Millions of tenants who use letting agents are being ripped off because the market is overpriced and unregulated, consumer groups have warned.

Many agents operate unchecked and impose unjustified and excessive charges, while providing a poor service, according to a recent report by Citizens Advice.

David Harker, of Citizens Advice, says: “Anyone can set up as a letting agent. Many tenants pay high fees for unprofessional service and are sometimes forced to live in dangerous conditions. They also face losing large sums of money if the agent goes out of business.”

The number of privately rented properties increased to three million at the end of last year, up from 2.7 million in 2007, mainly as a result of “reluctant landlords” renting their properties because they are unable to sell.

Last month the Government published proposals to create an independent regulator for all letting agents, as well as a national register for landlords. However, until such measures come into force, tenants remain at risk. Here Times Money explains the pitfalls to avoid when renting a property through an agent.

Fees

The majority of letting agents impose charges on tenants in addition to a deposit and rent in advance. Most charge an administration fee and reference fees, which can total up to £200, but others impose a range of sneaky extras, from inventory to deposit-protection charges.

There is also a huge variation in level of charges. The fee for checking references ranges from £10 to £275, while the charge for tenancy renewal can be as little as £12 or as much as £220.

Catherine Torazzo, of Citizens Advice, says: “When you first enter an agent’s office, ask for a clear breakdown of all the charges — both before and during the tenancy. If they seem reluctant to tell you, walk away. It is best to shop around because not all agents make additional charges, and the amounts vary.”

Charging prospective tenants to register their details or to view properties is a criminal offence. No fees should be paid until a property has been found. If an agency acts illegally, it should be reported to Trading Standards.

However, there is no limit on fees once a contract has been signed, and the charges often do not reflect the amount of work done by the agent. Moreover, double charging is likely because the agent will also charge the landlord for administrative work. Experts say that many fees may be a violation of the Unfair Terms in Consumer Contracts Regulations 1999.

Extra charges can amount to £600. However, average rents have fallen by 5.9 per cent over the past year, according to propertyindex.com, and tenants are in a good position to haggle on costs.

Unregistered agents

Though letting agents are unregulated, about 70 per cent are members of a professional body such as the Association of Residential Letting Agents (Arla) or the National Association of Estate Agents (NAEA). This means that they must follow certain codes of practice and have a complaints procedure.

The best way for tenants to know that they are dealing with a reputable agent is to check that the agent is licensed with Arla. The licensing scheme, which was introduced only last month, already has 3,500 members. Agents must be professionally qualified and have a money protection scheme and indemnity insurance to prevents tenants from losing money if the agent goes out of business.

Arla and the NAEA are also members of the Property Ombudsman Scheme, which was established two years ago.

The ombudsman resolves disputes referred by landlords or tenants relating to agents. In the first quarter of this year 68 per cent of complaints against agents were upheld.

Deposit protection

Since April 2007 all letting agents have to protect tenants’ deposits in one of three government-approved schemes. More than 1.5 million deposits were protected in the first two years of the legislation, totalling £1.4 billion. However, Citizens Advice says that its bureaux continue to report “many instances” where landlords and agents failed to protect deposits and tenants were left empty-handed at the end of tenancies.

The only three legal places for deposits to be protected are with Tenancy Deposit Solutions (mydeposits.co.uk), the Dispute Service (thedisputeservice.co.uk) and the Deposit Protection Service (www.depositprotection.com).

There have been several examples of rogue traders posing as deposit protection schemes, most recently MTD Secure, trading as mytenancydeposit.co.uk, which claims to be authorised by the Government when it is not.

Some agents also charge tenants up to £35 for the administration of protecting the deposit. Although this is not unlawful, it is another example of bad practice.

Service failures

Most rental properties are also managed by agents, rather than the landlord, but only 8 per cent of tenants are satisfied with the service, according to Citizens Advice. Ms Torazzo says: “Difficulties in getting through to agents is a repeated source of complaint. Getting repairs dealt with efficiently can be difficult, with many tenants forced to live in unacceptable and even dangerous conditions.”

If there is a serious problem that an agent refuses to resolve, tenants can complain to the local council’s environmental health officer. Maurice Hardy, of the Property Ombudsman Scheme, says: “If an agent is failing to manage a property registered with the ombudsman, the tenant should bring the case to us. However, the tenant must first go through the agent’s own complaints procedure.”