Fraud and the private rented sector

Andrew Arden QC and Justin Bates consider the growing problem of tenancy deposit fraud and suggest that there should be mandatory licensing for private sector landlords and letting agents.

Introduction

The relative vulnerability of private sector tenants is a topic we’ve written about before (e.g. retaliatory eviction, abuses of students), but recently a new practice has been affecting parts of the market.

The most common elements involve a property being advertised for rent (usually, but not exclusively, via the internet). A prospective tenant then contacts the putative letting agent/landlord. A viewing may or may not take place. A tenancy agreement is signed and – importantly – a deposit paid, invariably in cash. When the tenant arrives on the agreed move-in date, he discovers that he has been the victim of a fraud because:

(a) there is already a tenant in occupation under a lawful tenancy agreement; and/or

(b) the agent/landlord had no authority to deal with the property; and, in either event,

(c) it is impossible to get the deposit back as the fraudulent agent/landlord has vanished.

(see this article in the Islington Gazette, for an example of this fraud in action).

The problem is so prevalent that the Metropolitan Police have a dedicated website on the issue (here). One property was used for such a fraud at least 60 times. The National Fraud Authority are similarly concerned and have issued practical advice on how to avoid falling for such a scam.

What can be done?

The existing law provides little protection. The deposits are “paid in connection” with an assured shorthold tenancy and therefore within the scope of Pt.6, Ch.4, Housing Act 2004 (tenancy deposit protection). A fraudster who intends to run off with the deposit is obviously not going to comply with those provisions and the right to bring proceedings for the return of the deposit is rendered useless if the fraudster cannot be found.

 

There is a possibility of bringing criminal proceedings for fraud or similar offences (see here for a brief report in Letting Agent Today of an ongoing case against a letting agent; the charges are denied), but experience suggests that such prosecutions are likely to be rare and, in any event, will not necessarily lead to the return of the deposit.

Reform

This sort of fraud is a concomitant of deregulation of the private sector. Housing is as essential as, say, water, gas and electricity and more so than telecommunications, yet each of these have regulations and a dedicated regulator.

In our view, the existence of this fraud makes a compelling case for the introduction of mandatory licensing for landlords and letting agents. A register of landlords and agents freely available and searchable would allow a prospective tenant to establish relatively easily whether the person he was dealing with is lawfully entitled to let the property or, at least, a person with an established presence in the area of activity.

The Welsh Government is already moving in that direction. The consultation paper, Proposals for a Better Private Rented Sector in Wales, proposed a scheme requiring all landlords to be accredited with the local authority for the area where the property is located. Those who fail to register with the scheme could face criminal prosecution and, if convicted, a fine of up to £20,000. The court would also be empowered to disqualify the landlord from letting property for up to five years. Letting agents would also be required to register with a similar scheme. Failure to do so would be punishable on conviction by a fine of up to £50,000 and disqualification from acting as an agent for up to five years.

In England, proposals are less developed. The House of Commons’ Select Committee on Communities and Local Government has recently opened an enquiry into the private rented sector and has asked for submissions on the regulation of landlords and letting agents. The Greater London Authority has also launched a review of the private rented sector in London and, as part of that review, is considering the role of landlord licensing.

It is anticipated that the Welsh Government, the Select Committee and the GLA will all issue reports in the first part of 2013.

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16 Comments

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16 responses to “Fraud and the private rented sector

  1. Benji

    Taken from the Islington gazzette article;

    “Typically, a prospective tenant gets in contact and views the property and the so-called landlord is simply a tenant, who takes hundreds of pounds as a deposit before vanishing.”

    The so-called landlord would simply purport to be the licensed landlord.

    “In a variation of the scam, overseas tenants – often students who are looking to secure a flat before arriving in London – transfer money over the internet and arrive to find the house doesn’t exist at all.”

    If they are not checking to see if the house exists at all, they are not going to check some obscure registered landlord register.

    There may well be reasons for licensing legitimate landlords but it would have no effect on stopping criminals from carrying out this kind of fraud.

    • ardenchambers

      Yes, of course licensing won’t stop all forms of fraud. But it will, I think, help to reduce abuses. A so-called landlord could purport to be the licensed landlord, but if the prospective tenant can just search an online database to try and check details (possibly including a photo?) that would make it more difficult for the so-called landlord to pull the fraud off (not impossible, I accept, but more difficult).

      JB

  2. Benji

    In the meantime, tenants can check a landlords driving license/passport and carry out a check of the property owner on land registry here (cost £4);

    http://www.landregistry.gov.uk/

  3. Anon Landlord

    Why is it lawyers want to complicate matters?

    When I advertise my property to rent, I tell tell prospective tenants, when the contract is signed, it will be done at the property and you will be given keys at the SAME TIME.

    I also warn them about potential fraudsters, I do explain that do be weary of landlord who ask for holding deposit, but are not interested in references….

    A Land Registry check at £3, is useful, however, it does not contain a phone number….

    • ardenchambers

      I’m not sure that lawyers do want to make it more complicated, but that is probably a discussion for another day. What we’re arguing for here is steps to be taken to drive the “bad” landlords out of the market, which will – hopefully – have positive implications for both tenants and the “good” landlords. It must be very frustrating to be a reputable landlord who gets undercut by those looking to make a fast buck.

  4. Anon Landlord

    This article mentions Licensing. I am frustrated by Licensing.

    In the London Borough of Newham they have introduced Selective and Additional Licensing (effective 1 Jan 2013). It has caused me headaches. It is untried and untested and there is very little support information around.
    This article mentions Licensing. I am frustrated by Licensing.

    In the London Borough of Newham they have introduced Selective and Additional Licensing (effective 1 Jan 2013). It has caused me headaches. It is untried and untested and there is very little support information around.

    The first point of anger, is that in order to introduce Licensing, a council has to make its case for it and it does so by tarnishing the reputation of landlord and media propaganda. Much of what was said by Newham was highly offensive. Newham claimed 25% of the rented properties had ASB associated to them. This does not bear out my experience. Newham failed to released the data even under FOI.

    My view is that the Housing Act 2004 is complicated messy.

    In Newham, just imagine you have a Selective License for a property. You then show the property to 2 young ladies (prospective tenants), and then you have to tell them, by the way, I am sorry, neither of you can ask your boyfriend to move in with you in the future, as I only don’t have the right type of License. I would need an Additional License (couple + friend = 2 households / 3 person). Even though it is a 2 bedroom property, might be licensed for a family of 4 people.

    It is not as simple as this. In Newham, it gets even more complicated!. They have introduced Article 4 Directive (Planning). So a Landlord would need to apply for Planning Permission for an HMO (and HMO – I mean, friend sharing a place). Newham’s planning policy clearly states they favour family homes, not HMOs. So Planning Permission will ALWAYS be refused. I believe Article 4 directive, is discrimatory against single people.

    In Newham, getting good tenants is hard enough, it is at the lower end of the market. So Licensing restricts my choice of tenants. I want to have the flexibility to choose between family and sharers.

    Those landlord who already have sharers and continue to have sharer’s will have less of a problem (as they have planning permission to run as HMO by deafault). Although, they loose the planning consent, as soon as it is rented to family and will never be able to rent to sharers again!

    Sorry about typos…

  5. Anon Landlord

    … continued.

    We bought a 2 bedroom property, found it was occupied by 4 foreign students. Two students per bedroom. Under Newham’s HMO policy, only 1 household is allowed per bedroom, not 2. With Licensing coming in, we had to evict them, rather then wait until these the tenants left of their own will. In preperation of Licensing. We have had to evict tenants because of Newham’s Licensing. These young men, want to save money for their own futures, they believe in frugal living…

    I am aware of some Landlords / Letting Agents in similar situations are being stupid and are taking ‘bullet’ for their tenants…. These landlords say “why should we put these tenants on the street??”. “Where do they go?”

    The point to make, whether the property is rented to a single family or 4 sharers, the rent is the same. So why take the risk? Either the landlord is compasionate (in helping out tenants) or ignorant of the law….

  6. I’m a Tenancy Relations Officer in London, responsible for prosecuting harassment and illegal eviction cases and I have seen a massive rise in property fraud in the past few years.

    The most common being renting a property and then advertising it while posing as the landlord and taking rent and deposit up front from 6 tenants who all turn up on the same day to move in. Then riding off into the sunset to do it somewhere else.

    Tenants find these properties through letting agents and a certain well known property portal who I suppose I shouldnt name, but who dont seem to mind that their webservice is used for scams.

    Usually the victims are on benefits, have mental health or drug issues or people not that long in the country. Easy prey for fraudsters, although we do sometimes see working families being ripped off..

    A lot of agents carry properties that are actually council or housing association properties being unlawfully sub-let and on 2 recent occasions properties being rented out in the high street by homeless families placed in temporary accommodation.

    Cards in newsagents windows are big no-no if you ask me.

    I do a land registry search on every tenant who comes in with a complaint, just to make sure the person they think is their landlord actually is. 25% of the time they arent.

    Also, where a company is involved it can be useful to do a company check here http://wck2.companieshouse.gov.uk//wcframe?name=accessCompanyInfo With fraudsters you often find the company was dissolved but is still trading. If you click on “Order more information” you can get names and addresses of company directors for £1.

    Working for the council gets me other access to databases like housing benefit and council tax which will often give me a fuller picture and dont forget good old Google. You’d be surprised what you can find out hanging around up there, left by careless fraudsters

    @Benji I wasnt aware that you can get a landlords passport and driving licence off land reg. Couldnt find it on the website just now. Any further info on that?

    • Benji

      Ha Ha! Nice one Ben.
      Obviously I am referring to first checking on land registry and then checking the landlords photo ID to prove they are who they claim to be, before handing over any money.

      It’s a far more effective method than your beloved ‘mandatory’ licensing which is largely ignored in the sector where these scams are taking place.

      A case in point is Newham’s, predictably failed, attempt at licensing.

      The discounted early registration fee has just ended.

      There are now around 15,000 Newham landlords who haven’t bothered.

      What are they going to do now?

  7. Ah now I see what you mean. Thought I had missed something there.

    I wrote an article a while back on how I totally understood a landlord wanting to thoroughly reference a tenant before taking them on but added that I thought tenants should be able to do the same thing back. Make sure their landlord was financially solvent and competent. I was roundly attacked by landlords who thought this was a dreadful imposition and none of the tenant’s business.

    You are doing what so many commentators do though and presume that by mentioning the word ‘Licensing’ I mean compulsory HMO licensing, like the mad windmill tilting currently being practised in Newham.

    What I mean by ‘licensing’ is along the lines of the model currently being proposed in Wales. A national standard administered locally. In Scotland where it has been introduced it is only £54 per property, its not a cash milking exercise.

    Its not onerous on the good landlords and it isn’t even aimed at them. What that type of licensing does is give enforcement officers like me, who have to deal with the criminals, an easier, workable route to removing them from trading.

    Chasing them through the criminal courts is incredibly lengthy, results in little more than a paltry fine. That’s even if you still have your tenant left as a witness 2 years down the line.

    All enforcement officers know who their local villains are but we don’t have the resources to tackle them with criminal legislation. We need a more speedy remedy.

    In Scotland it is failing to deliver because the procedure for pulling the plug is still way too bogged down in legal processes. It doesn’t mean that licensing wont work as a principle. It needs streamlining.

    If we don’t have licensing of landlords and stick to the system we have now the PRS will continue to have it’s bad reputation ruined by the army of criminals out there who still proliferate and create mayhem.

    The landlord industry’s only response is to complain about licensing, it don’t seem to offer any alternative.

    • Benji

      Licensing doesn’t make enforcement any easier, you still have to follow a legal process, it just creates a further layer of red tape.

      I agree about it not being a cash milking excercise as many landlords claim. Most councils wouldn’t know a profit if it bit them on the behind.
      (Your figures for the disastrous Scottish attempt are wrong BTW.)

      Licensing is all about power and politics.

      “The landlord industry’s only response is to complain about licensing, it don’t seem to offer any alternative.”

      I don’t represent the industry but how about this for an alternative, if you genuinely want to improve things;

      Nearly all of the problems in the PRS are down at the slum end of the market. Most of those tenants are paying at least some of their rent from benefits.

      So only allow housing benefit payments to be paid to fit and proper landlords offering decent housing.

      It specifically targets the problem area.

      A sensible parent paying their adult offspring’s rent would carry out rudimentary checks on the landlord and property, why should the state be any different?

      But the leftwingistas won’t like it because it gives no power over (the majority of) good landlords, which is what blanket licensing is all about.

      It’s much easier to target good landlords, but that is not where the problem lies.

  8. Every single time I post on blogs expressing concern about conditions in the PRS people slap down the tired old ‘Left-winger’ nonsense.

    Its boring and predictable. Does it automatically equate that any person expressing a view counter to what landlords might want makes them a revolutionary?

  9. Ben Reeve-Lewis

    Haha I just want what everyone wants. enough money to not have to worry when bills come in and a holiday now and then. A revolution would interfere with that.

    I get annoyed when people think they know what my political leanings are without knowing anything about me and when the presumption is that to talk about the PRS in any terms other than loan to value ratios is to be dismissed as expressing irrelevant views.

    But as Nick Lowe once sang “What’s so funny ’bout peace love and understanding?” If being concerned about how people live is an idea so revolutionary that people find it beneath contempt then stick a moustache on me and call me ‘Uncle Joe’

    • Benji

      Was that the “George Galloway Defence”?

      My Leftwingista comment wasn’t aimed at you but at the vocal left wing minority clamouring for licensing without thinking through the practicalities. Allied to those who are just in it for the power.

      I don’t place you in either camp.

      But if the Moustache fits…

  10. George Galloway?????? Now I’m even more offended haha

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