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Lord Best’s report – Your questions answered by Andrew Bulmer, CEO of IRPM

18 July 2019

I’ll cut to the chase with a bit of myth-busting. Your IRPM qualification will be taken into account by Lord Best’s new regulator. The wild media speculation about everyone having to start over from scratch is wrong. We know this because IRPM were there, working with and part of Lord Best’s working group and now the report is published and the embargo is lifted, we can set the record straight.

If you are a qualified property manager working for a regulated firm, what is coming down the tracks for our industry won’t be too tricky for you. There will be changes, but for you, these changes will be good. They will drive out the unqualified agents and unregulated firms that cut away at your business. And most importantly of all, they will raise the overall standard for customers and consumers.

The working group was chaired by Lord Best, who has been an independent crossbencher of the House of Lords since 2001. He has extensive experience from his years working across the housing sector.

The membership of the working group was:

  • Institute of Residential Property Management (IRPM)
  • Royal Institution of Chartered Surveyors (RICS)
  • Leasehold Advisory Service (LEASE)
  • Association of Residential Letting Agents (ARLA Propertymark)
  • National Association of Estate Agents (NAEA Propertymark)
  • National Trading Standards (NTS)
  • Professor Christopher Hodges, Oxford University
  • National Landlords Association (NLA)
  • Citizens Advice
  • Ombudsman Services

 

You can see from the membership of the group that all sectors of residential property agency were represented, with leasehold estate management represented by IRPM, the Leasehold Advisory Service and RICS.

Lord Best’s report is long, but it is packed full of detail. I will summarise the key points in the form of FAQs, but I do recommend you read the original. As an IRPM member, you will be pleased. But let’s start with “why?”. 

 1. Why has Lord Best done a report?

Ministers had mailbags full of complaints about leasehold. Escalating ground rents. Poor service. The very concept of leasehold as a tenure. And then Grenfell happened. The pressure on Government to act became irresistible. As we have previously reported, the Law Commission, the Hackitt Review team and MHCLG are working on a suite of leasehold reforms, rebooting commonhold, making it easier for the customer to change agent or enfranchise and changing the way building safety is managed.

When he was SecState at MHCLG, Sajid Javid MP announced the government’s determination to regulate residential property agents, make them have a mandatory qualification and be governed by a new code of practice. That’s all residential agents, across sales, lettings and leasehold/block/build-to-rent. MHCLG then asked Lord Best to recommend how that should be delivered.

2. Will Lord Best’s recommendations become law?

It is not certain, but it is likely. Both sides of the house want to improve how the sectors work and cross-party support, at least in principle, is likely. That doesn’t stop party politics or Brexit getting in the way, but right now it seems the chances are good.

3. When will it happen?

Best (and Best’s) guess is around two years. It will take that long for the necessary legislation to be drawn up, go through consultation and then through Parliament. Brexit, a new Prime Minister and potentially a new government might delay that. Even then, once the laws are passed there will be a period for the regulator to be appointed and start work. Then the regulator will draw up the final rules, and then there will be a period for the industry to comply. Agents will need time to study for their qualifications, so that could add another 1-3 years before non-qualified agents finally get banned.

4. What is in Lord Best’s report?

In summary, Lord Best is recommending that a new regulator be appointed by the state and be accountable to government. The regulator will draw up a new code of practice that will apply to all residential property agents, both firms and individuals. That code of practice will contain a list of “reserved activities”. Any firm carrying out those activities will need to be regulated and have a licence to operate. Any individual carrying out those activities will need to have a qualification and a licence to practice. The regulator will issue the licences and will have the power to withdraw them if firms or individuals behave badly.

Additionally, Lord Best makes some recommendations regarding poor practices in the leasehold management sector.

5. Who will need a mandatory qualification?

Lord Best says…

“…licensed agents should be qualified to a minimum of level 3 of Ofqual’s Regulated Qualification Framework; company directors and managing agents should be qualified to a minimum of level 4 in most cases.”

Lord Best continues…

The regulator should be given the flexibility to require a qualification below level 4 for property managers that carry out reserved activities with a reduced level of responsibility, such as combined caretaker/site managers.”

What this means is that residential property agents that do any of the reserved activities will need to be qualified. Sales and letting agents should be qualified to L3 (for comparison, our AIRPM is Level 3) and block managers should be at Level 4 (our MIRPM). But for caretaker/concierges/retirement development managers that do some management work with a low level of responsibility, it may be sensible to require a lower level such as L3. This will ultimately be decided by the regulator.

6. Who will decide what the new qualification will look like?

The new regulator will set the syllabus for the qualification. It is recommended that the syllabus and assessment process be approved by OFQUAL.

7. Will my IRPM qualification count towards the new qualification?

Lord Best says…

We recommend that the new regulator does not exempt agents from a qualification requirement on the basis of experience alone.”

I.e., it doesn’t matter how many years’ experience you have in the sectors, you will not be granted a licence based on experience alone. You will need to get a qualification. However, the situation is different for professional agents who already hold a qualification. Here the news is better. Lord Best continues…

“Some agents will hold qualifications at a higher level than that required by the regulator. So long as these cover the content in the syllabus set by the regulator, these professionals will not need to evidence further training.”

And… “Other agents will have a qualification but below… …the level appropriate to their role; the new regulator may approve some but not all previous or current… …qualifications. Nevertheless, it would be excessive to require these ‘partially-qualified’ agents to redo their training from scratch. Instead, we recommend that the new regulator allow partially qualified agents to make up the difference between their qualification and the required standard by taking specified continuing professional development.”

In summary, if you have a qualification that already meets the new standards, you will not need to evidence further training. If you have an existing qualification that does not meet the new standards, it should still count at least in part towards the new qualification and you may be to make up the difference through CPD.

Lord Best concludes with these comforting words…

The Working Group would not wish to see experienced, effective agents leaving the market because of anxieties around the need for new qualifications. By phasing in requirements for formal qualifications and making training and assessments increasingly accessible, we would hope the regulator can ensure that those well equipped to continue their work would not be deterred by this aspect of professionalising the sector.”

IRPM members can take further comfort from these words…

Throughout this report we note the importance of effecting cultural as well as technical change. We recommend that the syllabus should not focus too narrowly on technical skill – safety, consumer relations and ethical behaviour are also essential components which should be reflected in qualifications”.

This recommendation aligns very precisely indeed with IRPM’s Four Elements of Professionalism, which are:

  • Technical Competence
  • Safety
  • Customer and Consumer
  • Ethics and Behaviours.

We also applaud Lord Best’s recognition of the need for cultural change over and above mere technical competency. This is a conversation IRPM has been having with its members now for the last few years, with many forward-thinking firms really grasping the need to make our industry a kinder and better place for those who work in it and for the customers we serve. Once again, IRPM members and their firms are leading the way and are ahead of Lord Best’s recommendations.

Long before Lord Best’s recommendations become law, IRPM members will be able to meet the likely new standards. Some members with earlier qualifications or lower level qualifications may need to do some top up studying, perhaps by way of formal CPD, but ultimately this will be for the regulator to decide. IRPM is a member organisation run by you, the members and you can be sure that your professional body will prepare you in good time for the new arrangements.

But a very big hint – it is very important that you bring your CPD up to date. It is extremely likely that the regulator will take your CPD record into account when considering any additional training that might be required. Professionals who keep themselves up-to-date are more likely to be regarded as a lower risk in the eyes of the regulator. If you haven’t got your CPD records up to date, do it now. I can’t give a clearer hint than that.

8. Who will be the regulator?

The regulator will be a state regulator, appointed by and accountable to the Secretary of State for MHCLG. Primary legislation will be required for the regulator to be appointed. Hence, the appointment of a regulator is likely to be around two years from now.

9. Will professional and trade bodies be allowed to carry on regulating their members?

Lord Best has recommended that the regulator be given the powers to appoint appropriate organisations as Designated Professional Bodies, or similar. These bodies may be allowed to carry out certain functions for and on behalf of the regulator. Those functions could be low level, such as monitoring CPD compliance and firms’ accounts, or higher-level functions such as imposing sanctions, fines, etc. Designated professional bodies would be unlikely to have the power to issue or revoke licences; this would sit with the superior regulator.

IRPM has taken the view that there could be benefits from allowing bodies such as IRPM itself to carry out certain regulatory functions. However, we remind industry that regulation is not a trivial matter. It is a serious business and an expensive one and it would require a very high degree of cooperation between all the bodies acting in the space. To illustrate this, consider the matter of complaints to an ombudsman. Presently, a complainant would be directed to whichever of the two ombudsman a firm has chosen to register with. It is simply a matter of directing the complainant to one ombudsman or the other. Only one ombudsman would hear the case. If you think that is complicated, now consider where a matter requires the attention of a regulator. It will become very complicated if multiple bodies hold DPB status. Imagine the situation where a complaint is made about an MIRPM member who is also AssocRICS working for an ARMA accredited firm. Which of those three organisations would hear the complaint, bearing in mind it would concern both the individual and the firm? How is the risk of triple jeopardy managed? How would the system ensure consistent judgements? Would involving three regulatory bodies underneath a state regulator make for a very expensive and wasteful arrangement? In fact, it can be done. In the regulatory world, it is commonplace for multiple regulators to operate in a given sector, however it does require a high degree of cooperation and co-working between the various bodies and IRPM will be interested to see how this situation unfolds.

10. What will the new code of practice look like and who will own it?

The new code of practice will be owned by the regulator, who will be responsible for keeping it up-to-date. It is recommended that the regulator works closely with industry, consumer groups and stakeholder bodies to ensure it remains current and relevant.

The recommendation is that there will be a high-level set of principles, an overarching code, that will apply to all residential property agent sectors; sales, lettings and block management. Beneath this overarching code will be specific codes for each sector.

Enshrining the overarching code in law will give it the status and authority needed for robust enforcement. Addressing each sector through specific sub-codes beneath the overarching code will allow the sub-codes to be altered swiftly and easily without the need for further legislation.

The codes will refer to ”reserved activities”, such as giving advice to consumers, handling clients’ money, agreeing a property transaction, instructing contractors to do works and so on. The regulator will have the power to vary the list of reserved activities as required. The regulator will also ensure that the syllabus for the qualifications will broadly match the reserved activities, completing the virtuous circle of standards-education-qualification-licensing-regulation.

11. Okay, that’s regulation, qualifications and a code of practice. Anything else?

Yes. Firstly, Lord Best’s working group was instructed only to prepare recommendations for agents. Landlords were excluded from the brief, which was a concern to the working group members. There is an obvious gap in raising standards if landlords, be they small buy to let investors, large institutional build to rent funds or estate freeholders are not captured by the recommendations. An early recommendation of the report reads…

we recommend that the legislation required to regulate property agents should allow for future extension to the scope of regulation (e.g. to include at a future point regulation of landlords, freeholders and developers – as well as retirement housing managers and Right to Manage companies).” Also…

Under our proposals, the RICS Service Charge Residential Management Code is likely to be superseded for managing agents by the relevant regulatory code. This change creates a risk of unintended consequences as, by virtue of having been adopted by the Secretary of State, the RICS code also binds on freeholders collecting service charges. Since Government should ensure that existing standards are not undermined when a new framework of codes of practice is created, it may be necessary for Government to legislate for the relevant regulatory code to apply to freeholders.”

Finally, the report looks at leasehold and freehold charges. Here, the report speaks for itself…

Firstly, we recommend that the new regulator be given a statutory duty to ensure transparency of leaseholder and freeholder charges, and that it should work with the sector (property agents, developers and consumers) to draw up the detail of the regulatory codes, to include provisions related to these charges. The issues to cover would include

  • Transparency around potential conflicts of interest (e.g. mandatory disclosure of commissions and management fee charges);
  • Standards around transparency, communication and use of service charges, administration charges, permission fees and use of covenants; as a clear breakdown of costs may lead to greater acceptance of charges and give rise to fewer disputes; and
  • Protection of client money.

Secondly, we recommend that as part of the regulatory codes, the new regulator also develops standard industry cost codes, as have been developed for commercial service charges. These will help to identify items of expenditure, more easily allow for comparison, and form a standard basis for accounts for managing agents.

Thirdly, we recommend that the new regulator take over from the First-tier Tribunal the power to block a landlord’s chosen managing agent, where the leaseholders have reasonably exercised a veto. This would be separate from the powers proposed elsewhere for the new regulator to bar managing agents from practice as an ultimate sanction for misconduct. In setting conditions for agents to satisfy when seeking to support a veto or replacement of managing agent, the new regulator will need to ensure that the terms are not so onerous as to have the unintended effect of deterring all potential agents.

Fourthly, we recommend that the new regulator provide information on managing agent performance to allow landlord freeholders, and where relevant leaseholders, to make an informed choice on selecting a managing agent.

Finally, when Government considers broader reforms to the leasehold and freehold charges regime, we recommend a role for the new regulator in enforcing compliance with any new requirements applying to managing agents. For example, if the Government proposes mandatory use of a standardised service charge form, the new regulator should seek to ensure compliance by managing agents and introduce sanctions against those that fail to comply effectively.

12. What happens next?

Government will consider the recommendations made by Lord Best and the working group and respond with a statement in due course. IRPM will keep its members informed through the monthly Technical Update and via Newsflashes for breaking news.

 

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