regulations and law for letting agents...regulations and law for letting agents held on 15 september...

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Regulations and Law for Letting Agents

Held on 15 September 2015

Your course tutor today is David Smith

David is a solicitor and Partner at Anthony Gold Solicitors

Contact me:

Anthony Gold website: www.anthonygold.co.uk

Email: [email protected]

Twitter @hmolawyer

LinkedIn uk.linkedin.com/in/dsnsmith

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Regulations and Law for Letting Agents | 15/9/2015 | David Smith | of 25

Easy Law Training | www.easylawtraining.com

Introduction

Consumer protection law is a complex and increasingly growing part of the sector. From a

position where it was barely considered necessary at all it has grown in fits and starts to

become a substantial component of the letting agent’s and landlord’s business processes. In

fact the lettings and estate agency business has been relatively lightly regulated for a very

long period of time and still seen by consumer enforcement officers as being less tightly

regulated than other consumer facing industries, often of lesser importance.

Purpose

The purpose of consumer protection legislation is often disputed. To some degree it increases

the cost of business in the sector and those costs are inevitably passed on to the consumer

themselves. To that extent the consumer pays for their own protection. However, the cost is

also spread across all users and is largely hidden within a wider charging regime and so it is

largely invisible to most consumers. Successive studies have also demonstrated that

consumers are prepared to incur some cost in the pursuit of better regulation that benefits

them more generally. It is also the case that consumer protection legislation increases

confidence in the sector and leads to more and better investment and reduces losses to

criminality and poor practice.

Sources of Regulation

There are a number of sources of consumer protection legislation. Traditionally the main

source was the EU. However, that is changing a great deal more UK primary legislation is now

involved as successive governments have woken up to the fact that being a champion of

consumers is the same as supporting those who vote for you! Therefore, the focus is slowly

shifting toward home-grown legislation. There is also case law which provides consumer

rights, often quite old, and this is periodically dusted off to make an intervention in a specific

case.

Professional Bodies and Standards

One other element of consumer protection that has not been mentioned already is that of

professional bodies. These provide consumer benefit by imposing higher standards on their

members that are over and above those offered by legislation. They might also offer additional

benefits relating to money and dispute resolution. Currently the main thing offered by most

professional bodies in the lettings sector is client money protection which protects landlords

and tenants against the disappearance of agents with rent and deposit money. This is often a

hidden protection that many members of the public assume already exists for all agents and

so its value is largely unrecognised. Professional bodies may also provide other benefits such

as compulsory training requirements for members.



What is Consumer Protection Legislation?

It can be hard to define what we are talking about when we say consumer protection. From one perspective anything that provides a benefit to consumers is consumer protection. So it could be said that tenancy deposit protection, repairing obligations, and the HHSRS are all consumer protection legislation, as indeed they are. However, the definition is usually made narrower from those things that provide tangible benefits to consumers generally. A working definition would be legislation that deals with the enforceability of contractual terms and fee structures and information for consumers and which is generally enforceable primarily (although not always) by government bodies.

Key Legislation in the UK

Companies Acts

EPC regulations

Unfair Terms in Consumer Contract Regulations (UTCCR)

Consumer Protection From Unfair Trading Regulations (CPRs)

Consumer Rights Act

Enterprise and Regulatory Reform Act 2013

ADR Regulations

Money laundering directives

Enforcing Bodies

Most consumer protection legislation is now enforced by local trading standards departments. This means that the enforcement body is diverse depending on the area of the country. It also means therefore that the level of activity around enforcement and interpretation of the law is open to some degree of variability as well. The Competition and Markets Authority (CMA) also has a role. It issues guidance an retains a power to investigate sectors, recommend legislation, and take prosecutions and civil cases where practices are substantially detrimental to consumers. However, it has made clear that is is unlikely to take cases other than in the most extreme situations and is therefore substantially less interventionist than the Office of Fair Trading (OFT) which it has replaced.

Guidance

Guidance is important in consumer protection matters. It is the essential basis by which local enforcers interpret the legislation and it also has a tendency to characterise the view of the Courts where prosecutions or civil actions are taken. Therefore



guidance should be considered with care and should in most cases be taken as a statement of the legal position. However, it should also be remembered that it can be wrong, especially as it is often poorly worded and can take little account of the practical realities of a market situation.

Initial Phases- Setting Up the Business

Consumer Redress and Lettings Agency

The Enterprise and Regulatory Reform Act 2013 requires letting agents to be members of redress schemes. The schemes are approved by way of the The Redress Schemes for Lettings Agency Work and Property Management Work (Approval and Designation of Schemes) (England) Order 2013 while the specifics of the scheme operation are found in sections 83-88 of the Act itself and in the Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc) (England) Order 2014, which clears up gaps in the Act and specifies the method of enforcement.

The legislation actually has two separate redress scheme structures within it although one scheme can be approved under both structures and all of the currently approved schemes are approved for both redress areas. Section 83 sets up redress schemes for “letting agency work” while s84 sets up redress schemes for “property management work”. Note that in both cases the word is “schemes” and the government clearly envisages the possibility of there being more than one. Currently three have been approved. There is the prospect in the legislation of a scheme being designated as a “government administered” scheme. What extra advantage is bestowed by this accolade is not exactly clear and at the current time no such “government administered” scheme exists.

Both definitions state that they only apply where the work is being done “in the course of a business”. This should mean that a person who assists another landlord on a voluntary basis would not fall within the definition of the legislation.

Lettings Work

The letting agency redress scheme applies to those dealing with instructions received from those looking to rent out or find a property for a “domestic tenancy” in England. This means that it will apply to both letting and relocation agents. However, it also has exceptions. It will not apply to those offering pure advertising or introduction services and so there are a range of new internet-only letting introduction businesses, such as Gumtree, which will be exempt.

http://www.legislation.gov.uk/ukpga/2013/24/section/83/enacted

http://www.legislation.gov.uk/uksi/2013/3192/pdfs/uksi_20133192_en.pdf





The Order also introduces a few more exceptions. Employers and employment agencies who are providing accommodation for staff and workers are exempted as are approved educational institutions. There is also an exemption for regulated legal professionals.

Management Work

Property Management is also covered by these schemes. This includes management of shorter residential tenancies as well as block management work and the management of long leases. This is a problem still as a number of management only businesses think they are exempt. The definition is based on receipt of instructions to “arrange services, repairs, maintenance, improvements or insurance or to deal with any other aspect of the management of premises”. It may well be that this is the biggest area of activity as many long leaseholders dislike their block managing agent but have had a limited opportunity to do anything about it. They may see this as their chance to have a say. Many block managing agents appear to be unaware that the new redress schemes will apply to them.

The Order also provides some further exceptions to this definition. Educational institutions that are letting their own property or property owned by a charity to their own students are exempted. So are all properties which include commonhold land. All establishments being used for the accommodation of abused persons which are run by a charity are also exempt. There is also an exemption for LPA 1925 receivers and Right to Manage companies.

The Schemes

Schemes must be government-approved. The three approved schemes are:

1. The Property Ombudsman Service. This has been operating for some time and is a compulsory redress scheme for ARLA and NAEA member agents. This is probably the most detailed scheme in terms of having codes of practice that members must obey.

2. Ombudsman Service- Property. This scheme already provides redress in respect of RICS, ARMA, NALS, and UKALA members. It is a fairly light touch scheme in that it relies on external codes of conduct.

3. Property Redress Scheme. This is the newest scheme and is run by the same people who operate the MyDeposits tenancy deposit protection scheme. This is also a fairly light touch scheme with no code of conduct of its own. It also appears to be the cheapest scheme for agents who are not members of a professional body.

Codes of Conduct



Only TPOS has its own internal code of conduct at the moment. The other schemes require that agents obey statutory codes of conduct such as the Service Charge Residential Management Code, which is approved under s 87, Leasehold Reform, Housing and Urban Development Act 1993 and the PRS Code of Practice. Other codes of practice, particularly relating to professional bodies, also exist and where a scheme member is bound by one of these then the redress scheme will usually consider whether they have been complied with.

Enforcement

Section 85 of the Act deals with enforcement of the requirement to be a member. It provides for both civil and criminal penalties as well as the possibility of banning persons or organisations from engaging in lettings agency or property management work. It may be that the government is simply keeping its options open. At the moment the Order places the obligation squarely on the local authority for the area. However, the other options remain available and may be exercised later. It is worth noting that the local authority is placed under a positive duty to enforce the legislation and so where a complaint is made they will need to take action or have a very good reason why not.

The Order sets out a new power for a local authority where they believe that an agent does not belong to a scheme to serve a penalty notice on them. This notice is not exactly a criminal or a civil sanction, it is outside either mechanism. This means that being served with such a notice will not make an agent guilty of any form of criminal offence. It is similar in that sense to the penalty notice that can be served on a landlord or agent under the new Immigration Act. As it is not an offence then no criminal record will be incurred by being penalised. At the same time the local authority gets to retain penalty income (unlike in criminal matters where fines go to HM Treasury) and so they are assumed to have motivation (and a funding stream) to pay for enforcement.

The penalty notice follows a process. The local authority must serve a notice of their intention to issue a penalty. This intent notice must be served within 6 months of the local authority becoming aware that the agent is not a member of a scheme. The notice must specify the level of the penalty which has a maximum of £5,000, the reasons for the penalty being issued, and inform the agent of their right to make representations or objections. There is then a 28 day window for the agent to make representations or objections to the authority in writing. After that the authority must consider the representations and can then issue a final penalty notice. The notice can be withdrawn or the penalty reduced by the authority at any time. The final notice must specify the penalty, the reasons for issuing, specify the mechanism and timing of payment of the penalty which cannot require payment in less than 28 days and give information about how to appeal.

A court can make an order making a penalty recoverable as if it was an order of the court. However, the current legislation does not specify which court can make such an order so it is not clear where a local authority would apply for this.



Appeals

An appeal can be lodged within 28 days of the service of a final notice. Appeals are to the First Tier Tribunal, which can quash, confirm, or vary the notice. An appeal can only be made if the agent can assert that the decision to impose a penalty was based on an error of fact or law, that the decision was unreasonable, or that the level of the penalty was unreasonable.

Gaps and Flaws in the New Redress Scheme

There are a number of clear limits on the letting agency scheme. It only applies to Assured and Assured Shorthold tenancies under the Housing Act 1988 as the definition of “domestic tenancy” is strictly limited. This is a somewhat perverse scenario which could mean that a landlord might be covered by the redress scheme for one tenancy to a family but not for the next one to a company. It also does not cover the new breed of HMO agents who purport to only offer licences outside the redress schemes which some might consider is excluding a group most in need of regulation. However, it should be noted that the Secretary of State can add new tenancy types by making a further Order if he wishes so this may change although he is not able to do anything which would bring long leases or registered social providers under the ambit of the lettings agency redress scheme. There is also the potential for litigation at the margins as individual providers try to show that their particular services are outside the ambit of the legislation.

There is also the geographical boundary issue as Wales is not included. They are creating their own licensing and registration process under the Housing (Wales) Act. Therefore a property in Chepstow will fall under the Welsh scheme while one in Gloucester will be under the English version. Agents that have cross-border operations will be frustrated by this.

There will also be a risk with multiple redress schemes of a race for the bottom with schemes competing to be cheapest and lightest touch. Agents may well search around for the friendliest scheme. Deposit protection has not seen this so much as it is harder to identify one or another scheme as being most friendly to landlords or tenants but there has been an increasing competition on price, especially as regards agent business. If this was repeated with consumer redress schemes the consequences will be more damaging.

Complaints Process

All the operating redress schemes require their members to have a clear written complaints policy. This may well be the biggest challenge for many agents as they may find themselves facing an unexpected level of complaints. A good complaints policy should make clear what can and cannot be complained about, how a complaint should be made, what timescales can be expected for a response and what sort of response can be expected. There should also be a named individual responsible for complaints with sufficient seniority to investigate and reply to complaints on behalf of



the firm. This is very important. A well thought out complaints policy will make the process of handling complaints far easier and more efficient.

Money Laundering

Currently the letting sector is not regulated for money laundering purposes, only estate agency is. However the 4th EU Money Laundering Directive came into force in June 2015 and must be brought into force in the UK within two years. It is also stated to apply to estate agents but the pre-amble to the directive states that “estate agents could be understood to include letting agents” where applicable. While this is less than clear it seems to suggest that the EU intends that letting agency be brought within the scope of money laundering to some extent.

If this were to be the case this would require identification information to be obtained from all parties and the source of funds to be established. The issue of ID is not so much of a problem as agents are now required to obtain it for tenants anyway as a result of the introduction of the Right to Rent. Source of funds requires a little more digging!

Companies Act 2006

If the proprietor of an agency is a limited company then it is supposed to make this clear by using the word Limited as part of its name (section 59 Companies Act 2006)

It is a criminal offence for a limited company to fail to display its registered name on its notepaper, website and outside its premises. (The Companies (Trading Disclosures) Regulations 2008)

An agent cannot rely on the protection of limited company status if he or she has kept that

status hidden from the customer. The case of Hamid v Bradshaw is an example of where this

worked in the agent’s favour but the principal can equally be used against the agent.

Fundamental Concepts- Fairness and Unfairness

The Unfair Terms in Consumer Contract Regulations (UTCCR) and the Consumer Protection From Unfair Trading Regulations (CPRs) have little connection with UK law. They are based on European directives and are hard to understand from a UK perspective where parties have historically been free to enter into any contract they wish, even if it is a very poor one from their viewpoint.

http://www.legislation.gov.uk/ukpga/2006/46/section/59

http://www.legislation.gov.uk/uksi/2008/495/regulation/6/made


http://www.bailii.org/ew/cases/EWCA/Civ/2013/470.html



UTCCR

The UTCCR deals with contracts made between consumers and traders. The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) will be replaced by part 2 of the Consumer Rights Act 2015 in October 2015. Both give force to a European Directive to protect consumers. A trader is someone who is supplying a good or service from a business perspective. A consumer is a party receiving such a good or service from the trader and who is not themselves operating in the course of a business. There are exemptions for assessment of fairness for the price paid for the fundamental service received. There are also exemptions where the clause has been individually negotiated but this requires that there is a realistic prospect of influencing the scope of the term. Taking of legal advice or being able to consider the terms is insufficient. The obligation to prove individual negotiation falls on the supplier and is a very high burden to discharge. Even if one term has been varied by negotiation, the regulations can still apply to the remainder of the contract if it is a standard pre-drafted agreement.

A term is unfair in general where:

"… it causes a significant imbalance in the parties' rights and obligations under the contract

to the detriment of the consumer in a manner or to the extent which is contrary to the

requirement of good faith."

A term which unfair to consumers in general also permits trading standards officers or the CMA to take a test case seeking an injunction to prohibit its use altogether.

The UTCCR apply to tenancy agreements where a landlord is acting for purposes relating to his trade, business or profession (R (Khatun) v Newham LBC, EWCA as recently confirmed by the European Court of Justice in Brusse and Garabito v Jahani Ltd [2013] EUECJ C-488/11)

However, They do not apply to the core terms - i.e. the property description or the rent - unless they are not written “in plain intelligible language” in which case the unfairness test can apply;

UTCCR

Regulation 5(1) “A contractual term which has not been individually negotiated shall be

regarded as unfair if, contrary to the requirement of good faith, it causes a significant

imbalance in the parties’ rights and obligations arising under the contract, to the detriment of

the consumer”

The Regulations allow a court to say that a manifestly unfair term is void [the effect is to cross it out of the tenancy agreement];

o The regulations are now enforced by local Trading Standards departments. If a trader is using an unfair tenancy agreement, Trading Standards have power to apply to a court for a declaration that the term is unfair and an order that the trader has to delete it or amend it from any standard agreement that he is using.

http://www.legislation.gov.uk/uksi/1999/2083/contents/made

http://www.legislation.gov.uk/uksi/1999/2083/contents/made

http://www.legislation.gov.uk/ukpga/2015/15/part/2/enacted

http://www.legislation.gov.uk/ukpga/2015/15/part/2/enacted



o An example of the powers being used against a letting agent is the case of OFT v Foxtons. In this case consumer landlords were being held to renewal and commission terms that the OFT felt were unfair and unclear. The court granted the OFT a declaration that the terms were unfair and an injunction restraining Foxtons from continuing to send out contracts in those terms

The office of fair trading has been replaced by the Competition and Markets Authority, but their publication, ‘Guidance on Unfair Terms in Tenancy Agreements’ September 2005 is still very useful because it can be used to persuade a landlord or a judge that a tenancy term should be deleted. It is available online.

Examples from the Guidance of terms which the OFT considered unfair are clauses:

o not written in plain intelligible language;

o binding a tenant to terms that the tenant has not seen before signing the tenancy agreement (hidden terms);

o allowing the landlord to end the agreement early but giving no such rights of a tenant;

o allowing the landlord complete freedom to decide: whether a tenant should pay a penalty/ whether a tenant has breached the agreement/ how much of the deposit to keep at the end of the tenancy without challenge;

o preventing any assignment during a fixed term (i.e. not letting someone else suitable take over the tenancy, but note below

o prohibiting the tenant from taking a dispute to court;

o Prohibiting the tenant to “set off” a claim for compensation against rent due.

A list of the types of terms that may be unfair can be found in Schedule 2 of the Consumer

Rights Act 2015.

CPRs

The Consumer Protection From Unfair Trading Regulations are rather different. They create criminal and civil penalties relating to unfair trading practices. This might include routine dishonesty but also pressure selling and misleading information.

What is Fair?

Merely signing a contract does not bind a consumer to it. They are only bound if they were fairly sold the contract and to the extent that it is fair in its content. This is very hard to understand in a UK context where contracts have historically been the be all and end all of the matter. It is also made more complex by UK approaches to case law

http://www.bailii.org/ew/cases/EWHC/Ch/2009/1681.html

http://www.bailii.org/ew/cases/EWHC/Ch/2009/1681.html

http://www.oft.gov.uk/shared_oft/reports/unfair_contract_terms/oft356.pdf

http://www.legislation.gov.uk/ukpga/2015/15/schedule/2/enacted



which state that a decision is binding on all lower courts. This limits the scope of lower courts ability to consider the specific case and its fairness in detail as they tend to be used to simply applying decisions of higher courts.

Initial Instruction

When instructed by the landlord there are two specific issues which need addressing.

Fees

Hidden charges and misleading fees are longstanding complaints made against letting

agents. There are a number of provisions which relate to this.

UTCCR and CPRs

Fee structures must be non-punitive and fully disclosed. Drip pricing and any form of

price structure which lures people in with one price while concealing, actively or

passively, a range of additional charges is both unenforceable and unlawful. Ibn

addition there is a right to recover such fees and to terminate the agreement.

All charges must also be quoted inclusive of VAT. This includes commission

percentages to the extent possible.

Consumer Rights Act

A further new statutory duty relating to letting agent fees is set out s83 of the Consumer

Rights Act 2015. It requires letting agents to display a list of fees at each of the agent’s

premises at which the agent deals face-to-face with persons using or proposing to use

services to which the fees relate. The list must be located in a prominent place where

it is likely to be seen by such persons. Agents are also required to publicise a list of

their fees on their websites.

The list of fees must contain the following information:



A description of each fee which sufficiently enables a person who is liable to

pay it to understand the service or costs that is covered by the fee

The list must clearly state the amount of each fee and the figures quoted must

be inclusive of any applicable tax such as VAT. Where the fee amount cannot

be determined in advance there must be a description stating how the fee is

calculated

Put simply, the objective is for the consumer to have full details, in advance, about

what charges are likely to be levied by the agent so that he or she can make a fully

informed decision about whether or not to enter into the contract.

The list of fees must be complete and clearly defined; there is no longer any room for

surprise or hidden charges. Vague language such as ‘administration fees’ cannot be

used and all costs must be stated inclusive of tax. Agents will need to provide a

breakdown of the fees that relate to individual services such as marketing the property,

conducting viewings, carrying out credit references and tenant checks and producing

the tenancy agreement and the property inventory.

Relevant Fees

Letting agents are only under a duty to publicise details of ‘relevant fees’. These are

specifically defined in s85 of the Act as meaning fees, charges or penalties payable to

the agent by a landlord or tenant-

In respect of letting agency work carried on by the agent

In respect of property management work carried on by the agent or

Otherwise in connection with an assured tenancy of a dwelling or a dwelling

that is proposed to be let under an assured tenancy.

Rent payable to a landlord under a tenancy, tenancy deposits and fees, charges or

penalties which the letting agent received from a landlord under a tenancy on behalf

of another person are not relevant fees for the purposes of the legislation.

Letting agency work is defined in the Act as meaning things done in the course of

business in response to instructions received from:

A private sector landlord seeking to find a tenant to rent a property under an

assured tenancy, and having found such a tenant, granting such a tenancy (‘a

prospective landlord’)



A tenant seeking to find a property in the private rented sector let under an

assured tenancy and having found such a property, obtaining such a tenancy

(‘a prospective tenant’)

It does not include situations in which the only thing done by the person is to publish

adverts of disseminate information or provide means by which a prospective landlord

and prospective tenant can communicate directly with each other in response to an

advert. This appears to apply to internet sites such as Spareroom and Gumtree which

will be exempt from the regulation. It does not apply to local authorities assisting

tenants find private sector lets.

Property management work is also defined as meaning things done by the agent in

the course of business in response to instructions received from another person

relating to arranging services, repairs, maintenance, improvements or insurance, or

dealing with any other aspect of the management of the premises. The premises must

consist of a dwelling-house let under an assured tenancy. This means it would apply

to agents who are instructed by private rented sector landlords to manage properties

on their behalf.

Client Money Protection and Redress Schemes

Furthermore, letting agents engaging in letting agency or property management work

in relation to residential dwellings in England are subject to a couple of further

provisions. If the agent holds money on behalf of their client, they are under an

additional duty to display or publish, with the list of fees, a statement setting out

whether the agent is a member of a client money protection scheme.

Also, if the agent is required to be a member of a redress scheme, the agents are

under a duty to display or publish, with the list of fees, a statement that indicates that

the agent is a member of a redress scheme together with the name of the relevant

scheme. This will apply to most agents as since 1 October 2014 it has been a legal

requirement for all letting agents and property managers in England to belong to a

government approved redress scheme.

Enforcement and Penalties

The Act contains tougher financial penalties for non-compliance with the rules. If a

letting agency is found to have breached its duty, the local authority trading standards

department may impose a financial penalty. The local authority has discretion to



determine the amount of the financial penalty but it cannot exceed £5,000. Only one

penalty may be imposed on the same letting agent in respect of the same breach of

the duty. However, a national letting agent who has not published a list of its fees may

be fined at each of its offices where there is a failure to comply with the legislation.

This is not an offence and so no criminal record will ensue. As with other penalties of

this nature the money earned goes to the local authority.

Service Descriptions

The CPRs also apply to the description of the services to be provided and the style of

sale. Pressure sales, misleading service descriptions and false statements which

suggest that the agent is a member of a redress scheme or professional body with a

code of practice which they are not a member of are all criminal offences and there

will potentially be a power to unwind the contract as well.

Distance and Off-Site Sales

The Distance selling regulations and other regulations relating to sales in consumers

homes no longer exist. They have been replaced with the Consumer Contracts

(Information, Cancellation and Additional Charges) Regulations 2013.

The new regulations are in fact substantially more onerous than the old ones as they

deal with "on premises" and "off premises" contracts. On premises contracts are ones

concluded entirely in the business premises of the trader. An off premises contract is

one concluded off the trader's premises in the physical presence of trader and

consumer or one concluded on the trader's premises either based on an offer made

off the trader's premises or after the trader addressed the consumer off the premises

or after an excursion aimed at selling the service to the consumer. A distance sale is

also still relevant and deals with organised distance selling schemes without the

presence of either party in the same place.

Although tenancy agreements are not covered most contracts concluded by letting

agents with landlords will be off premises contracts as they will involve an offer or

conclusion away from the trader's premises or an excursion (ie a property viewing)

that was intended to sell the service or product.

What Changes?



The regulations allow for a 14 day right of cancellation and also have specific

requirements as to the information that must be given as well as a standard form. For

most agents the basic information requirements will be satisfied if they have a decent

terms of business in place. The standard form gives more specific information about

the right to cancel. As with the current position it is possible for a consumer to request

early action in which case the right to cancel is not lost but the cost of the work done

to date will have to be paid. However, they must do so explicitly and they cannot simply

be assumed to have done so by way of instruction.

Advertising to Tenants

Property Descriptions

The CPR applies again in relation to the description of properties. The Property

Misdescriptions Act does not apply to letting and is now repealed but the CPRs fulfil

the same function and apply to both. This means that an agent cannot make any

misleading representation in any advert that encourages someone to enter into a

transactional decision. This includes merely asking the agent for details or entering

into their office. This includes both active misstatements and misleading omissions.

Not every single thing must be disclosed but anything that would be relevant to a

reasonable person must be. Wilfully vague statements about the property or area

which give a good impression but which are untrue or have been made completely

without evidence are also unacceptable. This also applies to photographs so angles

that deliberately exclude key matters or have been photoshopped to give a false

impression are also prohibited.

There is a defence of reasonable failure where the agent has done all they can in the

circumstances. Therefore a process that involves checking key facts, asking landlords

to sign off descriptions, and making sure that details on online services are correct is

vital.

EPCs

Tenants are also entitled to see the EPC ratings as well. The EPC figures and graph

must be in any advert online or in a window. The tenant must be provided with a copy

of the EPC prior to a viewing or with any written details. This must be the whole first



page including the action recommendations. The full EPC must be provided before the

tenancy is entered into. Not to do so is an offence with an unlimited fine. In addition

there may be a breach of the CPRs if the advertising is misleading or inaccurate.

The Deregulation Act changes also mean that it is likely that there will be no ability to

serve an s21 notice on a tenant where no EPC has been provided first.

Agency Fees

Misleading or missing fees are a big complaint of tenants. Since November 2013, the

Advertising Standards Authority (ASA) has required letting agents to be upfront about

compulsory fees and charges in their advertisements. Complaints about misleading

adverts can be made to the ASA through its website.

Consumer Rights Act

A new statutory duty relating to letting agent fees came into force on 27 May 2015 and

is set out The Consumer Rights Act 2015. It contains specific provisions relating to

letting agents and a new duty requiring them to publicise details of their fees.

It requires letting agents to display a list of fees at any agent’s premises where the

agent deals face-to-face with prospective tenants. The list must be located in a

prominent place where it is likely to be seen. Agents are also required to publicise a

list of their fees on their websites; the objective is for tenants to have full details, in

advance, about what charges are likely to be charged so that they can make a fully

informed decision about whether or not to enter into the contract.

The list of fees must contain the following information:

A description of each fee which enables a tenant to understand the service or

costs that is covered by the fee.

Whether the fee relates to the property as a whole or whether each tenant is

liable to pay the fee

The figures quoted must be inclusive of VAT.

Where the fee amount cannot be determined in advance there must be a

description stating how the fee is calculated

Vague language such as ‘administration fees’ should no longer be used. Agents

should provide a breakdown of the fees that relate to individual services such as

http://www.legislation.gov.uk/ukpga/2015/15/part/3/chapter/3/enacted



marketing the property, conducting viewings, carrying out credit references and tenant

checks and producing the tenancy agreement and the property inventory.

Client Money Protection and Redress Schemes

If the agent holds money on behalf of a client, they are under an additional duty to

display or publish, with the list of fees, a statement setting out whether the agent is a

member of a client money protection scheme.

Agents are under a duty to display or publish, with the list of fees, a statement that

indicates that the agent is a member of a redress scheme together with the name of

the relevant scheme.

CPRs and Fees

The CPRs also apply to fees to tenants. The Competition and Markets Authority (CMA)

has also made it clear in its guidance to letting professionals that hidden charges are

an unfair commercial practice and that they breach the Consumer Protection

Regulations.

Essentially it is necessary to make clear that there are additional fees payable in all

cases. In short communication where space is at a premium (ie. Twitter) this might

involve adding the phrase "+ fees" after the rental price being sought. However, where

space is less constricted the means of calculating those fees should be made clear.

Where an abbreviated form of information has been adopted (such as on Twitter) there

should be a link to a page where the fuller information is available. Where space allows

the fees should be set out in full if at all possible. So where a charge is easily calculated

it should be set out in full. The example given by CAP is adding "+ £150 admin fee per

tenant". If the fees are less easy to calculate then a phrase like "other fees may apply"

may be appropriate. However, this phrase ought only to be used where there are

circumstances in which no fee might apply rather than in a case where a fee will always

be applicable but is not easy to calculate.

Civil Powers of Redress

These notes have mentioned a civil right to recover on several occasions. This comes from the The Consumer Protection (Amendment) Regulations 2014. They add a new Part 4A to the CPRs which creates a Consumer Right to Redress. This allows a consumer to unwind a contract and recover their money by themselves in a civil court. Until now a consumer could only complain to the local authority trading standards department and hope that they pursued a prosecution.



The newly amended CPRs provide that where a service has not yet been fully performed or a lease ended a consumer can within the first 90 days after signing the contract or entering into the lease, reject the service or lease, and obtain a refund. There is also a right to a discount or redress in some cases within the same time period. These rights are, of course, only available if the trader has also carried out an unfair practice under the CPRs which induced the consumer to enter into the contract in the first place. This is not a general right for consumers to exit contracts. The consumer must show that he or she made the decision to enter the contract because (or partly because) of a misleading or aggressive practice. This is a question of fact.

Application to the Property Sector

This new right does not apply to property purchases. It does however apply to estate and lettings agents' terms of business, to holding fee agreements between agents and tenants, and to residential tenancies for a holiday or which fall under the Housing Act 1988. Tenancies which fall outside the 1988 Act are not covered at all.

Practical Effects

The most common areas of complaint in property are hidden charges from agents or properties not being to the described standard. The CMA has already been clear in its Guidance to Lettings Professionals that hidden charges or a failure to fulfil the requirements of the CAP guidance on property letting adverts are unfair commercial practices. It is likely that landlords could unwind agency agreements where these charges start to appear after they have committed themselves. Equally, tenants facing unexpected non-optional charges as a requirement of being granted a tenancy will also be able to unwind the contract and recover their holding fees. Additionally tenants who move into a property a find that they have been the victim of misleading advertising will be able to move out, terminate the tenancy, and recover the rent. This is likely to immediately lead to a claim for negligence by the landlord who finds himself out of pocket as a result of his agent's actions.

Unwinding Tenancies

The civil redress powers include a right to escape a tenancy. It is known as the “right

to unwind a contract” meaning that the tenancy is ended and the tenant is restored to

the position he was in before committing to it.

There are three important conditions:

The tenant must show that he entered the contract partly or entirely because of a prohibited trading practice. Prohibited means aggressive or misleading, see above for examples. The prohibited practice must have played a significant part in the tenant’s decision to enter the tenancy.

The tenant must have indicated to the landlord or agent within 90 days that he wants to reject the tenancy. The 90 day period starts running from the date that the tenancy begins; not necessarily the date the tenancy is signed, which could be earlier.



It is sensible for the tenant to complain in writing, but there are no formal requirements.

If the tenant’s complaint shows a clear desire to reject the tenancy, that is sufficient

(see reg 27E(2)).

The right to unwind can only apply if it is possible to undo the transaction. So if the tenancy period has expired, it is no longer possible to restore the parties to the position they were in before the misleading or aggressive practice, and the right to unwind cannot apply. This is not an all-or-nothing requirement: it is enough that the tenant rejects the remaining period of a tenancy within 90 days.

If the tenancy has been running for less than a month, the tenant should be entitled to

a full refund of rent, deposit and any holding deposit paid. This assumes that she has

paid market rent. If she agreed a rent of less than market rent then the refund will be

reduced by the difference between what she has paid and market rent.

After one month the refund can only be for rent for the remaining period.

The court can award a full refund if the behaviour of the landlord or agent or the impact

of the unfair practice on the tenant makes that appropriate.

The court can also award damages for any financial loss over and above the refund.

If the tenant has already been awarded money, for example for the return of a deposit

or damages for misrepresentation (see below) the court will reduce the refund or

damages by that amount.

If the tenant has damaged the landlord’s property, the court will reduce its award or

even award the landlord money, depending on the amount of the loss caused to the

landlord.

Example

Ki Lee rents a furnished flat which advertised that it had fibre optic broadband with

average speeds of “10MB”. This was one of the things that made her choose the flat

because she likes to make video calls to her family.

In fact, the broadband uses a fixed telephone line with a maximum speed of 5MB and

average speeds that are less than 2MB. The broadband provider has made this very

clear in its literature so there is no question of the landlord being mistaken. After Ki

Lee has moved in she realises that the internet connection is so slow that she cannot

use Skype. She has paid six months’ advance rent. She is dissatisfied with the flat

for a number of other reasons and complains to the landlord about the broadband and

the other matters, saying in an email that she wants to leave.

The consumer protection regulations may well enable her to “unwind” her tenancy and

sue the landlord for the return of her rent.

A tenant can opt for a discount on the rent if he does not exercise his right to unwind

it, see regulation 27I.(1).




Landlords’ defences

The only defences to the right to unwind are that:

there was no unfair or aggressive business practice or

the prohibited practice played no part in the tenant’s decision to rent the property or

the tenant did not give the written notice within the 90 day time limit

The fact that a landlord or agent has unintentionally misled the tenant will not remove the tenant’s right to unwind.

Even so, an adviser should be cautious before encouraging a tenant to rely on these regulations to break a fixed term contract if there is any realistic chance that one of the defences set out above might succeed. They will be invaluable for negotiation purposes and for assisting students who have already moved out of the accommodation before consulting the adviser.

These rights are new and it is likely that district judges will be unfamiliar with them at first. Any

tenant seeking a refund through the courts will need to set out the regulations and refer to any

government guidance or the judge may not understand this powerful new remedy.

Contractual Misrepresentation This is not as useful as the right of the right to unwind set out above.

The remedy for misrepresentation is rescission. This means that the contract is cancelled from

its outset so any money paid by the tenant has to be returned. It is a discretionary remedy

and a court can award damages instead.

The remedy arises where the tenant was induced to enter the contract by representations

made by the landlord or an agent. The representation must be made before the contract

becomes binding, for example during negotiations.

The statement must be one of fact. The case of Bisset v Wilkinson [1927] AC 177 stated that

an opinion or a mere commendation will not be enough to amount to a misrepresentation. So,

statements qualified by “I think” or “I believe” will not normally allow a tenant to escape the

contract. An opinion may, however be regarded as a statement of fact where one party

possesses greater skill or knowledge than the other1.

Examples

1 Smith v Land House Property (1884) 28 Ch D 7



Leslie is shown a flat by an agent who says “this is a lovely flat, I’m sure you’ll be happy here”.

He moves in to find that the flat is cold, damp and noisy. He cannot claim misrepresentation

because the agent’s words are a commendation rather than a statement of fact.

This time the agent who shows Leslie round has been managing the property for years. Leslie

notices mould on the walls and asks about it. The agent replies that the problem was caused

by the way the last tenant used the flat. He continues “I don’t think the property is damp”.

This might be a representation since it is given by a person with detailed knowledge of the

property and its letting history, it might be just a commendation, a court would have to decide.

Similarly a statement of future intentions will only amount to misrepresentation if the tenant

can prove that at the time that the landlord made the statement, there was no intention to carry

out the promise. This will be extremely hard to do in the absence of written documents showing

a contrary intention. Text and email messages can be invaluable here.

Example:

Robert notices mouse droppings in the kitchen when viewing a flat. He raises the matter with

the landlord who promises to call in a pest management company before Robert moves in.

After the tenancy has begun Robert asks the managing agent about the pest control company

and is told that the landlord has changed his mind. Robert cannot prove that the landlord did

not intend to keep his promise at the time that he made it.

This time Robert receives an email from his landlord that is attached to an earlier string in

which the landlord has told his agent that he only promised a pest control treatment in order

to persuade Robert to take the flat and that he never intended to do this. Robert is now in a

much stronger position.

There is a long line of case law going back to the eighteenth century stating that silence does not normally amount to misrepresentation – there is no rule that the landlord or agent must disclose facts to a prospective tenant. This is the principle of caveat emptor- let the buyer, or in housing cases, the tenant beware. However, this will not protect a landlord who allows “half-truths” to be told about the property- if the landlord makes a representation at all then he must ensure that he is not withholding part of the story. So a landlord who says that the property is not infested by mice, when he knows that in fact it is infested by rats will be liable for misrepresentation.

The tenant must have been induced to enter the contract by the misrepresentation. In other

words, had the tenant known the true position this would have deterred him or her from taking

the tenancy.



On discovering the misrepresentation the tenant can elect to affirm or rescind the tenancy

contract. Affirmation is any act which suggests an intention to proceed with the contract.

Rescission means that the parties are restored back to the positions that they were in before

the contract was made. So the tenant who rescinds the tenancy will leave the property as it

was found and all rent and other payments made to the landlord should be returned to the

tenant.

The payment of further rent after the misrepresentation has been discovered, could affirm the

tenancy, but each case will depend on its own facts. If a tenant does not rescind the tenancy,

it will continue but the tenant will still have the right to claim damages from the landlord.

The tenant has to decide reasonably quickly whether to stay or go and cannot reconsider the decision once it has been communicated to the landlord2, Delay can be conclusive evidence of affirmation, so the tenant must tell the landlord of a decision to rescind within a reasonable time, unless the landlord cannot be found, in which case he or she should still do something that makes it clear that the contract is over.

The right to rescind will be lost if it will detrimentally affect an innocent third party - for

example, if by the time the tenant has discovered the misrepresentation, the landlord

has sold the premises, the tenant’s rights would lie in a claim for damages against the

original landlord.

Section 2(2) of the Misrepresentation Act 1967 gives the court a right to award

damages instead of rescission. In a housing case it is hoped that a court exercising

this right would award damages equivalent to the rent for which the tenant would

otherwise be liable.

Same example as on page Error! Bookmark not defined. above (Ki Lee and the

unsatisfactory broad band connection). In a misrepresentation claim a judge might well

decide that the remedy is to award Ki Lee the cost of installing her own high speed

fibre optic line. This is likely to be much less than the rent and would leave Ki Lee

committed to the tenancy. Without the consumer regulations she would have little

chance of recovering the six months’ rent already paid and could be sued by her

landlord for the remaining six months’ rent if she had agreed to a one year tenancy

contract.

2 see for example Clough v London and North Western Rly Co (1871) LR 7 Exch 26 at 35.



Fundamental breach A breach of contract so fundamental that it goes to the root of the agreement will allow the

tenant to repudiate (terminate performance of) the contract, in addition to entitling that tenant

to sue for damages.

Hussein v Mehlman

[1992] 2 EGLR 87; Wood Green Trial Centre

Mr and Mrs Hussein were joint tenants of premises in serious disrepair. They moved

out before the end of their fixed-term tenancy and claimed damages for disrepair. The

landlord counterclaimed for arrears of rent. The judge decided that the serious

disrepair meant that there had been a repudiatory breach of contract by the landlord

which the tenants had accepted. They were not liable for rent following their departure.

The right to repudiate is lost if the tenant waives the breach by treating the contract as

if it is still in force; continuing to pay rent after discovering the misrepresentation could

be considered to be such a waiver. Other actions might also lose the tenant the right

to leave the premises if they can be said unequivocally to indicate recognition that the

tenancy is continuing, for example, seeking an injunction against the breach of

covenant.

Fitness for habitation

This is really a form of fundamental breach. There is a term implied into all furnished

tenancies that the accommodation will be fit to live in at outset of the letting

Smith v Marrable [1843] 11 M&W 5,

Lord and Lady Marrable rented a house in a fashionable part of Brighton for a five

week period, only to find out on moving in that “all but one room was greatly infested

with bedbugs”. The landlord, Mr Smith made efforts to eradicate the infestation but

after a few days Lady Marrable wrote to Mrs Smith telling her that they would move

out as soon as they had found alternative accommodation. One week’s rent was paid

and the landlord sued for the remaining five weeks of rent. The court held that a large



infestation by bed bugs rendered a property unfit, and entitled the tenant to repudiate

the contract.

As before the right to leave can be lost by delay or by paying further rent after the

breach has occurred.

Frustration (Fires and Floods)

Case study

Raul and Linda are joint tenants of a flat. Raul falls asleep in his bedroom with a

lighted candle by the window. The curtains blow against the flame and catch fire. Raul

is woken by Linda and they both escape but the flat is gutted and uninhabitable.

In the example above there will almost certainly be an express tenancy term requiring

the tenants to take care of the premises and if not, it will be implied. Both tenants are

jointly and severally liable for any breaches of the tenancy, so the innocent tenant may

well be as liable for the damage as the one who caused the problem. She will have

her own right of action in negligence against her co- tenant, but that will not give her a

defence to the landlords claim.

The landlord may well make a claim on his insurance but he cannot be compelled to

do so and it will not absolve the tenants from legal responsibility. Even if he does

claim on his policy, the insurer will be able to make a claim a claim against the tenants

in the landlord’s name; this is known as the doctrine of subrogation.

Advisers should encourage tenants to take out third party liability insurance to protect

them against a claim.

Case study

Lee Huang and Zhiang Lau rent a ground floor flat which unbeknown to them is on the

Thames flood plain. During exceptionally heavy rain the river bursts its banks and the



flat is three foot deep in sewage and flood water. They want to be released from the

tenancy but they have paid six month’s rent in advance and the flood occurs in the

second month of the tenancy.

The starting point for the adviser should always be the written tenancy. Most

agreements release the tenants where the accommodation becomes unusable as a

result of a risk against which the landlord is insured.

If there is no provision in the tenancy then under general contract law3 it might be

possible to argue that the contract has been “frustrated”. This doctrine applies where,

through no fault of the parties, the contract becomes impossible to perform. An

example is where the subject matter of the contract has been destroyed by a fire. If

so, the contract is treated as being at an end.

The Law Reform (Frustrated Contracts) Act 1943 provides that the court can decide

how any prepayments should be dealt with and can order whatever is fair in the

circumstances. This should mean that a court will order the return of all or most of any

advance payments of rent.

© David Smith

September 2015

3 Taylor v Caldwell [1863] EWHC QB

http://www.legislation.gov.uk/ukpga/Geo6/6-7/40/contents

http://www.bailii.org/ew/cases/EWHC/QB/1863/J1.html

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