Ministers are tightening the rules on how letting agents run their businesses by forcing them to sign up to a consumer protection charter.
Over recent months, business and advertising restrictions have been reviewed to give landlords and tenants protection from rogue letting agents charging sky high fees and operating without client money protection schemes.
In recent years, letting agents have faced courts for theft and fraud offences mainly arising from spending client money when cash flow dried up.
These businesses then closed without warning leaving customers with little chance of regaining their lost money.
Now, the government wants all letting agents in England to join an approved ombudsman scheme.
One of the rules of joining will be the letting agent maintaining a secure client money protection scheme.
The ombudsman scheme will also allow independent investigation of complaints and a compensation scheme for letting agent customers.
While publishing the draft rules, the government also pointed out that letting agents should ensure property descriptions are not misleading and details of any fees charged to arrange a letting should be clear to tenants.
Agents must also stick to a voluntary code that includes telling tenants about any ‘critical information’ before taking on a property, like repairs that are required.
Housing minister Kris Hopkins said: “Private rented homes play an important role in providing flexible accommodation to many hard-working people who either do not want to buy or who are saving up for a deposit.
“Having a redress scheme will provide confidence to both tenants and landlords that any problems with letting agents can be cheaply and swiftly resolved and provides an alternative to the court system.
“The conditions we are publishing set out our view of what needs to be considered in setting up a redress scheme that can give peace of mind to many people living and operating in the private rented sector and in leasehold accommodation.
“Residential leaseholders and freeholders also now have somewhere they can go to resolve the day-to-day management problems that can arise with managing agents, without having to resort to a tribunal or court.
“We aim for schemes to come forward for approval throughout January 2014 and urge agents to join one before it becomes a compulsory requirement.”