London trading standards London Lettings Enforcement Policy

London's population has grown rapidly over the last decade to a record 9.0 million people by mid-2019. The proportion of households renting privately has also increased significantly from around 15% at the turn of the century to 27% by 2019 and of London's 3.6 million households almost a million are now renting privately, representing more than a fifth of all privately renting households in England.

London has a higher rate of population "churn" than other areas due to its higher levels of outward and inward migration, and more transient population. The high influx of working age population means that London has a younger population than England as a whole.

Occupancy levels are also particularly high in the private rented sector, with average floor area per person falling from 31m² to 25m² over the past 25 years and is now less than for any other tenure.

At the same time, average private rents in London have risen by 43% since 2005, by far the largest increase of any English region. (London trading standards lettings enforcement policy). In the year to March 2020, the median rent for a privately rented home in London was £1,425 per calendar month, more than twice as high as the median in England as a whole (£700). London's rents are so much higher than those of other regions that the median monthly rent for a one-bedroom home in the capital (£1,204) is almost as high as the national median monthly rent for a home with four bedrooms or more (£1,300) (ONS, Private Rental Market summary statistics).

With the expansion of the private rented sector, a large letting agent industry has grown in the Capital which accounts for around 40% of all letting agents in England. It is estimated that there are 10,000 such agents, now operating in London.

There is also evidence of widespread non-compliance with legal requirements in the sector. Recent (2018-19) enforcement data from the London boroughs suggests that only around a half (54%) of London letting agents were fully compliant with the law when inspected by Trading Standards Officers.

In this context London Borough of Hammersmith & Fulham ("the authority") has prepared an enforcement policy which sets out the decision-making process to be used by the local authority in relation to enforcement action for breaches of the following lettings legislation:

1. The Enterprise and Regulatory Reform Act 2013 (in relation to The Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc) (England) Order 2014);
2. The Consumer Rights Act 2015 (sections 83-88);
3. The Tenants Fees Act 2019;
4. The Housing and Planning Act 2016 (in relation to The Client Money Protection Schemes for Property Agents (Requirement to Belong to a Scheme etc.) Regulations 2019).

This policy is not statutory guidance. It has been prepared by reference to the primary legislation, applicable statutory and non-statutory guidance, the Regulators' Code and, where applicable, the Code for Crown Prosecutors. In preparing this policy the authority has also considered the extensive body of First and Upper Tier Tribunal rulings under the above legislation relating specifically to the London market.

The policy has been made in consultation with the lead enforcement authority.

The relevant sections of the above legislation mainly concern civil breaches, albeit with potential criminal offences arising from them, accordingly, where appropriate, reference is made to the overarching principles of criminal law, such as culpability, harm, aggravating and mitigating features, and proportionality.

When considering the culpability of letting agents attention is drawn to the professional status of the sector, the extensive guidance provided by, and available from, industry bodies, and the requirements for compliance provided by statutory redress schemes.

Redress Schemes

Legislation

The Enterprise and Regulatory Reform Act 2013 sections 83-88 and The Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc) (England) Order 2014 ("the Redress Schemes Order 2014").

The requirement

It has been a requirement since 1 October 2014 for lettings and property management agents to be a member of a government approved redress scheme (The Redress Schemes Order 2014, Part 2).

This provides clients of these businesses, both tenants and landlords, with an independent form of redress to resolve complaints.

There are currently two schemes approved by the government:

1. The Property Ombudsman ("TPO"); and
2. The Property Redress Scheme ("PRS").

Sanction for breach of the requirement

The requirement is enforced by local authority Trading Standards or Housing Services.

A failure to join a scheme is enforced by a civil penalty process with a maximum penalty of £5,000.

The breach must be proved on "the balance of probabilities", i.e. to the civil standard of proof (Ibid. Article 8).

For both tenants and landlords, the consequence of a business not being a member of a redress scheme can be significant in that they lose an important method of resolving complaints without having to take recourse to legal action (which can be both time consuming and expensive). This is true even if a business later joins a scheme as the membership is not retrospective and clients who contracted with an agent prior to the date of membership are still not covered.

Trading Standards consider this an important access to justice issue and a very serious breach because of the potential collective harm to both tenants and landlords. It is also an indicator of poor professional standards within the sector.

Determining the level of financial penalty

The Ministry for Housing Communities and Local Government ("MHCLG") (Formerly the Department for Communities and Local Government) has issued guidance for local authority housing officers on Improving the Private Rented Sector and Tackling Bad Practice - A Guide for Local Authorities (Improving the private rented sector (pdf) published March 2015). Annex C - Letting Agents Redress Scheme Guidance provides:

The expectation is that a £5,000 fine should be considered the norm and that a lower fine should only be charged if the enforcement authority is satisfied that there are extenuating circumstances" (Ibid. pp.53-54).

The guidance also makes clear that it will be up to the enforcement authority to decide what such circumstances might be.

In having regard to the guidance issued by MHCLG, the expectation is that a £5,000 penalty should be considered the norm. Due to the serious detriment associated with lack of membership of a redress scheme, the lack of professional standards it indicates and the particulars of the London Lettings market, the authority is adopting the policy that when issuing an initial notice (notice of intent) against an agent, the monetary penalty will usually start at £5,000.

The notice of intent provides the agent with the option to submit representations to the authority within 28 days. The authority shall consider the representations and may reduce the monetary penalty if appropriate.

This approach has been accepted by Judges in the First Tier Tribunal.

In considering whether to vary, withdraw or confirm a monetary penalty after the notice of intent has been served, the authority will take into account any representations provided by the agent. The following non-exhaustive list of factors will be considered in either mitigation or aggravation, as appropriate in each case:

• The severity of the breach (i.e. the length of breach, has membership just lapsed or has the agent never been a member of a redress scheme)
• The financial impact of the breach on tenants and landlords (this may be difficult to assess)
• How long the legislation and requirements have been in force
• The agent's history of compliance and/ or non-compliance
• Any complaints against the agent
• The attitude of the agent and/ or co-operation with the authority in its investigation
• Whether the breach was rectified promptly
• Steps that the agent has or has not taken to ensure compliance
• Personal or health issues that may have had or be having an effect on the agent's business (e.g. impacting on the period of breach or ability to pay)
• Any other factors that could amount to extenuating circumstances.

Where applicable the authority shall consider the affordability of the proposed penalty, including the financial status of the agent and/ or the agent's ability to pay.

Simply correcting a breach after receiving a notice will not nullify the proposed penalty and if an agent would like a reduction to be considered, in the first instance, representations/ objections should be made to the Council in the 28 days allowed.

Publicise relevant fees and required information

Legislation

Consumer Rights Act 2015 ("CRA") sections 83-88.

The requirement

Section 83 CRA makes it a requirement for all letting agents in England to publicise details of their relevant fees and other required information. Sections 83 to 88 CRA contain detailed disclosure requirements.

Sanction on breach of the requirement

Where the authority is satisfied on the balance of probabilities that a letting agent has breached the above duty it may impose a penalty under section 87 CRA.

The amount of the financial penalty may be determined by the local authority but must not exceed £5,000 (CRA, s. 87(7)).

Determining the level of financial penalty

In line with the statutory guidance issued by the MHCLG: Improving the private rented sector and tackling bad practice: a guide for local authorities. Annex D – Guidance on Letting Agent Fees, the authority will normally issue the financial penalty for the maximum of £5,000 and a lower penalty will only be considered if the authority is satisfied that there are extenuating circumstances (Improving the private rented sector and tackling bad practice - a guide for local authorities - published 13 March 2015, p.60.)

In considering whether to vary, withdraw or confirm a monetary penalty after a notice of intent has been issued the authority will take into account any representations provided by the agent.

Each of the following non-exhaustive factors will be considered, as possible mitigation, in the authority's decision of whether to vary, withdraw or confirm a penalty:

• The severity of the breach
• The financial impact of the breach on tenants and landlords
• How long the legislation and requirements have been in force
• Whether a letting agent was in breach of some but not all aspects of the requirements (with respect to displaying fees, client money protection and redress scheme information).
• The period of non-compliance (e.g. was a technical error on a website causing a breach for a matter of hours or was there an extended period of non-compliance)
• Whether the breach was rectified promptly
• Steps that the agent has or has not taken to ensure compliance
• The attitude of the agent and/ or co-operation with the authority in its investigation
• Personal or health issues that may have had or be having an effect on the letting agent's business (e.g. impacting on the period of breach or ability to pay)
• Any other factors that could amount to extenuating circumstances.

Where applicable the authority shall consider the affordability of the proposed fine, including the financial status of the agent and/ or the agent's ability to pay.

Mitigating factors advanced by the agent in representations shall be weighed up against all of the facts of the case as well as wider factors where relevant, including the following points:

• How long the legislation and/ or requirements have been in force
• The agent's history of compliance and/or non-compliance
• Whether an agent was in breach of other lettings requirements (e.g. client money protection or redress scheme membership)
• Steps the agent has or has not taken to ensure compliance
• The size of the business and number of staff
• Any other relevant factors

The authority can issue a penalty per breach, therefore if an agent is in breach on their website and in their office this would amount to two separate breaches. If an agent has multiple branches, then a penalty of £5,000 may be imposed separately against each non-compliant branch.

For continued non-compliance further penalties of £5,000 can be issued for the same breach over a different period (CRA s.87(6A)). It is therefore of utmost importance that breaches are corrected by the agent as soon as possible after notification to avoid further penalties. There is no limit to the number of penalties that can be imposed for a continued breach. However, no further penalties can be issued if the letting agent appeals to the Tribunal until the end of 28 days beginning the day after the day on which the appeal is finally determined, withdrawn or abandoned.

Simply correcting a breach after receiving a notice will not nullify the proposed penalty and if an agent would like a reduction to be considered, in the first instance, representations/ objections should be made to the Council in the 28 days allowed.

Prohibited payments

Legislation

Tenant Fees Act 2019 ("TFA")

Requirement

Under the TFA it is now unlawful for a landlord or letting agent to require a relevant person to make a 'prohibited payment' in relation to a tenancy agreement. Tenancy Agreements include Assured Shorthold Tenancies ("ASTs"), student accommodation and licences to occupy housing (with limited exception). All payments are prohibited unless they are one of the permitted payments listed in Schedule 1 TFA. Sections 1, 2 and 3 TFA give further details on the specific breaches by a landlord or letting agent.

Sanction

Section 8 TFA provides local authorities with the power to impose a civil penalty in situations where a breach of the TFA has been identified.

Each separate 'prohibited payment' represents a separate breach of the TFA.

The TFA sets out maximum penalties that the Council may impose on agents and landlords that breach the above prohibition (Tenant Fees Act 2019, s. 8), namely:

1. £5,000 where a landlord or agent has required a tenant or landlord to make a 'prohibited payment';
2. £30,000 where a landlord or agent has required a tenant or landlord to make a 'prohibited payment' within 5 years of a previous conviction or imposition of a Civil Penalty [as an alternative to instigating prosecution proceedings];
3. £5,000 where a landlord or agent is in breach of the requirement to repay the holding deposit.

If a further breach is committed within five years of the imposition of a financial penalty or conviction for a previous breach, this will be a criminal offence under section 12 TFA. Upon conviction, the penalty is an unlimited fine. This offence is also a banning order offence (Housing and Planning Act 2016, s. 14).

Accordingly, an offence is committed contrary to section 12 TFA, the Council may either impose a financial penalty of up to £30,000 or prosecute the landlord or letting agent. For the avoidance of doubt where a financial penalty is imposed this does not amount to a criminal conviction.

Schedule 3 TFA sets out the procedure in relation to notices, appeals and the recovery of prohibited payments.

The Government has issued statutory guidance: Tenant Fees Act 2019 Statutory Guidance for Enforcement Authorities (TFA Statutory Enforcement Guidance (pdf)). The council has regard to this guidance in the exercise of its functions in respect of civil penalties and other enforcement action.

Decision to prosecute

A decision to prosecute for an offence under section 12 (and/or section 13) will be made, subject to the above-mentioned statutory guidance, the Code for Crown Prosecutors, and our enforcement policy.

We will consider the following general principles when deciding whether to prosecute a landlord or agent:

1. whether there is sufficient admissible and reliable evidence that the offence has been committed;
2. whether there is a realistic prospect of conviction;
3. whether the enforcement authority believes that it is in the public interest to do so.

Additionally, the following non-exhaustive list of factors will be considered when deciding whether to prosecute:

• The agent and/ or landlord's history of compliance/non-compliance
• Whether the first or previous penalties were paid
• The severity of the breach
• Deliberate concealment of the activity and/or evidence
• Knowingly or recklessly supplying false or misleading evidence
• The intent of the landlord/agent, individual and/or corporate body
• The attitude and level of cooperation of the landlord/agent
• The deterrent effect of a prosecution on the landlord/agent and others
• The extent of any financial gain as a result of the breach

Simply correcting a breach after receiving a notice will not nullify the proposed penalty and if an agent would like a reduction to be considered, in the first instance, representations/ objections should be made to the Council in the 28 days allowed.

Determining the level of financial penalty

In accordance with section 8 TFA the financial penalty may be of such amount as the authority determines, subject to the maximum figures stated above.

Below is a list of some, but not all factual elements that provide the context of the breach and factors relating to the Landlord or Agent that may be considered as a part of the Council's decision-making process. The Council will identify whether any combination of these, or other relevant factors, should result in an upward or downward adjustment when determining the level of penalty.

Factors increasing seriousness

Aggravating factors:

• Previous breaches of the TFA
• Previous convictions, having regard to the nature of the offence to which the conviction relates and its relevance to the current breach and the time that has elapsed since the conviction
• A landlord or agent with a history of failing to comply with their obligations and/or their actions were deliberate and/ or they knew, or ought to have known, that they were in breach of their legal responsibilities
• Level of harm caused to the tenant
• Established evidence of wider/community impact
• Motivated by or evidence of financial gain
• Deliberate concealment of illegal nature of activity
• Obstruction of the investigation
• Refusal of advice or training or to become a member of an Accreditation scheme
• Failure to act quickly in rectifying breach once notified by enforcement authority
• Failure to act quickly in rectifying breach once notified by another person such as a tenant or someone acting on their behalf

Factors reducing seriousness

Mitigating factors

• No previous or no relevant/recent breaches or complaints
• No previous convictions or no relevant/recent convictions
• Steps voluntarily taken to remedy problem
• High level of co-operation with the investigation, beyond that which will always be expected
• Good record of relationship with tenants
• Self-reporting
• Acceptance of responsibility and/ or admission of guilt
• Good character and/or exemplary conduct
• Mental disorder or learning disability, where linked to the commission of the breach
• Serious medical conditions requiring urgent, intensive or long-term treatment and supported by medical evidence (affecting reasonable compliance and affecting someone integral to the business such as a Director or manager and particularly relevant in small businesses where there may not be the resources to put alternative arrangements easily in place)
• Prompt repayment of prohibited charge to tenant
• Whether landlords or agent's primary trade or income is connected with the private rented sector

The final determination of any financial penalty will be considered alongside the general principle that a penalty should be fair and proportionate and, in all instances, act as a deterrent and remove any gain as a result of the breach.

Other factors to be considered

1. Totality principle – if issuing a financial penalty for more than one breach, or where the landlord or agent has already been issued with a penalty, we will consider whether the total financial penalties are just and proportionate to the breaches.
2. Affordability issues – impact of the financial penalty on the landlord or agent's ability to comply with the law and whether the penalty is proportionate to their means
3. Impact of the financial penalty on the business – if the penalty would be disproportionate to the turnover/scale of the business or would lead to the agent going out of business

A record of each decision and the reason for determining the financial penalty will be kept.

Client money protection

Legislation

The Client Money Protection Schemes for Property Agents (Requirement to Belong to a Scheme etc.) Regulations 2019 ("CMP Regulations")

The requirement

From 1 April 2019 property agents in the private rented sector in England that hold client money must obtain membership from a Government approved or designated Client Money Protection Scheme (CMP Regulations, Regulation 3(1)).

Property agents must also comply with the "transparency requirements" in regulation 4 of the CMP Regulations, for example, they must display, publish and produce the certificate of membership (if the scheme administrator provides a certificate) and give notice to clients if the agents membership of the scheme is revoked (Ibid. Regulation 4(2) & 4(3)).

Mandatory client money protection is intended to give landlords and tenants confidence that their money is safe when it is being handled by an agent. Where an agent is a member of a Government approved Client Money Protection Scheme, it enables a tenant, landlord or both to be compensated if all or part of their money is not repaid.

"Client money" means money received by a property agent held on behalf of another person in the course of English letting agency work within the meaning of section 54 of the Housing and Planning Act 2016 or English property management work within the meaning of section 55 of that Act. This does not include money held in accordance with an authorised tenancy deposit scheme within the meaning of Chapter 4 of Part 6 Housing Act 2004 (Ibid. Regulation 2). However, "Client Money" includes deposits paid to a letting agent before they are protected and unprotected deposits at the end of a tenancy, before they are returned/paid to the tenant or landlord.

Sanctions

The CMP Regulations provide that enforcement authorities may impose a financial penalty at such a level as the Council determines but not exceeding £30,000 where it is satisfied beyond reasonable doubt that a property agent is engaging in letting agency or property management work and is required to be a member of an approved client money protection scheme but has failed to join one (Ibid. Regulation 6).

Trading Standards considers this a very serious breach because of the potential for extreme harm with potentially devastating consequences to both tenants and landlords. It is also an indicator of poor professional standards within the sector.

View a full list of client money protection schemes. The list of schemes is kept up to date by the MHCLG:

The CMP Regulations provide that enforcement authorities may impose a financial penalty at such level as the Council determines but not exceeding £5,000, where it is satisfied beyond all reasonable doubt that a regulated property agent has failed to:

1. Display a certificate of its membership of an approved Client Money Protection Scheme prominently in their office(s) (where the scheme administrator of the approved scheme provides a certificate);
2. Publish a copy of the certificate on their website (if any); and
3. Produce a copy of the certificate to any person who may reasonably require it, free of charge (Ibid. Regulation 4 & 7).

The right to impose a financial penalty in respect of the transparency requirements does not apply if the agent has taken all reasonable steps to obtain a copy of a certificate confirming the agent's membership of the approved or designated client money protection scheme and the scheme administrator has not provided it (Ibid. Regulation 7(3)).

A financial penalty may also be imposed at such level as the Council determines but not exceeding £5,000, where it is satisfied beyond reasonable doubt that a regulated property agent has failed to notify each client in writing within 14 days of:

• the agent's membership of an approved or designated client money protection scheme being revoked; or
• the agent ceasing to be a member of a particular approved or designated client money protection scheme and becoming a member of a different approved or designated client money protection scheme (Ibid. Regulation 4(2) & 7).

In such circumstances the notification must give the name and address of the new scheme which the agent joins (Ibid. Regulation 4(3)).

A breach of each of the transparency requirements above would account for a separate breach (See MHCLG statutory guidance, Mandatory client money protection for property agents, Enforcement guidance for local authorities p.10). Therefore, where an agent has breached more than one of these requirements, they will be liable for a separate financial penalty in respect of each breach. For example, in the event that an agent fails to display their membership certificate and also fails to provide a copy of these certificates free of charge to anyone who reasonably asks these are two individual breaches with two separate potential financial penalties.

Simply correcting a breach after receiving a notice will not nullify the proposed penalty and if an agent would like a reduction to be considered, representations/objections should be made in the 28 days allowed (as detailed on the back of the notice of intent).

Determining the level of financial penalty

Although the Council has a wide discretion in determining the appropriate level of financial penalty in any particular case, in creating this policy regard has been given to the statutory guidance and non-statutory guidance, the Regulators' Code and where applicable the Code for Crown Prosecutors. This policy has been made in consultation with the lead enforcement authority.

STEP 1: Determine starting point

In determining the appropriate financial penalty where an agent is not a member of a client money protection scheme the authority will start by taking into account the size of the company and apply a penalty as follows:

• Property Agent Business turnover below £75,000: penalty starting point £10,000
• Property Agent Business turnover between £75,000 - £150,000: penalty starting point £20,000
• Property Agent Business turnover over £150,000: penalty starting point £30,000

The above figures will be applied before serving the notice of intent. The company's turnover shall be assessed by reference to the turnover of the company stated in the most recent accounts submitted to Companies House. If the business is not a company or no accounts indicating turnover have been submitted to Companies House or the accounts are more than 18 months old, then the maximum of £30,000 may be applied until the Council has a better indication of the business' financial status, in practice this may be after the notice of intent is served and financial documents have been supplied by the agent.

STEP 2: Adjust starting point to reflect aggravating and mitigating features

Having selected the appropriate starting point for determining the financial penalty, the authority will then adjust the financial penalty imposed up and down in light of the following aggravating and mitigating factors:

Aggravating factors

• Extended period of breach
• Previous civil penalties being issued against the agent and/ or a record of non- compliance with relevant legislation
• Agent has made no reasonable attempts to comply with the Regulations
• Failure to act quickly in rectifying any breach once notified by the authority (or to take reasonable steps to do so)
• The agent has previously received advice and guidance from the authority in relation to joining a CMP scheme
• Actual Harm caused to tenants or landlord (or evidence of a loss of client money in respect of previous tenants or landlords)
• Potential harm caused to tenants or landlords
• Complaints received relating to client money or otherwise
• Where an agent has been expelled from an approved scheme and has not taken immediate action to join another scheme or ensure it is not holding client money
• Lack of co-operation / obstruction of the investigation

Mitigating factors

• Co-operation with the investigation
• The agent has a good reputation with no previous breaches or complaints
• Early admission of the breach and taking all reasonable steps to quickly join a scheme
• Evidence that the agent has made every reasonable effort to join an approved client money protection scheme but is unable to do so for issues outside of their control
• Production of up to date full accounts showing for example that the agent's turnover is significantly less than that stipulated on the most recent companies house accounts or that the fine would cause severe financial hardship or would be likely to put the agent out of business
• Mental disorder or learning disability, where linked to the commission of the breach
• Serious medical conditions requiring urgent, intensive or long-term treatment and supported by medical evidence (affecting reasonable compliance and affecting someone integral to the business such as a Director or manager and particularly relevant in small businesses where there may not be the resources to put alternative arrangements easily in place)

STEP 3: Consider other factors

Deterrence

In order to deter agents from breaching the CMP regulations and to deter other agents from committing similar breaches the penalty should be such as to have a real financial impact on the business.

Totality principle

If issuing a financial penalty for more than one breach, or where the agent has already been issued with a penalty, the authority will consider whether the total financial penalties are just and proportionate to the breaches.

Affordability issues