that is not regulated, qualified and licensed. The Building Safety Act has probably shone a light on that. We have increased the legislative burden on all aspects of property management, from changing the fire safety regs to a new accountable persons regime. However, the Government have not looked at the competency of the people who are running and managing this property. We are definitely at the crossroads and need to act.
Finally, this is a case study that I came across, which was reported in the news in September last year, of a fake agent scam. An agent set themselves up, took multiple bookings and scammed £13,000 off a prospective tenant. If we had a licensed register of agents, we would be able to track that back, mandate them and allow them to operate or not, as the case may be. Consumer protection is vital now.
Luay Al-Khatib: I agree with everything that has been said so far. The impact that agents, whether they be sales agents, lettings agents or block managers, have on families, households and people’s lives is enormous. I do not think that has been recognised widely enough in the past. The incoming variety of legislation, ranging from renters reform to building safety and leasehold reform, all points to a recognition of that. It does not take away from the need for there to be proper regulation in place. It emphasises it further.
It is really important that in any regulatory framework, given the interplay between firms and individuals—my colleagues here have talked about competency, ethical conduct and qualifications of individuals—it also works with firms. Firms are the vehicles and the environment within which these services are provided, and they play a fundamental part in delivering those good outcomes. Yes, it emphasises the need for regulation, and that must be at both the firm and the individual level.
Lord Clement-Jones: I had a follow-up question, which was whether these changes had made it easier for groups such as tenants, leaseholders and enforcement authorities to hold property agents to their obligations, but you have answered that extremely clearly.
Q20 Lord Cromwell: While we are declaring interests, four members of my family are tenants in private rented accommodation, and two of them in a small way are landlords, so I straddle the two, I guess.
I want to be a slight devil’s advocate here. If we say that it is not just about the self‑regulation and the professional bodies but we also have trading standards, local authorities, redress schemes and the Property Ombudsman involved, I am sort of getting a picture where you have both the fence and the ambulance in place. Is it just the typical issue that we always face—that we are not resourcing enforcement of these properly—or is it that there is a need for a further body to deal with it?
Timothy Douglas: What has come from the professional bodies today is that a lot of the compliance and the auditing function, the training and qualification is already happening. Certainly from Propertymark’s perspective, we would urge the UK Government to look at the already good practice and build on that. As Andrew has alluded to, a higher co‑ordinating regulator entity—it may be small—with the teeth to remove a large firm from operating would be needed and supported. We need to see a co-ordinating function. Local authorities simply do not have the resources and the capacity.
Lord Cromwell: That is exactly my point.
Timothy Douglas: Yes, but that is one element of it. They do not even know who is operating, for instance, in the private rented sector unless they have their own intelligence. We need to help them with that. Additionally, they need to be resourced. You need to have inspections and checks, but that can be linked up with the co-ordinating functions that we are doing.
There are gaps in redress, as we have alluded to. One redress scheme works to a code of practice and one does not. There are varying codes of practice across the sector. A regulator and existing good practice from the professional bodies need to co-ordinate that enforcement, redress, code of practice complaints and consumer protection.
Q21 Lord Cromwell: The word I keep coming across with you is “co‑ordination”—of the existing and lack of resources to deliver the existing. Okay, I see that. I am sure your other two colleagues will want to comment in a moment. If that is the case, I would be interested in what specific objectives this new organisation would have. We love passing regulation and creating new bodies. What role, objectives and metrics would you have to measure its performance? Finally, with about 4.5 million privately rented properties out there, how big an organisation will this need to be to do the sorts of tasks you are talking about?
Timothy Douglas: A staged approach is certainly what will be needed in order to register and license property agents, and the landlords if we are looking at the private rented sector. You could look at what happened in Wales with Rent Smart Wales, where they tried to license, train and register all in one go. From Propertymark’s perspective, it would licensing and qualifying the property agents first. Then you are giving the landlord the choice to use a professional qualified regulated letting agent or essentially fully manage the property themselves.
We have to have transparency for the consumer in the industry—in other words, who is operating, and are they qualified? We have to ensure high service delivery and standards by providing training and recording that continued professional development. We have to support through guidance for the consumer and the industry. How does all this law work in practice? It has to gather evidence and make recommendations for positive change. We have to have a co-ordinating enforcement tool with those inspections and checks. It has to have an authoritative voice for the public, industry and parliamentarians. If we are having an overarching regulator, it needs the teeth to remove people from operating.
There are other elements: co-ordination with the devolved Governments, which is important, particularly in the sales space, and a co-ordinating function with the Government. Seven government departments interact with the private rented sector, and they all need to work together in the legislative journey going forward.
Andrew Bulmer: In leasehold, it becomes more complicated. If you look at it from the consumer’s point of view, you are not happy. Where do you go? We receive complaints about both individuals and firms. Generally, the complaint needs to be handled at the firm’s level. We find ourselves writing back to that individual, saying, “If it is this type of problem, for example service charge, you need to go to the tribunal. If it is that type of problem, for example service level or standards of behaviour, you probably need to go to the ombudsman. Then let us know how you get on and come back to us”. That is not satisfactory for a consumer. That is before you get into things like fraud, police, trading standards, et cetera. At the minimum, you have two slightly overlapping enforcement and redress entities that are there.
Beyond that, a regulator should be setting the standards of competence for those professionals. The competence requirements for managing big, scary buildings have changed out of all recognition over the last few years, particularly with the advent of the Building Safety Act. They are learning half of a new profession at least.
There also needs to be a requirement for setting corporate competence and capability. This is much more prevalent in the safety world, where the functions for the safe management of a building are not carried out by one individual but are carried out by a team, so it is down to whether the organisation has that capability. A standard has been produced and we are working on that at the moment with the Building Safety Alliance. These standards need to be set and ultimately enforced by means of removing a licence to practise for those who behave egregiously.
Luay Al-Khatib: Thinking about your questions, any form of regulation needs to be resourced properly. Otherwise it is really not worth the paper it is written on. I gave you a sense of how we resource that. It is also, for that very reason, incredibly important that we do not end up with additional duplicative cost in the system. There are opportunities to look at how any system can work with professional bodies that are already delivering to the standard that would be expected.
It is incredibly important that, in any system, there is not arbitrage, so there have to be consistent standards. Therefore, there must be some statutory involvement in setting and defining those minimum acceptable expectations.
There are models such as designated professional body models, which are certainly worth looking at. When we think about the numbers of people and firms that we are talking about here, if one put it all into one body that tried to do all the things that my colleagues and I have discussed, that would be a lot of people. Most importantly, we must ensure that any consistent statutory regulation does not obviate or cause people to walk away from the principle of professionalism. Professionalism, in its wider sense, is about ethical conduct and competency. That dynamic commitment to standards is a fundamental part of all that.
The only other point I would make is that an obvious and immediate step that could be taken is on the recognition of codes. We have done a lot of work since Lord Best’s review to develop an overarching code for estate agents and a block management code. All of those could be adopted relatively easily, along with ensuring that agents are qualified and licensed.
Lord Cromwell: So the value-add is essentially consistency and co‑ordination.
Luay Al-Khatib: It is consistency and co-ordination, while ensuring that there is not arbitrage in those systems.
Andrew Bulmer: I would add clarity for the consumer. You need that clarity.
Q22 Baroness Armstrong of Hill Top: Good morning. My questions come round to that clarity for the consumer. In my old constituency, there were hardly any leaseholders. We did not have a single building that was more than three stories high, and we had very few that were privately rented. It has changed, because housing was so cheap that a lot of property owners from outside came into the ex-mining villages in particular, bought up a whole host of houses, and let them out.
Nobody knew who to go to, and they would all go to the local authority because they were the only people that people recognised locally as having any hand in any of this. Clearly now, when there are so many more private rented properties, that knowledge and understanding has to change, but my impression is that it has not really. How do people find out about you and where they should go to at the moment?
Timothy Douglas: From Propertymark’s perspective, we rebranded back in 2017, bringing the five associations together, including the Association of Residential Letting Agents, for example, and the National Association of Estate Agents, under the Propertymark umbrella to be a more consumer-facing brand. If you use a Propertymark agent, you are getting a higher level of protection. We have done a lot of work to engage the consumer in doing that. As we have said, outside of the regulation in Wales and Scotland for letting agents, any competency level has been done on a voluntary basis.
When it comes to complaints and issues, it is not clear to the consumer where and who to complain to. The irony of the legislation for sales and letting agents to belong to a redress scheme is that it is not a mandatory requirement to have a complaints procedure in place. If you look around any of the agents’ offices, you will have different procedures and ways of dealing with those complaints. As Andrew alluded to, the consumer wants action straightaway, but unfortunately it is an investigative process. You have to complain to the agent first, then the redress and then to the professional body.
There are gaps in the existing redress. The Renters (Reform) Bill will look at redress for landlords. However, through that legislation we are going to create a very confusing landscape for the consumer with respect to where they complain to. Is the property agent doing let only, let and rent collection or fully managed? Where is the diagram? Who do they contact? There are gaps of redress in the new home-buying process. Not all developers sign up to the Consumer Code for Home Builders. Where the freeholder is not using a managing agent, there are no requirements to have redress. We need to square up these circles.
Finally, the existing redress schemes, as I have said, are inconsistent in the way they handle complaints. Before we even get to the Renters (Reform) Bill and other legislation, there are some very simple pillars that need to be in place first to support the consumer.
Luay Al-Khatib: Last year, we dealt with 4,000 concerns that came in. Only a portion of those, roughly half, were related to individuals or firms that we had jurisdiction over. That gives you a sense of the confusion. As Tim has said, some very simple steps could be taken as a start to strengthen the arm of those organisations that are regulating and delivering professionals and professionally regulated firms here to point consumers in the right direction.
That said, a lot more can be done beyond that to ensure a consistent regime and consistency in those approaches, recognising that there is a fundamental difference between redress and regulation. I am sure you know that. Redress plays an important part, but the regulatory regime ensures that minimum standards are met. I come back to the previous question about objectives. Those objectives have to be about delivery, protecting consumers from harm, ensuring trust and confidence and, importantly, developing and underpinning a vibrant and sustainable profession.
Andrew Bulmer: I was going to use the example of the ombudsman data. About two-thirds of complaints against sale agents are upheld. About two‑thirds of complaints against letting agents are upheld. Only about a third of complaints against block managers are upheld. That speaks of a few things. It speaks of poor communication, which is why the customer will be part of our audit process going forward. It also speaks about the sheer complexity once you start to get into the management of tall and complex buildings and the challenge that the average consumer has in navigating such a complex landscape.
Baroness Armstrong of Hill Top: Do you think, therefore, that in any new regulatory framework there needs to be some sort of statutory means for the consumer’s voice to be heard?
Luay Al-Khatib: There must be a means for the consumer’s voice to be heard and all the evidence that has been given up to now demonstrates that, so yes. There are examples that we can point to. We are working on our plans to develop a consumer panel. There is the opportunity for professional bodies to work closely on that and co-ordinate, so we are not duplicating efforts. That feeds into the development of the standards that are expected and various regulatory interventions. Yes, absolutely there needs to be a public voice.
Timothy Douglas: Yes, is the short answer. The consumer’s voice is powerful, because once there is that qualification and the training and the continued professional development regime are up and running, the consumer can feed in. We know what trends and bad practice are happening, and the improvement in the sector should be filtering through to the work that we are doing. You can review codes of practice and guidance. There is definitely a place for a consumer panel or panels in the future regulatory framework.
Andrew Bulmer: We already have a leaseholder panel that we are developing. As I say, that is moving more into our audit framework as we review that. The Building Safety Regulator has a resident engagement requirement. That is built into statute. It is a good model. This is where we come back to the principle of the fence rather than the ambulance down in the valley.
It is about being able to hear the voice of the individual, but there needs to be a coherent approach to collecting resident voices into the regulator and understanding that data. Yes, it needs to come from a number of sources, including a statutory residents’ panel, but it also needs to come from feedback coming in from ombudsmen, tribunals, professional bodies and so forth. All that information needs to go to the regulator. That is where you can clearly see the trends of the harms and you can feed it back into the code, the competence requirements and how the regulator regulates.
Q23 Viscount Trenchard: I would like to ask first about funding of a new regulator. The working group’s report suggested that, apart from some initial public funding, the new regulator should be funded by the firms and individuals it regulates. Mr Al-Khatib, could I start with you, because you have already mentioned the problem of duplicative costs? I wonder whether your members would be content to fund the new regulator. Are these costs likely to be passed straight on to their customers?
Luay Al-Khatib: Ultimately, it has to be paid from somewhere. It is likely that a substantial portion of those costs would end up going on to consumers. We have to assume that. On the idea of imposing duplicative costs, although there is a real desire to see consistent regulation, there would be natural concern if that ended up with those firms and individuals who are already paying for their regulation through the professional body having to pay for it twice.
Timothy Douglas: We have to be conscious of the cost of living, interest rates, inflation and what has happened probably since the report was published. There is supervision in the sector already, as has been alluded to. If we look at anti-money laundering, agents pay a fee per office to HMRC to be supervised. If you look at the letting agent registration in Scotland, there is a fee per office. We have continued to uphold our membership in Scotland alongside a registration fee and a fee for membership. Cost is an issue. I think agents would be happy to pay it.
I think what we are trying to allude to today is that there is already good competence and practice in the sector. Agents are already paying for a compliance role to some extent through the membership of a professional body. That could be built on to reduce some of those costs.
Andrew Bulmer: I would assume that any regulator would be targeted and proportionate. On that basis, there would be a cost to that regime. Good agents are already submitting to self-regulation and see the value proposition in that. Duplication can be reduced through collaboration. The regulator would collaborate with, one assumes, professional bodies, ombudsmen, national trading standards and others. You could reduce duplication in the administration and some of the functionality of it, but there would be a cost to the business. When you amortise that across millions of homes, the cost would be relatively proportionate, I am sure.
We have to look at the savings, because a professionalised industry makes fewer mistakes. Some of those mistakes are not just financial but impact on safety and people’s lives. We are in the business of managing people’s homes. It is housing that affects outcomes across the piece: social welfare, health costs, children’s education. The costs to society of poorly managed housing stock, I would argue, extend far beyond any cost to a firm of a regulatory regime. Again, we should remember that many firms are already submitting themselves voluntarily to those kinds of regimes.
Timothy Douglas: Within the Propertymark family, as it were, we have Propertymark Qualifications, a separate body that is an Ofqual-regulated and independent provider of professional qualifications to the sector. Members engage with that and learners who are non-members engage with that process. In 2022, the last of our reports that I have, over 4,000 agents voluntarily registered to complete a regulated qualification with Propertymark Qualifications, and over 1,600 completed, achieving the qualification certificate. There is appetite in the sector to be regulated—they are doing that on a voluntary basis through membership—but also to get themselves qualified and be professionally competent.
Q24 Viscount Trenchard: I understand. The second part of my question, carrying on from that, relates to the outcome of the introduction of statutory regulation. In some sectors, the more you regulate, the more difficult you make it for new entrants and start-up firms to come into the business. It is essential to keep costs down to make it easy, or relatively easy, as long as they are professional, for new entrants to come in. To what extent do you think this new regulator may reduce competition from smaller firms? How can you manage the introduction of regulation to avoid such an impact?
Timothy Douglas: We could look to Scotland and how the letting agent qualification and registration has worked up there. Essentially, you need to do a staged process in order to look at regulating the manager or owner of the firm, those company obligations, versus those individuals who need to be qualified to carry out competency. That could be managed and staged through the size of businesses, whether it is a sole trader or staffed, and the competencies that people are doing. You could build that up over time. You are looking at qualification per headcount or per size of office, and you build that up gradually, in order for the sector to be fully qualified over time. I recognise that, and a staged and managed process is important.
Luay Al-Khatib: I agree with that. It is important that, in doing mandatory licensing or qualification, you do not end up with a supply-demand shock because we try to do it all in one go, so a staged process is important. I do not think there is evidence to suggest that effective regulation drives small businesses out. In our own population of firms and individuals, we have a large number of small firms. Obviously there is a cost attached. Given what I said about avoiding duplication, with that one proviso, I think it will be seen as a net gain and will improve the sector and be supported by small firms as well as large.
Timothy Douglas: Scotland introduced the regulation of letting agents back in 2014. A report that we were involved in, in January of last year, looked at the impact of letting agent qualification and regulation. Some 87% of the letting agents who had completed qualification said that it had a positive impact on their professional capabilities, while 51% of landlords said that the requirement for the letting agent qualification had been a positive thing for the private rented sector overall. Some 84% of letting agents said that they wanted to stay in the sector long term as a profession. Finally, over 97% considered that the CPD—continuing professional development—requirement had a positive impact on the professional capabilities of employees of their business. Yes, there was a win-win there.
Andrew Bulmer: I will chime in on the leasehold side. In Scotland, which does not have leasehold but has freehold with the factors, they were regulated before the letting agents. You can see that that industry is thriving. The dash for professional qualifications has picked up pace in the last few years, post Covid especially.
We are certainly not seeing that, but we are seeing mergers and acquisitions taking place at a large scale anyway. We are moving towards the coffee shop model. There will be Costa, Starbucks and maybe Pret, and then you will have a load of very small boutiques. There will be a long tail of small new entrants and operators at the other end.
In the management of large buildings, the pivot towards the consumer, the onboarding of all the new safety requirements and of course then leasehold reform, which feeds back into both of those, are driving large‑scale M&A at the moment. Many businesses are for sale or are looking to acquire others. I do not see the regulation as being a significant additional impediment to an industry that is already changing dramatically.
Q25 Lord Best: Two big things for the regulator are ensuring that everybody is properly qualified and ensuring that everybody adheres to a code of practice or a code of conduct. We have heard quite a bit about the second of those. I have a question about each, if I may.
On the qualifications, lots of you are already involved in ensuring that people are qualified professionally. Sadly, you do not embrace the whole of the industry, but for the people you embrace you are already engaged in this. Are the qualification systems that are currently out there working fine? Should we be training people in extra skills? Is more needed on the consumer side, such as understanding people’s needs? Social skills are involved. Should what is already there be improved on, or is it all just about okay?
Andrew Bulmer: It is a process of continual evolution. I started at what was then IRPM, now the Property Institute, in 2016. The qualification at that time was effectively a technical qualification. How do you manage a building, including budget, service charges, the law, et cetera? I am pleased to say that we started this process before Grenfell; it was not a reaction to Grenfell. We introduced modules on safety, customer and ethics. Those are the four elements of a Property Institute qualification.
I repeat only that the industry is pivoting very much towards the consumer and safety. The four elements are underpinning our qualifications at the moment. They continue to evolve and will continue to evolve as new requirements are placed on building managers. Be under no illusion: the industry and the Property Institute understand that the requirements for soft skills and for training over and above qualifications around soft skills is growing. It is demanded by firms, as well as being promoted by our institute.
Luay Al-Khatib: Ethical training—a core part of RICS qualification—requires demonstration of understanding of ethical principles set out in the rules of conduct. For all the reasons given, these areas of work touch more and more on consumers. It is important that professionals can engage effectively with consumers, particularly low-income households. All those kinds of things become incredibly important. I would see that becoming a bigger and bigger part of the ongoing CPD regimes.
Timothy Douglas: I agree with Andrew about evolution. Within Propertymark Qualifications, there is a panel continually reviewing the content. We have moved the qualification to a more standard module‑based process and then the specifics of the different disciplines come into play. Soft skills, health and safety, all these elements, are feeding into an evolving process. You cannot underestimate that ongoing professional development, the training, the intel we can get from consumers, and trends from what is happening in the market all need to feed into that. As professional bodies, we are trying to do that through a plethora of fact sheets, guidance, conferences, webinars and all the other stuff that comes through, not just with the simple qualification.
Q26 Lord Best: We have done quite a bit on the codes of conduct already this morning. Thank you for all your comments. The working group thought that there should be one overarching code that dealt with the big stuff—transparency, honesty and behaving properly—and a specific code for each section, so for estate agents, letting agents and managing agents. Does this format work for you? Could you report back? I know that some of you were involved in Baroness Hayter’s working group looking at a unified code that you could all be part of. How has that discussion ended up?
Luay Al-Khatib: Along with my two colleagues here, we played a key part in working with Baroness Hayter to develop that code. We absolutely agree that that should form the overarching principles that sit above all of this. We would be looking for that to be adopted as a minimum.
The point you make about sub-codes for the sectors is certainly well recognised and agreed. As I alluded to earlier, a block management code has been developed that could form an important starting point, given the complexity of that area. Codes like the service charge code that RICS publishes must also play a key part in that. There is plenty out there, and, yes, it absolutely needs to be developed on a sectoral basis.
Timothy Douglas: The overarching principal code is a good idea, with sector-specific codes underneath. From Propertymark’s perspective, as I have already alluded to, those codes then need to be used in adjudication, redress and standards for the sector. Currently, that is happening inconsistently, so we would like to see that co‑ordinating function.
I have talked a lot about Scotland, but certainly from Propertymark’s perspective it is the closest regulatory model that could and should be followed. You have the qualification up there. There is a statutory code of practice and that ongoing CPD requirement. Also in Scotland is the new specialist First‑tier Tribunal that they introduced, which handles complaints. We do not have that element and the UK Government do not have the appetite to do that. The codes of practice are vital for that redress and standardisation of enforcement across the sector.
Andrew Bulmer: The fundamental structure of an overarching code and then sector-specific codes is the right way to do it. There is a crushing need for the simplification of codes in the block space. You have the Secretary of State‑adopted RICS code at the moment, you have the Secretary of State‑adopted ARHM code from the Association of Retirement Housing Managers, which is also operating in the leasehold space. You have the ARMA standard and, potentially, the RoPA code, which is sitting on the stops, ready to be deployed. It would make sense to amalgamate, simplify and simply have one source of truth.
Q27 Lord Cromwell: CPD evolution is part of life, and it is entirely the right thing. Co-ordinated code makes complete sense. Can we get a little bit more granular though? Will this new body, Ofprop or whatever this regulator will be called, be determining how many different qualifications you need in an office? I am concerned, for example, about whether apprentices will be limited as to what business they can conduct. Will it be set out very clearly who can do what business according to what qualification they have?
Andrew Bulmer: There is a very simple model in the Social Housing (Regulation) Act where that is likely to be specific. It is under consultation at the moment, but we can see an intention there. It comes down to functions. If an individual is doing a certain function, they need to have competence in that function. You could make it relatively elegant, which would enable the model to flex. Whether it be a housing association managing leasehold or the private sector, it makes no odds. You would have different teams doing different functions. As long as the competence piece is captured, you can build qualifications around it.
This is where the regulator has the power to join up with the firms. I mentioned earlier regulating corporate competence and capability. Once you start to get into big, complex buildings where functions are set between different teams or different individuals, you can look at the organisation piece and see that there is competence and capability within that.
Lord Cromwell: Ofprop, if I can call it that now, will reach down to that level of who can do what and monitor and enforce it if they do not.
Andrew Bulmer: Yes, it can be done.
Timothy Douglas: I would agree. On the issue of apprenticeships, in the Republic of Ireland, the Property Services Regulatory Authority is the statutory body covering auctioneers, estate agents, letting agents and property management agents. There is a requirement to be qualified and licensed and there is a register. There is a two-year government-backed apprenticeship there, but you have to do it with a licensed professional.
Lord Cromwell: It is a “hand on the shoulder” kind of thing.
Timothy Douglas: Yes, and then the qualification is built up through the credits, which you retain to get your licence. That can easily be done. Through Propertymark Qualifications, we have an estate agent apprenticeship programme and work with colleges throughout the country to build that up.
Luay Al-Khatib: Absolutely, we would expect there to be consistency of approach. That would require the statutory office of property regulation to make sure that there is consistency in the roles, functions and qualifications that attach to them. The only point I would add, linked to our previous discussions, is that there is an opportunity to work with the professional bodies on the monitoring and enforcing of that.
Q28 Lord Agnew of Oulton: We are running out of time, so my questions should be answered briefly. They are about other models around the world. I am worried by Mr Douglas’s idea that we should be following the Scottish model. I would disagree with that for three reasons. First, it is a far smaller economy. Secondly, it has a static population. Thirdly, there is a hell of a lot more state funding available to solve many of these problems.
What about Australia? Do you know how the regulatory environment works over there? It is a dynamic economy with a growing population. What about Germany, which has a high proportion of long‑term renters? If we are going to do this, which everybody seems to think we should, let us get the very best from around the world, not just follow Scotland because it is the nearest.
Timothy Douglas: I said that it was maybe not the best but the closest to what has been discussed and akin to tackling some of the aspects we have talked about today. As I have just mentioned, the Republic of Ireland has that licensing and qualification approach. The two closest to home to look at are Wales and Scotland. I think that, if you compare Scotland to Wales, you would favour the Scottish approach. That is because in Wales, as I said earlier, they tried to register, train and equip all landlords and get them to be licensed or use a licensed agent all in one go. I think they misunderstood how many landlords needed to be licensed.
At Propertymark, we do not think that a day’s training course to be a property agent, with all the legislation we have talked about, is sufficient. Therefore, Scotland gets a tick because it has a qualification and because we are working towards a mandatory code of practice. Scotland gets a tick because it has done away with almost all the redress process and introduced a public-funded tribunal that is free for all to use. Scotland gets a tick because there is a CPD requirement. As to where Scotland will go next, it is looking at introducing a regulator. As we have discussed this morning, a lot of the functions that regulation carries out, such as logging that CPD, the ongoing training and the compliance, are happening through the professional body. Let us not necessarily reinvent what is already happening across the UK. Utilise the existing good practice and build on that.
Lord Agnew of Oulton: What about other countries? You seem very wedded to Scotland.
Timothy Douglas: It is just the closest.
Luay Al-Khatib: There is plenty to be learned from other countries. I do not have the information in front of me to go into a detailed comparison, but Australia, Germany and the Republic of Ireland would be interesting to look at. I would be very happy to commit to coming back to the Committee, based on our global network of members, with a high-level comparison of those over an agreed time. We can discuss the timescale, but it will be as soon as we can. We would be very happy to do that.
Andrew Bulmer: Leasehold exists in other parts of the world, but generally it has a much heavier state-controlled element, such as in Singapore or Hong Kong. We are relatively unique in that, and in the fact that the industry is transitioning from a landlord-focused to a customer/resident-focused model. I do not think there are that many lessons to be learned. In America, with the National Association of Realtors and the state licensing of realtors over there, they set the bar so low that it produced a diminution in the competence of realtors for a period of time.
Luay Al-Khatib: If there is a pitfall with the regulation of professionals, it is that it often ends at registration of professionals. It does not go much further than that. It is one thing having a code. If one has a register of professionals, what do you do with that register? If there is a pitfall, it is often in creating a register and then not resourcing the upholding of standards effectively.
The Chair: That has been very interesting this morning. Thank you very much to all three of you. If there is further information that you would like to write in with, by all means do so. We would be very grateful. Thank you very much indeed.
