Regulation of the managing agent market - Speech by CLG Secretary Sajid Javid

Thank you, Nigel, and good morning everyone.

It’s a real pleasure to be here today.

And I’m delighted to have been asked to open this conference in a year when housing issues have rarely been far from the front pages.

There has been plenty of good news.

Back in February our white paper set out our ambitious plans to fix this country’s broken housing market.

The Prime Minister has announced billions of pounds of funding for new affordable homes, including homes for rent.

And, month after month, we see official, independent figures showing that house-building is bouncing back from the record-breaking recession.

While there’s a lot still to do, we’re clearly heading in the right direction.

But of course, that’s only half the story.

Because looming over the whole sector is the tragedy of Grenfell Tower.

80 people lost their lives.

Many more lost their homes.

It is a disaster without parallel in recent British history.

A disaster we are determined to get to the bottom of, through the public and police inquiries.

And it is a disaster that thrust the management of residential buildings firmly into the spotlight.

Since the fire, a lot has been written and said about the role of property managers like yourselves.

There’s been a lot of criticism – some of it fair, much of it not.

And whatever failings are identified by the investigations and inquiries – and, make no mistake, where things have gone wrong we must and will learn from them – I know that most residential managing agents are not solely focused on profit.

I know you’re not the Rachman-esque ogres that some on the internet claim.

I look around this room today and I see the good guys.

Responsible people who are working hard to keep tenants safe, to keep buildings safe.

Who wouldn’t dream of cutting corners or ripping people off.

You’re members of ARMA because you subscribe to their code of conduct.

You’re here today because you want to be better, because you want to learn from each other and understand the latest best practice.

And in an age when the private rented sector and the number of leasehold flats has grown enormously we need more people like you.

So before I go any further I want to say a big thank you to Nigel, and to everyone here today, for all the good work that you do.

Thank you.

In an ideal world I’d finish there and join you all in the bar!

Sadly, though, you can’t have good guys without bad guys.

And, there’s no avoiding the fact that too many people in your industry are simply not good enough.

The private rented sector is growing, as are the number of leasehold blocks.

As we build the houses this country needs, we’re also seeing many new housing estates with shared public spaces that need taking care of.

That has led to a growth in the demand for property management services.

And as the sector has grown so has the file of horror stories.

Some rogue agents over-charge for their services, adding a huge personal take for themselves or passing contracts to friends and subsidiaries.

I heard of one situation where an agent had charged a commission of more than 30% when arranging an insurance policy, 3 times the recommended limit.

In another case, leaseholders were charged 10 times the market rate to have a new fire escape fitted – with the £30,000 contract being handed to the freeholder’s brother.

One landlord was billed £500 by his agent for repairing a shower door.

Others boost their income by cutting costs, charging for a 5-star service while providing a budget version.

Repairs are skipped, jobs are botched, as little as possible is done.

There’s nothing wrong with efficiency savings, but cutting corners is simply unacceptable – especially when it puts lives at risk.

I’ve seen reports of broken windows being repaired with cardboard and sticky tape.

Of damp and mold simply being painted over.

Of safety-critical systems being neglected.

Then there are the agents who “can’t do enough” for their tenants.

In fact they deliberately do too much, over-managing the property in order to rack up as many charges as possible and take the largest possible commission.

With up to a fifth of managing agents getting paid based on a fixed percentage of the fees they charge tenants, it’s not surprising that some choose this option.

The impact on the public is enormous.

Some industry experts claim that, every year, British households are overcharged by as much as £1.4 billion.

That means that, since I started talking to you this morning, rogue agents have pocketed around £15,000 in unjustified service charges.

By the time I leave the stage, that figure will have reached nearly £40,000.

The figures are so large because property management is a massive industry.

Around £3.5 billion of service charges are collected each year.

Yet despite its size and importance, it is almost completely unregulated.

Literally anyone can put on a suit, order some business cards, and call themselves a managing agent.

You don’t have to any qualifications or experience, or a criminal records check.

You don’t even have to know what a managing agent does.

That will come as a huge shock to many outside this room.

People assume they’re paying their service charges to a skilled, experienced professional.

In fact, they could be handing their hard-earned cash to the sort of self-regarding spiv who doesn’t even make it past the first challenge on The Apprentice.

In a multi-billion pound industry that’s crucial to the safety and wellbeing of millions of people, that is simply not acceptable.

Nor is it the only problem.

If people decide they’re being over-charged or under-served, it can be almost impossible for them to do anything about it.

And that’s because the system is stacked against them and in favour of rogue agents.

It actively disempowers tenants, leaseholders and even some freeholders, stripping them of many rights and making it extremely difficult to enforce those they do have.

Right to Manage is a great idea.

It can and does work well.

But the process behind it is far too complicated and too easy for unscrupulous landlords to abuse.

In one recent case, claiming their right to manage took a group of pensioners 3 attempts, 6 years, and a trip to the Court of Appeal.

Leaseholders risk losing their homes if they fall behind on paying even a tiny amount of service charges.

Freeholders on new-build estates increasingly have to pay service charges for the upkeep of common areas.

But they have absolutely no say over who provides services and at what cost, and no way of taking over management themselves.

This is supposed to be the age of the empowered consumer, of unprecedented choice.

If you don’t like your gas supplier, your phone company, your bank, then you can quickly and easily switch to another provider.

Parents have a say in where their children go to school, patients have a choice about which hospital they get treated at.

But in the world of property management, we’re still living in the past.

In an age when ordinary working people are expected to put up and shut up.

The result is a market in which the people who pay for and receive services have absolutely no say over who provides them.

A market that simply does not work for the people it is supposed to serve.

That can’t be allowed to continue.

And I won’t allow it to continue.

When our housing white paper was published, most of the attention and the headlines covered the vital task of building more homes.

But it also talked about the need for urgent action to help people already on the property ladder or living in rented accommodation.

I’ve already announced plans to regulate letting agents, including banning fees for tenants.

I’ve also made clear that I want to see an end to unjustified use of leasehold in new-build houses.

And today, I’m setting out plans for fixing the problems in property management.

I’m publishing a call for evidence, a document that talks about the challenges facing the sector, suggests some possible solutions, and asks for the views of the people who know the market best, whether that’s people who work in it or the people who pay the service charges.

Should leasehold tenants have a greater say over appointment of managing agents?

How can we increase transparency in the system and give the people who pay service charges more access to accounts and decisions?

What’s the best way to ensure fairness and openness around relations between freeholders and agents, and between agents and their subcontractors?

How can we make it easier to challenge services charges or to change managing agent?

And what about the current model of voluntary self-regulation?

ARMA-Q has done a lot to raise standards, but has the system had its day?

Many say we need an entirely independent regulator to oversee property management – is that the best way forward?

This paper, which you’ll be able to read and respond to on our website, is the first step in creating a property management system that works for everybody.

And that includes the property managers themselves.

I say that because I’m a businessman at heart.

I don’t like unnecessary red tape.

I hate to see good companies and forward-thinking entrepreneurs struggling under the weight of burdensome regulation.

I’m proud to be part of a government that has removed and continues to remove all manner of pointless, petty restrictions.

But I also know that, sometimes, a completely unregulated market can turn into a kind of free-for-all wild west.

And, as everyone knows, one thing the wild west doesn’t lack is cowboys.

I’ve already talked about cowboy property managers are bad news for consumers.

But, as ARMA has long recognised, they’re also bad news for hardworking, honest members of the profession like you.

That’s because the current system effectively penalises the good guys.

The ARMA members.

The agents who sign up to standards, invest in their staff and provide the quality service that people deserve.

You’re the responsible ones, but you’re not competing on a level playing field.

You invest in training, the cowboys make it up as they go along.

You put time and money into maintaining standards, some of your competitors cut corners in order to line their pockets.

Your priority is delivering a quality service, theirs is making a quick buck.

You can’t blame amateur or accidental landlords for picking the cheapest option when appointing an agent.

Many don’t know any better.

But a race to the bottom will always be won by agents who don’t care about standards and safety.

That’s not fair on the people paying for services, and it’s not fair on you.

It can also do untold damage to the sector’s reputation, making it easier for populist politicians to tar you all with the same brush.

Appropriate regulation, properly designed, will force rogue agents to either raise their game or quit the business.

That’s good news for tenants and it’s good news for responsible, professional agents like yourselves.

It’s popular, in some corners of politics, to point the finger at everyone involved in the housing market.

To say that you’re all just in it for yourselves, “Sheriff Fatman” capitalists taking advantage of desperate people and so on.

I don’t believe that for a minute.

The private rented sector and justified use of leasehold deliver millions of homes for millions of hardworking people.

And the people in this room today do a vital job of servicing and maintaining those homes and protecting the people who live in them.

Thank you for that.

As we build more homes we’re going to need more people like you to help take care of them.

That’s why it has never been more important for all of us – government and industry – to work together to celebrate what works in your sector and to fix what doesn’t.

I want you to join me as this government cleans up the property management industry, evicts the cowboys who harm consumers and give you a bad name, and delivers better value and better services for tenants, for leaseholders and for hardworking people right across the country.

Thank you