Other Areas of Law
Regulating lettings agents and what do we mean by a "reference check" anyway?

The Department for Communities and Local Government have recently issued guidance on the new legislation (Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc) (England) Order 2014 (SI 2014 No. 2359)) which came into effect on 1 October 2014 requiring lettings agents and property managers to join one of the three Government redress schemes.

Those who do not join a scheme could face up to a £5000 fine and if agents continue to fail joining a scheme, local authorities can continue to issue penalties, seemingly indefinitely.

The redress scheme is a welcome development for residential tenants in a sector which has been left unregulated for some time.

Each scheme will publish a list of lettings agents who have signed up to that scheme.

A recent survey carried out by the Property Redress Scheme revealed however that over 900 lettings agents in London had not signed up to the scheme in time for its commencement on 1 October 2014.

The strength of this scheme will depend on tenants being aware of the scheme in the first place and on the appetite (and perhaps, more importantly, the resources) of local authorities to issue and enforce fines.

It remains to be seen how great the public awareness of the scheme is. In any event, without an effective enforcement measures , the scheme is vulnerable to being side-stepped by less scrupulous lettings agents.

The Landlord-Letting Agent Relationship

Of course, the scheme does not deal with regulating the service that lettings agents and property managers should provide to landlords.

A poorly carried-out reference check (if carried out at all) or ensuring that guarantors have the necessary funds can lead to taking on unsuitable tenants who cause damage to the property or are simply unable to pay rent. It is not an all too uncommon situation.

Of course there is always a claim against the tenants but they may well not have funds or may have disappeared altogether.

So when can a landlord consider a claim against the lettings agents?

The first stop will inevitably be the contract. Importantly, landlords (and lettings agents) should be aware of the different levels of reference checks that a lettings agent (or reference checking agent) agrees to carry out.

It may be that the reference check involves only obtaining suitable documents (that is, the usual passport, proof of address and so on) and nothing further.

There is relatively little authority on what the “reasonable” lettings agent should do in, for instance, carrying out a “reference check”. in Bradshaw v Press [1983] 2 EGLR 16, a letter of “reference and guarantee” from the Uruguayan Ambassador was later  found to be anything but and there were indicators on the face of the letter itself that might have alerted a letting agent to question its authenticity. The letter was however forwarded by the estate agent to the landlords without further checks.

The Court of Appeal held that the estate agent’s duty did not extend to carrying out further checks, even where – on the face of the letter – there were odd things to notice. The agent had only contracted to provide a collection of references.

It may be a different matter where reference documents are obviously fraudulent, where they do not in fact stand as proof of address/identity and, of course, where an agent fails to obtain the necessary documents at all.

It is a tale of caution however for landlords to check what level of referencing they have agreed that the agent will undertake. Similarly, it is important for lettings agents to make sure their terms and conditions set out what the “reference check” will entail.


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