Tenant Fees Bill
Monday 21st May 2018
(6 years, 5 months ago)
Commons ChamberRead Full debate Tenant Fees Act 2019 Read Hansard Text Read Debate Ministerial Extracts
The Secretary of State for Housing, Communities and Local Government (James Brokenshire)
I beg to move, That the Bill be now read a Second time.
This Bill takes forward essential measures to promote fairness in the private lettings market by banning unfair fees charged to tenants, as promised in the Government’s manifesto. It is a Bill that we should all welcome. The Bill will make the market more transparent, yes, but it also has the potential to save tenants—especially young people and families—hundreds of pounds. It caps tenancy deposits, further protecting tenants from high up-front costs when renting a home. It also introduces a lead enforcement authority for the lettings sector to support local authorities in their enforcement activities.
These measures have been informed by consultation with the sector and by the scrutiny of the Housing, Communities and Local Government Committee. I am grateful to the members of the Committee for the constructive and positive way in which they have contributed to the Bill. We have accepted the majority of the recommendations, which have helped to improve the final Bill.
Caroline Lucas (Brighton, Pavilion) (Green)
The Secretary of State is talking about the benefits of the Bill, and it certainly has some, but it would have an awful lot more if he had listened to the complaints about the setting of the deposit at six weeks rather than four. Can he explain why he has gone for a figure that means that only about 8% of renters will benefit and that many others will see their rents go up as a result?
James Brokenshire
The hon. Lady has intervened early, and that is a point that I will come on to. I would say that that is a maximum level, but I will deal with the specific issue in my remarks.
I am pleased that the Tenant Fees Bill was introduced to Parliament soon after my appointment. It is the latest step in our work to create a housing market that is fit for the future. I have been greatly encouraged by the broad support for banning unfair fees—something that has come through very clearly in our consultation. We have listened and we are taking action. This Government are making sure that everyone, whether they rent or own their home, has a safe, secure and affordable place to call their own.
I am confident that the Government’s ambitious house-building programme will transform the sector in the years to come, but it is also important that we help people now. The Tenant Fees Bill will enable us do this. It will ensure that tenants will no longer be stung by hidden costs. In the first year alone, we believe this could collectively save tenants as much as £240 million a year.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
I congratulate the Secretary of State on his appointment. Will he explain why the impact assessment did not assess the pass-through effects on tenants? With the reduction in fees and so on, how can we guarantee that the costs will not be passed through into rents for tenants?
James Brokenshire
If the hon. Lady looks at the impact assessment, she will see that it has been calculated as a straight transfer through. I know that there will be a lot to discuss in Committee. It covers that pass through—the costs do not represent increased expenditure by letting agents and landlords, but the value of time spent reading guidance and reconsidering business models is also reflected in the net present value in the impact assessment. The hon. Lady will no doubt want to scrutinise this in further detail as the Bill proceeds through Committee.
The costs include unfair letting fees, with tenants facing bills for hundreds of pounds for simple things, such as reference checks, which on the market are often free, or £30 at most. Our consultation has found that tenants have to pay an average of £137 for a reference check. Then they are hit by fees for drawing up a tenancy agreement, for inventory checks and even for just picking up keys for their property. This, I should underline, is all alongside their deposit and the first month’s rent up front. That is just at the start. There are fees on renewal, and fees when they leave the property. Often people are not just paying the fees once; they are put through the same process every single time they have to move home. These are often young people who would rather put that money towards a home of their own, but they have no control over that. Tenants have no power to negotiate, as agents are appointed by landlords. Some use tenant fees to compensate for artificially low rates for landlords. This is simply not fair and we must now move to protect consumers.
Dr David Drew (Stroud) (Lab/Co-op)
The Bill is greatly welcome, but will the Secretary of State do more to bolster the consumer rights of tenants so that they are able to challenge both the landlord and, in some cases, the estate agent, and to make sure that their rights are secured in law?
James Brokenshire
I am grateful to the hon. Gentleman for highlighting that point. He will know that clauses 18 to 20 contain amendments to the Consumer Rights Act 2015, so changes have been put in place in a number of different ways.
The Bill protects tenants from paying unreasonably high deposits. Coming on to the point made by the hon. Member for Brighton, Pavilion (Caroline Lucas), we are capping deposits at six weeks’ rent. I stress that this is an upper limit and not a recommendation. We expect landlords to find an appropriate level on a case-by-case basis and we will provide guidance to that effect. In Scotland, tenancy deposits are capped at eight weeks’ rent. A cap of six weeks’ rent, in our judgment, offers a balance of greater protection to tenants while giving landlords the flexibility to accept higher-risk tenants. It will also give landlords adequate financial security, and we believe that is necessary to maintain investment and supply in the sector.
Marsha De Cordova (Battersea) (Lab)
The Secretary of State is capping deposits at six weeks’ rent. Does he not agree with me and many of the voluntary organisations that have provided evidence and information that it would be right to consider reducing the cap to four weeks?
James Brokenshire
The issue was considered by the Select Committee, and we have considered it carefully. We believe that six weeks’ rent as an upper limit strikes the right balance between providing tenants with greater affordability while ensuring that landlords have adequate financial security for their assets.
Rebecca Pow (Taunton Deane) (Con)
I welcome the Bill. It is crucial that we have a vibrant tenant sector and that we aid it in every way possible, but the Bill must not deter landlords or agents who are acting well, assiduously and industriously. We must ensure that the Bill increases transparency and the competitiveness of the market, while still having a viable and vibrant market.
James Brokenshire
My hon. Friend makes an important point. Let me be clear: the Bill is not an attack on good agents and landlords. We value the important services that they provide, but it will ensure a fair playing field for reputable agents by making it harder for rogues to operate. Letting agents and landlords who represent good value for money will continue to thrive, while those who rely on charging unfair and unjustifiable fees will have to reconsider their business models. We have also committed to regulation to prevent reputable agents from being undercut or undermined by rogues.
My hon. Friend makes her point very sincerely. The interesting point about some of the experience in Scotland is that the number of letting agents in Scotland, according to Companies House, has increased since 2012, when the ban on tenant fees was clarified there. That demonstrates that innovative and good agents can continue to thrive.
Mr Jim Cunningham (Coventry South) (Lab)
I welcome some of the measures that the Secretary of State is taking. Nobody wants to attack good landlords. We still have bad landlords and that is who the Bill is directed at. There is a problem with commitments that landlords make, then break. I have had cases where they have refused to carry out repairs or said, “Take me to court” and that sort of thing. The Secretary of State and I know that ordinary individuals, mainly young people in rented accommodation, cannot always afford to do that. How does the Bill deal with those sorts of issues?
James Brokenshire
The Bill seeks to address the application of unfair fees by, in essence, banning all of them unless they are then reapplied back by the terms of the Bill itself. This is an important step to provide reassurance and to deal with the rogue practices that the hon. Gentleman highlights. In that context it is important to stress some of the other steps that have already been taken in relation to rogue landlords and the abuses in the sector that need to be tackled. This is a further measure to address them.
Turning to the key provisions of the Bill, which apply to assured shorthold tenancies, tenancies of student accommodation, and licences to occupy, these will ban landlords and their agents from requiring tenants and licensees of privately rented housing in England, and persons acting on their behalf or guaranteeing their rent, to make any payments in connection with a tenancy, with some key exceptions: the rent; a refundable tenancy deposit capped at six weeks’ rent; a refundable holding deposit to reserve a property, capped at one week’s rent; a capped payment for changing a tenancy agreement when requested by the tenant; payments associated with early termination of the tenancy, when requested by the tenant; payments in respect of utilities and council tax; and payments in the event of a default by the tenant, such as replacing a lost key or late rent payment fine, capped at the level of the landlord’s loss.
In the Bill, the term “in connection” with a tenancy refers to any payments required by the landlord or agent throughout a tenancy. This is an important point, as we want to ensure that landlords and agents do not just transfer their fees to another stage of the tenancy, such as exit. The proposed legislation will also prevent tenants from being required to contract the services of a third party.
Jo Stevens (Cardiff Central) (Lab)
There are a lot of references in the Bill to upper limits and caps. Does the Secretary of State recognise that the temptation, and I suspect the practice, will be that agents and landlords will put deposits at the top end of the cap? They will not put them further down—they will be right at the top end.
James Brokenshire
We intend to provide guidance on those issues. I do not accept that that would automatically be the situation. It is why we have taken the steps that we have in considering what the right action should be in setting a number of these issues. It is important to recognise that the Bill proposes a number of enforcement measures that offer a strong deterrent to irresponsible agents and landlords, and in doing so protects tenants.
Maria Caulfield (Lewes) (Con)
Does the Secretary of State agree that this is very much a geographical issue? In London and the south-east, tenants have really suffered at the hands of lettings agents and their fees. Tenants can pay anything from £175 to £900 just in fees alone. My local citizens advice bureau in Lewes found that on average tenants are paying, for eight weeks’ deposit, nearly £4,000 in advance. This is a real problem for London and the south-east.
James Brokenshire
My hon. Friend highlights the issues that go to the heart of the Bill—that is why I hope that it will command broad support across the House.
The Bill places a duty on trading standards authorities to enforce the measures it contains. It also makes provision to enable tenants and other relevant people to recover unlawfully charged fees. It prevents landlords from recovering their property, via the section 21 of the Housing Act 1988 procedure, until they have repaid any unlawfully charged fees. A breach of the fees ban will usually be a civil offence, with a financial penalty of £5,000. However, if a further breach is committed within five years this will amount to a criminal offence. In such a case, local authorities will have discretion about whether to prosecute or impose a financial penalty. Guidance on that will be issued. They may impose a financial penalty of up to £30,000 as an alternative to prosecution. Local authorities will be able to retain funds raised through financial penalties, with the money reserved for future local housing enforcement.
Finally, the Bill makes provision for a lead enforcement authority to provide oversight, guidance and support, with the enforcement of requirements on letting agents. This includes the ban on letting fees and related provisions.
Mark Pawsey (Rugby) (Con)
In respect of fees charged by letting agents, does the Secretary of State agree that there is something fundamentally wrong when a letting agent takes a fee from both parties in the transaction—the tenant and the landlord? That is just not right.
James Brokenshire
I understand. In many ways, that lies at the heart of the Bill—the way in which, effectively, there can be charges in two different directions. That underlines why these measures are important and why, to take my hon. Friend’s point, they are intended to promote fairness.
The Government will always stand on the side of people who are being ripped off and exploited and support them. We are taking this action to address inequalities in the lettings market and to create a market that is fair for consumers. By banning fees for tenants and capping deposits, we are delivering on our commitment to make renting fairer and more affordable. The Bill will make a real and meaningful difference to millions of tenants right across the country, especially for young people and families, and I commend it to the House.
Melanie Onn (Great Grimsby) (Lab)
I congratulate the Secretary of State on his appointment and welcome my hon. Friend the Member for Croydon Central (Sarah Jones) to our housing team. This tenant fees legislation is very welcome. We know that the majority of landlords are good landlords, or strive to be, and understand the expectations upon them before they embark on becoming a landlord. However, a number of rogue landlords and letting agents give the sector a bad name, undermine the good work of quality agents and landlords, and they have squeezed tenants for cash in unfair ways, with disproportionate charges for unjustifiable reasons. It is right that the Government are acting to change this unfair system and Labour welcomes that, but it would be remiss of me to fail to remind the House that we first suggested a move to ban letting fees back in 2013. After five years, it is good that the Government are finally acting on this issue. If we get the Bill right, it will have a positive impact on people’s lives on a day-to-day basis.
The overriding purpose of the legislation is to help to shift the balance of power from unscrupulous agents and landlords towards decent tenants—to make renting fairer, more affordable and more transparent and to give tenants greater clarity and control over what they pay. We will all have heard horror stories of agents or landlords charging people excessive fees to secure properties, or throughout tenancies, imposing additional charges with excessively high administration fees. With fewer social properties available, this places great difficulties on those with low incomes, or those who are renting alone or simply cannot afford thousands of pounds in up-front fees. In an increasingly competitive market, that has led to the UK’s nearly 5 million private renters sometimes feeling that they are an easy target from which to extract unnecessarily large sums of money. That is on top of the £50 billion a year paid in private rents.
As the number of private renters is predicted to rise to 5.6 million people by 2021, we should be aiming for a gold standard of contract of understanding between renters and landlords, or their agents. As it stands, there is an inherent tension between landlords who view their property as an asset or investment and a tenant who sees it as their home. We have to take steps to bring those two positions closer together.
Increasingly there are larger, more professional companies recognising the importance of peoples’ home life and striving to provide properties in high-demand areas. They do not use agents, seek to develop a sense of community and aim to retain tenants for as long as possible and keep rents affordable in line with local incomes—in places such as Argo Apartments—and stand in stark contrast to the enormous billboard I saw from Wentworth Estates, boasting that it could guarantee rents for between one and five years for landlords, would provide three months’ rent in advance and could offer “free evictions”.
Caroline Lucas
Does the hon. Lady agree that another way the Government could follow both Labour and Green party policy would be to tackle extortionate rents? The elephant in the room is the need for some kind of rent controls, including rent caps, because although what is in the Bill is a welcome step forward, until we tackle the size of rent increases, we will not be able to provide the homes for the people who need them.
Melanie Onn
Labour absolutely recognises the—[Interruption.] Before the Under-Secretary of State for Housing, Communities and Local Government, the hon. Member for Rossendale and Darwen (Jake Berry) leaps on me—before I am able to make myself clear—Labour absolutely recognises the issue of the amount that people are paying in rent and recognises that there could be restrictions on the percentage of increases in rent, not a rent cap.
The pressure in the housing market is rapidly producing new forms of exploitation. For example, an alternative letting agency-cum-landlord service called Lifestyle Club London markets itself as a membership club. Tenants or members pay an annual fee instead of rent. Club staff are entitled to inspect rooms unannounced at any time and fines can be given for anything even as minor as dirty dishes. This is a fast-moving area. We can see that there are wildly differing practices in the world of private rental and that tenants have had difficulty in getting the treatment that they deserve, which is why groups such as Generation Rent and Marks Out of Tenancy have emerged to give a collective voice to private renters on matters of not only policy but practice.
Although the Bill is satisfactory in many respects, it still provides the opportunity for the continuation of an exploitative approach. For example, clauses 1 and 2 detail the prohibitions on landlords and agents applying fees in many circumstances. The cap of £50 for any of those charges is very welcome, but the explanatory notes go on to say
“or reasonable costs incurred if higher”.
That is a clear opportunity for a coach and horses to be driven through this otherwise very good Bill. We know that some letting agencies and landlords will push these grey areas, and without directly spelling out what charges are permissible and what “reasonable costs” are, there is undeniably room for incorrect interpretation.
The Government have so far given an indication that they will provide guidance on these and other issues, but how can that be enforced? If I speak to Shelter about how a renter can take a case against a banned fee being levied against them, the question then becomes a test of reasonableness. Whether or not such charges are reasonable, I know that it will say that if the Government want to genuinely give tenants additional powers, regulation is required to ensure that they are enforceable and meaningful.
The same goes for default fees, which are to be capped at the level of the landlord’s loss. At first glance, this seems eminently reasonable. A landlord should not be required to pay for a banking or other fine due to a tenant making a payment late or the replacement of a lost key or entry fob. However, the Minister must be aware of the scope for this to become a nice little earner for agents or landlords who would seek to unfairly penalise their tenants for minor errors.
Mr Jim Cunningham
I agree with my hon. Friend that there should be some form of adjudication or regulator, whichever way we want to put that argument. The weakness in the Bill, which is a good Bill by the way, is on enforcement, because as most people know, trading standards departments up and down the country in local authorities are totally underfunded.
Melanie Onn
My hon. Friend makes a very important point and I will come on to trading standards shortly.
There is no definition of what a landlord can include as a loss. If this includes the use of agents and agents opt to charge for their time—to replace a key or make some phone calls—charges may amount to far more than Government ever intended them to. This is one of the issues that we have seen with the scandal around excessive charges to private leaseholders: without a specified cap, there is scope for the unscrupulous to run riot.
Jo Stevens
The Bill is obviously necessary because of the bad behaviour of some landlords and letting agents. Without the measures that my hon. Friend set out, bad behaviour by rogue landlords and letting agents will not be prevented. They will carry on doing it because there is no sanction and no enforcement to stop them.
Melanie Onn
My hon. Friend makes a really important point. There is absolutely no point in this House taking through legislation, as good as it is, if it cannot be enforced because it holds no weight in law.
The inclusion of a one-week refundable holding deposit, on top of a month’s rent and six weeks’ tenant’s deposit, is allegedly designed to minimise instances of tenants securing multiples of properties at the same time before finally settling on their preferred property. There has been very little, if any, evidence that this is a regular practice. Additionally, the Government say that there are a number of exceptions to that deposit having to be refunded, including when the tenant provides false or misleading information. Again, although on the face of it, that is a sensible measure, there are no additional protections for tenants if the incorrect information is not their fault. For example, a reference that does not exactly match a tenant’s claims should not immediately mean that they lose that holding deposit. There is scope to develop a mechanism to test inaccuracy and establish the reasons behind it before immediately assuming information has been deliberately misleading.
Kevin Hollinrake (Thirsk and Malton) (Con)
I draw the House’s attention to my entry in the Register of Members’ Financial Interests. Despite the fact that I have been involved in this sector for most of my life, and am still involved, I am very supportive of the Bill and the drive to ban tenant fees. That said, on the hon. Lady’s point about holding deposits and the reference fees that tenants pay to the agent or landlord, does she not think it a reasonable concern that if we do not allow a letting agent or landlord to hold back a reasonable amount for referencing, they might be more likely to pick a better-off tenant than some of the lower-income tenants she is seeking, quite rightly, to protect? There are concerns about the commercial behaviour that could result if what she describes was to happen.
Melanie Onn
The point is that poorer tenants struggle the most. That is why we are trying to make the Bill as good as it can be. It comes back to reasonableness and whether there is sufficient rigour in the proposals to ensure that people are properly protected, and that goes for landlords as well.
The Government must bring back evidence during the remaining stages to convince us that this is a legitimate charge to make, rather than a simple amelioration of losses to agents and landlords. It is notable that the Government have opted to cap deposits at six weeks. The Minister should know that in practice this means all deposits will be six weeks, despite most rents being payable on a monthly basis. Shelter estimates that a six-week cap still means that London renters have to find on average a £1,800 deposit and that outside of London the figure is £1,100. Add to that one month’s rent and a week’s holding deposit, and people are looking at needing £3,750 just to secure a property in London and £2,290 elsewhere. That is a huge amount to save.
Wages are not keeping pace with rents and many people struggle to afford a decent place to live. Most low-paid workers are women. Will they be more disadvantaged by these measures than men, and what about those with disabilities, from black and minority ethnic communities or the lesbian, gay, bisexual and transgender community? The Government have not undertaken a formal equalities assessment of the Bill. Will the Minister explain why and commit to ensuring that an assessment of the proposals is undertaken before the Committee stage? There has been an informal but not a formal process on this matter.
As I said earlier, none of the measures in the Bill will matter without their ability to be enforced. There is direction in the Bill for responsibility to lie with local authorities and their trading standards teams. The Minister will be aware that trading standards teams are currently responsible for checking on age-restricted products, agriculture, animal health and welfare, fair trading, food and hygiene standards, counterfeiting, product safety and weights and measures, and they do this despite having endured a drop in funding from £213 million in 2010 to £124 million in 2016 and a halving of their staffing capability—more in some areas.
The Chartered Trading Standards Institute has previously expressed its concern that the public are being let down in respect of its current areas of responsibility, let alone additional responsibilities—particularly ones that will not pay for themselves through the imposition of fines, which are limited to a maximum of £30,000, whose rules are not enforceable because the drafting provides too much scope for interpretation and for which the Government only plan to provide guidance rather than issue regulation to support tenants and those seeking to enforce the measures in the Bill.
Those in the private rental sector are in desperate need of clear and positive action from the Government to protect their rights. I hope we will see a strengthening of resolve from the Government as the Bill goes forward. They must not miss the opportunity to make a good Bill a great Bill, and I urge them to take this chance to make real changes that could improve this sector of our country’s housing market.
Several hon. Members rose—
Madam Deputy Speaker (Dame Rosie Winterton)
Order. As colleagues can see, a number of colleagues want to get in. I would rather not impose a time limit, but if Members could stick to about six minutes, we should get everybody in.
John Stevenson (Carlisle) (Con)
I will make just a short contribution, Madam Deputy Speaker. I first draw the House’s attention to my entry in the Register of Members’ Financial Interests. I am a solicitor at a legal practice that owns an estate agents.
As we know, Second Reading debates are about the general principles of a Bill, and that is where I want to concentrate my speech. My instinct is to be very careful about legislation of this nature, or at least to be suspicious of it—in a healthy way, I would like to think. I believe in free markets. They generally produce better services through competition, higher standards and better value for money for the consumer. The important thing about free markets is that there are lower barriers to entry, which helps to create that competitive environment, and with fewer statutory requirements, it is much easier for individuals to set up businesses and create more choice for the consumer.
Introducing regulation does, therefore, have drawbacks. As we all know, it can distort markets, increase rents and have other unintended consequences. It can reduce competition and therefore increase prices and impose barriers to entry, and it often leads to more interference and yet more regulation. A good example is the legal services market—there is far too much regulation in the provision of legal services. When I served on the Communities and Local Government Select Committee several years ago, we looked at this very issue and concluded that it was not the time for regulation, although the Committee was open-minded about the possibility and thought it something the Government should consider later.
The question, then, is whether the time is right now. Quite clearly, the Government think it is. I, too, recognise that markets are not perfect, and it is right and proper that the Government interfere and regulate where appropriate to help markets, particularly where a section of society is being adversely affected, but the goal must always be to improve matters for the consumer. We should take a bit of a history lesson. When assured shorthold tenancies were first introduced, in the 1980s, they changed the housing market dramatically. We must remember, however, that it was a much smaller market back then, with fewer landlords and fewer tenants seeking private rented accommodation. Interestingly, the legislation was introduced because there had been too much regulation and interference in the private housing market. It was an opportunity to free up the market, encourage landlords into the rented market and improve tenant choice.
I fully accept that the letting market has changed fundamentally and radically since the 1980s. Some 20% of our housing market is now in the private rented sector. In many respects, that was accelerated from about 2008 onwards. It is a very different environment. We now have accidental landlords up and down the country—people who unexpectedly have become landlords —and many more letting agencies. It is a thriving industry in a way it was not in the 1980s, and there is a host of tenants with very different needs looking for comfort in the knowledge that when they deal with letting agents they will be dealt with properly and fairly.
We have to recognise that some letting agencies have been exploiting the deficiencies in the housing market. As everyone does, I acknowledge that the property market has changed significantly. In many respects, the whole issue of property ownership is in need of review, right across the spectrum, including the relationship between social housing and the private rented sector. Interestingly, back in 2015, when Carlisle was hit by floods, the people who were flooded did not turn to the social housing market for accommodation, even though it was available; they turned to the private sector. We should recognise, then, that the private sector has a huge contribution to make to the housing market.
It is generally accepted, however, that the time is also coming to look at the nature of assured shorthold tenancies. They were introduced in the 1980s in a different time. Perhaps that is something that in time the Government will look at. Estate agents are often letting agents as well, and it seems strange that someone could go into an office where one side is regulated but the other is not.
The housing market is hugely significant on so many levels in our country. We have to recognise the importance of property as a source of taxation, that many people aspire to own their own house and get on the housing ladder and that it is also a source of capital for business investment, but also that the lack of housing in the various markets affects individuals and families, as we all know.
I have concluded that we now live in such a different market that I will support the Bill. On balance, it is clearly in the interests of tenants, but it is also in the interests of good landlords and letting agents that act with integrity. I encourage the Government to ensure that the Bill preserves a competitive environment for letting agents—that is vital—and that it be enforced in a pragmatic and sensible way to the benefit of tenants and the market. I plead with the Government to ensure that we end up not with too much regulation but with effective regulation.
I believe that the Bill is the start of a sensible review of our housing market at all its various levels and with all its various requirements. I encourage the Government to look at all aspects of the property ownership markets and the taxation of property, because I think we are in danger of ending up with piecemeal legislation. The ultimate goal must be a working market that benefits everyone.
Angela Crawley (Lanark and Hamilton East) (SNP)
I am delighted to speak in the debate. Let me say at the outset that I welcome any moves by the Government to put money back into renters’ pockets. I recognise that the Bill is not wholly relevant to Scotland, but I feel that some comparisons can be made with actions that we have taken there.
As someone who was on a low wage and who rented in the private sector for a number of years, I understand the difficulties faced by people in those circumstances. While the demand for social housing outstrips supply, the need for privately rented accommodation will only increase, and, as we have heard repeatedly this evening, when the demand for private rented accommodation is high, those looking at the market can be put at a financial disadvantage. We need to get to the root of the problem. There are a number of ways in which we could seek to solve it. For instance, we could increase the social housing supply, end the sale of council homes under the right to buy, and give renters the protection that they require. Those are just a few of the ways in which we have been able to mitigate some of the worst impacts in Scotland.
Over the last parliamentary term, the SNP Government invested more than £1.7 billion in affordable housing. We exceeded our target of building 30,000 affordable homes, and by the end of the parliamentary term we had delivered more than 33,000. Only six council homes were completed during Labour’s last term of office in Scotland. We have also taken steps to safeguard social housing for the future by abolishing the right to buy, thus protecting 15,500 homes in the social rented sector. In the current Parliament, we have set the target of building at least 50,000 new affordable homes.
Tenant fees were abolished in Scotland in 2011, and the evidence suggests that those renting property have more money as a result. Renters themselves were no more likely to report a rent increase than those in other parts of the UK. However, protecting renters’ rights extends beyond scrapping tenant fees. If the Government are to make real progress on protecting tenants in their homes, they must go further than the Bill suggests.
The Bill contains a number of loopholes, which I hope the Government will try to address. They have amended the definition of a default fee, providing that it should not exceed the loss suffered by the landlord, and have said that they plan to issue guidance on the type and reasonableness of fees. However, more protections are needed to limit what can be charged for and ensure that any loss is reasonable, and there must be a definition of “reasonable”. Agents have already admitted in evidence to the Select Committee that they will try to charge disproportionate default fees to make up for lost revenue.
There is currently a lack of clarity about the circumstances in which landlords or agents can or cannot retain a holding deposit. A holding deposit can be retained if a tenant has provided false or misleading information that materially affects his or her ability to rent a property, but it is unclear what will be considered false or misleading information, and the rule is therefore open to abuse.
I welcome the Government’s intention, but more must be done in the Bill to protect renters, and more must be done generally to protect those in the private rented sector.
Mark Pawsey (Rugby) (Con)
It is a great pleasure to speak in the debate. Like my hon. Friends the Members for Carlisle (John Stevenson) and for Harrow East (Bob Blackman), I am reminded of the work that we did in the Select Committee under the able chairmanship of the hon. Member for Sheffield South East (Mr Betts). It is also a great pleasure to see him in the Chamber this evening.
In its 2013 report, our Committee recognised and expressed concern about the imbalance between tenants and landlords and their agents. I support the Bill because it goes some way towards creating a balance between the parties involved in the taking up of a residential property tenancy. Back in 2013, we drew attention to the sharp practice and abuses perpetrated by some letting agents, and recommended that agents be subject to the same controls as their counterparts in the sales sector. Most residential property agents are involved in both sales and lettings, and in each instance the property involved will be someone’s home. It makes no sense for only one of those tenures to be covered by regulation. The Bill does not provide for the regulation of letting agents, and I am happy for that to come later, but it takes a step towards it in requiring them to behave in a more professional manner.
According to evidence given to the Committee, letting agents often failed to give renters up-front information about fees. I was therefore happy with our recommendation for a code of practice requiring agents to publish a full breakdown of their fees, which was introduced in the Consumer Rights Act 2015. The Bill goes further by banning nearly all up-front fees for tenants. That is welcome, and was a manifesto commitment from my party in the 2017 general election. It strikes me as wrong in principle for an agent to attempt to take a fee from, or make a charge to, both parties in a transaction. When it comes to the relationship between landlord and tenant, the letting agent is clearly acting on behalf of the landlord, with the landlord’s interests paramount. If up-front fees are banned, there can be no danger that unscrupulous agents will charge both parties.
A letting agent in my constituency has contacted me, arguing that through the national approved letting scheme the sector has reformed itself and the Bill is unnecessary, but it also suggests that there should be
“proper comprehensive regulation of all lettings and management agents”,
and states that agents currently provide services for both landlords and tenants, which I rather dispute. According to this agent, those services include offering tenants a choice of viewings at the convenience of existing and incoming tenants, referencing checks on tenants and their guarantors, and even explaining tenancy agreements.
I accept that some of that work supports tenants, but I see no reason why the tenants should pay for it. I believe that when a letting agents engages in those activities, he does so on behalf of the landlord, who—rightly and appropriately—pays him a fee for doing so. The agent is then remunerated for that work, and, in most instances, goes on to earn a regular income through the management charges involved in the collection of rent.
The national approved letting scheme suggests that agency-trained staff are trained to have the right level of knowledge to ensure that neither the landlord nor the tenant is disadvantaged. It fears that the abolition of fees will cause letting agencies to reduce staff levels and training budgets. I am not at all convinced by that. Before coming to the House, I employed a team of salespeople serving the catering trade, but I never expected the customers of my business to pay for the training of my staff. The NALS also suggests that rents may rise. I think that that neglects the principal feature of any market, which is that the prices set are based on supply and demand.
We know that the private rented sector has increased massively. In 2008 it made up 10% of all households. By the time we produced our 2013 report, it made up 18% of households, with 4 million households renting. Today, 21% of the market consists of the private rented sector, with 4.7 million households renting. That is the highest level for 30 years. More and more people are affected, and it is entirely right that the Government are taking action to protect them.
Mr Clive Betts (Sheffield South East) (Lab)
First, I refer to my declaration in the Register of Members’ Financial Interests: I own one property which I let out.
The Select Committee carried out pre-legislative scrutiny, and we unanimously warmly welcomed the principle behind this Bill. The principle we accepted was that the contract is between a landlord and a letting agent, and therefore it is up to the landlord to pay the cost of that contract; that seems a very simple principle to adopt. Evidence was given to the Select Committee that considerable savings to tenants could materialise from this; there was talk about average fees charged to tenants of £100 or £200, but Shelter gave evidence that they could be as high as £300 or £400 in some cases, so there are significant savings for tenants here.
There could in some circumstances be an increase in rents to compensate, and that would be legitimate if done properly from the beginning, but again there was evidence that if tenants were asked to pay a bit more each month, rather than a lump sum fee, that would help them in most cases. Organisations representing tenants generally accepted that point.
The Select Committee looked at the Bill and recognised that the good letting agents would accept it and willingly comply. The Bill tries to deal with those letting agents that would try to find loopholes to get around the provisions. We concentrated to a degree on default fees and how letting agents might seek to recover money they can no longer charge through charging extra for things that happen during a tenancy such as a lost key. It is reasonable that a lost key should be charged for, but it ought to be a reasonable charge. Letting agents might also charge more if they could in the first month of a tenancy to disguise an upfront fee, or indeed try to recover money in that way at the end of a tenancy. These were the sorts of matters we considered and made recommendations on.
I will not go into all the areas where the Government accepted our recommendations, because there is quite a long list of them, but I think the Minister will accept that the Bill is better for the consideration of the Select Committee and its suggestions. For example, section 21 notices cannot be used where the letting agent has kept outstanding prohibitive fees; that was a Committee suggestion. I am however disappointed that the Government did not accept our suggestion that we should have a clause about retaliatory evictions not being allowed as a result of this legislation. Indeed, the Committee looked at the issue of retaliatory evictions in our recent report on the private rented sector in general, and I think the Government must now review the legislation on retaliatory evictions and the Deregulation Act 2015, as it is not working at present. The Government are going to come back with some more information on how many cases there have been where a retaliatory eviction has been stopped because of the current legislation. This point might also apply to the private Member’s Bill of my hon. Friend the Member for Westminster North (Ms Buck); I can see retaliatory evictions coming into that as well. Therefore, we must extend the scope not just in terms of this legislation, but in terms of other Bills as well.
We did a lot of work on default fees. We need some specific figures on this, and my understanding is that the Government have generally accepted that default fees should only be related to the cost incurred by the landlord, and that more information will be provided in the guidance the Government issue. The problem is that the guidance will not be available to this House as the Select Committee suggested; it will not be available until consideration in the House of Lords. We are therefore taking the Government’s word that they are going to toughen the default fees powers without seeing that in practice.
Another important issue is enforcement. The Government have accepted the principle of the Select Committee suggestion that a tenant charged prohibitive fees should be able to recover them from the first-tier tribunal. That is the best place to go because it is fairly user-friendly for tenants, although they will often still need some help from advice services or local authorities. The problem is that if a letting agent does not agree to the first-tier tribunal decision the tenant has to go to the county court for enforcement, and that is not a user-friendly place, which might deter tenants from going. We have suggested that the first-tier tribunal might be given powers of enforcement or at least might have to take the case on behalf of the tenant to the county court if its decision is not being complied with. Will the Government look at that? It would also be nice to have a bit more information about their idea of a housing court reform and generally having one place where tenants can go for a whole range of housing issues. That is a good suggestion, but we have not seen any details so far; it would be good if the Government were to come back with some.
On local authority enforcement, we suggested that paying the costs the local authority will incur through civil penalties was not sufficient and that local authorities need extra funding from Government. They have accepted that in principle, but have committed only to doing that for the first year that the scheme is in effect and have not given any idea of the amount of money. We will need to look at that in more detail.
Finally, we talked about the size of security deposits. We heard conflicting evidence: organisations representing tenants wanted deposits equivalent to four weeks’ rent; landlords and letting agents wanted six weeks. Both made compelling cases, so the Committee suggested five weeks. We also heard some interesting ideas about alternatives to security deposits. We were not convinced that any had been sufficiently thought through to recommend them, but we felt that many of them needed further thought. Will Ministers therefore commit to carrying out a review of the various alternatives to security deposits and report back to the House in due course?
Bob Blackman (Harrow East) (Con)
It is a pleasure to follow the Chairman of the Select Committee, the hon. Member for Sheffield South East (Mr Betts). For part of his absence, I had to chair the Committee as we carried out some of the pre-legislative scrutiny of the Bill and agreed the final report that the Committee published. I am pleased that the Government have seen fit to adopt many of our recommendations, which were agreed on a unanimous all-party basis. This is one of the areas that the Government should learn from, across the Departments. Submitting draft Bills to Select Committees and asking them to carry out pre-legislative scrutiny improves the legislation before it comes before the House, and many other Departments could learn from this and use the same method to improve their legislation. I should also like to draw the House’s attention to my entry in the Register of Members’ Financial Interests, in that I am a vice-president of the Local Government Association and I have a small portfolio of properties that are rented out.
A key area is the need to strike a balance between landlords and tenants and the agents that they utilise between them. I agree with other Members that it cannot be right for an agent to work for both the landlord and the tenant, and for fees to be charged in both directions. The principle has to be that the letting agent acts on behalf of the landlord and that the landlord therefore pays the costs of the agent. Tenants should not be charged for the purposes of identifying a tenancy. As we in this country increase our dependency on the private rented sector, this is becoming an ever greater problem and it needs to be addressed.
I warmly welcome the Government’s decision to bring forward this legislation, and I am delighted that they have accepted so many of the Committee’s recommendations. However, I want to deal with some of the recommendations that they did not accept, as they are the ones that form the nub of the debate. First, I should like to be just a bit critical about the process of deciding whether there should be an assessment of impact or an impact assessment. The Committee thought that the Government should have carried out a proper impact assessment on publication of the draft Bill before it came to us for pre-legislative scrutiny. They chose not to do that, and instead decided to carry out an assessment of impact and subsequently do an impact assessment. I will not go into all the technicalities involved, but this was one of our key concerns.
We also considered in some detail the question of whether a deposit should be based on four, five or six weeks’ rent. Clearly, landlords would like as large a deposit as possible and tenants would like to pay as little as possible. Our concern over limiting the deposit to four weeks’ rent was that most tenancies involve paying rent monthly and that at the end of a tenancy, the tenant might simply skip without paying the last month’s rent. At that point, the landlord would have to enforce and retain the deposit. Similarly, we felt that six weeks would be too long, and that it would be a barrier to many tenants seeking to rent. We therefore struck a balance and recommended five weeks, on the basis that both parties would have something to lose if the deposit had to be relied upon. That is why we arrived at that compromise arrangement, and I am disappointed that the Government did not accept our strong arguments in favour of that compromise. I believe that once a maximum figure is set, it is almost inevitable that all landlords and letting agents will go straight to that maximum level. That has a severe impact and would be an unfair charge for people on relatively low incomes.
The Government have partly accepted the Select Committee’s position on whether fees such as holding deposits can be considered reasonable. If someone goes into a letting agency wanting a tenancy, appropriate fees for reference checks, which are of the order of £20 to £50, are reasonable costs for them to incur, but it is unreasonable for the landlord to pay if someone fails a reference check. The Committee also recommended that if a prospective tenant gives deliberately misleading information, they should lose the holding deposit, which should be retained by the landlord. That suggestion has not been in accepted in full by the Government, and it needs to be considered in detail again.
Another of the Committee’s concerns was that if the first month’s rent is artificially high and then the rent decreases over time, that hidden fee is unfair on the tenant. However, we want it recognised that rents can go down as well as up. The Bill essentially presumes that the cost of a tenancy will always increase and that the rent will increase when a tenancy is renewed. However, the market could determine that rents will come down, so there should be a provision that allows for rents to fall, particularly over the course of a longer tenancy.
I completely agree with what the Chair of the Select Committee had to say about retaliatory evictions, and we must review the whole process in law. We cannot necessarily do all that in this legislation, but the position could be corrected through provisions in this Bill. Tenants must feel able to complain to trading standards, the housing court or whatever organisation we choose, without running the risk of being evicted. Such evictions cannot be right, and we must draw a firm line under them.
In conclusion, I agree with the current draft of the Bill, but there are some changes that would improve the legislation for all concerned and strike a much better balance between tenants and landlords.
Jo Stevens (Cardiff Central) (Lab)
It is a pleasure to follow the hon. Member for Harrow East (Bob Blackman). Some Members may be wondering why I, a Welsh Member, am speaking in this debate, because housing is devolved to the National Assembly for Wales, and the Welsh Government will be bringing their own Bill before the Assembly this year to ban letting fees in the private rented sector. The Welsh Government consulted widely and the consultation’s findings have added to the ample evidence, a lot of which we have heard this evening, that action is needed to address the fees currently charged to tenants.
To highlight a few of the consultation’s findings, 56% of all respondents agreed with an outright ban on unnecessary fees, 62% of tenants said that fees had affected their ability to move into a rented property, 86% said that fees had affected their decision to use a letting agency and, astonishingly, 61% of landlords did not know what their tenants were being charged by their letting agent. I doubt that the experiences of tenants in Wales differ greatly from those in England, so I welcome the Welsh Bill and am pleased that introductory fees will be banned—hopefully throughout the UK.
My constituency has the fifth-highest proportion of privately rented accommodation of any constituency. That is largely, although not exclusively, because it has the third-highest proportion of full-time students of any constituency. Nearly 37% of my constituents live in private rented homes, and much of that number is made up of families. Like many Members, I see constituents in my advice surgery every single week who are living in expensive, cramped accommodation and for whom fees are a constant worry. Such fees are yet another worry to add to insecure employment, low pay, cuts to social security and housing benefits, a publicly funded legal advice desert—when rent arrears get to the point where eviction is imminent, no help is available—and, obviously, eye-watering levels of student debt. Banning letting agency and landlord fees is very welcome. It is a cash cow that has gone on for too long. Some agents are using it as a scam, and it needs to stop.
Other Members with university constituencies will no doubt recognise the picture I am about to paint. Some of the larger streets in my constituency are almost entirely made up of family homes that have been converted into student lets—streets of about 200 properties, each with eight or more students living in it. When I go down those streets and knock on doors to speak to constituents, I add up in my head the total paid every single year in letting agency fees by those residents. On one street in the Cathays ward of my constituency each resident will pay, on average, £200 in letting agency fees. Between them, on that one street, letting agencies are making a minimum of £320,000 every single year. Never mind Ponzi schemes or payment protection insurance scandals, this is a scandal that has lined the pockets of letting agents, some of whom are parasitic, greedy and unscrupulous, and it has gone on for far too long.
As we have heard, these fees, like so many other things, are based on an imbalance of power. Student tenants and low-income families have no power in this relationship. This is what one constituent wrote to me, having had a dreadful experience with a Cardiff letting agency:
“They are LEECHING people for all that they can, and there is nothing to stop them. They are brazen. They know they’re screwing you over, and they know that you know that they’re screwing you over, and THEY DON’T CARE. Because there are no consequences and they hold all the power.”
My experience of representing constituents living in the private rented sector is that the fees charged are almost always completely arbitrary and unjustifiable.
Here is another view from a constituent:
“Students and low earners are bled dry by these lizards, to the tune of hundreds of pounds a year all to live in rotting accommodation which can be dangerous to live in.”
As another example, one student said to me:
“In the small print of our contract it said the letting agency will take 65 pounds from each of us in our student house for ‘professional cleaning…regardless of the condition the house is left in.’ So I was then quite annoyed to find they hadn’t bothered with this ‘professional cleaning’ for us when we moved in. The kitchen was leaking and rotting. A ceiling collapsed within a week due to an upstairs leak. The bathrooms reeked and were mouldy. A microwave nearly caught fire and…exploded but we were told”
by the letting agency that
“it wasn’t their problem.”
The truth is that many of these fees are completely arbitrary. They mean nothing. At most, they constitute a few minutes of basic administration using tenancy agreement templates and the ability to cut and paste, yet at the moment agencies and landlords can just name their price, so I welcome the Bill.
This racket needs to end, all of it, and fast.
Eddie Hughes (Walsall North) (Con)
I refer the House to my entry in the Register of Members’ Financial Interests, as I am an “accidental landlord”, to use that excellent term. I think 123 MPs are also landlords, so there should be a wealth of knowledge in the Chamber.
I wanted to speak in this debate because I am mindful of the Prime Minister’s speech on 13 July 2016, in which she said her intention is to reach out to ordinary working-class families. As the product of an ordinary working-class family, I am keen for her to do that. I represent the people of Willenhall and Bloxwich, and the average property price in my constituency is only £127,000 and the average income is £25,000 a year, so clearly my constituents are the epitome of hard-working people.
From my perspective, it is therefore incredibly important that this Government do everything they can to protect people who are required to rent because they are not in a position to buy. Clearly, this Government’s aspiration would be for all those people who want to buy to have the opportunity to do so, but we heard the figures earlier and that is not the current reality of this country. We have an ever-increasing rental market. People are forced into a situation where they have to rent because their family is growing or they need to leave home, so it is incredibly important that they are protected.
This is not the good thing about this Bill; it is not just that this is a Conservative party policy. We have others and it is great that we have done things such as increasing the minimum wage and increasing the level above which people need to pay tax. People looking in from the outside this evening will be seeing Parliament say this is the right thing to do. One of the greatest things for me, having been an MP for less than a year, is to come to this Chamber and hear people on both sides say positive things about a particular idea around which we can all coalesce. It was excellent to hear from the hon. Member for Sheffield South East (Mr Betts) and there has been great involvement from the Select Committee; there has been deliberation from people who are very knowledgeable on these topics and the Government have responded accordingly. I also appreciate, from my hon. Friend the Member for Harrow East (Bob Blackman), that perhaps in some ways the Bill has not gone quite as far as some would like. It is a work in progress, but from my point of view the comment made by my hon. Friend the Member for Rugby (Mark Pawsey) sums up what my constituents would be thinking: is it fair that the fee for sourcing a property is paid by both the landlord and the tenant? I do not think so and I do not think the people in this Chamber think so either.
Dr Paul Williams (Stockton South) (Lab)
It is a pleasure to follow the hon. Member for Walsall North (Eddie Hughes). Like him, I refer the House to my entry in the Register of Members’ Financial Interests, as my partner and I rent out properties, although we are also private sector tenants.
I wish to congratulate the Government on introducing this Bill. I was proud to be elected last year on a manifesto to increase rights for tenants, although any Bill should protect the role of good and ethical landlords too. Unfortunately, rogue letting agents have for too many years been allowed to profit from insecure tenancies, with some charging renewal fees every six months. Nearly all charge administration and referencing fees, and huge deposits, which are completely out of reach for low-income families.
I support the broad aims of this Bill, but I would like to draw the Government’s attention to one aspect that continues to leave tenants vulnerable to unfair fees. I have particular concern with schedule 1(4), which reserves the right for landlords and letting agents to charge tenants who are forced to default on their tenancy agreements. I believe people who rent through the private sector could be better supported by this part of the Bill. I understand that some agents and landlords currently charge a full month’s rent for tenants to be granted an early release, then every month’s rent and utilities while a new tenant is found. There are genuine instances where tenants are forced to end tenancy agreements, which they entered into in good faith, through absolutely no fault of their own: for someone living in the private rented sector who is made redundant from their job, benefits might not cover the rent, and any delays in receiving benefits will leave them in rent arrears. Someone might have had a family bereavement and might need to move to another part of the country or of the world. Someone might have a mental health crisis and need to be admitted to hospital. Someone might be off work with a serious injury and not receive sick pay, or they might need to flee domestic violence. Many letting agents and landlords are unforgiving in such circumstances and trap tenants in situations that they need to escape.
Jim Shannon (Strangford) (DUP)
The hon. Gentleman is outlining extreme circumstances for tenants who rent properties. Does he agree that those people probably need legal advice, but do not have access to it when they need it most? Does he feel that the Government should look into legal advice for people who rent accommodation, then find themselves in difficulty?
Dr Williams
I would certainly like the Government to look at what advice and support is offered to people who find themselves in extremis.
Landlords’ loss of earnings do not compare to the trauma faced by tenants in a situation in which they just cannot pay the rent. Some such situations call for compassion. Let us remember that landlords have the right to increase their tenants’ rents as much as they want and can evict a tenant with two months’ notice without loss of earnings, but a tenant cannot leave a tenancy early in extremis. Why should landlords have the flexibility when the tenants do not? Surely, the Government must think more about the protection for tenants in such situations.
Many more children now live in the private rented sector than 10 or 20 years ago. With growing child poverty, any potential for charging households fees beyond the monthly rent and security deposit can be an absolutely debilitating blow to families on the breadline. I urge the Government to look at the Mind report, “Brick by brick: A review of mental health and housing”, which makes for particularly concerning reading. Published in November last year, it finds that the instability of the private rented sector is bad for children’s social, emotional and mental health. As a GP, I see the effect of that instability every week. Some 28% of all children in the north-east live in poverty, and more than two thirds of them are from working households in which one or two parents work full time. Nearly half of working-age people in poverty spend more than one third of their income on housing costs.
There is a strong case for the Government to strengthen the Bill further. Unaffordable housing affects a family’s ability to pay for essentials. From school uniforms to energy bills, to healthy and nutritious meals, families should not have to sacrifice the basics to keep a roof over their head. A healthy and stable home can support healthier children too. I urge the Minister to go away and look closely at schedule 1(4) and to protect people who have to default on tenancy agreements through no fault of their own. Let us think of someone who has lost their job, had a family bereavement or mental health crisis, is off work without sick pay or is fleeing domestic violence; the Bill should grant to tenants in such circumstances more financial protection from any charges from letting agents or landlords. I urge the Government to look into these issues more carefully.
Maria Caulfield (Lewes) (Con)
On 3 May 2016, I led an Adjournment debate in which I called for a cap on letting agents’ fees, because they were becoming such a big issue in my constituency. I therefore welcome the Bill, which goes even further.
This issue particularly affects London and the south-east. In my constituency, rent for an average property is close to £2,000 a month. I have worked closely with the citizens advice bureau in Lewes, and it has done a lot of work on this issue. It highlighted how letting agents fees in one of the four towns in my constituency can range from £175 to £922. Coupled with an eight-week deposit, which is standard in Lewes, that can leave tenants paying anything from £3,332 to £3,779. It is just not affordable for someone on the average wage. I was therefore pleased to see in schedule 1 that the deposit is going to be limited to six weeks.
I have two key concerns. The first is about the variety of fees listed in schedule 1. Although the Bill covers holding payments and deposits, several fees that letting agents have introduced will get around the legislation. Citizens advice in Lewes found that people can be charged around £450 to add a second tenant to a property. A reference check can cost £100, as can general admin. An “express move”—to move within 10 days—can cost around £200, and it can cost another £200 to keep a pet in a property. If a tenant moves out and someone takes over the lease, that costs £300 on average. Some Members have already mentioned the six-month tenancy. Tenants often want a longer lease, to which they are legally entitled, but are not allowed to contact the landlord to negotiate one, because it is in the letting agents’ interest to keep tenants on a rolling six-month tenancy, paying around £150 to £350 every time they renew their lease.
My other concern is enforcement and schedule 3. It is a legal requirement for letting agents to advertise their fees, but it just does not happen and is not enforced. Citizens advice looked at 25 letting agents in Lewes and Seaford. Only one currently advertises its fees. We have legislation and it is not being enforced. I am not clear from schedule 3 who is responsible for the enforcement of the legislation and what happens if they do not do it. I welcome the Bill, but I have those two concerns—the variety of fees not covered, and enforcement to ensure that the Bill works properly for tenants.
Matt Rodda (Reading East) (Lab)
I am grateful to be able to speak on Second Reading and to discuss an issue that is relevant at both national and local level. It is also my pleasure to follow the hon. Member for Lewes (Maria Caulfield).
I welcome the Bill, which has long been delayed—the issue was raised by Labour in 2013 and adopted in our 2015 manifesto. Rising house prices in my constituency mean that the rental market is growing rapidly. Since 2009, median house prices in Reading East have risen spectacularly by 175%, from £197,000 to £344,000. Increasing numbers of young families as well as single people are entering the rental market.
Some renters are satisfied with their properties, but in my experience far too many find themselves footing bills for housing that is in poor condition, or for tenancies without any long-term certainty. Nationally, 1.6 million families with children are renting privately, with their long-term plans depending on the reliability of landlords who can evict them with one month’s notice. Meanwhile, letting fees, burgeoning rents, and high deposits present an affordability challenge for tenants. It is therefore in the vital interests of all my constituents that the rental market be maintained as affordable, transparent and accessible. I welcome the Bill as a first step towards establishing that fair and reliable rental market.
The Bill will have a positive impact in abolishing up-front fees to enhance clarity and control for tenants. Letting-agency fees restrict the mobility of renters, thereby removing one of the prime incentives of renting a property. On average, tenants pay £272 per person in fees with each move, on top of rent in advance and deposits. Alarmingly, one in seven tenants are charged more than £500 to enter rented accommodation. Over the past five years, renters have racked up a staggering bill of £678 million in agency fees.
Moreover, there is a lack of consistency in setting those costs. Research by Shelter has found broad variations across letting agents—reference-check fees range from £30 to £220, and tenancy renewals cost between £35 and £150. I welcome the premise of the Bill—the measure was initially promised in the 2015 Labour manifesto—but I note that both the Prime Minister and the Chancellor of the Exchequer have previously voted against a motion abolishing letting fees. I am delighted that the Government have decided to change their mind.
Default fees are chargeable if an agent or landlord incurs costs due to a tenant’s actions. They have been described by agents as a back-door route to reclaiming lost income. Agents have admitted openly to the Housing, Communities and Local Government Committee that they will charge disproportionate default fees to make up for loss of revenue, which is an extraordinary admission from the industry about its intentions to exploit loopholes in the Bill. I am concerned that there will be cases of a brush coming with an associated charge of £45, or of £130 being charged for a missing TV remote. These default fees are set at the discretion of the agent or landlord, and there is no cap in the Bill on the cost to tenants. There is an urgent need to strengthen this legislation to provide limits on what can be charged for and to ensure that any charge made is reasonable. If relevant additions are made to the Bill to resolve this flaw, the legislation’s good intentions will be preserved.
The second aspect of the Bill that I would like to discuss concerns tenancy deposits. Although I am glad that the Government have decided to issue a cap on tenancy deposits, I am disappointed that the Select Committee’s recommendation to cap deposits at five weeks’ rent has been rejected, as the hon. Member for Harrow East (Bob Blackman) mentioned. The Government have opted for a six-week cap, which means that renters in the south-east of England will still have to find an average of £1,800 to place a deposit. This is at a time when the majority of landlords already take deposits for six weeks or less. As such, the Bill will not change the realities of access to housing for renters, particularly in an area such as mine.
Thirdly, I voice my support for robust enforcement. I am glad that tenants will be given access to a first-tier tribunal to enforce the regulation, and I am pleased to see penalties being put in place for breaches of the rules. However, sufficient funding must be released to allow for the enforcement of the ban on letting agent fees. Without proper resourcing, the measures in the Bill are likely to fall short.
In general, the Bill has the potential to make significant savings for tenants in—and enhance the transparency of—the private rental sector. I am pleased that the Government have listened to calls to make private renting fairer and more affordable. In fact, as I mentioned, the Labour party has been campaigning for these measures for a long time. Indeed, my right hon. Friend the Member for Wentworth and Dearne (John Healey) first recommended them in the Letting Agents (Competition, Choice and Standards) Bill in 2013. The Bill requires further scrutiny in several important areas—most obviously, the provisions on default fees. I ask the Government to provide further protections against the exploitation of tenants in this regard.
With proper amendments, the Bill can present a good first step towards balancing the rental market. I urge the Government to listen to these points.
Andrew Lewer (Northampton South) (Con)
Although it is true that some renters pay many hundreds of pounds in fees to letting agents, I want to point out that the solution proposed by the Government may merely shift the cost of the burden, not to landlords and lettings agents, but back to tenants in a different way. Banning letting agency fees means that the money will have to come from somewhere else, at least as far as legitimate services from respectable letting agents are concerned. Landlords may well be forced to, or at least will, increase rents across the tenancy to cover the costs anyway.
Alex Chalk (Cheltenham) (Con)
Does my hon. Friend agree that however appropriate this legislation is—and it is appropriate—it is at least in part because of the unscrupulous actions of some letting agents, and not all letting agents should be tarred with the same brush? CGT Lettings and Morgan Associates in my constituency do a good job by their tenants and can be expected to continue to do so.
Andrew Lewer
I entirely agree.
These new rules are quite complex and there will be a bureaucratic cost to councils, letting agents, landlords and therefore tenants. The rules trigger the new burdens doctrine, and I hope that this will be accounted for in the legislation. I still think that a simple rule allowing letting agents to impose a maximum fee of 100% or 150% of monthly rent might have solved this more straightforwardly, as long as there were additional safeguards for those receiving housing-related benefits and others.
As I said last week on housing and, before that, on the energy price cap, I am a critical friend and a supporter, rather than a member, of this Conservative Government. Although I accept the need to intervene at times to ensure that fairness is maintained in the market, we also have a strong commitment to providing more houses and making people’s lives easier. The focus needs to be the key objective of having new homes in which the private rented sector will have a role, rather than just the “ban and regulate” type of legislation. As my hon. Friend the Member for Cheltenham (Alex Chalk) has just said, let us remember that there are hard-working people in the sector. We should not draft legislation purely to punish those who behave unscrupulously at the expense of the far more numerous examples in the former category.
I would like to acknowledge the work of the Housing, Communities and Local Government Committee, on which I sit. Over the past few months, it has held evidence sessions with stakeholders and done significant work to improve this Bill so as to avoid more costly and inefficient enforcement. Indeed, that work has been sufficient, notwithstanding my reservations, to secure my support in the Lobby, because there is a problem to be tackled, even if this proposal has some Jim Hacker in it as well as some King Solomon.
Wera Hobhouse (Bath) (LD)
I draw Members’ attention to my entry in the Register of Members’ Financial Interests.
The Liberal Democrats have long fought for renters’ rights. The Bill is in many ways the result of the hard work of my colleagues in the other place, who have campaigned tirelessly for a ban on letting fees and for private rented sector reform. I am therefore pleased that the Government have listened and will make the sector fairer for my constituents in Bath and people across the country. However, the Government could be much more ambitious. The Bill introduces a ban on letting fees, but currently does not include provision for local government to enforce fines if the ban is breached. What is proposed is a self-financing system, and that often does not work in practice. Equally, we must ensure that the Bill covers all fees. We cannot permit letting agencies to attempt to bring in fees under an alias or to exploit the default fees loophole, as a couple of Members have already pointed out. We need more information from Government to understand how this issue is being addressed.
Many landlords are not badly intentioned, but we must do more to stop those who abuse the system. There must be compulsory registration for landlords. There must also be public access to the Government’s database of rogue landlords, and those landlords should not be able to obtain a licence for houses in multiple occupation. There should be support for longer tenancies; I completely agree with the hon. Member for Lewes (Maria Caulfield). We should have Government-backed loans to help people to afford a tenancy deposit. By tackling rogue landlords and supporting those struggling to afford a deposit, we would be reducing the key factor behind the rise in homelessness.
The housing crisis is denying young and vulnerable people in my constituency access to a place to call their own. The Bill is a step in the right direction. I am pleased that a practice that was a nice earner for some but an injustice to the young and most vulnerable people will now end. However, I urge the Government to be far more ambitious if we are truly going to make a difference to renters.
Richard Graham (Gloucester) (Con)
It is a great pleasure to join this happy debate with a lot of consensus on both sides of the House. It is also a pleasure to follow the hon. Member for Bath (Wera Hobhouse), who reminded us that success has many parents and that that is a happier position to be in than the orphan without any parents.
Much has already been said, so I just want to add two or three thoughts. Last year, I became, with my wife, an amateur landlord. As this Bill took shape, I spoke to constituents who were tenants, agents and landlords, and I looked it in the light of our own experience. I quickly came to the conclusion that the market was not acting as effectively as it should, fundamentally because tenants are not equal partners in the negotiations and lots of family landlords inevitably devolve decision making to agents. As both the current and previous Secretaries of State have said, and as the shadow Minister, the hon. Member for Great Grimsby (Melanie Onn), said today, a small—I repeat, small—number of rogue agents have spoiled the situation. As the supply-and-demand equation has altered, so, in turn, tenants have become more squeezed.
Fundamentally, the role of agents in this process has changed. They are evolving quite radically from being an intermediary in an analogue age to a landlords’ compliance department in a digital age. Today, their fundamental role, which is very important, is to keep landlords and themselves out of trouble—indeed, even out of jail. The reason for this is not least the complexity of the law. Regulations need to be enforced. Most amateur landlords need high-quality agents to ensure, for example, that smoke detectors and fire exits work, that boilers are checked and that insurance is adequate. There is much more besides all the important environmental health provisions that councils are responsible for ensuring do not get breached. I believe that the role of agents therefore is to focus on keeping landlords within the law and providing a good service to tenants. A commission agent is fundamentally different from a compliance department.
I welcome the Bill and everything that Ministers have announced. I note one or two caveats from colleagues. I think that the fundamental goal of saving some £240 million a year in unnecessary fees will be welcomed across the country. The compromise on capping security deposits at six weeks’ rent—it is eight weeks in Scotland—seems sensible, but no doubt there will be further debate on whether it should be five or six weeks.
The Bill will not solve all the problems—the supply of housing is still too small and the prices are still too high for many tenants—but it is a chance for agents to adapt their business model in the way I have suggested, for landlords to get their properties in order and for tenants to help keep landlords straight. Because rents have risen, there is a risk of poor and even dangerous homes being rented by landlords who are cutting corners to tenants who are trying to cut costs. I urge Ministers to look at how they can work with local authorities to ensure that that risk is not increased and that local authorities seize the opportunity to levy fines where they are needed and to provide the resources for their housing departments to keep housing of the quality that we, and above all tenants, deserve.
Helen Hayes (Dulwich and West Norwood) (Lab)
I presented a petition to the House on behalf of my constituents back in June 2016, calling on the Government to take action to curb letting agent fees. In responding to the petition, the Government gave no indication that they were considering any action on fees other than requiring letting agents to publish a full tariff of their fees. That response was very disappointing.
The publication of tariffs in my constituency has simply confirmed what private renters have always known: that fees are enormously variable and that in many cases a combination of fees, holding deposit and tenancy deposit can run into hundreds and sometimes thousands of pounds each time a tenant moves. Letting agent fees are no small matter financially, whether someone is trying to save for a deposit to buy their own home or simply trying to keep their head above water and make ends meet. The instability that many private renters face means that they are not only paying high fees, but can be forced to pay them every six to 12 months, so they face the utterly dispiriting experience of seeing what little savings they manage to accumulate being wiped out again and again each time a tenancy comes to an end.
Fees, combined with spiralling rents, are one of the reasons why many renters cannot afford to buy. They are also one of the reasons why many of my constituents who are in the greatest housing need and on long waiting lists for genuinely affordable social housing increasingly fear the private rented sector, if they are able to access it at all. So I welcome the Government’s change of heart on letting agent fees. I welcome the adoption of a Labour policy, and I welcome the Bill.
The Bill seeks to iron out a significant confusion in the letting agency market, which is the question of who the client is. Since landlords procure the services of letting agents and have a choice about which letting agent to choose, and letting agents provide a service to landlords in finding them tenants, the landlord is the client. Tenants do not have a choice about which letting agent to go to in order to access the type of home they require. They cannot decide that they like a particular property but would prefer to rent it via a different agent. As such, they are not the client. Any services the letting agent provides that involve the tenant, such as obtaining references and credit checks, are simply part of the process of securing that tenant for the landlord who is their client. It is therefore not fair or reasonable for two different parties in a letting transaction to be charged for the provision of services. No other part of the estate agency industry operates in that way, and there is no justification for it to continue.
While I welcome the Bill, there are some important ways in which it can and must be improved. The first and most significant relates to default fees. The Bill allows for default fees to be charged by landlords and agents of tenants but does not specify any parameters for that. Great concern has been expressed by many witnesses to the Housing, Communities and Local Government Committee’s pre-legislative scrutiny inquiry on the Bill and others that the provisions relating to default fees are simply a loophole that will allow arbitrary sums to be claimed from tenants by the back door.
Although default fees have to be specified in the tenancy agreement, there is in practice no way for a tenant to identify and challenge unfair fees at the point at which a new tenancy begins—and by the time they are being charged, it is too late. Letting agents’ representatives admitted in evidence to the Select Committee that they would try to charge disproportionate default fees to make up for a reduction in other fees. This would be completely unacceptable, and while I welcome the Government’s intention to provide further clarification, it is vital that this is absolutely watertight if the Bill is to succeed in its main objective of reducing cost to tenants.
Secondly, I am concerned that the Bill is insufficiently clear on the circumstances in which an agent can retain a holding deposit. In circumstances where a tenant has wilfully provided false information, it may be acceptable for an agent to retain the costs of undertaking checks, but we know that there are many circumstances in which incorrect information can be provided where this is not the fault of the tenant. For example, the tenant may be unaware that their credit rating has dipped, or an employer may hold out-of-date salary information, and there are many other such circumstances. The Bill must ensure that tenants are protected against incorrect information being provided by someone else. The failure to do so could result in tenants who have lost a proportion of their savings being prevented from accessing another home, with dire consequences. I urge the Government to ensure that the Bill is sufficiently robust on this matter.
Finally, I must emphasise that although the Bill is a welcome step, there is still much more to do to reform the private rented sector and to redress the imbalance of power that exists between landlords and tenants. The Government have shown a willingness to adopt Labour policy with regard to banning letting agents’ fees. May I urge the Minister to go further and legislate for longer and more secure tenancies, intervene to address the spiralling rents that cause hardship for so many of my constituents and act to stop revenge evictions because the current legislation simply is not working? We need comprehensive reform of the private rented sector to give security and stability to the increasing numbers of my constituents who are reliant on it, and in particular for the growing numbers of children living in private rented accommodation on whom the need to move frequently can have a particularly harmful impact. While I welcome the Bill, there is much more to do, and I urge the Government to go further.
Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)
I congratulate the Conservative party on delivering yet another 2015 Labour election manifesto pledge. Page 62 of our 2015 election manifesto, which I stood on, pledged to ban unfair letting agent fees. I have some news for the Conservative Members, however, because we had a new manifesto in 2017, which was even more popular than our 2015 manifesto: it led to their losing seats and to our gaining them. The 2017 manifesto went even further:
“Labour will make new three-year tenancies the norm, with an inflation cap on rent rises... We will legislate to ban”—
all—
“letting agency fees for tenants. We will also empower tenants to call time on bad landlords by giving renters new consumer rights.”
It was a little bit disappointing that this Bill did not go quite so far. However, if the Government wish to continue their work in implementing Labour manifesto pledges, I am sure that they will meet no resistance from Labour Members and that it will be met with a great deal of praise from those who are suffering in the private rented sector.
The scandal of letting agent fees has gone on for far too long, and an audit of the private rented sector in Brighton and Hove shows exactly how out of control the fees are. In Brighton, agents’ fees start at £500 just for a holding fee, which is of course, as we have heard, non-refundable. If someone decides not to go for the property, they will lose the money. In the house buying world, someone can put in a bid for a property, agree an offer and get very far through the negotiations, but they can drop out with no financial charge. That seems manifestly unfair: for the rich, or for homeowners, there is one rule; and for renters, there is another whereby, if someone decides to change their view at the last moment, for whatever reason, they are charged. Ending that is a great opportunity that has been missed in the Bill.
In Brighton, admin fees are also common, at £250 on average per tenant, tenant substitution fees are as high as £420, and guarantor fees are £190. All in all, it costs more than £1,000 and we have not got started on the deposit. We have heard the same story from many constituencies throughout the country, particularly those in the south-east. We also have check-in and check-out fees, which are as high as £270 per check-in or check-out.
How has it got this bad? There is, of course, a fundamental power imbalance in the landlord-renter market. Often, young and insecure workers have no choice but to take what they are given, pay the fees and, sometimes, to do it with a smile because otherwise they would be rejected by the landlord. That is, of course, why it has been necessary in Brighton to establish renters’ unions. There are renters’ unions in my constituency such as Acorn, and I applaud the work it has done to fight for renters who are being abused by agents. We have heard a lot of talk about this being about only a few agents, but I am afraid that in my city it is, I think, a large number of agents. I would even go so far as to say that the majority of agents use these dirty tactics. That is why the Bill is needed; it is not about a few rotten apples but a systemic failure in the market.
The Minister will have received the same advice as I and many others have about some of the things that need to change, particularly the loophole in paragraph 4 of schedule 1, which has been mentioned, regarding tenants who have to pay a default fee. Again, that takes me to the point about the equality of the sides in this argument. While we still have no-fault evictions, where a landlord can decide to evict a person with notice and there is no charge or fee against the agent or landlord and no reimbursement for the person losing their house a few months early, it seems to be totally unfair to have any default fee on the other side without the situation being equally balanced. If the Bill were to introduce an equal default fee for no-fault evictions, this would be a measure that I could probably come to support.
Of course, the Bill also fails to provide a comprehensive definition of default fees and creates the ability for fees to be reintroduced by any other means. Of course, we know that in a capitalist world capitalism will use those loopholes to its best advantage. It seems that the Government never learn that if they do not close down loopholes, the people who will be abused are our constituents. I guess that it will take a Labour Government to implement Labour manifesto policies properly, but I support this measure, even if it does not quite yet go far enough.
Sarah Jones (Croydon Central) (Lab)
This has been an important debate, which has seen excellent contributions from across the House. I want to highlight in particular those made by my hon. Friend the Member for Sheffield South East (Mr Betts) as Chair of the Select Committee and my hon. Friend the Member for Cardiff Central (Jo Stevens), who painted such a powerful picture of a student city and the arbitrary and unjustifiable fees to which those students are subjected.
As has already been said, it is always flattering for the Opposition when a Government steal our good ideas, but the serious point that all of us on the Opposition Benches want to make tonight is that we welcome the Bill, we welcome its intent and we want to work with the Government to get it right. Introducing an outright ban on up-front letting fees is absolutely right and, as the hon. Member for Carlisle (John Stevenson) said, it is right and proper that the Government should intervene.
As we know, the Bill has been some time coming. The Government voted down a private Member’s Bill on this topic in 2013. As my hon. Friend the Member for Reading East (Matt Rodda) said, the proposals to ban letting fees were put to the House in 2014 and the Conservative party, including the Prime Minister, voted them down. In 2016, my constituency predecessor and then Housing Minister dismissed this policy as a bad idea, just eight weeks before his Government briefed the policy as part of their autumn statement. That is all in the past, however, and we are delighted we won the argument in the end.
We welcome the Bill, but we think it could go further and give private renters the rights they need. The Government have backtracked on their original plans to cap deposits at rates tenants want. They have put a major loophole in the Bill for a minority of unscrupulous landlords to exploit, they have kept costs for holding deposits at an unreasonable level and they have passed potentially high fees beyond year one for enforcing the Bill on to local councils.
It is right that we challenge the Government to go further, while welcoming the Bill’s overall aims. As the hon. Member for Rugby (Mark Pawsey) said, 21% of the market is now privately rented. It is no longer just young single people and students: England’s private rented sector is home to 1.6 million families with children. Average rents are now almost £1,500 a year higher than they were in 2010. As my hon. Friend the Member for Stockton South (Dr Williams) said, there is a link between paying more than a third of income on rent and one’s mental health. As my hon. Friend the Member for Dulwich and West Norwood (Helen Hayes) said, in her constituency people are increasingly fearful of the private rented sector, if they are able to access it at all. The hon. Member for Bath (Wera Hobhouse) and my hon. Friend the Member for Brighton, Kemptown (Lloyd Russell-Moyle) painted a picture of the wider reforms that are needed if we are to really tackle the private rented sector. There is certainly much more to be done, but we welcome the Bill.
I want to press the Minister on a few small points. Security deposits are a barrier to entry for many people trying to access the private rented sector. The proposal to cap deposits is welcome and a long overdue admission by the Government that the current market price is just too high. The Department’s own consultation found that more than nine out of 10 tenants want to see a cap, but we do not believe that the proposals in their current form are fit for purpose, because the cap is above what the market has already settled on and will not make any difference to the majority of tenants. Shelter’s most recent private landlord survey found that 55% of landlords ask for four weeks’ rent as a deposit, while only 6% ask for more than six weeks.
Citizens Advice also found that the most common amount is four weeks. It argues that a six-week cap will just help 8% of private renters. The Government’s own consultation on the policy found that two thirds of tenants wanted a cap of four weeks or less. Instead of listening to tenants and experts, the Government have risked making a deposit of six weeks’ rent the norm, rather than the maximum. This is a particular concern in high-cost areas such as London, where a six weeks’ rent deposit will see tenants paying £2,000 based on medium rents.
The Mayor of London is calling for a three-week cap. Experts such as Shelter and Citizens Advice are saying it should be no higher than four weeks. As set out by the hon. Member for Harrow East (Bob Blackman), the Housing, Communities and Local Government Committee is calling for a five-week cap. Clearly, there are some different views. It is a shame that the Government have bowed to pressure from trade associations and backtracked on their original plans to cap deposits at four weeks’ rent. I really hope the Minister will be open to discussing this in more detail in Committee. We on the Labour Benches will thank the Government for that if they do so.
On default fees, although the majority of landlords and many agencies operate fairly and responsibly, excessive fees imposed on tenants for minuscule breaches are still far too common. Some examples highlighted by Shelter include: a £40 administration fee for every phone call or letter to chase overdue rent; a £40 charge for a late rent payment; and mystery shopper evidence that appears to show agents making up fees for things on the spot. The Government have allowed a potentially serious loophole in the Bill by not banning default fees.
There are several issues that we do not have time to go into tonight, but there are big question marks over the effectiveness of statutory guidance in such areas. In the energy sector, the continued use of back-billing by companies in defiance of Ofgem’s guidance meant a licence requirement was eventually needed.
It is important that we get this right and do not leave a loophole for unscrupulous landlords and letting agents at the heart of the Bill. As the hon. Member for Lanark and Hamilton East (Angela Crawley) said, the lettings industry admitted in evidence to the Housing, Communities and Local Government Committee that some agents may seek to charge disproportionate default fees in order to recoup revenue that is lost as a result of the legislation.
Turning to the enforcement duties in clauses 6 to 8, as with any legislation of this sort, effective enforcement is key to its success. As we have heard today, the suggestion that the Bill should be completely funded through civil penalties jeopardises its chances of working effectively. Serious concerns have been raised about the ability of trading standards to enforce the measures properly, as no extra funding is earmarked beyond year one for enforcement—of course, we very much welcome the announcement of £500,000 in Government support in year one. Trading standards are under-resourced and overstretched to an unprecedented degree, and therefore, this proposal seems misguided. I hope that the Minister can offer us something during the Bill Committee to deal with that issue.
In conclusion, unlike other sectors in which consumers can expect certain standards with clear redress, repair and replace provisions, in practice they have fewer consumer rights in renting a family home than they do in buying a fridge-freezer. Today’s Bill is a step in the right direction, but it is not yet perfect. Although it will give comfort to renters, it will not tackle their wider problems. The Conservatives have so far turned a blind eye to the pressures that England’s rapidly growing number of private renters are facing. We hope that the new Secretary of State will continue on his course of coming in and changing things that are not right and will work with us to make the Bill work. My hon. Friend the Member for Great Grimsby (Melanie Onn) called for a gold standard for renters and landlords and for us to take the Bill from good to great. I am sure that that is something the Government would support.
The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Rishi Sunak)
It is a pleasure to wind up the debate and I thank the hon. Member for Croydon Central (Sarah Jones) for her constructive support for the principles of the Bill. I very much look forward to discussing the details with her in Committee.
At the outset, I pay tribute to the Under-Secretary of State for Housing, Communities and Local Government, my hon. Friend the Member for South Derbyshire (Mrs Wheeler), who could not be with us tonight. She deserves enormous praise for the way she has brought the Bill to the stage in which we are discussing it tonight, through her tireless engagement not only with colleagues across the House, but the sector at large, and extensively with the Housing, Communities and Local Government Committee. I thank her for all her work. She is the reason that we are talking about a Bill over which there is so much agreement.
I start by agreeing with my hon. Friend the Member for Carlisle (John Stevenson). Like him, I am a committed believer in the power of free markets and competition. I approach cases of caps and bans with some scepticism as well, so I am pleased to tell him that after careful consideration of the Bill’s provisions, I came to the same conclusion as my hon. Friend the Member for Gloucester (Richard Graham): what this Bill does is address a failure of competition and a failure of the free market, which Government Members believe so passionately in. There is an inherent unfairness in a situation where a potential tenant is faced with a monopoly provider of a letting agent, and it does not strike any of us as being right. That unfairness was highlighted by my hon. Friends the Members for Rugby (Mark Pawsey) and for Walsall North (Eddie Hughes) and is most clearly evidenced in the charging of double fees, where letting fees are charging fees on both sides of the transaction. This is evidence of the broader imbalance in the market that my hon. Friend the Member for Harrow East (Bob Blackman) highlighted, and the Bill seeks to redress the balance between landlords and tenants.
We have heard many helpful contributions from members of the Housing, Communities and Local Government Committee on both sides of the House. I pay tribute to its work and in particular, to the hon. Member for Sheffield South East (Mr Betts) and my hon. Friends the Members for Harrow East and for Northampton South (Andrew Lewer), as well as their colleagues. They did an excellent job. It is worth pointing out that I counted 19 separate recommendations of the Select Committee’s report and the Government were pleased to accept 15 of those. I hope that that speaks to the value that we place on pre-legislative scrutiny—[Interruption.] We should not dwell too much on the differences that separate us.
My hon. Friend the Member for Harrow East, the hon. Member for Sheffield South East and many other hon. Members asked about retaliatory evictions, and I am pleased to say that the Government are considering the Committee recommendations arising from its wider inquiry into the private rental sector, including on retaliatory evictions, and will reply in due course.
My hon. Friend the Member for Northampton South raised the issue of new burdens funding. I can tell him with my other hat on—as a local government Minister—that there is probably no more passionate defender of new burdens funding than me, so I will ensure that the funding is there for our local authorities to enforce the Bill properly.
That brings me to the comments by my hon. Friend the Member for Lewes (Maria Caulfield). She asked about enforcement and about the fees that would be charged and gave examples of exorbitant £200 or £300 fees charged when tenants want to add a second tenant to their contract or request permission for a pet. I am pleased to tell her that the Bill seeks to end that practice. Such fees will be capped at £50 or reasonable costs, which I hope gives her some comfort.
Enforcement is, of course, incredibly important. I am pleased to tell my hon. Friend and others that there are multiple avenues by which tenants can seek enforcement of their rights: first and foremost, through redress schemes, which the Government made mandatory for letting agents some years ago and are consulting on making mandatory for landlords today; secondly, through trading standards authorities and district councils where they are not the trading standards authorities; thirdly, on the advice of the Select Committee, through the first-tier tribunal; and, if none of that works, subsequently through the county court. The fines, starting at £5,000 and scaling up to potentially unlimited fines, are significant and will act as a deterrent to errant landlords.
Mr Betts
On enforcement, does the Minister accept that going to a county court is quite an experience for a tenant and would probably put them off, and does he therefore accept that the first-tier tribunal itself should take the matter of enforcement to the county court on behalf of tenants who have already won their case?
Rishi Sunak
We do not fully agree with the hon. Gentleman on that particular point, but I hope he takes comfort from our having accepted his recommendation that in the first instance the first-tier tribunal be available for tenants to take cases to and that this will serve as a benefit to them.
On fines, in criminal cases parties will be liable to potentially unlimited fines and banning orders. I think that the combination of all those things will serve as sufficient deterrent to errant landlords.
In conclusion, the Bill will save millions of tenants hundreds of millions of pounds and will deliver fairness. It is one of the many measures the Government are taking to fix the broken housing market, and I commend it to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Tenant Fees Bill (Money)
Monday 21st May 2018
(6 years, 5 months ago)
Commons ChamberRead Full debate Tenant Fees Act 2019 Read Hansard Text
Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)
On a point of order, Mr Deputy Speaker. I want to ask how I might put the record straight. I have a lodger, not a tenant, and I want to be very clear, for transparency purposes, that while the Bill does not affect that relationship, I do derive an income from that lodger, as my entry in the Register of Members’ Financial Interests states.
Mr Deputy Speaker (Sir Lindsay Hoyle)
I think the matter has been clarified.
Tenant Fees Bill (First sitting)
Tuesday 5th June 2018
(6 years, 4 months ago)
Public Bill CommitteesRead Full debate Tenant Fees Act 2019 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 5 June 2018 - (5 Jun 2018)
The Chair
Before we begin, I have a few preliminary announcements. Please switch electronic devices to silent. Teas and coffees are not allowed during sittings as they are deemed to be hot drinks, although you can persuade me otherwise. We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication, and a motion to allow us to deliberate in private about our questions before the oral evidence session. In view of the time available, I hope that we can take those matters formally, without debate. Date Time Witness Tuesday 5 June Until no later than 10.25 am ARLA Propertymark; National Approved Letting Scheme; OpenRent Tuesday 5 June Until no later than 10.55 am National Landlords Association; Residential Landlords Association Thursday 7 June Until no later than 12.15 pm Local Government Association; Chartered Trading Standards Institute Thursday 7 June Until no later than 1.00 pm Shelter; Citizens Advice; Generation Rent; National Union of Students
I call the Minister to move the programme motion standing in his name, which was discussed yesterday by the Programming Sub-Committee.
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 5 June) meet—
(a) at 11.30 am and 2.00 pm on Thursday 7 June;
(b) at 9.25 am, 2.00 pm and 5.00 pm on Tuesday 12 June;
(2) the Committee shall hear oral evidence in accordance with the following Table:
(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 3; Schedule 1; Clauses 4 and 5; Schedule 2; Clauses 6 to 8; Schedule 3; Clauses 9 to 33; new Clauses; new Schedules; remaining proceedings on the Bill;
(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 7.00 pm on Tuesday 12 June.—(Rishi Sunak.)
The Chair
The deadline for amendments to be considered at the first line-by-line sitting of the Committee was the rise of the House yesterday. The next deadline will be the rise of the House on Thursday for the Committee’s sitting a week today.
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Rishi Sunak.)
The Chair
Copies of written evidence that the Committee receives will be made available in the Committee Room.
Resolved,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Rishi Sunak.)
The Chair
We resume our public sitting and will hear evidence from the Association of Residential Letting Agents, the National Approved Letting Scheme, and OpenRent.
Before I call the first Member to ask a question, I remind all hon. Members that questions should be limited to matters within the scope of the Bill and that we must stick to the timings in the programme motion that the Committee has just agreed. For this session we shall have until 10.25 am. Also, I ask whether any members of the Committee wish to declare any relevant interest in connection with the Bill.
Mr Robert Goodwill (Scarborough and Whitby) (Con)
May I draw attention to my entry in the Register of Members’ Financial Interests. I have eight residential properties and three commercial properties, for none of which, however, we charge deposits or use letting agents.
James Frith (Bury North) (Lab)
I draw attention to my entry in the Register of Members’ Financial Interests. I have one property of which I am a landlord.
Richard Graham (Gloucester) (Con)
I draw attention to my declaration in the Register of Members’ Financial Interests. My wife and I have recently become landlords of a property.
Dr Paul Williams (Stockton South) (Lab)
May I draw attention to my entry in the Register of Members’ Financial Interests? My partner and I rent out two properties, and we are also tenants.
The Chair
Thank you. I call the first panel. Will the witnesses please introduce themselves for the record?
David Cox: I am David Cox, from the Association of Residential Letting Agents.
Isobel Thomson: I am Isobel Thomson, from the National Approved Letting Scheme.
Adam Hyslop: I am Adam Hyslop, from OpenRent.
The Chair
Q
David Cox: Thank you, Mr Bone. We do not support the Bill. We do not think it will achieve its aims. The market has grown up over a period of time. It is already quite a heavily regulated market. We estimate that there are about 145 pieces of legislation and 400 sets of regulations that govern the lettings industry. When talking about greater clarity and control, one of the problems that we have had is the complete lack of enforcement in the sector.
The Select Committee on Housing, Communities and Local Government has recently carried out an inquiry looking at the private rented sector. Enforcement levels are pitifully low. The London Borough of Newham prosecutes about 250 landlords and agents a year, and that accounts for half the number of prosecutions in the sector. I am sure that Isobel will talk about some research that NALS did last year on the impact of enforcement with respect to the agent transparency regulation from 2015. If laws were being enforced—if trading standards was going out and enforcing the law—we would not have the problem that the Bill is trying to solve.
We are worried that there will be a repeat of what has happened every time before: a new law is passed; professional agents—our members—will abide by that law; and unregulated and unprofessional agents will continue operating and charging fees with absolute impunity because there will be such low levels of prosecution.
Lending fees represent legitimate costs to business. They cover three essential elements of a contract: the tenant referencing, the contract negotiation and the inventory check-in/check-out report. Those services are provided to tenants, and landlords pay for the different services.
At the moment, an agent is effectively the servant of two masters. They are the agent to both, and they have a legal duty of care to both. We are worried that, when the fee ban comes into force, the services to tenants will probably diminish because the legislation effectively states that the primary consumer of the letting agent service is the landlord. Therefore, the customer service enhancements that legislation over the past 20 years has focused on—good property condition and good management practice—will be undone.
The research we undertook through Capital Economics last year indicates that it is likely that tenants will pay about £103 per tenant per year more in rent as a result of the ban. They will make a saving if they move more regularly, but we, like everybody else in this room, want to see longer-term tenancies. According to Capital Economics, the over-under is two and a half years. Therefore, people who want well-maintained tenancies—three-year tenancies—will end up paying more as a result of the ban than they would if we left it as it is today.
Isobel Thomson: I concur with everything David just said. I am a representative of a letting agent organisation, and our aim is to raise standards in the private rented sector. We are very concerned about the impact of the ban. We think it will result in an increase in rents, which is ultimately not in the interests of the tenant. Landlords faced with additional costs may move to self-management, which would not ultimately be in the interests of the tenant either.
During the passage of this Bill, I am sure you, as consistency MPs, have visited letting agencies in your constituencies, so you know that they are good, sound businesses, and that people work hard to deliver the service to tenants. There will be an impact on those small businesses, which are the eyes and ears of the local housing community. Businesses will close, and there will be a loss of employment. It was sad to read the Government quite glibly say in their impact assessment that the impact of the ban will be about £10,000 per branch of a letting agent company, because £10,000 outside London is the cost of a part-time member of staff. A small business—perhaps a sole trader with only one member of staff—will have to get rid of that part-timer, who could easily be a tenant, so there is an impact there.
David mentioned enforcement. We carried out a survey of 42 local authorities in June last year, looking at the enforcement of the Consumer Rights Act 2015. Of those 42 local authorities, 93% had failed to issue a single financial penalty against a letting agent in the previous two years.
What are we going to be faced with with the fee ban? Enforcement really needs to come to the fore. The Government have mentioned that there will be a lead enforcement authority. We need to know who that is, how they are going to gear up and how they are going to be resourced. That is what I would like to see.
Adam Hyslop: Just to give you some context, OpenRent is the largest letting agent in the UK. We let 70,000 properties last year, and we are on track to let 100,000 properties this year. Our policy since inception six years ago has been to ban admin fees. We provide quite a compelling case study that the fee ban is not at odds with running a successful and sustainable letting business.
Further to that, I do not believe a fee ban would increase rents. The logic for that is that our rents across the country are in line with the national average. Roughly, the nationwide average is about £900 per month, and the London average is about £1,500 per month. In fact, by switching to OpenRent from a high street agent, landlords save, on average, over £1,000, and we often see those savings passed back to tenants in the form of lower rents. I am here today hopefully as a case study to show that some of the concerns the industry has raised might not be valid.
We have two specific concerns about the Bill. One is the issue of default fees. The concern is that, as the Bill is currently drafted, tenants might not have the full protection that it intends. I have further comments on that, which I will probably come to later. Secondly, there is the treatment of holding deposits relating to false and misleading information provided by tenants. The period during which a tenant is referenced is quite complex, and I feel that the current drafting does not quite provide the incentives to get the right outcomes for tenants or landlords acting in good faith. We have those two concerns about the detail of the Bill, but at a high level we are supportive.
The Chair
Thank you. We will now move to questions from members of the Committee. This is a rather unusual situation because this is a time when the Minister is allowed to have some fun and to ask you questions. Let us start with the shadow Minister.
Melanie Onn (Great Grimsby) (Lab)
Q
David Cox: As you pointed out, tenant fees were technically banned in Scotland in 1984, but the legislation was not well drafted and it therefore required revision in 2012. It meant that tenant fees in Scotland between 1984 and 2012 were generally lower than they are in England, at around the £50 or £60 mark.
Various organisations have done research into this, and I would point to the Scottish Government’s own statistics, which suggest that in the 12 months after the ban came into force, rents in Scotland went up by 4.2%. Against that, the English housing survey suggests that rents in England went down by 0.7%. There was, therefore, a 5% difference—well, 4.9% to be specific—between rents in England and Scotland during that period. That is not based on our statistics; that is based on official statistics from the Westminster and Scottish Governments.
I do not suggest that the whole 5% is attributed to tenant fees, but a good proportion of it will be. That is a good example based on official Government statistics that show what is likely to happen. That is why in the impact assessment the Government have accepted that rents are likely to go up, and when this measure was announced in the autumn statement, the Office for Budget Responsibility said that rents will go up as a result. I am fairly sure that everybody who gave evidence to the Select Committee in the pre-legislative phase said that rents will go up as a result.
Melanie Onn
Q
David Cox: I am afraid I only have percentages; I do not have that figure in actual cash terms. On Shelter’s report, I draw your attention to the then Communities and Local Government Committee’s eighth report of the 2014-15 Session. It noted that the Committee had concerns about the methodological approaches adopted, and the sample used in that report equates to 29 letting agent managers surveyed. Its conclusion was that the information was inconclusive based on the small sample size. I would probably agree with that determination, and that is why I prefer to use the Scottish Government’s statistics, which come from a much broader sample base.
Melanie Onn
Q
Isobel Thomson: No, I do not have any details other than what David has already said.
Melanie Onn
Q
Isobel Thomson: I think there is a lack of resources—I think the will is there to do it, but there is a lack of resources. Because of that, as an organisation, we produce an enforcement toolkit for trading standards officers to use to assist them in their work. Although, of course, we were, and are, happy to do that work, we think that they should have the resources themselves to produce such documentation.
David Cox: I agree with everything Isobel just said. If I may, I will add two quick anecdotes. First, not long after the fee transparency rules came into force, I was on BBC Radio 4’s “You and Yours” programme with the head of the Chartered Trading Standards Institute, discussing their enforcement. The gentleman said on air, “Our budgets have been slashed, and we are reducing trading standards offices around the country. Would you prefer us to enforce against children’s toys that are dangerous and choking children, or to check whether tenant fees are being correctly displayed?” With the best will in the world, live on air, I could not say tenant fees.
The other example is of agents up and down the country coming to me and ARLA on a regular basis to tell us about agents that are not displaying their fees correctly. We notify the local trading standards departments, and we get nothing back. As an example, just before Christmas, I notified a trading standards department in the north-west of the country of 13 agents in its area. We provided the evidence that it needed. We got a “Thank you. We will reply within 30 days” email and then nothing. That was five months ago. We are doing the most we can.
That is why we are very supportive of the lead enforcement authority, because ARLA’s sister organisation on the sales side, the National Association of Estate Agents, has the national trading standards estate agency team, so we can feed all the intelligence across the country into one body, which can disseminate it more effectively and forcefully than we can to the local trading standards and environmental health department. We hope that the lead enforcement authority under the Tenant Fees Bill will have a similar impact on the letting side.
Melanie Onn
Q
Isobel Thomson: They may do ultimately, but there will need to be an accumulated number of fines applied to meet the cost of running the service. They need a pot of money to kick-start the lead enforcement authority, and they need it quickly, because in the Bill there is great reliance on the guidance that they will give to consumers. They need to scale up and be ready, but we have not had any indication yet of when that will happen.
David Cox: I agree entirely. Possibly, in years two or three and beyond, they will, once they have the teams up and running, going out and doing the enforcement. But if they do not have any of the seed funding across board and even in the trading standards department to resource the team in the first place to start going out and doing the enforcement, they will never get to that point where they can start to self-fund. It needs that initial seed funding. There is money set aside for seed funding, but I do not think it will be enough at this point in time.
Melanie Onn
Q
David Cox: Scotland and England are different markets. Rents and house prices are much lower across the board in Scotland. Rents follow house prices. The costs incurred are different, based on employment costs, office costs and the general nature of the business. Our research suggests that tenant fees in London are more expensive than they are outside London, to take into account the increased costs of running businesses in the capital, compared with the costs of running businesses outside the capital. Scotland is cheaper than England.
The Chair
Q
Adam Hyslop: To loop back to the previous point on enforcement, I would add that one of the great things that, hopefully, the Bill will bring through is the ability to self-enforce better. Currently, there is legislation that was designed to promote transparency and to make sure that tenants are aware of what fees will be charged, without seeking to limit those. That has not been totally successful, partly because it is quite difficult for a tenant to prove whether they were shown those fees and whether they were made clear to them. It is a somewhat abstract concept whether they were aware of the fees before they were asked to pay them at a later point in the process.
The good thing about a clearer and higher-level fee ban is that a tenant paying money is a far more provable event. A tenant can get to that point in the process and then simply refuse to pay the fee if it is presented to them. Even if they get past that phase and they were not aware that they were being charged a fee illegally, it is then easier to prove that they did pay a fee and to unwind that. I feel that self-enforcement is far easier with the legislation being proposed than with the current set-up.
Richard Graham
Q
David Cox: We do not support the concept of the Bill; we do not think it will achieve its aims. I will return to that in a moment.
Richard Graham
Q
David Cox: In terms of why we made comments about enforcement, we have to take a practical consideration, and the likelihood is that the Bill will go through and become law. Therefore, we want to ensure that what comes out the other end from this Committee and the parliamentary process is a Bill that will affect the whole of the market, not just those professional agents who are our members and who will do this, as we have seen with so many previous pieces of legislation.
Richard Graham
Q
David Cox: There are different types of agencies in the market. Adam’s business is very different from a traditional letting agent’s. The traditional high street letting agent that you walk into, or the one you are considering as a letting agent, is not offering the same service as Adam and OpenRent provides. As I understand it, they are very much more geared towards a listing service for landlords who want to self-manage. I do not think they have an option where they manage the properties on the landlord’s behalf—Adam will be able to answer that. Traditional agents do an awful lot more than the basic listing service, which is a service that they charge the landlord for. They charge the landlord for going out and doing the viewings, for example.
The tenant aspect is much more around issues as they arise, such as issues at the beginning of the tenancy, to ensure that agents are providing the best tenant and to ensure that the tenant is not getting into any financial difficulty as a result of taking properties that they cannot necessarily afford. In particular areas of the country, such as the north-east, a lot of letting agents will go that extra mile for the tenant, to help them apply for benefits and with their benefits paperwork. They do it because applying for the local housing allowance—or now universal credit—is an incredibly complicated process. Therefore, they sit there with the tenant and go through the application processes.
Richard Graham
Q
David Cox: I would argue it is a cost issue. Capital Economics estimated last year that letting fees account for approximately 20% of the sector’s turnover, or approximately £700 million a year. In its most plausible scenario, it expects agents’ turnovers to reduce by about £200 million, landlords’ costs to increase by about £300 million a year—
Richard Graham
Q
David Cox: These are the figures from an independent market research agency that has been used by all sides of the argument. Shelter uses the agency on a regular basis, as well to do independent analysis, and those are the results that it has come back with. There are about 55,000 letting agents in the country, and it estimates that about 4,000 jobs will be lost as a result of this.
Richard Graham
Q
Adam Hyslop: Sure. This is probably the lower of the two points I would like to make today. The common practice at the moment is not only to charge admin fees up front but to have fees listed within the tenancy agreement—things such as cleaning and an inventory check-out report at the end of the tenancy. I believe the Bill’s intention is to ban those as well—they are not permitted payments. So, the intention is to prohibit them, but my concern is that, in practice, some of those will be left in and you will have tenants feeling obliged to pay them towards the end of tenancy agreements, even though they might be outlawed payments.
I do not know how this will be addressed in practice, but a lot of the—let us call them—disputes are where you have got a landlord asking a tenant to pay, say, £150 to clean the property at the end, when actually what is reasonable is for the tenant to restore the property to the level of cleanliness when they moved in, which could be by using their own cleaning company or doing their own housework, as it were.
A lot of these disputes end up with the deposit protection services. I do not know whether they will be briefed that these fees would be immediately thrown out if they were ever disputed. But, actually, before you get to that stage, it is a very low single-digit percentage of deposits that ever go to formal arbitration in these schemes, so there is a big piece to do, whether in the wording of the Bill or in guidance, to ensure that tenants know that these are also explicitly prohibited and that they should not accept any agent or landlord saying, “No, it is in your tenancy agreement. You signed up to it with free will at the start.”
Richard Graham
Q
Adam Hyslop: The current drafting is basically that a holding deposit is placed, and if a tenant passes referencing, everything obviously proceeds, and it would usually go to contract signing. If the tenant fails referencing, the current intention is that the holding deposit, with no deduction, is refunded back to the tenant. That is fair, and that is in line with how my own business operates at the moment.
What is more complicated is where there is a sense that a tenant provided what in the current drafting is “false or misleading information” to the landlord—information that could be exaggerating their own financial situation. So the landlord accepts the holding deposit, takes the property off the market, incurs the cost of referencing and then is left in a difficult situation when it turns out the tenant is not really who they say they are.
My concern around that—this may be stating the obvious—is that the point where a holding deposit is placed and referencing is under way is by far the most stressful part of a tenancy application process on both sides. You have got a landlord who is basically saying, “I really hope this tenant is who they say they are—I just want to get them signed up so that I have the certainty of them moving into the property at a future date,” and you have got a tenant going, “I really hope I get this property so that I do not have to reset my search back to square one,” with all the stress that comes with that.
Referencing is quite a complex process. Actually, what the tenant said to the landlord up front is not a particularly clear area. First, there is significant variation in the kind of application forms that a landlord or agent might put in front of a tenant. Second to that, the actual process of referencing itself is quite complex. A reference usually involves a credit check, an employment check and a previous landlord reference, but I believe that the overarching wording of “Did the tenant provide false or misleading information?” would in practice be quite problematic. Sometimes a referencing company will literally capture the tenant’s address history, where they work and how much they earn. I believe that the drafting of the Bill was done with the perception that referencing is a lot simpler than it is.
You can imagine some really simple cases. If I say that I earn twice what I earn, and referencing then finds me out—my employer says that I earn x—that is a clear case of false and misleading information. Actually, we find that when references fail, only 25% fail due to income and affordability. The other case in which you might provide false or misleading information is neglecting to mention that you have a former bankruptcy, a CCJ or something like that. Those are simple ones that the current Bill is completely fit for purpose for—if a tenant withholds or distorts that information, that tenant absolutely should lose their holding deposit, because they placed it under false pretences by making claims to the landlord that were not substantiated.
The majority of cases, however, will not be as clearcut as that. There will be things like whether a tenant was aware that they had a good credit score or a bad credit score which resulted in them failing the reference. There may be previous landlord references or elements of the employer reference that are not as simple as, “This person earns this amount of money”—it might be length of contract and things like that. Unless you have a completely exhaustive, fully transparent application form—a theoretical one—that the tenant fills in and where they declare everything about themselves, which can later be demonstrated to be false or misleading, then, in practice, there will be lots and lots of cases where it is unclear and some kind of arbitration is needed, or at least some kind of dispute arises.
What that means in practice, I believe, is that where it is the majority case—that is, the tenant may or may not have provided misleading information, and there is now a dispute about it—either you will have landlords who lose their holding deposit, despite the tenant applying in bad faith, because they are unable to prove that the tenant provided false and misleading information, or you will have tenants who lose their holding deposit because the agent or landlord asserts that they applied in bad faith. What that means is that the Bill will not actually protect the landlord or the tenant in that case.
I therefore conclude that the fairest way to put this into practice is to permit a cost of referencing—to have referencing as a permitted payment within the Bill. I would recommend that that is capped, because I do not want it to be an unlimited fee that becomes an admin fee of £300. We charge £20 for a reference per applicant, which is basically the market cost. The reason we do that is precisely this: referencing is very messy and will very quickly turn into disputes around whether it is false or misleading, or what people’s intentions were, unless there is a really clear way of saying, “You’re rejected because your referencing failed, but we don’t need to go through a full arbitration of whether it is false or misleading.” You cover the cost of your referencing, which aligns the incentives, so that the tenant covers the cost of referencing and will basically lose that amount if they invalidate it in the first instance.
The Chair
A number of Members are trying to catch my eye, so with the Minister’s permission, I shall hold him to the end.
James Frith
Q
Adam Hyslop: Sure. At a high level, those are the numbers, so we are taking significant market share. What is really interesting is that I do not see our business pitched against the status quo of the high street. Actually, 50% of landlords do not use an estate agent. What we try to do is to provide—our watchword—accessibility, which is in terms of not only ease of use but cost.
David is not quite correct about the service that we provide. We do not provide a fully managed service—25% of landlords use a fully managed service, in which they do not want to meet the tenants and they want a professional to handle the interaction. We do not serve that 25% of the market. We do serve the 75%, which is the 25% of people who use an agent for tenant finding and the 50% of people who effectively do everything themselves. What we try to do is to make that accessible, so for £50 we will do everything from taking that holding deposit to referencing, contracts, deposit protection, first month’s rent collection and things like that.
What we are actually doing is professionalising the 50% of the industry who do not currently use a high street letting agent. We believe the only reason they do not use a high street letting agent is cost. We think that, by doing that for £50 rather than the average fee of over £1,000 a year, we provide huge accessibility. In terms of our high-level growth, those landlords are coming from the DIY sector and obviously we are taking share from the high street as well.
In terms of actual gross employment, I do not really like the word “disruption” to describe what we are doing. There is a lot of good practice in the industry already. A lot of our processes layer technology on to that, but we are not trying to tear up the rule book and pretend that we can do something better than what is already in the Housing Act or, say, the property ombudsman code. Those are ways of working that are really important to protect consumer rights. What we think we can do is put those things in place in a very systematic way and provide access to those services to the entire market, so that basically every landlord and tenant has access to a professional tenancy creation service. By having the holding deposit placed in a sensible way, having money held in a client money account and having a professionally drafted tenancy agreement, we provide a huge consumer benefit across the industry—on both sides, actually.
James Frith
Q
Adam Hyslop: Sorry, I meant to loop back to the question. We are not really disrupting in the sense of eliminating employment or anything like that—that is one of the myths here. Actually, most of the suppliers that we use are those used by high street agents anyway. We have a large contract with a referencing company, which does all our tenant referencing. We contract gas engineers, inventory clerks, photographers—all those different services—across the industry.
James Frith
Q
Adam Hyslop: It employs 15 people.
James Frith
Q
Adam Hyslop: The idea—this is no secret in the industry—is that it is possible to have good practice in the industry in terms of following a professional tenancy creation process, but to use technology to make that something that does not need lots of phone calls and interaction in between. That is one of the main insights that keeps our core headcount low. Yes, we have far fewer people working on administering holding deposits and administering contract drafting, for instance, simply because we have the technological systems and processes in place to manage those.
James Frith
Q
David Cox: I am afraid I would disagree. I would not characterise it in the same way at all. It is a different type of service. We have to factor in the fact that the places most tenants, buyers, sellers and landlords go to look for their properties are Rightmove and Zoopla—the big properly portals. An individual landlord renting out a property on their own cannot access Rightmove and Zoopla. Therefore, services like Adam’s, which are entirely necessary in the market, act as the entry point into Rightmove and Zoopla so that those landlords who want to self-manage and want to be able to advertise their properties on Rightmove and Zoopla can do so. That is why Adam is able to charge much lower fees. The middle service is £29 to a landlord and £20 to a tenant. A couple renting a one-bedroom property, if they reference through Adam, will actually end up paying more than the landlord. That is not the case with the traditional agencies, where the landlord always pays significantly more—around £1,000, as Adam points out.
You asked specifically about the number of people employed for those 70,000 tenancies. I can think of only one large corporate agency off the top of my head for which I know the statistics, but I know that one of the three large corporate agencies manages 60,000 properties and employs 7,000 people to do that. That is about much greater interaction on the ground on a day-to-day basis during the tenancy. I suppose the question is what we want a letting agent to do in the future. Are the Government saying that a letting agent is like a sales agent, to a certain extent? Once you hand over the keys in a sales transaction, the estate agent’s role is finished. Someone has bought the house, and they move on to the next property. In a lettings transaction, once you hand over the keys that is just the start of your relationship with the tenant. If the letting agent is managing the property they are there to help landlord and tenant throughout the entire process of the tenancy. It is a much longer term.
James Frith
Q
Isobel Thomson: I do not think we are comparing like with like. I think Adam Hyslop’s service, which is obviously really good, is meeting a need for a certain part of the market; but I feel that lettings is a people business. It is the letting agent who mediates between the tenant and the landlord, so when the tenant fails the reference and something comes out of the woodwork the agent sits down with the tenant and often says, “Okay, well look, I understand you had that five years ago; I will have a word with the landlord.” It is that interface and activity that the agent is offering.
Also, for example, for housing benefit tenants, a mechanical, online technological system is not necessarily going to give that type of tenant access to the private rented sector, whereas the agent who sits down with the tenant, talks it through and presents the case to the landlord often facilitates that. It is not old-fashioned; it is a need.
The Chair
The trouble with these sittings is that we could go on forever, because it is so interesting and it helps the Committee enormously, but a number of Members want to ask questions, so I will move us on.
Chris Philp (Croydon South) (Con)
Q
David Cox: I am afraid that, not having worked in those industries, I do not know. I will take your word for it. I do not think it creates a conflict of interest. It is why we have a lot of the systems in place that already exist—to a certain extent to take the agent out of those conflict of interest issues. For example, before the Housing Act 2004, tenancy deposit protection was only voluntary. Our organisations required our members to put the moneys in a deposit protection scheme. The Housing Act 2004 put that into law, and that cleaned up the deposit protection and deposit market completely because it takes the agent and landlord out of those conflict situations.
Particularly, when I talk about being the servant of two masters, it comes down to things that Adam has mentioned in the default fees. If the agent is managing the property and the tenant locks themselves out at 2 o’clock in the morning, they phone the agent. An agent who is not providing a service to the tenant is unlikely to get out of bed at 2 am, drive to the office, pick up the keys, drive to the property, let the tenant in, drive back to the office, drop off the keys, drive back home and go to bed again. At that point, is it a conflict of interest or a service purely for the tenant?
Chris Philp
Q
David Cox: That is certainly what we are arguing, and what we are hoping for, but I do have to factor in those sorts of situations.
Chris Philp
Q
David Cox: I think we have to factor in what would happen if a tenant took a property that they could not afford. Government statistics already suggest that now that the private rented sector is larger than the social sector, the largest cause of homelessness is ending an assured shorthold tenancy. That makes sense now that the private sector has overtaken the social sector. Tenants regularly have eyes larger than their pockets—I cannot find a better way of saying that—and they will try to take a tenancy that they simply cannot afford. The agent is there to say, “You can’t afford this tenancy. If you want to move in you are going to dig yourself into massive debt, and you will end up getting evicted. This is not the right property for you.” They will then say, “However, we’ve got all these other properties.” When the ban comes into force, it is unlikely that people will even get to that point. We are expecting pre-viewing vetting to start taking place, so that agents, with the best will in the world, do not waste hours every day going on viewings with tenants who cannot afford the property.
Chris Philp
Q
David Cox: But it is the tenants who want the properties. The agent is serving the tenant.
Chris Philp
Q
David Cox: I have no evidence to create a direct link, but it was the only major change in legislation between the two nations that year.
Chris Philp
Q
Before I turn to your comments on referencing, Mr Hyslop, let me commend you on setting up such an effective and efficient business. It has clearly grown very quickly and I was impressed by what you said about the way your company operates and the low costs that you have managed to deliver to both tenants and landlords. Congratulations on innovating in that way. As a former entrepreneur, I strongly endorse what you have done.
Adam Hyslop: Thank you.
Chris Philp
On your question about misleading information, you gave examples of information that is clearly misleading, such as a mis-stated salary. You went on to give examples of things that are less clear, such as a poor credit score or employer reference. Is the point that the prospective tenant will not have made a representation or statement about their credit score or their employer’s reference, so they will not be guilty of having given misleading information? They will not say, “My Experian credit score is at least 800,” so they will not get caught by the clause because they will not have provided misleading information?
Adam Hyslop: My point is that this can fall on either side. Sometimes a tenant who applied in good faith might lose their holding deposit, and other times a landlord who accepted an application in good faith might not be able to retain a holding deposit. The example you have given is one that would disadvantage the landlord because they cannot charge for referencing. Essentially, you would have an asymmetry of information. The tenant knows their own situation far better than the landlord. Indeed, the purpose of referencing is to close that gap.
A tenant might not know their exact Experian score, but they will have a good sense of whether they might pass this referencing—or at least a better sense than the landlord. In the case you described, you might have a situation where a tenant does not think they can afford the property but they might be in a desperate situation so they will apply anyway, knowing that, because they never stated their precise credit rating or anything like that on the form, if the landlord later discovers the tenant is not suitable, the landlord is obliged to refund the entire holding deposit. The landlord is out of pocket by the cost of referencing and however many days the property was held off the market. That is a case where the disadvantage is to the landlord, and I think the remedy is the same: the referencing fee should be permitted to a reasonable level at cost.
Chris Philp
Q
Adam Hyslop: That is about the market price. You can pay more than that; you can pay a bit less.
The Chair
I am going to have to cut you short on that. I am conscious that I promised the Minister to allow him in before the end.
Neil O'Brien (Harborough) (Con)
Q
David Cox: If brevity is the answer, yes.
Neil O'Brien
Q
David Cox: If we drop it to four weeks—the security deposit is a risk mitigation product, and therefore four weeks is effectively one month. If the tenant leaves without paying the last month’s rent and damages the property, if it is a month, they will either have the money for the lost rent or the money for repairing the property. That is why we have suggested the cap or agree with the cap at six weeks—because it gives the ability for the tenant not to pay the last month’s rent and to damage the property. That is why we have suggested and support six weeks, bearing in mind that, provided everything goes smoothly, the tenant will get that full money back at the end.
Isobel Thomson: I would like to see a permitted payment or an exemption for the situation where a tenant has a pet. Often, agents charge a higher deposit because of having a pet. We would not want to disadvantage people with cats and dogs, would we? That is something that should be looked at.
Adam Hyslop: I agree. The risk from limiting the level of deposit is simply that it limits tenant choice. Some tenants are higher risk than others. Pets are a good example where a landlord might want to take a higher deposit. Another example is that we get quite a lot of people who come from overseas and they are harder to reference. Although you can contact employers, they do not have a UK credit score and things like that. The remedy, without charging that tenant an actual fee, would be to increase the deposit to a reasonable level.
There are things such as rent in advance that can work around that, but frankly, a six-week deposit feels like a reasonable compromise to protect tenant choice on this, rather than foreclosing on some groups.
The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Rishi Sunak)
Q
For the record, the Government and I do not have the intention of trying to drive letting agents out of business, as was potentially characterised early on. We very much recognise the valuable role that high quality letting agents play. We have got a great example of one here this morning. This Bill is just about improving the industry to make it work for tenants where there have been abuses of the system and an asymmetry of power. I wish to put on record our thanks for the work many good letting agents do.
In the brief time we have—and in a quick answer to the question—the Bill allows for default fees for things such as a lost key or a late rental payment. Do you think that is a sensible provision to have in the Bill? Also, the Bill allows for payment for changes to the tenancy agreement at the request of the tenant—such as an extra sharer added to the tenancy agreement—capped at the landlord’s reasonable fees for that. Do you think those are sensible? Do you think they should be limited or broadened?
Isobel Thomson: I would say that they are eminently sensible but we just need guidance around how they will operate. I know that civil servants have already started to engage with stakeholders on that.
David Cox: I would support that; I think they are absolutely necessary. I highlighted one example a few moments ago. Under the Bill, they will have to be written into the tenancy agreement so that tenants are aware of them from the outset. Our reading of the Bill is also that anything that is in the tenancy agreement will need to be in the fee schedule, that is displayed prominently in the office and on the website and, under the Bill, on any third-party websites such as Rightmove or Zoopla. I would just query on that one. A lot of agents use Twitter to display their fees; I am not sure how they would get the fees on to the advert in the necessary number of Twitter characters.
We also have to factor in that—
The Chair
Order. I am very sorry to interrupt. You have been a very engaging and useful panel and we could have gone on much longer, but I am afraid that under the programming motion, I have to bring the session to an end. Thank you very much for attending this morning.
Examination of Witnesses
Richard Lambert and David Smith gave evidence.
The Chair
Q
Richard Lambert: I am Richard Lambert, chief executive officer of the National Landlords Association. Briefly, we are aware of the growth of these charges to tenants by agents over the past 10 to 15 years. We are aware that that has been exploited to some extent, so we see a wide variation. Some of those fees have, frankly, reached egregious levels. We are also increasingly aware that agents double-charge landlords and tenants possibly for the same services. We agree that the Bill goes a long way to dealing with the issues that have emerged.
We think it is important for the Committee to remember that you are legislating to deal with the activities, in the end, of a small minority, but that the legislation will impact the entire industry; and that you are also legislating without having had a chance to evaluate some of the measures that have been brought in over the past couple of years, to see the full extent of the impact that they might have on the industry as things go through.
In terms of the impact on landlords, as David Cox has explained clearly, the client relationship in the future will be unambiguous: the agent will owe a duty to the landlord through the contract.
We have no doubt that the costs to landlords will increase. Agents will certainly try and pass on part of the fee that they have charged to tenants to landlords. We do not believe it is going to be possible for them to move all those charges from the tenant to the landlord, but landlords will certainly have to absorb some of those and, like any other business, they will attempt to respond to an increase in costs by maintaining their profit margins by increasing the price. So, there will be some increase in rents, but how much that happens will depend very much on the market, and that will depend very much indeed on the locality and the situation there.
I think both landlords and agents will have to absorb some degree of that cost. As a result of agents charging landlords more, we expect that there will be more competition. That competition could be in terms of the quality of service, as agents try to retain and increase their client list by providing better value for money; but we could also see that competition emerge in terms of fees, in that agents will try and attract landlords by charging lower and lower fees. We are already advising our members to keep a firm eye on the level of service they are being offered and to make sure that the level of service they are being offered is what is delivered and that it relates to some of their other needs. For example, the number of inspections they are being offered each year by their agent should correspond to that which is required under their insurance contracts.
Undoubtedly, there will be more self-management. Landlords will look at the fees they are being charged and consider whether they should be managing themselves. We have some evidence from some of our surveys that people are increasingly thinking in that direction. Ultimately, as was also made clear in the previous session, the key is enforcement. There are many issues across the private rented sector where we have the legislation in place but there just are not the resources to enforce it, so we need to ensure the surety and certainty of enforcement to make sure that what is in this legislation—and, indeed, in all other legislation across the sector—actually sticks.
David Smith: I am David Smith, the policy director for the Residential Landlords Association. We also have some concerns about the Bill. Clearly, there has been a situation where some agents charge egregious fees, but as Richard rightly said, they are the minority, not the majority. We do not think the Government have done enough with the Consumer Rights Act 2015; there were powers to make regulations under the Act to increase transparency around fees, which were not taken up.
We are very concerned about enforcement. Enforcement under the Consumer Rights Act has been what I would generously call patchy—I have used other terms in other places—and we do not think that enforcement is going to be sufficient. In fact, enforcement provisions in the Bill are a bit of a mess, and we think that is likely to lead to poor enforcement and make the Bill ineffective. I think there is a very high risk that the Bill in fact will not achieve any effect at all, because there will be insufficient enforcement against the bad agents who are already charging the excessive fees and will carry on doing so, and in some cases people will find ways to work around the Bill, as they already have in Scotland to some extent.
We are also concerned that there is a missed opportunity here. Our view is that the biggest cost for tenants is not the fee they have to pay when they move, but the fact that they have to have two tenancy deposits—one for the outgoing property and one for the incoming property. We have advocated on a number of occasions for legislation to be passed to change that dynamic and to rethink the way we use tenancy deposits—to find some way of making tenancy deposits cross over from tenancy to tenancy, to avoid a scenario where tenants are actually having to pay two deposits.
There are no circumstances in which a fee is ever going to be as high as six weeks’ rent. Therefore, the tenancy deposit is always the actual controlling factor in terms of how much tenants have to pay.
Melanie Onn
Q
David Smith: The Consumer Rights Act has a £5,000 deterrent penalty, which clearly—presumably—has not worked, because otherwise, we would not be having this discussion at all. I endorse the National Approved Letting Scheme’s study from last year that shows that very, very few penalties have been levied. What is particularly interesting, which Isobel did not mention, is that even fewer of those penalties have actually been collected. Not only are people not levying very many penalties, but in many cases when they levy them, they are never in fact paid anyway. So, I do not see much deterrence there. Local authority officers have told me anecdotally of situations where they have levied penalties and people have said, “Yeah, fine. Send me a £5,000 penalty and I’ll pay it. It doesn’t make any difference to me.”
The structure is also a bit nonsensical. There is a certain situation where the Bill states that it is an offence to charge a prohibited fee, but it is only an offence if I have already sent you a £5,000 penalty notice and then catch you at it again. From a practical point of view—a trading standards officer point of view—they will have to do the whole thing twice to get a prosecution. The Bill also creates a system whereby we can ban agents under the new banning order provisions in the Housing and Planning Act 2016, but the reality is that banning is very unlikely to occur on a first offence, so you are going to have to get two prosecutions, which means you are going to have to catch somebody four times and prove a case against them before you can move to banning them. If prohibited tenant fees are an offence, then they should be an offence and they should be treated as an offence; they should not be an offence with some codicil on the front that says, “You can pay a little bit of money for it not to be an offence.” That does not make sense.
Melanie Onn
Q
Richard Lambert: Absolutely. I think the level of penalty is a deterrent to the law-abiding because it ensures that they will not slide into error, but for the people who are breaking the law and who factor it in as part of the cost of business, it will not matter at all, because the lack of enforcement means that they will assume that most of the time they can get away with it, and on the occasions that they cannot, it is simply a cost of doing business.
David Smith: There is a significant level of ignorance, as well. We should not ignore the fact that not all agents are bad in the sense of being evil; many of them are bad in the sense of just being fairly incompetent. While there is a significant percentage of highly professional and highly skilled agents, there is a minority of agents who I would not apply those words to.
Melanie Onn
Q
David Smith: It depends what you mean by “pay more”. Do you mean pay more for rent or for fees?
Melanie Onn
Q
Richard Lambert: Housing is a devolved issue, and therefore it is for the individual countries of the UK to decide their situations.
David Smith: I appreciate that there is a great attraction in comparing Scotland with England, but the markets are enormously different. Outside the main cities in Scotland, the vast majority of letting and estate agents are co-located with solicitors, so the economics of the business is totally different. Inside the cities, it is a bit more like it is in England and Wales, but the size of the market is tiny by comparison and I am not convinced that it is a particularly good comparator. You might do better by comparing with the Irish Republic, which is of a similar size and has much more similar economic structures in some way. I see your point, and I do not think you are necessarily wrong, but I do not think it is as simple as a direct comparison between the two—sorry.
Maria Caulfield (Lewes) (Con)
Q
So, currently, the enforcement system is not working. Is it not right that if fees are banned, tenants will be able to self-enforce, because they will be aware that no fees should be charged? Do you not recognise that this would give more power to tenants in the process, given that currently they are not able to make those decisions?
David Smith: But why? There is no mechanism within this Bill for tenants to self-enforce.
Maria Caulfield
Q
David Smith: But they are still reliant on the local authority taking up the cudgels on their behalf, which evidence shows that at the moment they do not do.
Maria Caulfield
Q
Richard Lambert: There is a level of lack of understanding amongst many tenants, in that often they will find themselves handing over money that they discover is for fees when they thought it was for a deposit. The agent will give them an explanation as to why they are being asked to pay something over, and will then change the story later on.
If an agent is exploiting the opportunity, inevitably tenants will fall into that. We do still find that many people who go looking for rented property simply are not aware of the legislation and the protections that they already have. We, as an organisation, have actively gone to local authorities and said, “We have walked down the high street and counted up the number of agents who are not displaying their fees. We think that you could probably collect enough fines over a space of two hours to fund your activity enforcing this regulation for the rest of the year.” The reluctance is to do it in the first place, because the response is always, “We don’t have the resources to do that in the first place.”
David Smith: Every time I go and see a local authority councillor I always bring them at least one example of an agent in their area who is illegally charging fees or breaking the law in some way. I do it consistently.
Maria Caulfield
Q
David Smith: But there are scenarios in which the Bill allows the charging of fees. It allows the charging of fees provided they are optional, for example. It is not an outright ban on fees; it is a partial ban on fees. There are circumstances where fees are chargeable, where they are optional. And you are relying on tenants actually finding out about their rights. Unfortunately, at the moment most tenants are grossly unaware of their rights, and will remain so.
Maria Caulfield
Q
Richard Lambert: The Bill will make the situation clear for the majority but, again, there will be a minority of tenants who will not be fully aware of their rights, and there will be a minority of agents who will continue to try to exploit the situation. The only way to deal with that is with effective enforcement. In the first instance, effective enforcement needs to be properly resourced. Once you have that kick-start, the fines generated and the authorities’ ability to attain the proceeds from those fines will mean that they can continue to resource it. You have to have the initial resource to make that enforcement effective, otherwise you are simply passing the legislation, and it is not being policed.
David Smith: More to the point, it would be the weakest and most vulnerable tenants being exploited by the agents, as it is now.
Maria Caulfield
Q
Richard Lambert: I wouldn’t know.
David Smith: We don’t have data. The continuing use of the phrase “default fees” misrepresents what is going on here. David Cox gave one of the best examples: that of a tenant who loses their keys and expects the agent to go over at midnight. “Default fees” is shorthand for a mechanism that exists in almost every commercial contract.
Maria Caulfield
So businessmen like you don’t know how often default fees are applied, as it stands.
David Smith: At the moment, quite a lot of agents put default fees into their agreements, but they are very rarely charged. In practice, they are mostly taken out of the tenant’s deposit. In many cases there is no deposit left to take. Most agents do not bother.
Richard Lambert: I think for self-managing landlords, it depends whether you have just one incidence of this. Let’s stay with the example of somebody locking themselves out, forgetting their keys and coming home from a night out at 2 am and being unable to get in. They ring the landlord and ask them to bring a key round. The landlord will usually complain and possibly do it once. If they find that it is happening two or three times then they will start to say, “Well actually, I am going to charge for my time involved in getting up in the middle of the night, coming over and letting you in.” If there is more of an issue and the landlord has to engage a locksmith, that could involve a charge of £150 or £200 in London. They will want to try and recover that kind of fee. With self-managing landlords where the relationship is directly with the tenant, there is a level of give and take initially, but then if it is a continuing problem or if there are several incidents then, yes, they will do something.
Maria Caulfield
Q
Richard Lambert: I think there is.
David Smith: Landlords are always entitled to recover their costs from a tenant’s breach of contract. A default fee is actually where the parties pre-agree what the level of that fee should be, creating a degree of certainty between them so that tenants are going to know that they will have to pay this amount and this amount only, whatever the actual cost of, say, a locksmith. There is a benefit to having a fixed tariff of fees for particular contractual breaches. It is a commonly used mechanism across a wide range of contracts.
Sarah Jones (Croydon Central) (Lab)
Q
Richard Lambert: It is almost impossible to identify that. Those kinds of landlords and agents do not self-identify, by definition. Somebody once said to me, “The worst tenants tend to gravitate towards the worst landlords.” Often, those kinds of landlords will be housing people with chaotic and vulnerable lives who find it difficult to go anywhere else, or people who may be on the verges of criminality. Quite often, you find that the actual accommodation provision is a sideline of a wider organised criminal activity, and it is a part of something that will involve people trafficking, prostitution, drugs, money laundering and so on. The letting of the property is simply a factor: they need somewhere to house the people.
David Smith: The only way to clarify that would be to look at the number of landlords prosecuted as a percentage of the overall number of landlords. However, the problem with that as a measure is that enforcement is so poor.
Sarah Jones
Q
David Smith: Again, you have to distinguish between walking down the street and finding technical breaches of the Consumer Rights Act 2015, for which you could probably find 15-odd per cent of agents, depending on where you are, and agents who wilfully go out to break the law across a wide sweep of things. There are aspects on which some agents are just not very good at keeping up with what is, at the moment, a pretty fast-moving legislative picture.
Sarah Jones
Q
Richard Lambert: The closest I can get is to flip the question around. We have regularly done tenant surveys over the past five years, and one question we ask is whether they have ever dealt with a rogue landlord, by which we mean someone who engages in criminal activity. The answer pretty consistently comes back as somewhere between 12% and 16% of tenants having at any time during their renting lives dealt with someone who they thought was acting in a criminal manner.
We always ask after that what the landlord was doing that made the tenants think that. Some of the stories we have heard shocked us, and we are used to hearing some real horror stories about landlords. For others it is low level management problems, such as not repainting a ceiling after a leak or taking three days to get a plumber when the boiler packed up. What people actually understand as criminal activity on the part of a landlord—
Sarah Jones
Might vary.
Richard Lambert: Might vary and indeed might not be accurate.
Sarah Jones
Q
David Smith: I would prefer a two-track option with a direct mechanism for tenants to enforce rights themselves, with local authority back-up. I am aware that Ms Onn has tabled an amendment that would allow tenants to enforce in a similar way to tenancy deposit protection. I am not sure I necessarily agree with the three-times-amount penalty, but there is certainly a logic in allowing tenants to have direct enforcement of their rights. That clearly makes sense and would certainly help in potential situations where a local authority is not adequately resourced or is unwilling to carry out enforcement activity itself.
Sarah Jones
Q
David Smith: It is not just about more resources. The RLA has consistently asked not just for resources, but for a fixed, clear, repeatable sum of money, year on year, that allows a genuine enforcement structure to be built. That is not just little bits of money left over at the end of the year in the budget of the Department for Communities and Local Government, as it was, but an actual fixed sum of money, so that—to flip it around—local authorities can have a clear and understandable plan to execute enforcement, but they need repeatable money that goes on for five years.
Richard Lambert: We would like the Ministry to make it clear to local authorities that enforcement is a priority and should be considered a priority within their budget-setting, and to argue to the Treasury that the resources for enforcement should be enabled through the support grant that goes to local authorities and that local authorities should have the wherewithal that they need. If this is as important as the debate seems to suggest it is—we would say that it is—they need the resources to actually make that happen.
David Smith: A great deal of enforcement interest is targeted towards things that appear to be important because they make the press. They are important issues, but bad housing wrecks lives again and again, every day, because tenants go home to it every day. I do not think it gets the interest and support it needs in that regard.
Sarah Jones
Q
Richard Lambert: I would say that we are ambivalent. It is true that if you impose a cap, there is always a tendency within the market to move toward the maximum of the cap. Having said that, certainly for the last five, six or seven years the advice that our advice line gives landlords has been, “If you are going to charge a deposit, charge six weeks, because what you want to do is to detach the sense that the deposit is equivalent to a month’s rent, so that the tenant does not get into the mindset that, ‘I can leave the tenancy early; the landlord’s got the last month’s rent in the deposit,’ so the tenancy does not end correctly.” Even so, the vast majority of people still charge one month’s rent, with some flexibility where they need to add some compensation for a tenant’s additional risk, as was described by my predecessors.
David Smith: We find that a lot of our members are charging six weeks for very much the same reasons that Richard has laid out, and that would be our advice to our members. We are concerned that by putting on a six-week cap, you will find that a lot of tenants with pets simply will not get property.
Sarah Jones
Q
David Smith: That is possible, but I do not think a lot of landlords will, because why bother? Why go through the effort? Our bigger concern is that we surveyed some of our landlords towards the end of last year and around 50% of them said that they simply would not rent to tenants with pets if the deposit was capped in a way that they did not feel would allow them to recover the potential cost of that.
The Chair
Thank you. I am going to move to Richard Graham very briefly, and then I want the Minister to have some fun.
Richard Graham
Q
David Smith: But we do. We do tell local authorities.
Richard Graham
Q
David Smith: It is not our habit to share it with MPs because you are not the direct enforcers, but we would be very happy to tell you about it if that were to happen.
Richard Graham
Q
David Smith: Happy to.
Rishi Sunak
Q
Richard Lambert: We believe that the tenant has to have some kind of financial stake in securing the tenancy, so that they do not game the system by putting in offers on a number of properties and then only taking one, whereas the individual landlords will remove the property from the market once they have a firm offer. We would have preferred the situation where the landlord could have charged directly for the reference fee, because we think that is clearer and more transparent. The holding fee is acceptable as far as we are concerned, but we would have preferred something that was much clearer and more transparent to both the landlord and the tenant.
David Smith: The market has tended to move away from holding deposits in the last few years and has simply charged a fixed fee, which ideally should have been linked to referencing, but has occasionally become linked to a random figure made up by the agent. I suspect that what will actually happen is that quite a lot of landlords and agents will not charge holding deposits, particularly in London, and they will simply run it tournament-style: whichever tenant gets there the fastest, with the mostest, will get it.
Rishi Sunak
Q
Richard Lambert: We would prefer not to have a cap at all. If the Government are determined to bring one in, six weeks is something that we think we can work with. What I was ambivalent about was whether it would mean that people who currently take four weeks as a deposit would automatically move to six. I think that very much depends on the individual, but there is evidence elsewhere in the economy that if you set a limit on what can be charged, the market tends to gravitate towards that limit.
David Smith: We will accept six weeks and will work with it if they put on a cap, but we would prefer to have some scope within the Bill. We have proposed an amendment to the Bill that would allow a slightly higher deposit where there is a particular set of risk factors such as a pet, or someone who is coming from overseas, or someone who can provide no evidence of their income. Otherwise, we feel that landlords just will not rent to those people.
The Chair
Thank you very much for coming today. It has been a most interesting session. We could have continued for longer, but I am afraid that the programme order requires me to stop the evidence session now. That brings us to the end of your evidence session today. The Committee will continue to take oral evidence in our next sitting on Thursday at 11.30 am, ahead of beginning the line-by-line consideration of the Bill at 2 pm.
Tenant Fees Bill (Second sitting)
Thursday 7th June 2018
(6 years, 4 months ago)
Public Bill CommitteesRead Full debate Tenant Fees Act 2019 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 7 June 2018 - (7 Jun 2018)
The Chair
This morning we will hear first from the Local Government Association and the Chartered Trading Standards Institute. Questions should be limited to matters within the scope of the Bill, and we must stick to the timings in the programme motion that the Committee has agreed to. We must finish this first session by 12.15 pm, and our second session will finish no later than 1 pm. I welcome our witnesses, and I would be grateful if they would introduce themselves and perhaps make a small opening statement.
Councillor Blackburn: Thank you, Mr Bone. I am Councillor Simon Blackburn. I chair the Local Government Association’s safer and stronger communities board. However, in my day job as leader of Blackpool Council I have a significant interest in the private rented sector and its impact on the housing market in general. I am here to support the proposals in the Bill, and just to add a few notes of caution, fundamentally around the capacity of trading standards in local authorities, and to suggest some ways forward.
Alex McKeown: I am Alex McKeown, joint lead officer for property and lettings for the Chartered Trading Standards Institute. I am also an enforcement officer for Westminster Council trading standards, so I enforce the current legislation in relation to letting agents. I am not here to say whether we support the Bill or not. The fact is, the tenant fee ban is going to come in, so it is more about enforcement—the issues we have with the current enforcement of legislation, and how enforcement will be rolled out for this Bill. Some things in the Bill really need to be addressed before it becomes an Act of Parliament.
The Chair
Members will now ask you questions. I should point out that this is a very unusual Committee, in that the Minister gets to have some fun and ask you questions, which will probably happen towards the end.
Melanie Onn (Great Grimsby) (Lab)
Q
Alex McKeown: One of the biggest issues is funding—I am sure that has been said many times, and Councillor Blackburn will say the same. There is a lack of expertise within trading standards when it comes to legislation that relates to letting agents. At the moment, not many boroughs or authorities are enforcing the legislation.
I watched Isobel Thomson and David Cox give evidence on Tuesday. Isobel did a survey last year of 42 boroughs to see who had issued financial penalties, and only 7% had done so—and I have worked for four of those. I am the person issuing them, so I know the pitfalls and issues with the current legislation. I have made the mistakes, but I have also achieved quite a lot in what I have done. My knowledge is very different because I do this every day. This is what I do 100% of the time—dealing with this legislation—whereas most trading standards authorities have more than 250 pieces of legislation that they have to deal with. So there needs to be more expertise; there needs to be more funding in order to train trading standards to enforce this legislation.
Melanie Onn
Q
Alex McKeown: Do you want a specific on something?
Melanie Onn
Yes.
Alex McKeown: Something that I have picked up on is that, at the moment under the Consumer Rights Act 2015 and the redress scheme legislation, the burden of proof is on the balance of probabilities, in terms of issuing these financial penalties. What you are trying to say is that this is going to be self-funding, and at the moment with the Consumer Rights Act 2015 that has the ability to be self-funding, because all we have to do is look at a website and we can see whether it is displaying the correct information or not. It is easy—we have to prove it on the balance of probabilities, we download the website and we have the proof.
In this Bill, you are asking for a criminal burden of proof for a civil financial penalty, and that is going to scare people off; that is going to scare trading standards off. They are not going to want to prove beyond all reasonable doubt that a tenant has been charged a fee. Then, you are also relying on the complaints to trading standards. We do not get that level of complaints to trading standards in relation to tenancies. Then you have to tell the tenant, “You have to give a witness statement on the fact that you’ve been charged a fee”, and they are going to say, “But we might get thrown out of our house. We don’t want to give you a witness statement.” To have it beyond all reasonable doubt, we are going to be up against it, and it will not be self-funding.
Melanie Onn
Q
Councillor Blackburn: We need to be clear that national trading standards is responsible for appointing a lead authority in terms of enforcement, because that is very important in directing and co-ordinating action. Their current partner—their current lead agency—is a Welsh local authority in relation to housing matters and, of course, because this Bill affects only England, it will not be possible simply to ask that authority to absorb that.
However, finance is also an issue. At the moment, £500,000 is promised to assist in the up-front costs of setting these schemes up. The average local authority trading standards budget is £671,000 a year, so that £500,000 spread across 340 local authorities is unlikely to fill the gap that exists. That is extremely important.
There is also a capacity-building issue within the trading standards profession. As it is, 64% of trading standards authorities are reporting that they have difficulties in recruiting and retaining people, and that issue needs to be looked at nationally. The LGA stands ready to assist in that process and will work with the Chartered Trading Standards Institute, but there is a demographic time bomb in there as well, about the average age of trading standards officers. As councils have cut back on trading standards because of the overall financial pressures on local authorities, it is not seen as a long-term, safe career, if I can put it that way.
The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Rishi Sunak)
Q
May I just start with a broad question as to the role of trading standards? Simon, you have touched on this. Do you think that we have got it right, in the sense that trading standards are the obvious and correct body to enforce this Bill? That was obviously the overwhelming view of the correspondence to the consultation, but I wanted to check with both of you whether you think that is appropriate.
Alex McKeown: I definitely think it is appropriate, because at trading standards we have the power and we are used to dealing with businesses. With the redress scheme legislation, it was the local borough or district council. Having worked in London on that sort of project, I know that the private sector housing departments are used to dealing with landlords and with the Housing Act 2004, but they are not used to going into letting agents and issuing those fines; we are, and we are the best people to deal with it. But the officers need proper training so we can get more officers up to speed to continue that work and encourage more boroughs to carry out this work. That is down to funding again; a lot of the chiefs are saying, “We haven’t got the funding, so we have other priorities at the moment.”
Councillor Blackburn: It should be either trading standards or private sector housing teams that deal with this, particularly in relation to small district councils, which are not weights and measures authorities. It may make sense in some areas for the private sector housing enforcement team, which would probably be one individual, to lead on it, because they will be most familiar. There needs to be flexibility, but in most primary authorities, it would be trading standards.
Mr Robert Goodwill (Scarborough and Whitby) (Con)
Q
Alex McKeown: Some of the difficulty with the legislation that is already there with regard to letting agents is that you have to have knowledge of housing and of trading standards, so you almost need a trading standards and housing officer hybrid person. I have worked in authorities where I was a trading standards enforcement officer but I sat with private sector housing, and that worked quite well.
It is difficult to know, because there are also different problems in different areas of the country. In London, there is a much bigger problem than in the leafy counties. You will not get the same issues. In London, there are more vulnerable tenants who are being exploited, and you get the rogue agent element, but I cannot really speak for how it will work outside London, because I have worked in London for so long.
Sarah Jones (Croydon Central) (Lab)
Q
Alex McKeown: Fifty per cent. I think a survey was done in 2010.
Councillor Blackburn: I have 56%—as in, it has reduced by 56%.
Sarah Jones
Q
Alex McKeown: Because a lot of students come to London, a lot of foreign students come to London, and a lot of people come from all around the world to work in London, they often go to letting agents that take quite substantial up-front fees. They cannot afford very much so they end up in properties—some boroughs in London have selective or additional licensing—such as a house of multiple occupation, where the house is unsafe, the agreement that they have been given is what we would call a sham licence, and the letting agent does not actually understand the legislation that relates to what they are doing.
I have found in the past four and half years that you can talk to a lot of the lettings industry about certain things, such as whether they have an EPC, and they will ask what an EPC is. They think that, because they do not have a job, they will set up a letting agency. Obviously, there are the big ones that are members the Association of Residential Letting Agents or the National Association of Estate Agents Propertymark, and they get the training, but there are also a huge amount of agents who are under the radar. A lot have virtual offices, and a lot cannot be tangibly found. That is some of the difficulty.
Sarah Jones
Q
Alex McKeown: A substantial amount. My colleagues—who are behind me—and I would say that, with the surveys, more were non-compliant than compliant. Even after we have given them a substantial amount of advice, they remain non-compliant. More than 50% are still non-compliant.
Councillor Blackburn: If I may, because this also speaks to Mr Goodwill’s question from a few moments ago, I would not agree that this issue is specific to London. Other parts of the country suffer very much from this, not least seaside towns, where there has been a proliferation of former guesthouses and hotels that have been badly converted into bedsits and one-bedroom flats. We know that local authorities that have implemented selective licensing and additional licensing in those areas have found horrendous living conditions, and a considerable number of properties have been shut down.
To briefly return to Mr Goodwill’s question, giving district councils the ability to work with unitary and county councils to jointly enforce, where appropriate, and to fund that model, would make absolute sense. The issues in Scarborough will be very different from the issues in Harrogate or Northallerton, so there needs to be a strong element of localism in this. However tempted I might be to directly answer your question, the LGA does not get involved in issues of resource allocation, because we represent district, county and unitary councils.
Sarah Jones
Q
Alex McKeown: I certainly think the maximum should be six weeks, which it is at the moment. That has been the norm within the industry. I know that Citizens Advice—the CAB—and others that have given evidence want it brought down to at least five weeks. I understand some of their arguments for that, but to be honest with you, that has not been my main focus.
Councillor Blackburn: I do not have a view.
Maria Caulfield (Lewes) (Con)
Q
Alex McKeown: I think it needs to be more similar to the redress scheme for letting agents and property managers in the Consumer Rights Act, because that is a fairly simple process. You get the evidence, you issue the notice of intent, they make representations, you then issue a final notice and it goes to the tribunal. That process has worked very well. We obviously get some random judgments coming out of the tribunals, but that is a better way of doing it.
The only issue we have found is that you will get a large fine against a company—such as the £30,000 fine—and they will then fold their company and phoenix. That is where we may need to look at holding the directors themselves liable. That will assist trading standards in getting the money back.
Maria Caulfield
Q
Alex McKeown: On the default fees?
Maria Caulfield
Yes.
Alex McKeown: Yes. I have not looked closely at that, but I know that, again, the CAB has written an amendment on the default fees aspect, to try to make that clearer. At the moment it is quite vague. That does need to be tightened up.
Maria Caulfield
Q
Alex McKeown: To prove beyond all reasonable doubt? Yes, I think so.
Daniel Zeichner (Cambridge) (Lab)
Q
Alex McKeown: The alternative business model is often rogue agents trying to avoid protecting deposits, to avoid giving legal agreements and, in time, to charge the tenant fees. That is also why I feel the burden of proof needs to be back down to the civil burden of proof. It will be difficult to prove beyond all reasonable doubt that somebody is a letting agent and not a membership club. You can see the evidence we need to prove it from the legislation that relates to the membership clubs, and from some of the legal precedents about what constitutes an assured shorthold tenancy.
To give an example, the London Borough of Tower Hamlets took a letting agent to court that said, “We don’t have to join a redress scheme, because we’re not a letting agent, because we only issue a licence to occupy.” The London Borough of Tower Hamlets then had to go into housing law and ask, “Is this tenancy a licence to occupy or an assured shorthold tenancy?” The judge in that tribunal case said, “On the balance of probability, you are a letting agent and should be a member of a scheme.”
That is what we need for the alternative business models. We need to able to prove that, on the balance of probability, they are not membership clubs, the agreements they are giving out are tenancies, and the fees they are charging will be prohibited fees.
Daniel Zeichner
Q
Alex McKeown: I do not think so; not as it stands. To try to prove it beyond all reasonable doubt will be a lot more difficult, and you will get more people doing it.
Councillor Blackburn: If I may venture a view, however beautifully crafted and drafted the Bill is, the sector is already trying to, and will, find ways around it. We need to be careful about not disappearing down the enforcement rabbit hole. The most effective way of protecting tenants is for the Government to lead a high-profile campaign to remind tenants of their rights, and to remind the sector that such fees are outlawed. That will be the single most useful thing that we can do to inform tenants of their rights and to ensure that they do not engage with companies that are trying to extract fees from them.
Enforcement can do only so much. Even with all the resources in the world, the risk of companies just folding to avoid paying the fine, and our not being able to trace those responsible, will always be there. The most useful thing that the Government can do is to lead a national campaign and make it very clear to tenants that from date X such fees are outlawed. That is probably the most helpful thing that we can do, because alternative business models will spring up left, right and centre as a way of trying to get around it.
Dr Paul Williams (Stockton South) (Lab)
Q
Alex McKeown: It will be through the complaints. That is one of the problems in trading standards. When a tenant goes to make a complaint to their local citizens advice bureau, they will be referred to Shelter. Our first-tier advisory service is the citizens advice consumer service, and again they get referred to Shelter.
We would have to trawl the databases to try to find the complaints. The one thing the chiefs say is that we do not get the complaints from tenants, because they do not know to complain to us. The information that Shelter takes from tenants is not good enough to pass on. There is no memorandum of understanding between Shelter and trading standards, so we do not get a clear idea of the problems. Historically, when I have had meetings with Shelter and said, “We need the information you have,” they have said, “But we don’t take trader details.” I need trader details; I need to have that information. If we had access to the information that Shelter holds, the big problem would be shown.
Dr Williams
Q
Councillor Blackburn: Absolutely. To answer your question very directly, we are talking about very vulnerable people who do not complain and do not go to their local trading standards—first, because they do not understand the law, and secondly, because the rogue trader involved has groomed them to make them think they are very lucky to be allowed to live in the property, and they are very fearful that if they complain they will become homeless. They will not come to us.
To return to the additional and selective licensing programmes, that is what tenants have told council officers time and time again. They say, “I know it is not supposed to be like this, but I didn’t want to make a fuss because I didn’t want to get thrown out.” That is the issue. To return to my previous point, enforcement can do only so much because we are heavily reliant on very vulnerable people taking the bold and brave step of complaining.
Dr Williams
Q
Councillor Blackburn: There are already rules about not evicting tenants as an act of spite, but we are dealing with rogue traders, so the notion that they would comply with one bit of the law when they would not comply with another bit of the law is quite difficult. That is why I return to the issue of up-front funding to allow authorities to set this scheme up comprehensively from day one, and a Government-led awareness campaign.
Dr Williams
Q
Alex McKeown: I think that would be difficult, because the only way you could ask people is by working closely with housing teams to see when they have visited something like a house in multiple occupation and find found there are six tenants in there who have all got sham licences. If we work closely with our housing teams, we could go and ask them, “Were you charged a prohibited payment?” We are an intelligence-led body, so we need the intelligence to come to us. Otherwise, where do we start looking for it? If they were displaying tenant fees on their website or in their offices, we could issue a fine.
Councillor Blackburn: But they are not going to do that, which is why, as I said earlier, in some places it will make sense for private housing enforcement teams, rather than trading standards, to be the lead on this. It is in the renewal of an HMO licence, or as part of a selective licensing visit, that we will have an opportunity to get behind the front door, speak directly to tenants and persuade them to trust us with the information they provide.
Alex McKeown: Having worked in authorities where they have selective licensing, and having gone into properties at 7 o’clock in the morning with the Border Force and the police, I know that they are still too scared to give information to trading standards and the authorities, because they will lose their home. Councillor Blackburn mentioned the Deregulation Act and retaliatory evictions. The fact is that the tenancy relations officers in the councils are so under-resourced that I have heard them say, “We haven’t got the capacity to enforce on retaliatory evictions.” The process is such that it becomes almost impossible to enforce it, anyway.
Going back to one of my earlier points, when it comes to the fines, one way of trying to get businesses to be fearful of those fines rather than phoenixing their companies is to say that directors will be personally liable. If they are personally liable and they reoffend, and there is a £30,000 fine, we are already met with, “We can’t afford it.” “Okay, fine. We will put a charge on your property so that when you sell your property we will get that £30,000.”
Councillor Blackburn: I strongly support that point.
The Chair
Numerous Members want to catch my eye. Does the Minister want to come in on this point?
Melanie Onn
Q
Alex McKeown: No. At the moment the rogue agents just fold their companies and re-phoenix, or they simply do not pay. There was a case in Redbridge a few years ago. A rogue letting agent was issued with a £5,000 fine by the local authority three times and they carried on trading. They said, “We are not going to pay it and there is nothing you can do.” Obviously, there are criminal sanctions under the Consumer Protection from Unfair Trading Regulations 2008, but when it comes to the fines, the agent continued to trade. They were featured on the Channel 5 programme, but they continued to trade. So the fine is not enough of a deterrent because, ultimately, they just folded their company and the directors walked away.
Helen Hayes (Dulwich and West Norwood) (Lab)
Q
The Bill mentions the need for effective communication with tenants about their rights. We know that the retaliatory eviction legislation is not working and not functioning. How do we get to a framework of protection for tenants that ensures people are sufficiently aware of their rights and also confident enough to come forward and report breaches so that the agents and landlords responsible for those breaches can be put out of business?
Alex McKeown: That is quite a difficult one. The tenants are always going to be scared of being thrown out because so many letting agents do not care about illegal evictions. Again, the housing teams are under so much pressure that they cannot take action when there is an illegal eviction and someone is locked out of their house and loses everything. I go back to having fines against directors as a deterrent and then the criminal sanctions further down the line. Money is always a deterrent to people. They prefer not to pay. They would prefer to have a company criminal record than pay out £30,000. As my colleague says, criminal prosecutions are expensive. It is down to resources, again. What we have often found with the criminal prosecutions is that even with some of the safety aspects, the fine will be £2,000, so we might as well go for the civil penalty—but it is difficult protecting those vulnerable tenants.
Councillor Blackburn: Perhaps I may briefly reflect on our experience in Blackpool of having a very high-profile scheme of selective and additional licensing, working with the local media, and using our own communications channels to get across to people exactly what the council are doing—taking journalists and other interested parties out with us, as has clearly been done in Newham, to see exactly what happens. That has had twin effects. It has raised awareness among tenants that the council is involved and is on their side rather than the side of the landlord. It has also had the effect of some of the worst landlords and letting agents deciding that it is easier for them to go and do business elsewhere. Again, on the awareness-raising side, I think there is a great deal we can do to communicate the fact that “The Government and your local council are on your side here, but you need to take us into your confidence and trust us.”
Alex McKeown: I will just add this: we have all mentioned HMO licensing, selective licensing and additional licensing. I started dealing with letting agents in Newham, so I am well versed in licensing, and I think it works very well in areas with a high percentage of rogue agents, because they will not get the licence, and there is that way forward.
The other thing I will mention is clause 12, which says that trading standards will assist tenants to get their prohibited fees back. As to the likelihood of that happening—it just is not likely. That is one of the problems. However, the Housing, Communities and Local Government Committee report refers in paragraph 99 to tenants being able to go to the first-tier tribunal. What I think would encourage tenants to complain to trading standards and give us statements would be if we could serve our penalty charge notices and, a bit like in a criminal prosecution, add the compensation order for the tenant to our case in the tribunal, rather than saying, “We are going to go to the tribunal with our penalty charges”—and then we have to start a new action in the county court.
It seems disjointed. If we can say to the tenants, “We will get your money back. We are going to deal with this. We will put it into our case, so it all goes into the same tribunal hearing,” I think that will work better. I think that will assist vulnerable tenants a lot more.
The Chair
I am jumping in, because I can see we are going to run out of time. I know the Minister is chomping at the bit to have some fun with you, but I am sorry, Ms McKeown, I am going to have to go to the shadow Minister.
Melanie Onn
Q
The Chair
As briefly as possible, please.
Alex McKeown: I did not look at the holding deposits, I admit, so I cannot answer on the holding deposit aspect and the removal of the criminal sanction on that. You asked about client money protection.
Melanie Onn
Yes, in terms of moving enforcement of client money protection schemes from district councils to county councils—it is probably a question for Councillor Blackburn.
Councillor Blackburn: There needs to be substantial flexibility in there. As Mr Goodwill commented before, in large counties, the number of cases that will be dealt with in one small district council could hugely outweigh all the other cases that are dealt with across the rest of the county council. There need to be options for local authorities to work together, if they so wish, or to appoint one lead authority—perhaps one district council in a county council, or the county council itself. There is not a one-size-fits-all answer to that question, because the way in which local authorities operate and the amount of expertise differ so much.
The Chair
I am sorry; it is very frustrating that we have such little time, but the Minister has been very patient.
Rishi Sunak
Q
Alex McKeown: There is option to issue a £30,000 fine or to take criminal action. The difficulty is that criminal action is expensive. Often, we do not get our costs back and we still do not achieve very much. It is better to issue the fines but, again, the repeated offenders—
Rishi Sunak
Q
Alex McKeown: It is a significant deterrent.
Rishi Sunak
Q
Alex McKeown: I think I have; is this the one that says you can hold the directors—
Rishi Sunak
Q
Alex McKeown: To a degree, but the burden of proof is beyond all reasonable doubt.
Rishi Sunak
Q
Alex McKeown: To a degree.
Rishi Sunak
Q
Councillor Blackburn: I would have welcomed some earlier engagement to tell me that that was happening so that we could have co-designed it, but yes of course, Minister, I welcome that new development.
Rishi Sunak
Q
You talked a little about funding—I hope you welcome the £500,000 that has been indicated. Have you done any bottom-up analysis that you can give us today that suggests that the figure should be different and that provides the figure that you would be comfortable with?
Councillor Blackburn: I anticipated that question and spoke to my officials on the way over. I said, “So when he asks me what we think it ought to be, do we not have a figure?” The answer was that we do not have a figure, but we are doing that bottom-up research. We were consulted about how much we thought it might cost, but we were given about a week to turn that around, which was not enough time to get sufficient data from our members about how much it might cost. That is work is ongoing. As soon as we have a figure, we will come back to you with it.
Rishi Sunak
Q
Councillor Blackburn: Yes.
Alex McKeown: Absolutely.
Rishi Sunak
Q
Councillor Blackburn: I am reasonably confident that they will want to work with the LGA to help us disseminate best practice and to advise our members. That is certainly what has happened in the past.
Alex McKeown: I do not have anything specific that I would like to see. I suppose I look for it to be very similar to the national estate agency team, which I am used to already.
Rishi Sunak
Q
Alex McKeown: Yes, I think so. Generally, when complaints are sent via the national estate agency team, trading standards is more likely to do something about it.
The Chair
Thank you very much to both of you; you have been excellent and informative witnesses, but we have been beaten by time. Thank you very much for your attendance.
Examination of Witnesses
Rhea Newman, Katie Martin, Dan Wilson Craw and Izzy Lenga gave evidence.
The Chair
Q
Dan Wilson Craw: My name is Dan Wilson Craw, the director of Generation Rent. We broadly support this Bill and campaigned for it originally. We think it will save tenants money and, by reducing barriers to moving, give them more bargaining power in their relationship with landlords and letting agents. There will also be a more efficient market if landlords are made responsible for all the costs of agents and there is clear pricing in the market. We are worried about how default fees are defined and about how a tenant might help to enforce the law and ensure that default fees and, indeed, banned fees are not charged or abused. We also think the Bill is only a first step in the wider reform of the rental market. Security of tenure is an important aspect of giving tenants the confidence to complain.
Rhea Newman: I am Rhea Newman; I work in the policy team at Shelter. We also strongly welcome the Bill and generally the Government’s commitment to making the rental market fairer and more affordable. We think the Bill will go a long way towards doing that and, in particular, the ban on up-front fees will make a significant difference for private renters, reducing the barriers to securing a new tenancy, which will particularly benefit those on low incomes who struggle most with up-front costs.
There are a couple of areas of the Bill that we think need to be further tightened to provide clarity and ensure they cannot be exploited. Our main priority is on payments in the event of a default, and we have a secondary concern about the terms when a holding deposit is refunded. Broadly, we strongly welcome the Bill.
Katie Martin: I am Katie Martin from Citizens Advice. You guys are probably familiar with Citizens Advice. We give advice to about 7.5 million people each year, over the phone, via webchat and email, and face to face. Some 400,000 of those people came to us last year with housing problems, 100,000 of whom were in the private rented sector, so we are pretty close to some of the problems people face. We use that evidence to support Government, to help to prevent problems arising, and that is why we have been calling for a ban on letting agent fees for almost a decade.
Again, we welcome the Bill and think it will go a long way towards solving some of the problems, but there are some problems with the wording, particularly about default fees, which could fundamentally undermine the Bill’s intent to create fairer conditions, and create a loophole that landlords could exploit. We think that should be tightened up in the legislation, following consultation. We also have concerns about the cap on the deposit, which should be reduced to four weeks rather than six, because six will only help 8% of renters. If we are really going to bring down the barriers to entry for the private rented sector, that should come down.
We think this will be a strong Bill with those changes. We really welcome it, but we want to see those things tightened up.
Izzy Lenga: Hi, I am Izzy Lenga, the vice-president of welfare at the National Union of Students. The NUS represents students across further and higher education, around a third of whom live in the private rented sector. Students in higher education represent 5% of the total number of households in the private rented sector, according to the English housing survey.
The NUS runs tenant training programmes for student unions, so that they can train their members on their rights and responsibilities as tenants, knowing that, when those tenants graduate and move on to other private rented properties, they will take that knowledge with them. Our aim is to equip future generations of renters with a good understanding of their rights and how best to protect them.
We really welcome the spirit of the Bill. Alongside the other witnesses, we absolutely support measures that will improve renting, although we have some concerns around specific areas in the Bill—namely, the resources for enforcement within trading standards, the level of security deposit and especially the terms suggested around the holding deposit, which we believe could unfairly affect some renters.
The Chair
Thank you. We will shortly move to questions from Members. This is a very important part of the Committee system, because it allows Members to be better informed before going into the line-by-line examination of the Bill, which they will start this afternoon. It also gives the Minister the opportunity to put some concerns to you as well. We will start with the shadow Minister.
Melanie Onn
Q
Rhea Newman: We accept the principle that there may be certain circumstances in which a tenant should cover the cost of a default, but we want to ensure that there are sufficient protections in the Bill to ensure that, first, this is part of a fair term in a tenancy agreement, and secondly, tenants cover only the actual cost of the default. We welcome that the Government, as a result of the pre-legislative scrutiny, have already tightened the definition to limit payment in the event of a default to the landlord’s loss.
However, we think that that needs to be tightened further, so that the payment covers only the landlord’s reasonable and proportionate loss, because what could be included in loss is currently too broad. We do not think that landlords’ and agents’ business costs, which could include their time, should be factored into that, and we also think that charges for things like sending letters or making phone calls to chase late rent are unfair. Tenants chasing a landlord to fulfil their obligations cannot charge for every communication they send, so we think that there should be parity in those principles.
We think that that definition needs to be tightened further. We also think that, through regulations, the Government could set out clearly the types of things that are allowed to be charged for as a default fee, and impose a requirement on landlords and agents to produce evidence of their costs when trying to charge a default fee. That should be shown to a tenant up front, which would make it easier for them to challenge if anything looks unfair.
The Government are currently proposing to produce non-statutory guidance. We do not think that that will be strong enough, because it will not be binding on landlords and letting agents. Putting it in regulations will make it easier for tenants to challenge and strengthen the hand of trading standards when trying to enforce the Bill.
Katie Martin: I support everything that the witness from Shelter has said. The only thing I would add is that we have seen attempts to use guidance for enforcement in other sectors. For example, in the energy sector, Ofgem introduced guidance around back-billing. That was found to be ineffective, so it had to introduce rules around that. That is also true of council tax debt collection practices. There are other examples of guidance not being followed, which has then required stronger measures. We think that that should be pre-empted and that it should be written into the proposed legislation at this point.
Dan Wilson Craw: I agree with what has been said. I am particularly worried that challenging default fees that are unfair or that relate to unfair terms in a contract will be very difficult for the tenant. Because it is not clear cut, trading standards might not devote resources to investigating it, so we think something stronger than guidance is necessary.
Izzy Lenga: We need a bit more clarity on the reasonableness of charges. There is an issue for students in particular around garden maintenance. There is quite a big disparity as to whether the cost would be just for a gardener or for a whole landscape change. That difference can be a massive cost and that needs a lot more clarity. Anecdotally, I remember that when I was a student we spent two days just plucking weeds out of my garden, because we did not know what we were meant to do and what the cost could be. That clarity would help students a fair bit.
Melanie Onn
Q
Dan Wilson Craw: We think it is quite a big barrier. We have done some work and we published a report in March on tenancy deposits. The average deposit is about £1,000, and you have to find that as well as the current £400 average letting fee. The majority of tenants will get their deposit back in a number of weeks, but only after they have moved out of their current place and into their new place so, as you say, they are out of pocket. One of our proposals was to passport deposits or to enable a portion of the deposit to be passported from the first tenancy to the next one. The Residential Landlords Association is looking at that as well. This Bill is a great opportunity to explore that in further detail.
Rhea Newman: We support what Dan said about up-front costs: they are a significant barrier for tenants. In our most recent private rented survey, moving costs were about £1,400 on average, and for those who paid letting fees, the average fee was about £250. We regularly hear from our advisers across the country about what a challenge those up-front costs pose for people who are trying to secure a new tenancy, particularly lots of tenants we support who might be on lower incomes.
There is a distinction to be made between what we are referring to as up-front fees that are non-refundable and the refundable bits in the Bill, which are the holding deposit and the security deposit. We support proposals around deposit passporting and that is an area that certainly merits further attention, but it is perhaps beyond the scope of the Bill. Our priority for the Bill is to ensure that the existing provisions are clear and enforceable so it can have the maximum impact for tenants. There is further work to do on other up-front costs, as Dan highlighted.
Katie Martin: Clearly, up-front costs, whether they are refundable or not, are a big barrier for people who are moving within the private rented sector or entering it. We would like that to be tackled. If the cap on the deposit was brought down to four weeks, as we recommend, that would help in respect of dual deposits as well.
Izzy Lenga: I echo my fellow panellists. Our priority campaign this year at the NUS is “Poverty Commission”. We know that students are really struggling with money and are having to work two or three jobs to find where their next month’s rent will come from, on top of their studies and any extracurricular activities. Such things place an added burden and stress on people that in turn can have an impact on their mental health, their ability to study and so on. It affects students financially, but also academically and in their whole welfare.
Melanie Onn
Q
Izzy Lenga: A specific challenge is definitely affordability. That is a massive challenge that students face. As I mentioned earlier, the fact that students are too often living in poverty and do not know where their next month’s rent will come from really affects them.
Students often do not know their rights as tenants. That is something that we really try to train them up on. The NUS runs a “Ready to Rent” scheme and encourages student unions to do the same. Landlords often take advantage of the fact that a lot of students are first-time renters, so it might be their first time looking over a contract, for example. There is also the question of the effect on students who are estranged or do not have the necessary documents, such as a passport, and on working- class students who have lived in social housing their whole life and whose families have not filled in contracts and stuff like that for housing.
Those are big things. Another is that the quality of housing for students just is not up to par. People joke, “It’s student accommodation—it’s meant to be damp and in squalor.” We did a report this year about fuel poverty. Students are living in increasing fuel poverty and just cannot afford to heat their own homes, because of the price and because they do not know they can change energy supplier. Things like that are the key issues for students with renting at the moment.
Melanie Onn
Q
Dan Wilson Craw: Do you mean in terms of the general quality of housing?
Melanie Onn
Under the Bill, how will people be able to enforce the rights they are being offered in the context of housing legislation as it exists at the moment?
Dan Wilson Craw: A tenant has two options apart from simply saying to the agent, “This fee is unfair.” The tenant can say, “If you don’t retract it, we’ll report you to the council,” or, “We’ll take you to the first-tier tribunal.” Those are the two options they have, in essence. The tenant can go to the council’s trading standards or to another authority and rely on officers to carry out an investigation, or take it upon themselves to make an application to the first-tier tribunal. We need that back-up process, but all a tenant can get through that process is the fee back, so we think there is merit in awarding a higher form of compensation to a tenant who goes through that process. That would create more of a deterrent for an operator who charges an illegal fee, it would potentially save the council work, and it would give the tenant something back for the effort they put in.
Rhea Newman: Enforcement starts with having a really clear ban in the first place. The clearer the ban is up front in terms of all the different provisions—for default fees and refunding holding deposits, and the ban on up-front fees—the easier it will be for landlords and agents to know what they can charge and for tenants to know what they should pay. When the Bill comes into force, there will need to be clear communication to all parties, so that it is very clear what should be charged and what should be paid.
Once the Bill comes into force, it may be quite difficult for a tenant to challenge an unfair fee charged by an agent during a tenancy. That is one of our concerns about default fees. There is concern among tenants, who do not want to raise issues with the landlord during a tenancy for fear that they might face a retaliatory rent increase or eviction. There are problems with challenging unfair fees once you are in a tenancy.
We have concerns that few tenants will use the option to go to the first-tier tribunal. Citizens Advice has done some research about how likely tenants are to take formal routes of redress, such as going to court, for disrepair issues. We know that few tenants will use that option, but it is important that it works as well as possible for those who can be supported to use it. I know you heard from local authorities this morning. I am sure they made the point about ensuring they are sufficiently resourced to enforce the ban. That will be a key part of it.
I come back to the point that the clearer the ban is in the first place, the easier it will be for all to enforce it. The evidence from Scotland really points to that. The reason the ban needed to be clarified in Scotland in 2012 was that the provisions were not clear in the first place. Even after 2012, Shelter Scotland has been running a campaign to help people to reclaim their fees. That just highlights how important it is to get it right in the first place.
Katie Martin: We think that it is really important to get enforcement right. We are concerned about the reliance on trading standards in terms of resourcing and the willingness of authorities to take action. We think the market is very much skewed in favour of landlords and agents, and that tenants actually have very weak bargaining power. As we have pointed out, tenants feel like they are intimidated and do not want to take action against their landlord for fear of retaliation.
We very much support the Government’s moves to introduce mandatory redress membership and we want that to happen as soon as possible, but we do not think that that will fix all the problems. We think that trading standards needs to be adequately resourced. We need to make sure that the requirements in the legislation are really clearly set out so that we hopefully do not get to the point where we have to resort to this kind of redress, but if that happens, it has to be adequately resourced and tenants need to be supported.
Mr Goodwill
Q
Katie Martin: We have done some research on this. Our most recent research found that currently only 2% use their security deposit as their last month’s rent, and 34% have a deposit of four weeks, so it does not stack up as an argument for us. We think the benefits of bringing it down to four weeks would far outweigh the risks.
Mr Goodwill
Indeed, the passporting arrangement that the Opposition mentioned would solve that problem as well. It is interesting to have some statistics behind that. Thank you very much.
Neil O'Brien (Harborough) (Con)
Q
Dan Wilson Craw: The Bill will benefit tenants. Yes, we think that.
Rhea Newman: Yes, we do. Is this in relation to potential rent increases? Is that what the question is?
Neil O'Brien
Yes, the argument was made that rents would just go up to compensate.
Rhea Newman: We still think the Bill will benefit the majority of private renters, because it will save them money every time they move. In terms of rent increases, we do not expect that all the fees currently charged to tenants will start being charged to landlords, because landlords have the consumer power to shop around and choose the agent that they use, and therefore there will be a competitive pressure on agents to drive down their prices and to offer surpluses at the best value for money.
If we look at the example of Scotland, there is no conclusive evidence that the ban led to a spike in rent increases immediately after it came into force. We conducted some independent research that suggested that there might have been a small short-lived increase in rents, but only one out of 120 landlords had experienced their agents putting up the price and consequently put that on to renters. Similarly, the Office for National Statistics produces an index of rental prices that is now the most authoritative source on rent increases and in the years after the ban, for the first two years, rents increased at roughly the same rate in Scotland and England. Four years later, they had increased much more in England than in Scotland, at 9% to 5%.
Neil O'Brien
That is quite the opposite of what we had been told the other day. Katie?
Katie Martin: Overall, we absolutely think that this Bill will benefit tenants, with the changes that we have proposed. If there were to be any rent increases passed on to tenants, which it sounds like there will not be, that would at least be transparent and visible, and that would help to create a competitive market for tenants. So overall, yes.
Izzy Lenga: I was going to echo the point about what happened in Scotland. When the Scottish Parliament banned those fees there was not that much of a spike in an equivalent rise in rent. I also echo the point that ensuring that the guidance is clearer, more transparent and provides a lot more clarity will be really beneficial for students, especially in learning how to manage to budget. As I have mentioned a few times, students can really struggle with money. Clear and more transparent guidance about where their money is going, and when and what they need to pay, will really help students in general.
Neil O'Brien
Q
Rhea Newman: Currently, the Bill limits payments in the event of a default to a landlord’s loss, but it is not clear what could be included in that. For example, replacement keys come up a lot. We think that it is absolutely right that if a tenant loses their key they should pay for it to be replaced, but we think that they should pay the cost of having a new key cut, not necessarily other costs that could be added to that such as time, going to get the new key cut and business lost. To draw a comparison, if you broke a glass in a shop you would be very happy to pay for a replacement glass, but I do not think you would necessarily offer to pay lots of additional things on top of that, which you would consider part of the shop’s business costs.
Neil O'Brien
Q
Rhea Newman: In regulations we would like a defined list of the types of fees that can be charged. In terms of what comes down to reasonableness, it might be difficult for that to be set out in regulations. I guess there are already some protections in the Consumer Rights Act around what is considered fair or unfair. I think reasonableness is about what a reasonable person would expect to pay in those circumstances, which is the cost the landlord actually incurs.
It is the combination of the reasonableness with the evidence. The landlord sets out the evidence and shows what the costs are. The tenant can then look at that, potentially get some advice, and challenge it. The problem is that by just saying that it is limited to a landlord’s loss, landlords could try to put lots of extra things in there. We have been asking some of our supporters and staff about things that they are potentially charged for at the end of a tenancy. For replacing items such as a dustpan and brush you could be charged £45 because an initial procurement fee was put on to it as well. That is the kind of thing that we are trying to guard against.
James Frith (Bury North) (Lab)
Q
Katie Martin: I am sure our advisers see examples of that every day. I am afraid I do not have any off the top of my head—I do not know whether other panellists do. We know that many tenants are being exploited by landlords. Not all of them—many landlords are totally fair and reasonable, but some are not, and we think that the legislation should prevent those unscrupulous landlords from being able to take advantage of tenants. I do not have examples off the top of my head.
Rhea Newman: I was going to pick up on a point that was made earlier. Garden maintenance could be quite a good example: what is expected of a tenant in terms of maintaining a garden? If you give landlords and agents the potential to do so, some—it is only some—might attempt to write in quite creative things that put unfair expectations on a tenant, and then charge them for not meeting them.
The existing examples we see that we are particularly worried about are the letters to chase late rent as well as emails, phone calls and so on. If they are charged at, say, £60 a time and there is no limit on how often a landlord or agent can send those letters or emails, that might be considered an unfair term in the Consumer Rights Act, but as we have said, it is actually quite difficult for a tenant to challenge that. That is why we think there need to be clear provisions up front about what is chargeable and what is reasonable.
Dan Wilson Craw: We have a couple of examples. We asked our supporters for examples like this and someone was required by their landlord to have their chimney swept once a year even though their fireplace was completely out of action.
There was another whose landlord would not fix a broken extractor fan in the bathroom, so the bathroom got very damp. By the end of the tenancy, one of the cabinets had got water damage, so the landlord tried to claim for that. The tenant successfully argued that that was the landlord’s fault because of the extractor fan, and he was awarded his deposit back. But the point a lot of our supporters made was that in these cases they knew their rights and knew that they were in the right, but they felt that a lot of tenants in a similar situation would not have the confidence to take on the landlord, or perhaps could not have a deposit just held in escrow for months on end while that gets resolved.
Katie Martin: In terms of transparency, it is required that any of these incidental fees default fields are written into the contract, but we know from our research that a quarter of tenants receive their contract on the day they are moving. So they have already paid the deposit and committed without having seen the contract. We think that is far too late for those things to be made clear to them.
Rhea Newman: It is also potentially very difficult to identify charges in a contract, depending on how they are written in, and it is very difficult to negotiate. That is a really good point about when you receive the contract, but even if you received it earlier, if you want a particular property and you know that queues of tenants are trying to get it, you are in a very weak bargaining position.
James Frith
Q
Katie Martin: I am saying that they do not see the contract. I am not sure about the exact requirement for when they are supposed to see it, but we know that in reality they do not see it until the point when, as I say, it is too late to challenge.
We do think there is a role for holding deposits, but we think they should be limited. We also think that the terms on which they should be refunded should be really clear. It should only be in the case of misinformation—
James Frith
Q
Katie Martin: The holding deposit is separate from the deposit that you keep for the course of the tenancy. I think the holding deposit would be capped at a certain amount. It is not something that we have looked at closely.
James Frith
Q
Katie Martin: No, indeed.
James Frith
You think it should be.
Katie Martin: No. We can see the case for when they might be needed.
James Frith
Q
Katie Martin: Absolutely, yes.
Richard Graham (Gloucester) (Con)
Q
In my experience, quite a lot of tenants will turn to housing departments with questions, particularly on environmental health issues. For example, I have noticed a huge increase in the number of young mothers who go to the city council complaining about mould or damp properties. It is true that those tend to be more for housing associations than for private tenancies, where maybe the tenants feel more secure. However, do you think that if second-tier councils’ housing departments had responsibility for enforcing the measures in this Bill, tenants would be more likely to raise issues with them?
Katie Martin: I think you have hit the nail on the head about people in social housing feeling much more secure. Tenants in the private rented sector hesitate to come forward with complaints because there is a huge fear of retaliation, which is one of the reasons why we think that all of these problems should be pre-empted in the legislation rather than having to be picked up later. People do not feel like they are empowered. They are very worried about what action the landlord might take, such as not renewing their tenancy and all kinds of different things. That is definitely problematic for renters.
Richard Graham
Q
Katie Martin: I will turn to Rhea on what is currently provided.
Rhea Newman: Landlords and agents do now have to provide a document that the Government produced, the “How to rent” guide, which includes lots of information about the roles and responsibilities of landlords and tenants. The Department has worked closely on that and engaged with a lot of stakeholders to try to make things clearer, but there is a challenge. Providing it is one thing; ensuring that tenants can actually engage with it and understand their rights is another. Sometimes people do not look at things until a problem occurs.
Richard Graham
Q
Rhea Newman: Communications are really key to that. When the ban comes into force it will be really important in the lead-up to that to make sure that there are clear communications at a national and local level to try to reach all landlords, agents and tenants to make sure they are clear about what they should and should not pay. The clarity of the Bill helps to make sure those communications can then be clear.
Richard Graham
Q
Rhea Newman: We think passporting could have a key role to play in dealing with such issues. There are real challenges for people when they cannot get one deposit back and they are trying to put a deposit on a new tenancy, so there is certainly merit in exploring deposit passporting. We would be keen to work with MHCLG and organisations such as Generation Rent on that.
Richard Graham
Q
Dan Wilson Craw: On the question of communication, council websites are really important. Tenants are supposed to get their heads around the guide, but it is a national document and they need to be able to find local information easily. Unfortunately, in our experience, a lot of councils do not really have much information on their websites for private renters. A lot of the time, if someone has a problem with their landlord, they phone up their council—this is an example that I came across—and get put through to the housing department. They are simply told, “This is how you apply for a council house”, and it is left at that, even though they have the right to have an environmental health officer come out and inspect the property.
Richard Graham
Q
Dan Wilson Craw: I think each council will have to work out exactly how to communicate the letting fees ban under their existing responsibilities and the best way of communicating it. Obviously it depends on whether it is a two-tier council. as well.
Richard Graham
Q
Dan Wilson Craw: Sorry, I don’t quite understand.
Richard Graham
Q
Dan Wilson Craw: Absolutely. What the Bill appears to do—we support this—is to allow second-tier councils to take on the responsibility for enforcement.
Richard Graham
Q
Dan Wilson Craw: Yes, it is.
Rhea Newman: In their responsibilities for enforcing across the private rented sector, it is really important that trading standards and environmental health officers work together. That joint work is fundamental. They obviously have resource challenges at the moment, which need to be addressed. We have always supported having one responsible authority—trading standards—in the Bill, but if they can work with their district councils, that is really important.
Rishi Sunak
Q
I have a very quick question about the principle of a holding deposit. Obviously, there is some debate about that. The argument that has been put forward—we heard it again the other day—is that having a holding deposit is sensible because it does two things: it ensures that tenants have a financial stake in the process and that they are not speculating on multiple properties, and it protects landlords, so they do not cherry-pick among tenants. If there were not a holding deposit, landlords might be inclined to pick safer tenants. I understand that you might have some different views about the detail of how it is implemented, but first I would love to hear whether you agree with the principle of a holding deposit. Katie, do you want to start?
Katie Martin: Yes. As I said, we do not object in principle to holding deposits. We think they should be measured to ensure prospective tenants are not taken advantage of. We also think it is really important that the legislation ensures that the landlords or letting agents cannot retain the holding deposit following a failed credit check or reference check. They should do that only if tenants have provided misleading information. The circumstances under which holding deposits are withheld should be closely looked at, but we do not object to them in principle.
Rhea Newman: We also do not object in principle. We think they can play a role. We are not sure, in practice, how much tenants speculate on multiple properties at the same time—in highly competitive markets, tenants often feel lucky to find one property that meets their needs—but we accept the principle of a holding deposit. We have always argued for a lower cap of about two days’ rent, because one week’s rent—I think the average is £192 across England—is a lot to lose if your circumstances change. Our main priority is to ensure the terms for refunding holding deposits are really clear. We think there needs to be a paper trail around what information is taken before holding deposits are given. Landlords and agents should tell tenants how it will be treated, and if they do not refund it they should provide evidence for why they are doing that. We think that, at the moment, the terms are not clear enough.
Dan Wilson Craw: I agree. We think holding deposits serve a function in a market in which it takes a while to get a reference from the tenant. If technology and the market were to develop post the fees ban, and a tenant could be referenced instantly, you would potentially not need a holding deposit.
We have a couple of concerns. Having this Bill to formalise the process of taking a holding deposit is really important. Under the Bill, a landlord or a letting agent could still take holding deposits from several tenants and ultimately give the tenancy to only one tenant. What it would do for tenants who had put down a holding deposit and did not get the tenancy is to put their flat hunting on hold for 15 days. We would quite like to see the Bill tightened up in that respect. Also, as was mentioned before—
The Chair
Order. I am afraid we will never know what the second point was, because time has beaten us. You have been excellent witnesses. Thank you so much for coming.
That brings us to the end of the oral evidence session for this Bill. The Committee will meet this afternoon to begin the line-by-line consideration of the Bill. To remind Members, that will happen not in this Room but in Committee Room 12 in the Palace of Westminster at 2 pm.
Tenant Fees Bill (Third sitting)
Thursday 7th June 2018
(6 years, 4 months ago)
Public Bill CommitteesRead Full debate Tenant Fees Act 2019 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 7 June 2018 - (7 Jun 2018)
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Chair
Before we begin, I have a few housekeeping points. Will everyone ensure that electronic devices are turned off or switched to silent mode? Teas and coffees are not allowed during sittings.
We now begin line-by-line consideration of the Bill. The selection list for today, which is available in the Committee Room and on the Bill website, shows how the selected amendments have been grouped for debate. Grouped amendments generally deal with the same or similar issues. A Member who has put their name to the lead amendment in a group will be called first; other Members will then be free to catch my eye to speak about all or any of the amendments in that group. A Member may speak more than once in a single debate.
At the end of the debate on a group of amendments, I shall call the Member who moved the lead amendment again. Before they sit down, they will need to indicate whether they wish to withdraw the amendment or to seek a decision. If any Member wishes to press any other amendment or new clause in a group to a vote, they will need to let me know. I shall work on the assumption that the Minister wishes the Committee to reach a decision on all Government amendments, if any are tabled.
Please note that decisions take place not in the order that amendments are debated, but in the order that they appear on the amendment paper. In other words, debate occurs according to the selection list, and decisions are taken when we come to the clause that an amendment affects. I shall use my discretion to decide whether to allow a separate stand part debate on an individual clause or schedule following debates on the relevant amendments. I hope that explanation is helpful.
The Committee agreed on Tuesday to the programme order, which is printed on the amendment paper and sets out the order in which we have to consider the Bill.
Clause 1
Prohibitions applying to landlords
Question proposed, That the clause stand part of the Bill.
The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Rishi Sunak)
It is a pleasure to serve under your chairmanship, Mr Sharma. I welcome all Committee members to the first of our line-by-line sessions. I hope that we make constructive and speedy progress through the various amendments and clauses.
The purpose of clause 1 is to ban landlords from charging any letting fees to tenants or other relevant people in connection with a residential tenancy in England, which very much achieves the overall aim of the Bill. In addition, the clause provides that landlords must not require a tenant to take out a loan in connection with a tenancy. Our approach to implementing this policy is to ban all fees, with the exception of certain permitted payments outlined in schedule 1, which we will no doubt discuss later.
The clause also provides that a landlord must not require a tenant to procure and pay for insurance or the services of a third party in connection with a tenancy, with the exception of utilities and communications services. That prevents landlords from circumventing the ban and charging fees by other means.
Melanie Onn (Great Grimsby) (Lab)
What does the Minister think about the terms of utilities and communications contracts that tenants may be entered into?
Rishi Sunak
Relatively straightforwardly, if a landlord has a utility arrangement in his or her name, as is common, it may be more sensible for the contract to stay in the name of the landlord but for the payments to be made by the tenant. That is what the clause refers to. That is reasonably common—indeed, it is accepted practice—and it is important that the Bill allows for it, as it is often cheaper and easier for all parties concerned for that to happen than for the name of the owner of the contract to be changed.
Rishi Sunak
As I am sure Committee members know, it is common for there to be hassle, time and cost involved in changing providers between people. I have personal experience of doing so for a satellite service and of adding my wife’s name to something. Those things can sometimes take time, and it is easier for all parties if they stay in the name of the landlord, with an agreement between parties that the tenant pays for the services as they are incurred. Indeed, it is common, generally accepted practice for the tenant to be obliged to pay for their use of such utilities as electricity or gas, as measured by inspection of the gas meters. That is what is allowed for under the clause.
Jo Stevens (Cardiff Central) (Lab)
May I ask the Minister about a situation in which a tenant wants to change supplier? If the contract is in the landlord’s name, how would the tenant be able to enforce a change of gas or electricity provider?
Rishi Sunak
That is a separate question between a landlord and tenant in any rental contract. The clause deals with the question of payment. It is important, if the Government are attempting to ban payments being charged to tenants, to note that there are certain exceptions. The clause captures the fact that, on occasion, tenants will continue to pay for the utilities they consume, and that that should not be captured by a ban on fees. It would obviously not be right for tenants to use electricity and gas without the landlord being able to make an appropriate charge for them, if that was how things were arranged.
In the Bill, the phrase
“in connection with a tenancy”
is defined deliberately widely. Requirements in consideration of the
“grant, renewal, continuance, variation, assignment, novation or termination”
of a tenancy that are included in the terms of the tenancy are all covered. That is to ensure that fees cannot be charged at any point during the tenancy, including upon exit. That addresses the concerns raised during pre-legislative scrutiny that the previous drafting, banning fees that were a condition of a grant in renewing or continuing a tenancy, might still allow fees to be charged at the end of a tenancy. That would have been contrary to the policy intention.
Landlords also cannot require outgoing tenants to pay for a reference, in the same way as employers do not charge their employees for a reference today. The clause also applies to a person acting on behalf of a tenant, and a person guaranteeing a tenant’s rent. Tenants and such persons are referred to as “relevant persons”. The clause is one of the principal clauses in the Bill, and as such I beg to move that it stands part of the Bill.
Melanie Onn
It is a pleasure to serve under your chairmanship this afternoon, Mr Sharma, and to join the Minister in debating a Bill in our present roles for the first time. I am sure that it will be a suitably memorable occasion.
The private rented sector is the fastest growing sector of the housing market. The number of private renters is predicted to grow by 24% by 2021, which means that one in four households will be renting rather than in owner occupation in three years, according to a report on the PropertyWire website last June. PropertyWire says that property rental
“has doubled in the last 10 years or so, and it is expected to continue to grow to 5.79 million households while 68% of renters still expect to be living in the rental sector in three years’ time, according to the latest tenant survey from real estate firm Knight Frank.”
PropertyWire also says:
“The report says that growth of the PRS has been spurred by conditions both in the housing and labour markets. Younger workers especially are taking advantage of the increased flexibility of renting as a tenure which allows moving between locations without any of the costs associated with buying or selling a property.”
It is clear, therefore, that far from being a nation of homeowners, we are shifting towards being a nation of renters, with about 4.7 million people renting their homes—some by choice, and some because there is no other choice. We must make absolutely sure that regulation of the sector is fit for purpose in the 21st century.
Daniel Zeichner (Cambridge) (Lab)
It is a pleasure to serve under your chairmanship, Mr Sharma. The future that my hon. Friend describes has already come to pass in many parts of the country. At least a quarter of properties in Cambridge are now in the private rented sector. The Bill is welcome in many ways, but I worry that it will not necessarily keep up with the changing business models emerging in many places. There is a tendency for landlords to find new and imaginative solutions. Does my hon. Friend worry, as I do, that some internet platforms and so on could provide avenues for people to get around the Bill?
Melanie Onn
That is an important point in considering the sector, which I will deal with later in my comments.
The Minister must be alive to ensuring that the Bill is future-proofed. We have heard evidence this week about online providers of landlord services who offer a much more flexible service to their clients—very different from that provided by the traditional estate agent and letting agent sector. The Bill must be right for the future, because the sector is fast-moving and swelling to meet housing needs that the state is currently not providing for in either type or scale. The needs of tenants must have a stronger role than in the past.
It is right that the clause sets out everything that a landlord must not do in relation to tenants, but it is sad that we have to be here prescribing rules to deal with those landlords who have not treated their tenants well. The Government have sought to limit the potential for a loophole where landlords simply require prohibited payments to be made to a third party. The clause sets the expectations that the Government have of landlords and attempts to deal with the relative position of power that landlords have held over tenants, whether that has always been fully recognised or not, to bring about an overdue rebalancing.
The Opposition recognise that the Government have previously taken steps to ensure that bad landlords have nowhere to hide. There will be a record of landlords who continue to flout rules on the quality of housing or overcrowding and of those who have certain criminal convictions. While it is slightly off topic, I cannot miss the opportunity to ask the Government to take steps to make that register more widely available so that tenants’ choice is made part of the country’s housing availability process.
As we heard in evidence this morning, an increasing number of tenants have for too long found themselves with the smallest of bargaining chips in their relationship with their landlord. On Second Reading, I talked about the inherent difficulty of the situation, with landlords, often seeing their property as an asset on which to secure returns, set against the needs of tenants who, in the absence of being able to secure ownership, wish to make their house their home.
The Government have made an exception to prohibition, including contracts for utilities and communications services, which is why I asked the Minister the questions I did with some interest. I understand that utility and communication services may be in place at the start of a tenancy. Indeed, some purpose-built to-let properties have all amenities covered, with free wi-fi provided to entire blocks, as an incentive or assistance to tenants, and as one less thing to worry about, with landlords not wanting to have their tenants wait around for engineers to arrive—or not, as the case may be—and deal with installations. However, is it not the case that the contracts that landlords have adopted for their properties may sometimes not provide the best value—for example, where prepayment meters are used or the tariff is at a general level—resulting in excessively high bills? That could come as a surprise to some tenants.
Prepayment meters are particularly common at the lower end of the housing market, and they bring their own problems. Once the equipment is in place, it is difficult to change provider. There can be charges for removals—no longer, I accept, from the big six—and if the account is in deficit, customers cannot swap between providers, let alone move to a billing system for their energy needs. That is important because, as the PropertyWire report goes on to explain, there is growth in the private rented sector at the more economic end of the housing scale at a time when the sector as a whole is changing.
With prepayment meters, it is not the tenant but the landlord who is the customer, but the tenant is tethered to the landlord’s choice of how their energy will be supplied, and those on low incomes or benefits are stuck with the most expensive method of energy bill payment. The Bill says—I paraphrase—that a landlord must not require a person to enter into a contract with a third party in connection with their tenancy, but that does not apply if the contract is for the provision of a utility to the tenant, or for the provision of communication services. For prepayment meters, the tenant is not required to enter into a contract—they have absolutely no choice in the matter. Worse than that, they are unlikely to ever have a choice in the matter so long as they reside in that property. They will remain tied into something that has been paternalistically decided for them.
Mr Robert Goodwill (Scarborough and Whitby) (Con)
Is it not the case in many cases that there being a key meter or a prepayment meter in the property is due to the actions of a previous tenant, for whom the meter had to be installed because of an unpaid bill? It is then very difficult for either the landlord or the new tenant to change that situation.
Melanie Onn
The hon. Gentleman raises a valid point. It is certainly the case that landlords often find themselves feeling that they have no other option but to put a prepayment meter in to avoid ending up as the recipient of all the bad debt that may well have been run up. However, I think it has become a bit of a choice for some in the sector, particularly at the lower end of the market, and by doing so they devolve themselves of any more responsibility in relation to their tenants. That is a shame, because it means that a good relationship is then not built up between tenant and landlord and there is not the element of trust, or of being treated like an adult, that one might hope for in that situation.
Landlords come in all shapes and sizes and are at variance across the country in the type and number of properties that they hold. There are landlords who are not resident in this country; entrepreneurial, buy-to-let landlords with small portfolios; those who inherit a family home on the death of a loved one; those who find themselves with an additional property after meeting a new partner; professional landlord companies that purpose-build to cater for particular groups, such as students or young professionals; speculative landlords who devolve all responsibility to agents; and those who live in the next street and keep a very close eye on things. Subsection (4), which relates to utilities and communications, needs to be clear to all those different types of landlords. Does the Minister think that that is the case?
That clarity is especially important because there is continuing growth of large-scale investment in build-to-let or multi-housing, which is professionally managed rental accommodation, usually at scale, in purpose-built blocks. That market, which only emerged in force in the UK in very recent years, is now worth an estimated £25 billion. Will tenants be protected against being required by these large corporations to enter into a contract that may not be the most economical, and that may take away their ability to choose between providers?
What will happen if there are difficulties in the contract that tenants have been required to sign up to? How easy will it be for the tenant to extract themselves from that contract—or could they prohibited from doing so if it is connected to their tenancy? For example, if they want to live in a building, will they have to go with Virgin for broadband or Npower for gas and electricity—other good broadband providers and power and energy suppliers are available—as the landlord gets a special tariff when those are supplied to the whole building? That would be entirely outwith the tenant’s control. What are the Minister’s thoughts on that?
Young professionals aged 25 to 34 make up the largest proportion of households living in the private rented sector. That is expected to remain the same in 2021, with their stay in the sector further lengthening, as the affordability issues surrounding home ownership—particularly gaining access to a deposit—remaining a challenge. Why should those people be limited in their ability to make a choice on their provider?
Among professionals living in the private rented sector, it is expected that there will be slightly faster growth in the number of under-25 households during the next five years, as well as an increase in older households—especially baby boomers. We must have consideration for those when it comes to the affordability of bills.
Under-25s receive a lower rate of minimum wage than other workers, so their disposable income will be much more restricted. Younger workers are usually paid less commensurate with their post and experience, which of course does not make them any less professional, and their ability to access things like housing benefit, the limits on local housing allowance and the shared occupancy rate all have an impact on their securing housing in the first place. How much they are required to top up from their own funds will have a severe impact on what utilities they can afford.
Hon. Members present must have had numerous constituents come to see them about the challenges of utility bills. The Minister has mentioned the difficulties of trying to change provider. Such difficulties are encountered particularly when prepayment meters are involved and perhaps when there are multiple occupants. Getting bills straightened out when there is confusion about meters is a lengthy process that, in my experience, results in carrier bags full of contradictory letters from those providers. Older renters on fixed incomes may also face financial restrictions, and I ask the Minister to consider that in his response too.
On the definition of a landlord, I outlined some of the common understandings of the types of landlords that we might all recognise, but I would like assurances from the Minister about who will be covered by the Bill. We cannot have a situation where Parliament takes all reasonable steps to further protect renters from the precipitous situations that they currently find themselves in, only to discover that organisations are deliberately seeking to absolve themselves of the responsibilities that all other landlords are subject to under the Bill.
In particular, I think about the case of Lifestyle Club London that I brought up on Second Reading. At the moment, that company can forgo many of the protections that are considered standard in a usual tenancy. By defining itself as a membership club, it can enter a property with absolutely no warning, it can levy huge fines to tenants for small things such as dirty dishes, and it can even give just seven days’ notice before terminating a contract and forcing the occupying person to move out.
Of course, that goes against many of the things that should be guaranteed for any renter, but companies such as Lifestyle Club London can justify that behaviour by saying that their residents are licensees and not tenants on assured shorthold tenancies. Residents pay a membership fee rather than a deposit, a monthly contribution rather than rent, and have terms and conditions rather than a tenancy agreement. That type of practice is completely unacceptable and unfair to residents, who often do not realise they are being exploited by companies that act in that way.
The Bill is the place to end that practice once and for all, by ensuring that licensees are covered by the same protections against fees as assured tenants and by prohibiting membership fees, monthly contributions and terms and conditions fines. The fact that a loophole exists to allow that type of agreement suggests that licensees of that nature have been left out of protections brought in by similar legislation to prevent landlords from acting in certain ways towards tenants.
I do not intend to move an amendment today because I await the Government’s response with interest. The Government have an opportunity to be explicit in their intentions and perhaps to table their own amendments in future to make it absolutely clear that companies such as Lifestyle Club London are covered by the Bill. Is it the Minister’s understanding that such clubs will be considered to be landlords under the terms of the Bill?
I would also like reassurance from the Minister that there are no loopholes around how tenancies and tenancy agreements can be defined that would allow de facto tenants to be afforded less protection from prohibited fees, and that if it turned out that a landlord could use alternative definitions to charge prohibited fees, the Government would return to the House to make the necessary changes to close that loophole as soon as it became apparent.
What type of loan is the Minister thinking of in subsections (5), (6) and (7)? I have spent a long time trying to conjure the purpose of such a loan from tenant to landlord, how that might come about and on what evidence the terminology is based, but it remains altogether unclear. I hope the Minister will provide some reassurance on those points.
Rishi Sunak
It is a great pleasure to embark on my first Bill Committee with the hon. Member for Great Grimsby and I look forward to going through it with her. I will try to keep this on point and address the specific issues that she raised.
First, on utilities and the provision thereof, some of her comments will be well directed at the energy price cap legislation that is working its way through Parliament. I am sure she will engage in that process. With regard to this Bill and this specific clause, I say to her that that process is something that any tenant would likely follow as part of their deliberations about which kind of property to rent, in the same way as I would imagine tenants decide whether a property has good mobile signal, any broadband available, what kind of energy is available, and so on. Those are all things a tenant will have awareness of in advance of making a decision with regard to the suitability of that particular property for their circumstances.
Daniel Zeichner
I would ask the Minister to think a little—I have examples in my own area—not about properties at the lower end of the market, but about new properties where there are shared heating schemes. I am not as convinced as he is that people moving into those properties are fully aware of the scale of charges they may face. There are disputes going on currently around this, because people do not necessarily understand and in some cases they feel that they are not fair or reasonable. I wonder whether he would consider inserting at some point a reasonableness test, because just passing on the charges without people necessarily understanding what they are when they enter into that agreement in the beginning, as I say, has created problems, which I am aware of.
Rishi Sunak
That is something that we are certainly looking at exploring in the guidance that is being developed in conjunction with various consumer rights groups, particularly around the “How to rent” guide, ensuring that potential tenants are aware of the things that they should be asking, which ought to be relatively common sense. As I said, there will be explicit notice in that guidance around the things that tenants should make themselves aware of. Those are the types of questions they should be asking to ensure that they have full sight of what that particular property and tenancy will mean for them.
Helen Hayes (Dulwich and West Norwood) (Lab)
We heard evidence this morning of the situation that many tenants find themselves in, having committed by way of a reservation to let a particular property, where they are unaware of many of the terms of the tenancy, including perhaps some of these contractual obligations, until it is far too late for them to back out of it, because money has already exchanged hands, they are already committed and they face consequences from pulling out at that stage. What does the Minister have to say to tenants in those circumstances?
Rishi Sunak
I would say to tenants in those circumstances that it is absolutely not a good idea to enter into an agreement without seeing the actual document that you are signing and committing yourself to. It is obviously good practice, as will be mentioned in the guidance that is to be published, that all potential people renting should seek to have a proper shorthold tenancy contract. That would be good practice that most people would aim for. There would be an obligation on them to take some responsibility for that, rather than entering into a situation where they are unaware of their obligations. I should make some progress, but if the hon. Lady wants to intervene one more time, she is welcome to do so.
Helen Hayes
I am grateful to the Minister for giving way again on that point. I think the Minister misunderstands the nature of the culture in much of the letting agency industry, where tenants are frequently told, “This is the only property available to you. It is the best offer at this time—you absolutely must. There is a queue of other potential tenants.” In practice, they do not have the type of choices at their disposal that the Minister seems to believe they do.
Rishi Sunak
I am confident that with the awareness that will be spread as a result of this Bill—we have heard a lot about the simplicity of this Bill, which will make it more effective for potential tenants to enforce and know about their rights—the circumstances in which that happens will be reduced. In case letting agents themselves are putting on the pressure, as the hon. Lady will know from being on the Select Committee, the Government are currently consulting on enforcing standards for the letting agency industry, a code of practice and potential licencing of that particular industry. Those are the kinds of tactics and behaviour that that consultation will look at.
Jo Stevens
The Minister just said that he is very confident that what my hon. Friend suggested will not be the case. On what evidence is his confidence based? I do not share it.
Rishi Sunak
As we heard in evidence, because of this Bill’s simplicity around banning fees, which is a simple and easy to understand message, and the awareness that will come around that and the fact that it will come into force on a particular day, together with the income provided to local authorities to raise awareness of these issues, I am confident that tenants will be in a much better place to know that their rights have been dramatically improved as a result of the Bill, and will be in a position to know those rights, ensure that they avail themselves of them and ask the questions hon. Members are saying that they should ask. I am particularly confident because new guidance will be published and widely publicised, which will make these rights, and questions tenants should ask, explicit and clear to them. I therefore remain confident.
As I said, there is separate Government work going on, looking particularly at the conduct of letting agents. Plans have been mooted for codes of practice and conduct, and for licensing of that industry. Some of the behaviours that have been mentioned are exactly the kinds of things that will be captured in that forthcoming piece of work.
Rishi Sunak
The clause bans letting agents from requiring a tenant or other relevant person to make a payment or loan, or secure insurance or services from a third party in connection with a tenancy. The clause works with clause 1 to ensure that the legislation applies equally to all tenants, no matter whether they let through a letting agent, as captured in this clause, or directly with a landlord, as captured in clause 1.
The provisions in the clause essentially mirror those in clause 1, so I will not repeat myself, but it may be helpful if I highlight briefly where the two clauses differ. The key differences are in the definition of “in connection with” a tenancy agreement, because the letting agent makes arrangements on behalf of the landlord and is not itself party to a tenancy agreement. There is also no exception allowing letting agents to require a tenant to procure utilities or communication services. That exception is relevant only to landlords, but clause 2 essentially has the same effect as clause 1, which is to ban letting fees.
Melanie Onn
I recognise that for the most part the clause mirrors the prohibitions applying to landlords. It is important that letting agents, which are often the professional guide to the amateur landlord and often operate on behalf of the landlord, developing close relationships over many years while in the pay of the landlord, have the propriety of their conduct considered closely.
The same principle applies to letting agents as to landlords, in that there are some excellent agents and some that fall far short, often seeming to set unreasonable charges without much comeback. Letting agents also lack the personable relationship with tenants that often develops between landlords and tenants. Landlords often develop levels of understanding with tenants that give tenants a bit of leeway, meaning that they could charge under the permitted fees under the Bill, and under a tenancy agreement through default fees.
Good landlords will often be empathetic about genuine and honest mistakes or problems that tenants make or face, and look for practical and easy solutions for both parties. For example, they may let tenants sort out replacing a lost key by themselves, and at a lesser cost, if it is a first offence. They may take some of the loss if a tenant has to move out in the event of a job loss, or a family emergency, or a genuine struggle to pay rent or exit fees. While there are some excellent letting agents that go the extra mile to keep tenants happy and in their property, too often letting agents take an extremely hands-off approach to tenants and only see them as a way to make money and collect fees, which are currently far too high, whenever they contractually can.
Currently, letting agents often charge fees that would be prohibited under the Bill during the move-in period and make a significant amount of money out of a new tenant. As a result of the Bill, letting agents will be far more driven by the desire to keep properties full for as long as possible, as they will see far fewer benefits from a property that rapidly changes tenancy than when they could charge those often high fees. That will help the drive towards achieving the aim of everybody in this room to see longer tenancies in the private rented sector, and increase the value of good-quality service from letting agents that keeps tenants happy and in place.
It will also move the balance of power in the letting market far more towards the tenant. Letting agents often make money through introductory charges to tenants and a percentage commission of the rent. Where once letting agents may have been happy to charge high fees and wait until someone comes along who is able and willing to pay them, the Bill will mean that letting agents will want a property to be filled as soon as possible, so they can earn commission on the rent. That will mean that letting agents have more reason to provide a good service to tenants and act to promote properties to get them filled as quickly as possible.
Tenants have no choice of letting agent if they want to move into a specific property. Who to choose as an agent for a property is currently at the behest of the landlord and therefore letting agents do not focus on offering a good deal to tenants, but on offering the best deal to landlords. Letting agents levy as much of the charge as possible on a tenant to avoid charging above the market rate to a landlord, as there is no point in trying to offer a good deal to tenants if no landlords use the agency to let their property. The result is that tenants are often charged well above reasonable amounts in set-up costs alone. They can often be expected to find hundreds of pounds for things such as credit checks, referencing and set-up paperwork, on top of a holding deposit, security deposit and the first month’s rent. Even for a modest property, that often runs into hundreds of pounds, perhaps even thousands.
We know that people on low and average wages often find it impossible to find the deposit to buy a property, but at the moment many would struggle to find the money to move into a rented property. That is grossly unfair, given that at the very least the landlords are the owners of a property that has increased often significantly in value over the past few years, and are often also rich in their own right. Yet they receive all the advantages in the letting agent market at the expense of our growing population of private renters, who are often young and increasingly likely never to own a home.
That is especially true in areas with high levels of student accommodation. For example, Leamington Spa has an extremely high level of student accommodation for a town of its size, due to a nearby university. Almost all that rental market is operated through agents and is used by students who have little knowledge of their rental rights and what is a fair rate for the charges that letting agents levy. It is a fast-moving market. There is pressure on students to secure a place that they like quite rapidly, often for a fixed-size group, six or seven months before moving in, and the pressure often leads to students paying £300 or £400, sometimes unexpectedly, if the pace of the property uptake surprises them, on top of their current rent and living costs while they are at university.
Jo Stevens
I represent a typical university constituency. It is in Wales and is not affected by this Bill, but by way of example, I mentioned on Second Reading a street in one of the wards in my constituency. I added up every single person living in student accommodation in that street of 200 houses, and letting agents are making in excess of £320,000 every single year in just that one street. Does my hon. Friend agree that that is something we need to prevent?
Melanie Onn
The important thing for students is that they understand the system that they are going to be entering, as for many of them it will be the first time they have moved away from home. They also should understand whether they are subject to unfair fees that are excessive for young people who are most likely to be reliant on student finance and part-time work if they do not have help from their family. We should also ensure they are fully aware of all their rights in those circumstances. The idea that they are having to make such decisions many months in advance when they are feeling the pressure leaves them wide open to exploitation. Their situation will hopefully be aided by the Bill.
Picking up what I was saying—it is a little haphazard, sorry—these costs represent a lot of money for a full-time worker, but for many students, they represent their whole living costs for a month. The balance needs to change dramatically. The extension of schedule 1 to letting agents will mean that they can no longer absorb the cost of a low landlord commission rate by passing the cost on to tenants.
We support the clause, but a few points of concern arise. As it is nearly identical to clause 1 in wording, I will not labour the points I raised in our consideration of that, but I want to seek some clarity on some particular differences between the clauses and draw the Minister’s attention to subsections (4), (5) and (6). Will he outline again the purpose of the loan and confirm that it is included as a preventive measure to avoid landlords seeking any alternative finance mechanism by which to re-route a payment? I would be grateful if he did. It would ensure that I have understood what he said.
The main point I wish to make about clause 2 relates to subsection (3), which states that a letting agent cannot require a tenant to enter into a contract for provision of a service or a contract of insurance. While the rest of the clause reflects clause 1, subsection (3) does not go on to specifically exclude utilities or communications. Why is that the case?
The Minister will know that letting agents can earn a commission for placing clients’ properties with particular utility companies. Switches of energy provider must be done with the bill payer’s consent, and that is likely to be the landlord during a period of the property being void, but it allows for a default situation to arise for tenants when they move in and start receiving bills that are not the most economical for them, requiring them to pay higher rates on generic tariffs. They are then free to change supplier, but they have already been paying at a higher rate and they then have to go through the process of moving supplier. I know that process is supposed to be easy and straightforward, but it is still a chore and an off-putting task for anyone trying to find the right and best deal.
Are letting agents to be permitted to continue to be incentivised to sign up unwitting renters to these rip-off rate utility companies? Will the Government commit to taking steps within the Bill, rather than waiting for guidance? If we are to deal with tenants’ fees and making things fairer for renters, why not do it all now? We should say that such inducements should not be available to letting agents. Renters should be notified in advance who the utility and any other established providers are and given the opportunity to make arrangements that better suit their budget. I hope the Minister can provide answers to those questions.
Rishi Sunak
To respond directly to the two specific points that the hon. Lady raised, I can give her the same assurance that I gave on clause 1: the exception for insurance can specifically not be a means to require a payment that otherwise would be prohibited by the legislation. The same assurance stands here, and I hope that gives her the reassurance she needs. Secondly, to focus specifically on the clause we are debating, it does not allow letting agents to charge for utilities or communications services, but clause 1 does. The specific reason for that is that the contract would typically be in the name of the landlord and would be a function of the landlord-tenant relationship. That should not be permitted for the letting agent. I assume that she does not think they should be included.
Melanie Onn
My concern is that letting agents are able, upon the agreement of the landlord, to set these things up in their own name. That does happen. Does the Minister think that that is okay, particularly given that they receive inducements for it?
Rishi Sunak
After the legislation passes, that would be a particularly silly thing for letting agents to do, because they would not, under the legislation and this particular clause, be able to charge the tenant for those utility arrangements. The clause specifically prohibits letting agents from charging those payments to tenants. The hon. Lady should feel reassured about that.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clause 3
Prohibited and permitted payments
Question proposed, That the clause stand part of the Bill.
Rishi Sunak
Our approach to implementing this policy is to ban all payments in connection with a tenancy, with the exception of certain permitted payments outlined in schedule 1. The clause introduces that schedule, and provides for enabling the Secretary of State, by regulations, to amend the list of payments permitted under the Bill.
Although no changes to the categories of permitted payments are currently intended, the private rented sector is expanding and has a changing demographic as well as growing technological innovation. Similarly, legislative changes or other circumstances may arise where it becomes necessary to add, modify or remove a description of a permitted payment. We do not intend for the power to be used to significantly alter the objective of the legislation, but we recognise the broad scope of the power. That is why we consider it appropriate for the power to be subject to the affirmative procedure, to allow adequate parliamentary debate and scrutiny of any changes to the payments permitted under the Bill. That will provide sufficient safeguards that the power is not used for any purposes contrary to the objectives of the legislation, or to make changes that may have negative consequences for the lettings market.
It is also worth noting that the power to amend permitted payments is qualified by subsection (3), which states that the power does not extend to removing rent from the categories of permitted payments. We consider the negative procedure to be appropriate in the case of regulations made solely to amend the £50 cap on fees that can be charged to vary a tenancy when requested by a tenant. Any changes to that cap would purely be to reflect changes in the value of money, and the power could not be used to undermine the intention of the legislation.
It is important to note that in its scrutiny of the delegated powers memorandum accompanying the draft Bill, the Regulatory Reform Committee indicated that use of the power in clause 3 is justified to deal with changes in circumstances that cannot at the moment be anticipated or predicted. Clause 3 is vital to ensure that the legislation remains relevant and, in the words of the hon. Member for Great Grimsby, prepared for the future.
Sarah Jones (Croydon Central) (Lab)
It is a pleasure to serve under your chairmanship, Mr Sharma—it is the first time I have done so, so it is very exciting all round.
As the Minister set out, clause 3 spells out that only permitted payments defined in schedule 1 can be charged by landlords or agents. We have heard already from my hon. Friend the Member for Great Grimsby about the pressures faced by private renters. Given the rapidly increasing number of people in the private rented sector, with only the bare minimum of consumer protections people can be exploited financially and forced into substandard and sometimes dangerous accommodation. All of us in our everyday lives, as well as in our caseload, will have seen people who are either excluded from accessing the sector or charged exorbitant fees.
It is right that the Bill limits the number of things for which tenants can be charged. The most important role of the clause is to give effect to schedule 1, which restricts permitted payments to things such as rent, tenancy deposits, holding deposits, default fees, terminations and bills. I am sure we all agree that the clause is essential in making the Bill work effectively and allowing the private rented market to continue functioning.
However, Opposition Members would like to challenge several poorly defined, excessive or unnecessary permitted payments that are enabled by clause 3 and schedule 1. That includes issues with tenancy deposits, holding deposits, default fees and termination payments, and we will discuss those in more detail. There are other permitted payments enabled by clause 3 which we are not seeking to amend at this stage but, as the Minister will know, several of the permitted payments were added subsequent to the publication of the draft Bill, following Government consultation and pre-legislative scrutiny. The draft Bill presented last year included just four permitted payments: rent, tenancy deposits, holding deposits and default fees. As the Committee will note, there are now 10 permitted payments enabled by clause 3 and outlined in schedule 1. I hope the Minister can answer that he has confidence that the addition of those new permitted payments was done with sufficient evidence, and that he can tell us which views were taken into account when they were added.
The clause also gives the Secretary of State the tools to add, remove or amend what is considered a permitted payment if it is necessary to do so in the future. That has the potential to future-proof the Bill by ensuring that the Government can easily bring forward changes to prohibited and permitted payments if it turns out that there is a need for change, either through a loophole that becomes apparent after the Bill becomes law, or through a change in style of renting that means we need additional permitted payments, or a change to permitted payments if it becomes apparent that there is a route for exploitation.
The powers in the Bill should come with the responsibility to use them wisely and in a timely manner if it becomes apparent that it is necessary to use them at all; otherwise, there is a risk that the Bill’s provisions slowly become obsolete as our renting culture evolves over the years and decades. I look for reassurance that the Minister will use that power in a proper manner, to keep the Bill up-to-date as much as feasibly possible.
A particular concern I have with the Bill in general is that there are certain maximum thresholds contained in schedule 1 that are far too high to have a real positive effect on the everyday finances of tenants. That is why we have tabled amendments to try to tip the balance away from something that looks good on paper, but achieves very little saving for tenants. The Government are consistently slow to adapt to ideas to reset the balance of power between tenants and landlords—a Labour Government would have brought this Bill forward five years ago—so I suspect that things the Conservatives may oppose today, they may see as perfectly reasonable in three or four years’ time, once the harsh reality that tenants face in the housing market becomes even clearer.
I look for reassurance from the Government that they will continue to monitor the real-life effects of the numbers they have chosen in schedule 1, and to pledge to lower the permitted thresholds if it becomes apparent that the levels in the Bill are far too high to have a meaningful effect on the ground. Overall, the Opposition support the clause.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Schedule 1
Permitted payments
Sarah Jones
I beg to move amendment 7, in schedule 1, page 23, line 12, leave out “six” and insert “three”.
This amendment reduces the maximum amount that may be taken as a deposit from six weeks’ rent to three weeks’ rent.
The Chair
With this it will be convenient to discuss the following:
Amendment 8, in schedule 1, page 23, line 15, leave out first “six” and insert “three”.
This amendment reduces the maximum amount that may be taken as a deposit from six weeks’ rent to three weeks’ rent.
Amendment 9, in schedule 1, page 23, line 15, leave out second “six” and insert “three”.
This amendment reduces the maximum amount that may be taken as a deposit from six weeks’ rent to three weeks’ rent.
Sarah Jones
Amendment 7 seeks to amend part 2 of schedule 1, on tenancy deposits. We all agree, I think, that this long-overdue Bill will go some way to addressing some of the issues we have been debating.
Rishi Sunak
I am conscious that in the debate on clause 3, the hon. Lady posed a specific question that I did not respond to, about the changes in the permitted payments, to which I wish to respond, if she does not mind and if you would indulge me, Mr Sharma. As we are coming on to discuss those payments in general, I hope it is appropriate and within scope.
The reason for the expansion was that the previous drafting was less all-encompassing around the payments that could not be charged. As the drafting in clauses 1 and 2 was expanded to cover almost any incidence of anything happening during the tenancy, it then necessarily became apparent that we needed to add specific clauses to allow for payments that would previously not have been captured by clause 1, but now would be and needed to be expressly permitted, such as an early termination clause or a change in sharer. With the new drafting of clause 1 and 2, things such as that would not be permitted unless they were specifically listed in schedule 2, which is the reason for the expansion. I hope that gives the hon. Lady the reassurance she needs.
Sarah Jones
Thank you. As we have heard, the Bill will mainly address issues within the private rented sector through the banning of letting agent fees, but, as we all know, letting fees are not the only cost faced by prospective tenants, nor are they the largest or even the most common. Tenancy deposits are the largest and most common fees that renters face. Research by Citizens Advice found that nine in 10 renters pay a tenancy deposit, and that one third of tenants paid more than £1,000 for their deposit. According to deposit protection scheme data, the average deposit in March 2017 was £1,161—up from £979 in 2012. That is an increase of nearly 20% in five years.
We all understand the need for tenancy deposits of some kind, so it is absolutely right that they are included as a permitted payment in schedule 1, but the absence of a cap on tenancy deposits to date has left some private renters paying extortionate amounts. It is undeniable that that presents a major barrier to people looking to rent privately—particularly in areas such as London. We will not improve the situation for tenants to any significant degree if we do not solve the flaws in the tenancy deposit system.
Citizens Advice says that, in the past year alone, it has worked with almost 11,000 private renters who have come to it because of issues relating to deposits. One of my members of staff had to find £3,000 for a tenancy deposit—equivalent to eight weeks’ rent. One of my constituents who came to me about this issue is currently homeless with five children. She approached the council for help, but it deemed her to be intentionally homeless because she abandoned a tenancy in Manchester to come to Croydon as she was suffering ill health and wanted to be closer to her family. At present, she is staying in her brother’s house, which means there are eight people living in a two-bedroom flat. Her brother said she cannot stay for long, but does not want to kick her out on the streets. She is on universal credit and cannot afford to save for a deposit on a private rented property. She has been left in a Catch-22 situation.
People are looking to move to a new city, perhaps to find work or start a business, but are restricted by significant up-front costs. People face the combined costs of a large deposit, their first month’s rent and living costs for a month or more before they get their first paycheque. That means that, to move to a more expensive city, they must set aside £2,000, £3,000 or more before making the move. We cannot ignore the impact that has on our economy. It is important for people with the right skills to be able to move easily to places where those skills are in demand.
The Mayor of London has recognised the pressures in cities such as London, and has worked with London First and employers to give Londoners access to tenancy deposit loans. Organisations such as the Met police, Transport for London and other private companies now offer tenancy deposit loans to their staff. That has given more than 100,000 Londoners access to loans. Although that is commendable on the Mayor’s part and shows that he is on the side of tenants, it is a very sad state of affairs that the situation has got so bad that tenants have to borrow from their employers to cover their housing costs.
In addition to the actual cost, there are several ways in which tenancy deposits, in their current form, leave tenants out of pocket, which the Bill fails to recognise. One major issue is the need for tenants to pay a deposit on a new property before receiving their deposit back from a previous one. Tenants are charged high sums twice simply because of the way the system works. Tenants are also penalised through the deposit protection scheme. We all agree that the scheme’s introduction was a good thing, but it was set up in such a way that tenants are losing out to landlords, agents and the deposit protection companies.
Generation Rent has found that most of the £4 billion currently held in deposit protection is held by landlords and agents, who then pay a small insurance fee to deposit protection companies. Although in most cases that money is paid back to tenants, only 2% of tenants receive interest on their deposit when it is returned. Essentially, it gives landlords and agents a low-cost loan. Generation Rent estimates that tenants are missing out on £80 million per year in lost interest. Others advocate a proper reform of the system, such as a personal tenant account with passporting, which would allow tenants to transfer funds between deposits and to accrue the interest they deserve on their deposit. We will debate that point later.
A cap on tenancy deposits as part of schedule 1 is, in principle, very welcome, but in proposing a cap equivalent of six weeks’ rent and ignoring the significant other flaws with tenancy deposits, the Government have missed a huge opportunity and have ignored the advice of numerous experts. I hope the Minister will work with us today and will consider the merits of amendment 7 and the related amendments, which seek to bring genuine improvements for tenants. For too many people, tenancy deposits are one cost too many. As I will set out, in its current form the Bill is at the very least ineffective and at worst risks making things worse for renters than they already are.
First, I will explain why the clause is ineffective. The Government have said very clearly that they want to make things better for private renters. On Second Reading, the Secretary of State said that by setting a six-week cap,
“we are delivering on our commitment to make renting fairer and more affordable”.—[Official Report, 21 May 2018; Vol. 641, c. 645.]
However, we all know that in the vast majority of cases that is simply not true.
Polling by Shelter found that the majority of deposits—55%—are charged at just four weeks’ rent. According to the same polling, only 6% of landlords require a deposit of more than six weeks’ rent. Similar figures have been published by Citizens Advice, which found four weeks’ rent to be the most common deposit amount. It argues that in its current form this measure will make renting “more affordable” to just 8% of renters. That would not fulfil the Secretary of State’s objectives.
Richard Graham (Gloucester) (Con)
On the length of time for the deposit, it is of course eight weeks in Scotland, so does the hon. Lady agree that this Bill is a significant step forward?
Sarah Jones
I am looking specifically at the impact of this Bill, which will be on people in England, and currently most people in England pay a deposit of four weeks’ rent—some pay less, some more—so we know that in England this Bill will not have an impact on the vast majority of people who are currently renting. That is the point that I am trying to make; I am not comparing the situation in England with that in Scotland.
Richard Graham
Surely the hon. Lady will agree that this is part of a package of measures, and that, taken in the round, these are significant steps forward in bringing down costs for tenants, as all our witnesses this morning realised.
Sarah Jones
I will shortly make the case that in some cases people will end up paying more money as a result of the Bill as it currently stands.
So a cap of six weeks’ rent will not make a difference to the vast majority of private renters, and it does not send a message to tenants that this Government want to improve things for them. I would like the Minister to explain his thinking on that.
In areas with higher housing costs, such as London, a six-week deposit based on median rents will see private renters needing to fork out £2,000. Therefore, amendment 7, in keeping with the advice from various experts, seeks to make this part of the Bill more impactful by setting a three-week cap. That would save tenants £575 compared with the Government’s proposals, rising to £928 in London.
I come to my second main point. We have established that, as it stands, this schedule will be fairly ineffective, but in fact it is in danger of making things worse. To emphasise the lack of impact that it will have in its current form, we can again look at the Government’s own impact assessment. It claims that a cap of six weeks’ rent will result in
“money being available to tenants to spend, leading to wider economic benefits.”
The impact assessment estimates that 1.4 million households moving home in the private rented sector in year one will pay £12 million less in deposits than they do currently. If that benefit is spread across all those households, the average saving is £8.50 per household, which would not be a massive boost to the economy.
The original briefing for the Queen’s Speech indicated an intention to cap deposits at four weeks—that is really important. The Financial Times was among publications that reported that
“deposits that tenants leave with landlords or their letting agents will be capped at no more than one month’s rent.”
When the draft Bill came out in May 2018, groups such as the National Landlords Association and the Association of Residential Letting Agents claimed victory in pushing the cap back to six weeks. A National Landlords Association newsletter stated:
“The Government had initially proposed in the consultation to cap security deposits at no more than 4 weeks’ rent. From the beginning of the process, the NLA has been actively campaigning around raising the cap to 6 weeks. This was outlined when…CEO of the NLA…met with the Minister of State for Housing and Planning…in September and pressed him to rethink the level of this cap.”
Perhaps the Minister can explain what arguments the Government took into account when deciding to amend their plans for a four-week cap, and why they did not listen to the evidence given by Shelter, Citizens Advice and others that a lower cap was the only way to effectively tackle the hardship faced by many private renters. Indeed, why did the Minister not listen to the views of tenants themselves?
On Second Reading, the Secretary of State gave various arguments in defence of a six-week cap, but I am afraid that none of them stands up to scrutiny. He argued that a cap of six weeks’ rent will give landlords greater flexibility to accept higher-risk tenants, such as those with pets, but analysis conducted by MHCLG as part of its impact assessment did not find a link between the level of deposit and the riskiness of the tenant. As landlords told us earlier this week, a better system for higher-risk tenants might be to allow an exception to the cap in specific cases, such as pets.
The Government have also argued that a six-week cap will address concerns about tenants leaving without paying their final month’s rent. Experts have argued that that is a rare occurrence, and just this morning, we heard that only 2% of tenants used their deposit as their final month’s rent. The important role played by the deposit protection scheme means that there are already means by which we can resolve disputes.
The Housing Secretary rightly pointed out the need to ensure a balance between financial security for landlords and affordability for tenants, but the data we have on deposits suggests that the proposals are skewed in favour of landlords. Deposit protection scheme data suggests that on average, since 2007, tenants have received more than 75% of their deposit value back. In more than half of cases, tenants receive their deposit back in full, with no deductions. Of course, landlords need the security of knowing that they can recoup costs if needed, and there should be a deterrent for tenants who might otherwise leave properties in a bad state, but the numbers suggest that a much lower-value deposit would still allow landlords to recoup any legitimate costs at the end of a tenancy.
The amount of the deposit could be halved and landlords would still have an ample amount to cover the average deduction. If the average deposit is £1,000, with people paying back a quarter on average, that means landlords receive back £250 on average. If the deposit was halved to £500, they would still have enough for that average to be returned. The majority of the deposit would still be returned to the tenant in most cases, but it would also leave room for a bigger than average deduction if necessary.
Importantly, the Housing Secretary argued that the six-week cap was not a recommendation, despite repeated warnings on Second Reading that it may be interpreted as such and become the norm. The inherent seal of approval of a Government cap could result in landlords thinking it was okay and normal to raise deposits to that six-week level. That is relevant in the context of other fees being restricted by the Bill.
The potential backfiring of the Bill could mean that an average deposit of 4.8 weeks across the country suddenly jumped to six weeks, which would cost tenants hundreds of pounds in extra deposit fees and completely negate the benefit of the main part of the Bill, which bans letting fees. The Government estimate the average cost of letting fees to be between £200 and £300. If the most common deposit of four weeks became six, based on average rents, Londoners would pay £500 more on their deposits, which means that the net impact of the Bill on renters would be negative.
Daniel Zeichner
My hon. Friend is making an excellent speech, but she has a tendency, as all London MPs do, to constantly refer to London, which I entirely understand. I suggest that she looks a bit further up the country to an area such as mine, which displays similar attributes to London. There are always different views on exactly what average rents are, but something like £1,000 to £1,200 is typical in my city. She is making an important point about what the Bill could lead to for young people such as those looking to rent in Cambridge, which they have to do because they are completely priced out of purchasing property. They would have to have about £1,500 or £1,600 up front. That would have a significant effect on one of the economic powerhouses of the country. Will the Minister bear that in mind? If six weeks’ rent becomes the norm, that will have importance not only ethically but for the effectiveness of our economy in difficult times.
Sarah Jones
My hon. Friend makes an excellent observation, and I take his point completely. There are many parts of the country where the rental market is pressurised and prices are prohibitively high, so the impact would be the same as it is in London. He is right.
There is precedent for the Government setting a figure that becomes the norm, whether it is a cap or a floor. In many cases such a precedent has been created, and that could occur here. That price level is given inherent Government approval for those on the other side of the deal, who say, “This is what the Government say we can charge”. There are two obvious examples, one a cap and one a floor: tuition fees and the minimum wage respectively. We are all aware of how universities raised their fees to the maximum of £9,000 as soon as they could, despite claims that there would be price competition. Likewise, when the minimum wage was introduced, it was said that it would be an absolute floor but, sadly, for many workers it has become the norm.
If we are trying to make things better for private renters, which I am sure the Minister is, we should not be settling for the status quo, nor should we be considering something that may make the situation worse. We should be the leaders we were elected to be and change the Bill. To reiterate our argument for a three-week cap, if the most common deposit is now four weeks’ rent and the average amount returned is more than 75% of the deposit value, reducing the cap to three weeks would still leave more than enough room to give landlords financial protection while at the same time bringing real benefits to tenants.
Rishi Sunak
I appreciate that reasonable people can disagree about these amendments and the number of weeks that is suitable for a deposit cap. It is a tricky issue to balance. However, the amendments would not help tenants. Lowering the deposit cap to three weeks risks distorting the market and leading to behavioural change.
Using data from deposit protection schemes, we estimate that about 93% of deposits are for greater than three weeks’ rent, and as we have heard, most landlords require a deposit of about one month or five weeks’ rent. The deposit serves an important function as a deterrent. It gives tenants an added incentive to comply with the terms of their tenancy agreement. Further, if we lower the cap on deposits to three weeks’ rent, there is a higher risk that a deposit will no longer fully cover the damages to a landlord’s property or any unpaid rent. Landlords would be likely to seek to offset that risk by asking for more rent up front, or they may be deterred from investing in the sector entirely. Neither of those outcomes would help tenants.
We have listened to concerns that a cap at four weeks’ rent or less may encourage tenants to forgo their final month’s rent. The Housing, Communities and Local Government Committee also recognised that particular risk, acknowledging that this was an area where it is difficult to achieve balance, and interestingly suggested a cap of five weeks, which is considerably more than the three weeks that we are discussing. Furthermore, nine out of 10 respondents to our consultation on banning letting fees agreed that deposits should be capped at at least four weeks’ rent.
As the landlord or agent representatives we heard on Tuesday pointed out, a cap of six weeks provides the flexibility that landlords need to rent to higher-risk tenants. For example, lowering the deposit cap to three weeks’ rent might hurt pet owners or those who live abroad.
Sarah Jones
Does the Minister not accept the evidence from his own Department, which states that there is no link between high risk and deposits?
Rishi Sunak
It is important not to conflate aggregate information with the particular circumstances of individual tenants. We are talking about particular, unique circumstances pertaining to individual tenants that would put them at potentially more risk of a landlord cherry-picking and not wanting to rent to them if they did not have a deposit that would cover their risk. We heard that from the landlord and agent representatives on Tuesday. The groups in question often have to pay a higher than average deposit, to provide landlords with the assurance they need. That provides them with a home to rent.
Sarah Jones
Will the Minister consider accepting our amendments and introducing a separate one that applies to pet owners?
Rishi Sunak
It is hard to be prescriptive about all the circumstances in which someone might require a higher than average deposit, which is why the Bill provides a cap and guidance on interpreting that cap. It is for individual landlords to make the determination as they see fit. I remind hon. Members that these amendments would reduce the cap to three weeks.
Lastly, I will mention Scotland, which was raised by the hon. Lady and my hon. Friend the Member for Gloucester. It is important to know that Scotland has an eight-week cap, which is considerably higher than the six weeks that we are proposing. There was some concern that deposits would escalate up to that cap, but the evidence that we have seen and analysis that we have conducted thus far do not suggest that that is the case. The average deposit in Scotland remains at about a month’s rent. There is good evidence there that that fear is misplaced.
Sarah Jones
What does the Minister say about the fact we have seen time and again, such as with student fees and the minimum wage, that when the Government set a definition, that is where the industry moves to?
Rishi Sunak
The specific issue we are talking about is a cap on deposits. We do not need to look at potentially similar industries; we can look at an exactly analogous industry, because in Scotland where there is an eight-week cap that has been in force for a while. There, deposits have not gravitated to that level and have remained at about a month’s rent. There can be no more compelling evidence than that.
Richard Graham
The analogy offered by the hon. Member for Croydon Central is interesting, but it is not true, particularly for apprenticeship wages, where there is a minimum apprenticeship wage and very large numbers of apprentices get considerably more.
Rishi Sunak
My hon. Friend is right that the evidence on apprenticeships certainly does not suggest the conclusion that has been referred to.
The guidance that will be published will encourage landlords to consider on a case-by-case basis when to take a deposit and the appropriate level of deposit.
Sarah Jones
It would be nice if the Minister could publish the evidence on Scotland.
Rishi Sunak
I would be very happy to write to the Committee with the current analysis. In fact, I can give the Committee that right now: the statistics on deposits in Scotland suggest that average deposits have not accelerated to the cap. Average deposits in Scotland during 2017-18 ranged from £580 to £730, compared with a median rent of £643for a two-bedroom property over a similar time period. I will happy provide the Committee with the source for that, which I do not have to hand, as soon as I can.
I hope that the hon. Lady will withdraw her amendment.
Sarah Jones
We want to push the amendment to a vote.
Question put, That the amendment be made.
Melanie Onn
I beg to move amendment 5, in schedule 1, page 23, leave out lines 19 to 29.
The Chair
With this it will be convenient to discuss the following:
Clause 5 stand part.
That schedule 2 be the Second schedule to the Bill.
Amendment 22, in clause 6, page 4, line 21, leave out “or Schedule 2”.
Amendment 23, in clause 7, page 4, line 35, leave out “and Schedule 2”.
Amendment 24, in clause 8, page 5, line 9, leave out “or Schedule 2”.
Amendment 25, in clause 8, page 5, line 29, leave out subsection (5).
Amendment 26, in clause 10, page 6, line 43, leave out subsections (6) to (9).
Amendment 27, in clause 10, page 7, line 2, leave out “(2), (5) or (8)” and insert “(2) or (5)”.
Amendment 28, in clause 15, page 10, line 13, leave out subsection (2).
Amendment 29, in clause 15, page 10, line 20, leave out “or holding deposit”.
Amendment 30, in clause 15, page 10, line 21, leave out “or holding deposit”.
Amendment 31, in clause 15, page 10, line 23, leave out “or holding deposit”.
Amendment 32, in clause 15, page 10, line 24, leave out “or holding deposit”.
Amendment 33, in clause 15, page 10, line 35, leave out “or holding deposit”.
Amendment 34, in clause 15, page 10, line 37, leave out “or holding deposit”.
Amendment 35, in clause 15, page 10, line 39, leave out “or holding deposit”.
Amendment 36, in clause 17, page 11, line 23, leave out subsection (2).
Amendment 37, in clause 17, page 11, line 28, leave out “or holding deposit”.
Amendment 38, in clause 17, page 11, line 30, leave out “or holding deposit”.
Amendment 39, in clause 17, page 11, line 32, leave out “or deposit”.
Amendment 40, in clause 17, page 11, line 34, leave out “or deposit”.
Amendment 41, in clause 17, page 11, line 36, leave out “or deposit”.
Amendment 42, in clause 17, page 11, line 39, leave out “or holding deposit”.
Amendment 43, in clause 26, page 16, leave out line 34.
Amendment 44, in clause 28, page 20, line 22, leave out subsection (11).
Melanie Onn
The aim of the amendment is to remove unfair fees from tenants’ disproportionate burden, and to make the system fairer and power more balanced than it has been in the past. On Second Reading, the Secretary of State described holding deposits as simply a “refundable” deposit to “reserve a property”. I fear that they have the potential to be used in other ways.
As I said on Second Reading, the inclusion of such deposits in the legislation was
“allegedly designed to minimise instances of tenants securing multiples of properties at the same time before finally settling on their preferred property. There has been very little, if any, evidence that this is a regular practice.”—[Official Report, 21 May 2018; Vol. 641, c. 647.]
Indeed, in this morning’s evidence session we heard completely the opposite from Generation Rent, and that, in fact, holding deposits can often be used by letting agents or landlords to hold multiple deposits from one individual, taking their funds, preventing them from seeking other properties or from participating in a bidding process to rent other properties, and setting them back weeks in being able to access the home that they want.
Richard Graham
I thought we heard clearly from all our witnesses this morning that the proposal to passport deposits was widely welcomed and would help to solve that problem. Does the hon. Lady agree?
Melanie Onn
The hon. Gentleman is slightly mistaken in his recollection. That was not to do with the holding deposit; it was to do with the deposit given as security once the prospective tenant has gone through the holding deposit process. The holding deposit is simply to secure a property and to register interest. Referencing is then undertaken before a person is accepted and considered to be the tenant. Although I agree with the principle of passporting deposits, that was not the specific issue with holding deposits.
Richard Graham
Surely the deposit and the ability to move from one tenancy to another are much more important.
Melanie Onn
I disagree. The principle aim of the proposed legislation is to limit the unfair, up-front costs that make it much more difficult. We know that young people make up the bulk of the sector at the moment, and that is only set to grow. Moreover, in general—I accept that this is not always the case—those young people will be on lower wages, so such deposits are an unnecessary barrier to people in that age bracket being able to obtain the property that they desire to become their home.
My concern relates to the abuse of those holding deposits. When this matter was discussed in the Select Committee, there was a suggestion that tenants seeking a property were putting down multiple holding deposits so that they could play a game of which property they were going to choose, as if individuals have so much money that they are able to put down multiple holding deposits. I have not seen the evidence for that.
Maria Caulfield (Lewes) (Con)
It was my understanding, listening to the witnesses this morning, that they all agreed in principle with holding deposits. They saw a need for them. They might have concerns about how that mechanism is used, but I heard them speak in support of holding deposits in principle.
Melanie Onn
The hon. Lady’s point that the witnesses had concerns about how holding deposits would be used is exactly why I am raising this matter. The aim of the proposed legislation is to make things fairer and easier for tenants. The suggestion has been that tenants are somehow playing a system or a game—
Melanie Onn
My hon. Friend says “spread betting” from a sedentary position. It does feel as though everyone is hedging their bets on the property of their choice. It seems nonsensical that anybody would have sufficient spare funds available to put down multiple holding deposits and undergo multiple reference checks, which would not work in their favour when it came to their credit scores. It is interesting that we heard something today that we did not hear during the Select Committee’s pre-legislative scrutiny. It was suggested that the situation could be completely reversed, with holding deposits being used unscrupulously by letting agents or with landlords holding all that money for a period of time. That would then set back individual tenants in their search for a property. There absolutely is room for improvement.
Mr Goodwill
The hon. Lady says that the aim of the proposed legislation was to make things fairer for tenants. Does she agree that all the NGOs that gave evidence this morning made it clear that it would make things fairer for tenants?
Melanie Onn
The NGOs were very clear that there were still issues and that they still had concerns. We were all in the same evidence session this morning, and we all heard them say there are issues. We are right to take into consideration all the evidence and not simply cherry-pick the bits we might wish to hear. I am raising this point because I do not think sufficient consideration has been given to the impediment that holding deposits may represent for individuals, particularly young people who may be on lower incomes.
In addition, the Government say that there are a number of exceptions to having to refund that deposit, including when the tenant provides false or misleading information. Although on the face of it that is a sensible measure, there are no additional protections for tenants if the incorrect information is not their fault. For example, a reference that does not exactly match a tenant’s claims should not immediately mean that they lose that holding deposit. There is scope to develop a mechanism to test inaccuracy and establish the reasons behind it before immediately assuming information has been deliberately misleading.
I suspect that the Minister will respond robustly to that point and say that there is provision within the Bill, particularly relating to landlords, that gives them flexibility to give reasonable consideration to the circumstances. That is absolutely fine, but in practice most people go through some form of letting agent or management agent as part of the letting process. It is a tick-box exercise and the possibility of any kind of flexibility is much reduced. Letting agents go through it page by page, thinking, “Have I done everything that I was supposed to do on the list? Have I collected the deposits? Have I done the appropriate checks? Have I compared the information provided to me by the prospective tenant with the information from their previous landlord?” Who knows what information a previous landlord may deliver to a letting agent, because there is nothing to say that it would necessarily be a favourable response.
The letting agent is not necessarily going to utilise any kind of discretion, because it is not in their interest to do so. They simply have to complete the necessary forms and stages to enable the tenancy to take place. They then have to provide evidence to meet the requirements of the legislation, or prove to their employer, who is also their client—the landlord—that they have undertaken all the necessary checks and that the information does not meet, to the letter, the requirements of the legislation, unless there is further regulation, so x number of people have been rejected. I am interested to know how many tenants are rejected because the information they provide is not a carbon copy of that provided by their previous landlord.
Jo Stevens
We know from previous Acts and codes of practice that guidance codes of practice have little weight in dealing with the rogue organisations that we are concerned with. If the Government are serious about their intentions—and I believe they are—they should simply put what they want in the Bill. If it is in the Bill, it can be enforced.
Melanie Onn
My hon. Friend is right. On Second Reading I was clear about wanting to make the Bill the best it can be and not leave gaping gaps through which tenants’ rights can fall, to be blatantly ignored. If there is an opportunity to improve it, I hope that the Minister will not be too precious, and that he will take those things on board and seek to make improvements so that the aims are achieved. I believe that the aims are genuinely held, so why not do accordingly? I would follow up on what my hon. Friend said by commenting that when such structures are left to mere guidance they are too soft and they will not prevent unscrupulous landlords and letting agents from doing all they can to skim off money and maximise their profit margins.
Guidance is not good enough if we are to transform a system that is stacked against tenants. That point extends across more than the provisions on holding deposits; it is a foundational problem with the approach taken in the Bill. Clarity is important not only in relation to landlords and those who might want to act unfairly. If it is not clear when the withholding of holding deposits is not legal, that is a serious problem. Informed tenants are empowered tenants; so if the Government are serious about transforming letting and the process around lettings, they will do all they can to inform all relevant stakeholders as clearly as can be.
Shelter said in their response to the Bill:
“Evidence from Scotland suggests there is lingering confusion around the ban on letting fees which has affected compliance”.
We do not, and I am sure that the Minister does not, want to be in the situation that Scotland was in, after many years during which legislation was in force that did not work all that well, of having to do it all again or put forward amendments. If there is an opportunity to get things right and learn lessons from our nearest neighbours, let us do so and make sure the Bill does all it sets out to do.
The Shelter response said that independent research had highlighted the fact that,
“even after the ban was clarified, less than one-third of renters clearly understood there was a law banning fees.”
That emphasises the importance of a simple ban. The Government must always prioritise clarity and good communication, as this morning’s sitting with a representative from the Local Government Association made clear.
The issue of holding deposits also adds to the broader financial burden facing tenants. To secure a property under the Bill would cost, according to Shelter’s estimates, £3,750 for a property in London and £2,290 outside the capital. Those figures include a six-week deposit—as the proposed cap, which is really quite high, allows—a month’s rent and a week’s holding deposit. The six-week deposit could leave a tenant out of pocket twice. If they leave one property and are seeking a new property, there is a period when they are doubly out of pocket. Although the deposits are refundable, tenants receive an average of only 77% of their deposit back, so the idea of passporting deposits must be given greater consideration.
Rishi Sunak
I will speak first to clause 5 and schedule 2 in general, and then respond specifically to amendments 5 and 22 to 44.
Clause 5 and its accompanying schedule, schedule 2, relate to the treatment of holding deposits. The Government recognise the concerns of agents and landlords that, in certain circumstances, they can be put at risk because of a tenant’s actions—for example, if a tenant withdraws from a property despite reference checks having been undertaken. To address that, landlords and agents will be allowed to charge a holding deposit, capped at one week’s rent. That will act as a deterrent to tenants from registering in multiple or unsuitable properties, and ensure that there is a financial commitment from the tenant to a property.
We also do not want to inadvertently encourage agents and landlords to discriminate against individuals when considering potential tenants for their properties. The use of holding deposits will ensure that landlords do not cherry-pick tenants they perceive to be the most suitable and therefore likely to pass a referencing check.
We recognise that it may sometimes be appropriate for landlords and agents to retain the holding deposit. For example, if a tenant fails a right to rent check under section 22 of the Immigration Act 2014 and the landlord or agent could not reasonably have been expected to know that they would fail; if the tenant provides false or misleading information that the landlord is reasonably entitled to take into account when deciding whether to grant a tenancy; or if the tenant decides not to rent the property. In such cases, the landlord or agent will be entitled to retain the holding deposit.
We will of course encourage landlords and agents to consider, on a case-by-case basis, the appropriate amount of deposit to retain and to provide a reasonable explanation to tenants when they decide to retain a holding deposit. Guidance will be provided to support landlords, agents and tenants to understand their rights and responsibilities around holding deposits.
Rishi Sunak
If I may finish the sentence, the hon. Lady will be pleased to know that organisations such as those we heard from this morning—Generation Rent, Shelter and Citizens Advice—are currently engaged with officials in helping to draft that guidance. I am sure she will want that guidance to be as accurate and as helpful as possible. I think I am right in saying that a meeting may have taken place yesterday, so that guidance is well on the way.
Rishi Sunak
As the hon. Lady said, I will not be precious in this Committee, and I will take reasonable suggestions. I will take her suggestion on board and rephrase to “in due course”. I assure her that work on the guidance is under way, and we are working to get it right. As I said, we believe that this approach is fair to landlords and tenants.
On the amendments, it is important to clarify for Committee members what we are discussing. The amendments do not suggest reforming, improving or tweaking the holding deposits. They suggest that holding deposits be removed entirely from the list of permitted payments outlined in schedule 1, so that, under no circumstances, should there be any holding deposit. That was obviously not the Select Committee’s position following its pre-legislative scrutiny, and it was not the position of the witnesses we heard from this morning, all of whom, when asked if they agree with the principle of a holding deposit, said they do.
The amendments go against that set of opinion and suggest removing holding deposits entirely. To do so would be to take away a vital mechanism in the Bill that allows landlords security while reference checks are carried out. That is important for several reasons. From the outset of this policy, landlords and letting agents have expressed concern that one of the side effects of the ban on tenant fees would be that tenants might speculate on multiple properties.
Melanie Onn
Where did the Minister get the evidence that that has ever happened in the history of anything?
Rishi Sunak
Yes, I heard the shadow Minister’s points on this. It is important to note that there is no evidence for this because there are currently letting fees. Tenant fees are charged, and that is what we are all here to get rid of. The side effect of tenants no longer having to pay any fees will be that there will be no financial disincentive when they apply for a property. The disincentive to speculate currently applies, but when we legislate to remove tenant fees, which is exactly what we are doing, that safety lock and mechanism will not be there. That is why people consider it to be a side effect. Looking for evidence of something that has yet to happen is unlikely to be fruitful.
Helen Hayes
There are of course letting agents, including in my constituency, that ceased charging fees to tenants some time ago, so I am afraid that I do not accept the Minister’s assertion that there is no evidence to be looked for on this. Without evidence from those agents that already follow this practice, I cannot accept that the Minister’s arguments are well founded.
Rishi Sunak
The hon. Lady talks about a subset. I am also talking about groups of agents. It is not necessarily the case that speculating might or might not happen, but it is important to guard against it happening. That is surely fair, and landlords are reasonable in asking for some protection against it. This is not about unfairly withholding money from people. In the cases that I will come on to, and as we have already discussed, there is no reason why deposits will not be returned to tenants acting in good faith.
Melanie Onn
The Minister seems to be asserting that, in the absence of these up-front fees, people will suddenly be going around with wedges of cash in their pocket that they would not otherwise have had, rather than understanding the difficulty that people have had up until now to get any money together whatever for this purpose. It really is a slightly erroneous argument.
Rishi Sunak
I do not think it is erroneous at all. Removing tenancy fees from the legislation, as we are doing, will of course put money back into the pockets of tenants.
What we are talking about here is a deposit that is there for a number of days while a tenant applies in good faith for a property, which presumably they have the financial means to afford and have the deposit for. It is entirely reasonable to request that and, as we have heard, not all agencies require it. Indeed, the guidance will not say that it is mandatory or necessary. It is there as a safety mechanism, should landlords feel that it is appropriate to their situation.
Rishi Sunak
That will be a function for people to decide individually. The legislation sets a cap of one week’s rent for what can be taken as a holding deposit, but it is not mandatory that a full week’s rent is taken.
Melanie Onn
How long will it be before individuals can get their deposit back, if they are required to pay one?
Rishi Sunak
I believe I am right in saying that, from a tenancy agreement being signed, it is a matter of days. If the hon. Lady allows me, I will get back to her with that information. My memory is that it is seven days, and it can be used in lieu of the deposit itself, but I will happily come back to her on that point. She is right that it will not be stuck there in the system so that it cannot be used for a subsequent purpose to do with the tenancy. I think that is the general point she is making.
Allowing a landlord to ask for a holding deposit enables tenants to demonstrate that they are sincere in their application for a property. It ensures that landlords and agents are not out of pocket if a tenant registers an interest in a property, only to withdraw it when something better comes along.
Secondly and importantly, we want to ensure that landlords do not take an overly cautious approach and pre-select the tenants that they perceive would be most likely to pass a reference check. Removing holding deposits from the list of permitted payments would put the tenants who most need the protections that the Bill provides in a position where they are less likely to be considered.
Finally, holding deposits act as a means of security for the landlord, who is at risk of losing out on a week’s rent if a tenant withdraws from the application, fails a right to rent check, or provides incorrect or misleading information.
Helen Hayes
The Minister will be aware that a High Court challenge was recently permitted in relation to the right to rent policy. It is being taken to judicial review on the grounds that it is a prejudicial policy. First, does he agree that the right to rent policy is much more likely than an absence of holding deposits to cause landlords to take a prejudicial view of tenants? Secondly, will he confirm that, in the event that the judicial review is successful and the conclusion is that the right to rent policy is unlawful, holding deposits that have been withheld from tenants on the basis of that policy will be repaid to them?
Rishi Sunak
I am sure the hon. Lady will appreciate that I cannot comment on an ongoing legal case, nor speculate on what policy might be depending on its outcome. I remind her that we are considering an amendment that would do away with holding deposits in their entirety. That is not the recommendation of the Select Committee, of which she is a considered member, which wanted to tweak how holding deposits work.
The Bill does not require landlords and agents to take a holding deposit. The amount can be capped to prevent abuse, and the tenant will get their money back if they proceed with the tenancy and provide correct information. Of the tenant respondents to the Government’s consultation, 93% agreed with the general premise of the proposed approach to ban letting fees for tenants, with the exception of a holding deposit, refundable tenancy deposit and tenant default fees.
Sarah Jones
The Minister is using the evidence of tenants for one argument, but ignoring it for others. I ask him, throughout the Bill, to look at the views of tenants. In other cases, that would lead him to do a different thing entirely.
Rishi Sunak
I would like to think that we are focused on getting the policy right. We have listened and responded to all participants in the industry. It is not a question of one or the other. We want to get the policies right for the long term to ensure not only that tenants are treated fairly, but that the market functions and that a healthy buy-to-rent sector is available, with investment going into it. It is important for that reason to make sure that some of the concerns that landlords have are addressed and listened to in order to ensure the functioning of this market in the years ahead. In the past, we have seen the catastrophic consequences for the supply of private rented accommodation of dramatic impositions on landlords, and I am sure that none of us would want to return to those bad old days.
Richard Graham
All the figures that have been shown to us in evidence so far suggest that the demand to rent from the private sector will continue to rise considerably over the next few years. It is vital that this market functions well, and it is not just a case of doing everything that every tenant would want or everything that every landlord would want, but of finding the balance so that good landlords and good agents are motivated to provide the private sector housing that good tenants need. That seems to me to be the purpose of the Bill. Does my hon. Friend agree?
Rishi Sunak
I could not agree more with my hon. Friend, who puts it very well. This is not about demonising people; it is about making sure that the private rental sector, which, as he so rightly identifies, is likely to experience some growth, is healthy and well invested in so that people who are looking for somewhere to rent have somewhere to call home. That is why we get the balance right in the Bill.
To conclude, we heard evidence on Tuesday from agent and landlord groups who were quite certain that if landlords and agents were unable to take a holding deposit, they would cherry-pick tenants. None of us wants to see that. I remind the Committee that the amendment would remove in its entirety the idea that landlords can charge any holding deposit. We do not support that and think that it would damage the functioning of the market, so I urge the hon. Member for Great Grimsby to withdraw the amendment and ask hon. Members to agree to clause 5 and schedule 2.
Melanie Onn
I have listened carefully to the Minister’s response, but I am not convinced, unfortunately. I would like to press the amendment to a vote.
Question put, That the amendment be made.
The Chair
For the sake of clarity, I remind Members that although we have debated clause 5, schedule 2 and various amendments, decisions on those points will be taken formally later in our proceedings according to the order of consideration set out on the selection list.
Melanie Onn
I beg to move amendment 10, in schedule 1, page 23, leave out paragraph 4 and insert—
“4 (1) Subject to sub-paragraphs (3), (4) and (5), a payment that a tenant is required to make in the event of a default by the tenant is a permitted payment if the tenant is required by the tenancy agreement to make the payment in the event of such a default.
(2) In this paragraph “default” means a failure by the tenant to—
(a) perform an obligation, or
(b) discharge a liability, arising under or in connection with the tenancy.
(3) But if the amount of the payment exceeds the reasonable and proportionate value of the loss suffered by the landlord or letting agent as a result of the default, the amount of the excess is a prohibited payment.
(4) The Secretary of State must by regulations made by statutory instrument specify the circumstances in which a payment is to be considered a payment in the event of a default within the meaning of sub-paragraph (1).
(5) Regulations under sub-paragraph (4) must also make provision as to the procedure to be followed by a landlord or letting agent in seeking to recover a payment under this paragraph, which may include a requirement to give notice of proposed recovery in a prescribed form accompanied by evidence of the loss sustained by reason of the relevant default.”
This amendment would require the Secretary of State to make regulations on payment of defaults and procedures for recovery of default payments.
The Bill leaves us with far too great a risk of subjective interpretations and loopholes through which those who would seek to maximise profits can do so at the expense of tenants. We are concerned that the Government are far too willing to leave these fees up for interpretation, with enough room for a whole manner of things to be put within them. That is why we tabled amendment 10.
When the fundamental purpose of the Bill is to ensure a fairer deal for tenants and remove fees that have no clear basis, it is a mistake to set out the specific circumstances in which default fees may be charged simply in guidance and not in regulations. We know that although guidance should be followed, unfortunately that is not likely to happen in every circumstance. That is why we tabled our amendment to remove paragraph 4 of schedule 1, which would require the Secretary of State to make explicit what is acceptable as a default payment. It must be absolutely clear; otherwise, abuse is all too easy.
The amendment also deals with the benefit of having
“a prescribed form accompanied by evidence of the loss sustained by reason of the relevant default.”
Having a paper trail akin to invoicing is a fair principle on which to work. Businesses have to invoice in all other transactions, and we see no reason why default fees should be treated differently. Transparency is key to trust in the system. If a tenant is being charged, it is fair and reasonable that they be able to see clearly what they are being charged for and that it is not disproportionate to the costs facing the landlord. Recovery of the costs genuinely incurred by the landlord would be guaranteed by the need to accompany the form with evidence, such as receipts.
Taking the example that recurred throughout the evidence session, if the tenant needed a replacement key but the landlord, as standard, wished to charge the capped fee of £50, the tenant would not know whether that was a fair charge. In fact, we know that that would not be a fair charge. Fifty pounds for a new key—does anybody think that that would be a fair charge? Yet that is precisely what landlords or letting agents will be able to charge. The tenant might think it unreasonable, given how much cutting a key costs, but their ability to query the charge would not be clear—it could be wrapped up with the agent’s time or the number of phone calls it took.
Plenty of people will ask “How many letting agents does it take to get a key cut?”, but a clear itemised bill will make clear what each charge is for. I would not advocate that a landlord or letting agent charge for their time spent on getting an additional key cut, phoning to make an appointment to get the key cut or sending a notice of the intention to get the key cut, but if that was happening and those were standard charges within the letting agent’s brief—there is often a set of standard charges for that sort of thing—itemisation would enable the individual tenant at least to see exactly what the landlord or agent was charging them for and thus to challenge the charge. There would be no place to hide any rounding up or skimming off that would boost the landlord or letting agent’s profits.
If we do not make the amendment, tenants’ confidence in the whole system could be fatally undermined. Trust needs to be rebuilt. As things stand, the relationship between tenants and those who provide them with homes is fundamentally unbalanced. We believe that the requirement for a paper trail fits in with the principle outlined in paragraph 5, which highlights the need for any charges to be reasonable, referring to
“the reasonable costs of the person to whom the payment is to be made in respect of the variation, assignment or novation of the tenancy”.
Amendment 10 is firmly in accord with that spirit and the broader intent behind the Bill. Finessing the Bill to require a paper trail and to clarify the provisions dealing with what is and is not a default payment would go a long way to restoring tenants’ trust in an often unfair system.
The Select Committee recommended
“that Government issue clear guidance to tenants, landlords and letting agents”—
in my view, that does not go far enough—
“on what constitutes a reasonable default fee, and guidance to tenants about how to challenge the inclusion of such fees in tenancy contracts. The reasonableness of both the type and the amount of fee should be considered. The Government’s intention to issue such guidance should be communicated during the Second Reading debate”,
and it was.
As we heard in evidence today, however, guidance is not always sufficient. Even if someone had the nerve to challenge a fee that was levied upon them when they suspected that it was unfair, the guidance would not be sufficient to enable organisations that represent tenants on a regular basis to support them sufficiently.
Helen Hayes
It is a pleasure to serve under your chairmanship this afternoon, Mr Sharma. I wish to speak briefly in support of amendment 10, which appears in the names of my hon. Friends the Members for Great Grimsby and for Croydon Central.
The amendment seeks to address a loophole that was identified by the Housing, Communities and Local Government Committee, of which I am a member, during the pre-legislative scrutiny inquiry that we undertook. The loophole was the biggest issue with the Bill that the Committee identified. We spent a great deal of time receiving and considering evidence on this matter, and discussing possible solutions.
This Committee heard strong evidence this morning from representatives of the trading standards industry that the least scrupulous parts of the lettings industry will try to find ways around the ban on fees to tenants. It is my view that the loophole on default fees represents one of the ways in which they will try to do so, as the Bill stands. The Bill places no parameters on the charging of default fees and, while the Government have indicated a willingness to look at the issue, it is regrettable that the Committee does not have, by way of an amendment or draft published guidance, any way to scrutinise the ways in which it is proposed that that will take place.
It is already common practice for some agents and landlords to add spurious sums of money to the charges that a tenant has to pay both during and at the end of a tenancy, in the event, for example, that a key is lost, as garden maintenance charges, or through the blurring of the line between fair wear and tear and damage. We know that that happens. The Bill presents a risk that such practices may continue and increase as letting agents seek to make up the income that they will lose as a consequence of not being able to charge fees to tenants. It is easy to imagine the circumstances in which such charges might be imposed on tenants. In my view, that would be a significant failing of the Bill.
Amendment 10 seeks to ensure clear, transparent parameters within which default fees can be charged to ensure that they are reasonable and proportionate. Without the amendment, the Bill will be at significant risk of failing in its ultimate objective of reducing costs to tenants, and may even make matters worse by allowing costs to be imposed on tenants that are random, spurious and opaque. On the whole, the Bill has the potential to deliver significant improvements and benefits for tenants, but the Government will make a serious error if they do not take firm and robust action to close this loophole. The Bill will be poorer for that and may well fail in its ultimate objective as a consequence of overlooking this point. I therefore urge the Minister to set out in detail how the Government propose to close this significant loophole and to accept amendment 10, which presents a robust way to do so.
Rishi Sunak
I am pleased that hon. Members accept the principle of default fees and agree with the general view that it is not fair for landlords to pay fees that arise from default by the tenant. Our approach to default fees has been to avoid listing the types of default, as such a list would be likely to need updating in future. Although the amendment seeks to set out default fees through secondary legislation rather than on the face of the Bill, the principle against such a fixed list stands.
Helen Hayes
I fear that, once again, the Minister’s remarks fail to take into account culture and practice in the lettings industry and the extreme imbalance of power between landlords and tenants. What is to stop a landlord from saying, “Well, it cost me £150 to replace that, so that is what you have to pay”? That happens all the time. Notwithstanding current legislation, there is no protection in reality for tenants against such charges.
Rishi Sunak
I thank the hon. Lady for her comment, but the point of the legislation is that there will be far greater protection for tenants and a deterrent for landlords from behaving in the way she outlined, because there will be significant financial penalties and banning orders at stake for landlords who misbehave. There is a process for tenants to seek redress, partly informed by the recommendations of the Select Committee, such as going to the first-tier tribunal that does not exist today. The combination of all those things makes it much less likely that a landlord would behave in such a manner, for the simple reason that they would be behaving illegally. If that were to be found out by trading standards, the first-tier tribunal or any redress scheme, the penalties for that misbehaviour could be incredibly significant.
This legislation will have the impact required. The guidance we will put forward will specify that it will be best practice for the landlord to provide evidence of their loss, which they will do precisely because they know in the back of their mind that if they put out a speculative number and are challenged, the consequences will be significant for them. All in all, I ask the hon. Member for Great Grimsby to withdraw her amendment.
Melanie Onn
The Minister says that the Bill will seek to ensure that erroneous behaviours by landlords or letting agents will be far less likely, but that does not fill me with any kind of confidence. He goes on to talk about the enforcement element—the fines, trading standards and potential criminal prosecution if that happens more than once—but he fails to acknowledge the issues of enforcement, which I understand comes much later in the Bill, that have been very clearly expressed in the oral evidence we have heard.
Making the legislation work requires the enforcement to work. As we have not yet got to that point, it is very difficult for me to feel at all convinced that the Minister’s proposals will ensure that tenants will be properly protected from default fees and that letting agents or landlords will fulfil all their responsibilities. I know that the responsible ones will, but I am not remotely interested in them. For that reason, I am afraid that I will not withdraw the amendment.
Question put, That the amendment be made.
Dr Paul Williams (Stockton South) (Lab)
I beg to move amendment 1, in schedule 1, page 24, line 21, at end insert—
“(1A) On provision of documentary proof from the tenant, sub-paragraph (1) shall not apply to tenancies terminated at the tenant’s request as a result of the tenant having—
(a) suffered a physical or mental health crisis that requires care to be provided in an alternative environment, or
(b) been subjected to domestic violence by a cohabitee
and the Secretary of State shall make regulations specifying the documentary proof required from the tenant for the purposes of this sub-paragraph.”
This amendment would enable tenants in particular circumstances to end fixed-term tenancies early without having to pay the full rent due to the end of those tenancies.
It is a pleasure to serve under your chairmanship, Mr Sharma. I draw the Committee’s attention to my entry in the Register of Members’ Financial Interests. I am a landlord of two properties—actually, they are both in the Minister’s constituency, where I used to reside. I am also a tenant.
I rise to support amendment 1, which relates to the schedule of permitted payments and in particular to termination payments that are permitted when a tenant leaves their tenancy—whether fixed or variable term—early. I understand that a landlord or agent may ask for payment of rent up until the end of the fixed term or for the agreed period of time—usually two months. They may also ask for payment of utilities and perhaps council tax, and that would be permitted.
If someone decides of their own free will to leave a tenancy agreement early, it is reasonable and legitimate that they should pay those extra costs. However, I propose two groups of people for whom paying such costs is not reasonable and legitimate and as such they should be excepted from them. Both groups involve people who have exceptional problems that require them not to be present in that house: through no fault of their own, they require care or support that would involve their leaving the property.
The first set of circumstances that someone may incur is having a serious physical or mental health crisis that is so bad that they cannot stay in the home. Let us say someone has a serious road traffic accident, perhaps involving a head injury, and requires a long period of hospitalisation followed, perhaps, by rehabilitation in an alternative environment. If they are insured against that possibility, they could continue to pay their rent, but if they are not—many vulnerable people are not—it would be catastrophic for them to have to continue paying rent while they were in a hospital or rehabilitation centre, perhaps for many months, until the end of their tenancy.
The other set of circumstances to do with health would be when someone has a mental health crisis, particularly one that requires admission to hospital or relocation to another area for support. For example, a student might have a mental health crisis at university. As part of their rehabilitation, it might be appropriate for them to leave their university town and go back to live with their parents for a few months. Under those circumstances, if they have to continue to pay the rent because they are unable to terminate the rental agreement, not only will they get into serious financial problems, but those financial problems are likely to exacerbate their mental health crisis and make recovery more difficult.
There is an excellent report by Mind, called “Brick by Brick”, which looks at some of the implications of housing on mental health. I think this is a particular situation where mental health could be adversely affected. These people have entered into a contract in good faith and their situation has changed radically, meaning that they cannot continue to hold the contract. They should be protected. They cannot live in the house. Perhaps they cannot earn money. The amendment proposes that they could leave the tenancy without that termination payment. At the moment it is at the discretion of the landlord whether to show leniency in those circumstances.
There is another set of circumstances in which it would be good if that situation applied: when somebody suffers domestic violence, for example when two people are joint signatories to a tenancy agreement, often a co-habiting couple, and one is a victim of domestic violence perpetrated by the other and has to leave the property for his or her own safety. They might have to go to a refuge and be unable to meet their obligation to pay the rent. The situation has completely changed for that individual. To expect them to continue to be liable for rent when they have had to leave the premises through no fault of their own seems to me to be unreasonable.
To conclude, we have an opportunity through this amendment to protect a small number of exceptionally vulnerable people who have serious problems, whether it is a serious physical health problem, such as a head injury, a mental health problem or being a victim of domestic violence within the home from a co-habitant. They have entered into their contract in good faith. This would be a crisis not of their own making and we have the opportunity to give that small group of vulnerable people protection.
Mr Goodwill
The hon. Gentleman is making some good points. In terms of domestic violence, would a criminal conviction have to be secured to prove that, or would an allegation just have to be made?
Dr Williams
I thank the right hon. Gentleman for asking that. I am not making any proposals about the standard of proof. I have suggested in the amendment that,
“the Secretary of State shall make regulations specifying the documentary proof required from the tenant for the purposes of this sub-paragraph.”
It could be that the threshold would have to be a criminal conviction. I believe that there are other circumstances in which a victim of domestic violence might get legal aid. I am not sure what the threshold of proof is for that, but it might perhaps be wise to use a similar one. The amendment gives the Secretary of State the power to set the threshold of proof. I urge the Minister to consider using this amendment to prevent individual crises turning into catastrophes.
Rishi Sunak
It is a pleasure to respond to the amendment tabled by the hon. Gentleman, my constituency neighbour. I am not sure whether the whole Committee knows that he is making a sacrifice to be with us today, since I think it is his daughter’s birthday. We all wish her a happy birthday—[Hon. Members: “Hear, hear!”]—and I hope we can speed him on his way back up north to her as quickly as possible. I look forward to welcoming both her and him back to their native home in north Yorkshire, where they will be very welcome in the Richmond constituency.
Dr Williams
I thank the Minister for his response and for his wishes; I will pass his message on to my daughter if I get there before she turns in to bed. I believe that a landlord has the power to terminate a contract with two months’ notice—I believe that to be correct.
Rishi Sunak
That refers to taking back possession under section 21 at the end of a shorthold tenancy. It is two months in advance of that period, which is typically six months or more likely 12 months. It is not for use randomly in the middle of the tenancy agreement.
Dr Williams
I thank the Minister for that clarification. As things stand, even after the passage of this Bill, landlords will have more power than tenants. I am supportive of the Government’s position on encouraging flexibility from landlords. Of course, as we have recounted, the good landlords will always show that flexibility and the poorer landlords will not. For that reason, I would like to put this amendment to a vote.
Question put, That the amendment be made.
Richard Graham
On a point of order, Mr Sharma. May I raise a point for the Minister to comment on? We are seeing a bit of trend in this sitting of Opposition Members tabling various extremely well-meaning amendments that, in my view, would make for extremely bad law. For example, the amendment tabled by the hon. Member for Stockton South about having an exception for people with mental health difficulties could land huge numbers of tenants and landlords in all sorts of arguments going into the courts about what constitutes a reasonable amount of mental health difficulty or stress. My concern, which I would like the Minister to respond to, is that some of the amendments are extremely well meaning but not helpful in the bigger picture.
The Chair
I take your point, but it is up to Opposition Members what amendments they propose, and it is up to the Minister to respond to them. Opposition Members have that democratic right. You cannot just say that you think it is bad—I am sorry.
Sarah Jones
I beg to move amendment 11, in schedule 1, page 24, line 34, after paragraph (4), insert—
“(4A) In the event of a tenant terminating a tenancy as a result of a breach of section 1 or section 2 of this Act, any payment beyond the date of termination is a prohibited payment.”
This amendment is consequential on Amendment 10.
The Chair
With this it will be convenient to discuss amendment 12, in clause 4, page 4, line 5, at end insert
“, except that the tenant may choose to terminate the agreement without penalty.”
This amendment enables a tenant to end a fixed-term tenancy immediately in the event of a section 1 or 2 breach by a landlord or letting agent.
Sarah Jones
I rise to speak in support of amendment 12, which would give tenants a right to leave a tenancy agreement after a breach of clauses 1 or 2, and amendment 11, which would prevent landlords from charging a tenant for termination of a tenancy if they leave under the provisions added in amendment 12. Those simple amendments would help to redress the balance in the relationship between landlords and tenants and offer real benefit to other areas of the Bill.
The Bill provides for a strong set of rights for tenants to dispute and reclaim money that was taken as a prohibited payment. Yet if there is one thing to take away from all the evidence we heard this morning and on Tuesday, it is that people on all sides want an enforcement system that works and want landlords who charge such fees to be held accountable for their actions. As the Bill stands, there is not enough funding in the enforcement mechanism for that to be done consistently by a trading standards body or enforcement authority. The Opposition want more funding for enforcement to catch out wrongdoers, but inevitably tenants may need to go to a first-tier tribunal themselves if they are charged a prohibited fee and wish to challenge it.
The Bill should therefore consider closely the drivers and the things that discourage tenants in reporting landlords and letting agents that charge prohibited fees. The amendment aims to resolve one of the real discouraging factors for anybody who has either just moved into a new house on a fixed-term contract or anybody who has agreed a long fixed-term contract with their landlord.
We know that the relationship between a tenant and landlord is important to having a happy and successful tenancy. Indeed, for those who live with their landlord it is a relationship with someone they see on an everyday basis and with whom they share facilities. Taking a landlord to a tribunal could drive a significant wedge into that relationship, and it would be natural for tenants to feel that they are no longer secure in their rental agreement through no fault of their own, after a landlord has tried to charge them a prohibited fee. Yet, as the Bill stands, they may need to remain in the agreement until the end of the tenancy. So the landlord has tried to charge a prohibited fee, but the tenant has to remain in the agreement until the end of the tenancy.
That would be a major barrier to bringing up the prohibited charge. People might think that challenging a prohibited fee is not worth their feeling uncomfortable in their rental agreement for months, possibly years, as opposed to just accepting the fee, so as not to sour the relationship with the landlord.
This amendment would get rid of that barrier by giving the tenant the ability to leave if they feel uncomfortable staying in an agreement with a landlord who has already charged a prohibited payment. It is a method both of improving the rights of tenants if they are charged a prohibited fee and of removing a barrier to reporting the charging of a prohibited fee by a landlord or letting agent.
It would also act as an extra disincentive to a landlord or letting agency charging a prohibited fee. If they could lose a tenant as a result of charging a fee, that could lead to the loss of rental income for the period between the tenant moving out and finding a new tenant, given that amendment 11 would prevent the charging of fees for the early termination of tenancy under this new provision. This set of simple amendments would improve the effectiveness of the Bill and I hope that Members from all parties will support it.
Rishi Sunak
I hope that we can do this very quickly. The Government believe that both amendments 11 and 12 are problematic, and this discussion comes down to just a simple difference of opinion on principle. Removing the obligation for a tenant to pay the remainder of their rent if they terminate their tenancy following a breach of the ban could lead, in our view, to landlords being disproportionately penalised for perhaps an inadvertent breach that they immediately take steps to rectify.
Clause 4 already ensures that any term that breaches the ban on fees is not binding on the tenant and the Bill also provides for tenants to recover any prohibited payments, and for enforcement authorities to take quite significant action in such cases, potentially leading to an unlimited fine.
For those reasons, and it is a simple difference of opinion on what is proportionate, I ask the hon. Lady to withdraw the amendment.
Sarah Jones
I heard the Minister; there is clearly a difference of views. I am happy to withdraw the amendment, but I obviously reserve the right to return to this matter on Report.
Amendment, by leave, withdrawn.
Question proposed, That the schedule be the First schedule to the Bill.
Sarah Jones
There are parts of schedule 1 that we have concerns about; we have already touched on those concerns briefly. In particular, we touched on paragraph 8, which deals with
“Payment in respect of utilities etc”.
We are really concerned that these measures were not part of the consultation and of the initial Bill, but have been added subsequently, and we are also concerned that people have not been given enough time to consider them, or make a case against them.
It would be the case—would it not?—that landlords could charge, say, £500 a month, including bills, when the bills are only £30 a month and the market rent is £400 a month. This is a loophole that is new and that has not been consulted on, and it would leave people open to abuse.
Agencies could make back what they are losing in fees by charging higher rates on bills than the bills come to, and this would be particularly an issue for students, where they do not use the whole house and it is therefore harder to work out what the bills should come to.
We have not tabled an amendment to that effect, but will the Minister look again and ensure that there is some kind of clause that enables tenants not to be ripped off by being charged more for their utilities than they should be?
Question put and agreed to.
Schedule 1 accordingly agreed to.
Clause 4
Effect of a breach of section 1 or 2
Rishi Sunak
We want to ensure that the effect of including a banning requirement as a term of a tenancy agreement is clear, and the clause provides that a term of any agreement that contravenes the proposed legislation is not binding on the tenant. The clause also establishes that the rest of the agreement will continue to apply where any part is found to be non-binding, to ensure that the tenancy can continue and that landlords and tenants remain protected by the terms of the contract. Finally, the clause provides that if the tenant or someone acting on their behalf has been required to make a prohibited loan, that money should be repaid on demand. Members of the Select Committee will be pleased that that provision has been included, as it reflects one of the Committee’s recommendations during pre-legislative scrutiny. The clause establishes vital protections for tenants.
Melanie Onn
The spirit of the proposed legislation is to protect tenants and remove burdens from them wherever possible, in order to rebalance power, which has for so long been in the hands of letting agents and landlords, in favour of tenants. That is as true for costs as it is for other things. We tabled amendments 11 and 12 because we would like to see more rights. Although we opted not to press them—we have not been very successful in votes this afternoon—we welcome clause 4, as it offers tenants greater protection from retaliatory evictions. Even if it is not as bold or strong as we might like, it is nevertheless a step forward legislatively.
As we know, retaliatory evictions are a real problem. They can cause a great deal of distress and concern for tenants, and they are one of the major reasons why people do not speak up against their landlords or seek to enforce their rights as tenants. The power imbalance in the relationship between the landlord and the tenant, which I have referred to throughout our deliberations, represents one of the worst abuses of the sanctity of people’s homes. Despite our amendments having fallen, any additional contract security for tenants is a good thing, although we urge the Government to consider strengthening it.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned.—(Kelly Tolhurst.)
Tenant Fees Bill (Fourth sitting)
Tuesday 12th June 2018
(6 years, 4 months ago)
Public Bill CommitteesRead Full debate Tenant Fees Act 2019 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 12 June 2018 - (12 Jun 2018)
The Committee divided: - Ayes: 9 / Noes: 7 - Question accordingly agreed to.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Chair
Before we begin, will everyone ensure that all electronic devices are turned off or switched to silent mode? Tea and coffee are not allowed during sittings. We now resume line-by-line consideration of the Bill. We start with clause 5, which we debated as part of an earlier group of provisions. I therefore cannot allow a separate stand part debate, but will put the question on the clause forthwith.
Clause 5
Treatment of holding deposit
Question put, That the clause stand part of the Bill.
The Chair
We have also debated schedule 2 as part of an earlier group and therefore I cannot allow a separate debate on it.
Schedule 2 agreed to.
The Chair
For the sake of clarity, I point out that amendments 22 to 44 were all consequential on the proposal to remove schedule 2 from the Bill. As schedule 2 has been agreed to, those amendments automatically fall and cannot be moved.
Clause 6
Enforcement by local weights and measures authorities
Question proposed, That the clause stand part of the Bill.
The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Rishi Sunak)
It is a pleasure to serve under your chairmanship, Mr Sharma. I look forward to our making speedy progress today.
The Bill proposes a number of enforcement measures that offer a strong deterrent to irresponsible agents and landlords and, in doing so, protects tenants from unfair letting fees. Clause 6 places a duty on local weights and measures authorities—that is, trading standards authorities—to enforce the ban on letting fees and requirements relating to holding deposits. Trading standards have an important role in enforcing existing legislation on letting agents—such as the requirement on agents to display their fees transparently. With their existing local knowledge of the industry, trading standards are the clear choice to enforce the ban on letting fees. Indeed, 69% of respondents to the Government consultation agreed that trading standards should enforce the provisions of the Bill. We have also spoken to trading standards officers, who agree that enforcement of the Bill aligns with their responsibilities to enforce other legislation relating to fair trading and consumer protection.
Trading standards authorities are responsible for enforcement in their own local areas. Where a breach occurs in the area of more than one trading standards authority, a breach is considered to have occurred in each of the relevant local areas. Trading standards must have regard to any guidance issued by the Secretary of State or lead enforcement authority. The investigatory powers available to a local trading standards authority for the purpose of enforcing the Bill are set out in schedule 5 to the Consumer Rights Act 2015.
Daniel Zeichner (Cambridge) (Lab)
Will the Minister explain to the Committee what assessment he has made of the capacity of trading standards departments to implement the measures that he is discussing, and what additional resources he intends to give them to make that possible?
Rishi Sunak
I am very happy to answer the hon. Gentleman’s question briefly now, as I am sure that we will come to it when we consider the various amendments and clauses that deal particularly with capacity and resources. In a nutshell, we believe that the Bill and the enforcement measures in it will be self-financing with the fees that can be charged by local enforcement authorities and trading standards authorities; on top of that, they will receive seed funding in the first year of up to £500,000.
As I was saying, the investigatory powers are set out in schedule 5 to the 2015 Act.
Melanie Onn (Great Grimsby) (Lab)
The Minister just mentioned charges. Is he referring to the fines?
Rishi Sunak
Yes; I meant the fines that will be charged of up to £30,000 for a second offence and £5,000 in the first instance.
To return to the investigatory powers, they are laid out and provide the ability for trading standards authorities to investigate, inspect and enforce the provisions; they enable them to carry out their enforcement activity.
I hope that the clause will stand part of the Bill.
Melanie Onn
It is a pleasure to serve under your chairmanship, Mr Sharma.
As we have heard and read in the evidence from the likes of the Local Government Association, the Chartered Trading Standards Institute and the Chartered Institute of Housing, there are significant concerns about the enforcement powers being conferred on the local weights and measures authorities around the country. For the avoidance of doubt, we are talking in this clause about local trading standards teams. As I have mentioned before, they have a wide and varied remit. They enforce laws on behalf of consumers on matters such as age-restricted products; agriculture; animal health and welfare; fair trading, which includes pricing, descriptions of goods, digital content and services, and terms and conditions; food standards and safety; intellectual property, including counterfeiting; product safety; and, of course, weights and measures.
Trading standards cover more than 250 statutory duties, including providing businesses with advice. The CTSI says that the service is already overstretched and underfunded, with just £1.99 per head being spent. The situation has been recognised by the National Audit Office, which has said that there is a direct threat to the consumer protection system’s viability as a whole, yet here the Government seek to add another layer of responsibilities, technicalities and duties to those of the service without giving due consideration to the implications of the request, and simply assuming that their assessment that the scheme will be fiscally neutral after two years will come to pass. That seems a rather carte blanch approach to me—a “close your eyes, cross your fingers and hope for the best” kind of plan. It is not robust and it is not a process modelled on the evidence of the experts who operate in the roles, day in and day out. There is time for the Minister to correct this.
Our constituents will mostly know trading standards for tackling rogue traders. My constituency being a port town, we have a very active trading standards department, which regularly discovers dodgy goods that people try to smuggle in, including recently some dangerous counterfeit cigarettes, filled with anything up to and including asbestos, for sale cheap on the black market, with a street value of around £8,500. Trading standards are often the first in a position of authority to come across goods linked to organised crime and criminal gangs, and they provide essential eyes and ears within local communities.
Is the Minister confident that the addition of these tenant fees enforcement powers to trading standards’ responsibilities, with only pin money for start-up and roll-out, will not impact on its already essential role protecting consumers? How can he be sure, and what steps will he take to ensure that that is the case going forward? We heard of cuts to trading standards departments of 40% to 50% at a local level.
Across the country, the Chartered Trading Standards Institute tells us that there has been a cut of more than 50% of skilled officers. Does the Minister seriously think that trading standards will be able to effectively implement these new powers? If so, how? What priorities should trading standards officers have? If faced with tracking down an influx of poisonous fake spirits, surveilling for evidence to prosecute the sale of knives to under-18s or taking action against a landlord requiring a £150 prohibited fee from a tenant, which would he suggest the officers pursue as urgent?
If the Minister concedes that the loss of money is likely to be less urgent in its nature than the matter of illegal spirits or the selling of knives to teenagers, at what point does he anticipate that an officer ought to get around to looking into the issue of the prohibited fee? Given the restrictions on time and staffing levels, is not a TSO, rather than acting in an individual case, far more likely to deal with a single landlord facing multiple allegations of charging prohibited fees? It will be dealing with the big fish, rather than the small fry, that will be a reasonable and proportionate use of staff time. Has the Minister thought about the practicalities of enforcement? Has he compared it with how enforcement of housing matters is currently dealt with, or even tried to plug some of those gaps?
In order for the London Borough of Newham’s landlord licensing scheme to be effective, it had to bring together several different agencies, including the police, the UK Border Agency and specialist housing officers, and had to invest in systems to accurately identify those properties that were incorrectly licensed. While it has drawn in significant revenue for the Treasury and the council, it took a laser-focused determination from the political leadership in Newham to get their processes up and running to tackle landlords operating outside the regulations. Can the Minister guarantee that the same will happen to trading standards departments around the country, when it could be said to be somewhat of a Cinderella service? How will he monitor that, and what will his measure of success be?
The Local Government Association said in its evidence that, given the reduction in capacity of trading standards across many authorities, there should be flexibility for local areas to determine whether the ban is enforced by local trading standards or private sector housing teams. Does the Minister agree? The LGA went on to say that the Government had ignored the findings of the working group, which concluded that there should be enforcement of mandatory client money protection by local authorities, rather than trading standards. Is the Minister content to ignore the working group’s findings?
Has the Minister listened to the CTSI when it says that a self-financing enforcement model would potentially create a disincentive to provide regulatory compliance? That certainly seems to be the case with the current system around the display of fees. The fine acts as neither a disincentive for the businesses nor an incentive for the enforcement teams. The LGA pointed out that the Government’s theory that funds generated by fines will increase when non-compliance increases does not add up if companies close themselves down, only to re-emerge under a different name or structure in order to avoid a fine.
The CTSI also says that the costs of providing advice and guidance to a company that is subsequently compliant are not factored into the Government’s calculations. Of course, there was the issue raised by CTSI in our evidence session regarding the differences in the burden of proof and the framework of enforcement. The enforcers, in this instance the trading standards officers, will be required to prove offences beyond all reasonable doubt. What does this mean in practice for people—for families—who are already likely to be afraid about not securing the property that they want to live in and perhaps are under pressure to secure it because they have given notice on a prior residence, or are being thrown out of a property that they already reside in? Will this substantial basis of evidence encourage people to come forward, to make a complaint and seek redress? Let us remember that they are already in a significantly less advantageous position than the landlord or the lettings agent. They are not the experts in renting and even less so are they experts in the most recent legislative changes.
It goes back to the point I made earlier: the reality is that enforcement officers are far more likely to try to build up a stronger case with multiple complainants than deal with breaches on a single case-by-case basis. Does the Minister consider that this is serving tenants’ best interests? The remedy would not be sufficient in financial terms for the local authority, nor will the legislation be seen as fit for purpose by those it is intended to protect. Is he really content to preside over this? The CTSI says that most consumer rights breaches and the Estate Agents Act 1979 are obtainable on a balance of probability test. Why does he not consider amending the Bill to reflect this modest yet effective change? If it is the case that the higher the evidential requirement, the more work is involved and the more risk there is for the local authority, and the less likely it is that the Act will be easily enforceable, should he not just do the right thing and make the amendment now? I say that because one of the biggest frustrations of my constituents is around laws that are not enforced. Whether it is parking restrictions, dog mess or fly-tipping, they expect the rules to be fully and fairly applied. Where they are not, the blame comes back on an unfairly overstretched local authority, trying to do its best against the financial odds—financial odds that I know the Minister has recognised in previous comments that he has made.
I do hope that the Minister will take my comments on board. These are the views of royally chartered organisations, which work within the current legislative framework and can anticipate the difficulties of seeing this legislation in operation. It is only through proper enforcement with enforceable regulations that we can hope to see this law do everything the Minister has set out for it to do; otherwise, I am confident that it will be left wanting.
Rishi Sunak
There are in general three broad questions or buckets of comments. First, whether trading standards are the right institution to take on this task; secondly, prioritisation of resources for the things that trading standards have to do; and thirdly, a specific question about the burden of proof required for the penalties that are in place in this legislation. I will try to answer each of those three questions directly.
First, regarding whether trading standards are indeed the right body, which the hon. Lady questioned, there is unanimous agreement among leading industry bodies that trading standards are the logical choice. Indeed, the Chartered Trading Standards Institute itself, which the hon. Lady referred to, said that trading standards
“are well placed to enforce the ban”,
thanks to their local knowledge of landlords and letting agents.
Melanie Onn
Would the Minister accept that in the evidence we heard there was a reference to trading standards working closely with housing officers in particular, to better inform their local knowledge in an area that they may not have information relating to, because the trading standards authority has said that in terms of tenants they currently receive a small number of complaints in this area.
Rishi Sunak
I am generous in giving way, but in this occasion I may have been too generous, because I was just about to make that point. It is exactly because we recognise that in different areas there are different situations that we do not want to mandate a top-down approach. We have encouraged close co-operation. I do not want to pre-empt our debate on the next clause, which talks specifically about the powers for district authorities to enforce the provisions in the Bill. Also, on the particular question raised about client money protection and who ought to be the body enforcing that, 74% of respondents to the consultation said that that enforcement should primarily be by trading standards. It is important to note that trading standards can, under this legislation, discharge their responsibilities to the local housing authority, should they feel that is most appropriate for their area. I hope that addresses concerns on that point.
Melanie Onn
I thank the Minister for his response. The suggestion that there has been unanimous agreement across professional bodies on TSOs does not stand up to the evidence we heard. In all the submissions we had in writing, concerns were raised about the level of training available for trading standards officers, the level of experience they have in this area and their expertise, and they may well be better assisted by other organisations.
Rishi Sunak
I would be grateful to know if the hon. Lady is aware of an industry body that does not believe that trading standards should be the enforcement agency for this legislation. If she could name that industry body, who else does it propose should be the enforcement body?
Melanie Onn
I am commenting based on the evidence we heard last week. We heard from the CTSI and the LGA, which both raised those concerns. It is not about not having trading standards involved, because they clearly have an area of expertise, but there were concerns about their level of expertise, experience, training and resources.
The issue of resources was repeatedly mentioned in the evidence we received in writing and verbally. I appreciate the points the Minister made about resources and about looking to Torbay as the standard bearer for all enforcement and revenue-raising operations. I presume that we will look to Torbay in the future as the arbiter of whether this legislation is working.
On the burden of proof, the Minister says that nobody raised issues about that in the Select Committee’s pre-legislative scrutiny. However, it has come to light more recently. The high level of the burden of proof is something that we have heard about and that industry bodies have raised as a concern, given what they are used to dealing with as trading standards officers. It would be an error for the Minister to dismiss those comments lightly.
Daniel Zeichner
My hon. Friend is giving a very good speech. I think we were all in the evidence session the other day when we heard from the CTSI, which made it very clear why it is so important that we get this right. My experience in this place in the last three years is that we have seen successive pieces of legislation that we are pretty sure are not going to get enforced. Does my hon. Friend agree that if they do not get enforced, there is no point in having them, and that undermines public trust in what we are doing? It is really important that this legislation is enforceable.
Melanie Onn
I thank my hon. Friend for making that point, which goes to the heart of this. There is no point in doing this if the legislation is not enforced or does not do what the Minister intends—namely, rebalance the relationship of power between tenants and landlords. Enforcement is key, because if rogue landlords do not fear that the fine or the potential banning order will reach them, why would they bother to worry about whether they are operating within the legislation?
Helen Hayes (Dulwich and West Norwood) (Lab)
On the Select Committee, we went to see the licensing scheme in Newham in action. One important feature of that scheme is that the council undertakes proactive enforcement work against properties it suspects are being let by landlords who have not yet registered. It is an important part of the resourcing requirement that councils need to make the scheme as effective as possible, but that has not yet been taken into consideration. Will my hon. Friend comment on that?
Melanie Onn
My hon. Friend makes an incredibly important point about being proactive and about the intention of trading standards officers or others to undertake that initial work, rather than just relying on the enforcement element of the legislation. I hope the Minister has heard those points, takes them seriously and receives them in the manner in which they are intended. We will not be pressing this matter to a vote, but we reserve the right to return to it on Report.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clause 7
Enforcement by district councils
Question proposed, That the clause stand part of the Bill.
Rishi Sunak
The clause places a duty on local trading standards authorities to enforce the ban on letting fees and the requirements relating to holding deposits. It gives district councils the power to enforce the provisions if they choose to do so.
Local housing authorities enforce other measures in private rented sector legislation, such as the provisions related to banning orders for rogue landlords and agents. We very much encourage close working between district and county councils in non-unitary authorities to ensure effective enforcement. That is why we are giving district councils that are not trading standards authorities the power to enforce this legislation. That will ensure that local housing authorities are able to take enforcement action should they become aware, while undertaking their other duties, of a landlord or agent breaching the provisions of the Bill.
District councils must have regard to any guidance issued by the Secretary of State or the lead enforcement authority. The investigatory powers available to a district council for the purposes of enforcing the Tenant Fees Bill are set out in schedule 5 to the Consumer Rights Act 2015, which the clause amends.
Melanie Onn
The Government included the clause following the Bill’s pre-legislative scrutiny. We understand that the devolution of powers between different tiers of local government is in the interest of promoting collaborative relationships with a range of stakeholders, but will the Minister explain how a district council will enable or access these powers?
The Bill provides district councils with the same powers as a weights and measures authority. The Government’s response to the Housing, Communities and Local Government Committee’s report on the Bill says that a district council may choose to be an enforcement authority, but the Committee’s recommendation refers to a weights and measures authority being able to delegate its powers to other tiers of local government where appropriate. Will the Minister explain what process he envisions district authorities having to go through order to be able to undertake enforcement roles in this context?
If weights and measures responsibilities are held at a county council level, and if additional funding for staffing or training has been directed there, but a district council wishes to undertake its own enforcement measures, will there be a requirement for that funding to be cascaded down? Or do the Government expect that funding bids will be made at the outset by those authorities that wish to be enforcers, and that there may then be overlap in the bidding and awarding of such funds?
The Committee’s report contained evidence that any system based purely on hypothecated funds would provide a challenging environment for councils, as it would not provide for up-front or proactive work. It is in the interests of local authorities, tenants, landlords and letting agents that fines are a last resort; it is the early work that will prove the most important.
Rishi Sunak
With regard to district councils enforcing the Bill, there is no special process that they need to go through; they have the same rights and powers as trading standards authorities, so they do not need any special permissions. They can get on and do that should they see fit.
With regard to the hon. Lady’s last point, just like trading standards authorities, an authority that enforces against the contravention of the Bill will of course keep any fines that are levied, which will help to fund that enforcement.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 8
Financial penalties
Melanie Onn
I beg to move amendment 2, in clause 8, page 5, line 13, leave out “£5,000” and insert “£30,000”.
The Chair
With this it will be convenient to discuss amendment 3, in clause 8, page 5, line 16, leave out from “exceed” to the end of line 17 and insert “£30,000”.
Melanie Onn
We welcome the spirit of clause 8. We must seek to hit landlords and letting agents who act badly where it hurts if we are to change realities for tenants. However, the need to strengthen the financial penalties in the clause is twofold. First, we must always ensure that the penalty fits the seriousness of the breach and acts as a deterrent. Secondly, we need to recognise that, if the Government’s plan is for the regulation to become self-funding, fines need to be able to fund the enforcement of the legislation.
To make my point on this, I draw the Committee’s attention to the evidence given by the experts last week. Isobel Thomson from the National Approved Letting Scheme said:
“We carried out a survey of 42 local authorities in June last year, looking at the enforcement of the Consumer Rights Act 2015. Of those 42 local authorities, 93% had failed to issue a single financial penalty against a letting agent in the previous two years.
What are we going to be faced with with the fee ban? Enforcement really needs to come to the fore. The Government have mentioned that there will be a lead enforcement authority. We need to know who that is, how they are going to gear up and how they are going to be resourced. That is what I would like to see.”—[Official Report, Tenant Fees Public Bill Committee, 5 June 2018; c. 4, Q1.]
The NALS evidence is absolutely clear: without the resources for enforcement, there are concerns that the letting fees ban could have very little impact. That surely cannot be what the Government want to see.
There are others who fear that the lack of resources could prove a real impediment to the legislation functioning as intended. When I asked the LGA’s Councillor Blackburn what he felt could be done to strengthen the Bill so that it achieves its aims, he was quite clear. He detailed how the financing of the Bill was an issue:
“At the moment, £500,000 is promised to assist in the up-front costs of setting these schemes up. The average local authority trading standards budget is £671,000 a year, so that £500,000 spread across 340 local authorities is unlikely to fill the gap that exists. That is extremely important.”
There is also a capacity-building issue within the trading standards profession. As it is, 64% of trading standards authorities are reporting that they have difficulties in recruiting and retaining people, and that issue needs to be looked at nationally. The LGA stands ready to assist in that process and will work with the Chartered Trading Standards Institute, but there is a demographic time bomb in there as well, about the average age of trading standards officers…because of the overall financial pressures on local authorities, it is not seen as a long-term, safe career, if I can put it that way.”—[Official Report, Tenant Fees Public Bill Committee, 7 June 2018; c. 34-35, Q58.]
Rishi Sunak
After careful consideration of all the feedback received during the consultation and engagement process, the Government are of the view that the level of financial penalties provided in the Bill is the right one. Furthermore, the approach to financial penalties aligns with that in other housing legislation. Most would agree that a £30,000 fine for an initial breach of the ban, as the amendment suggests, is excessive and could cause significant devastation.
Melanie Onn
Can the Minister explain the circumstances in which he anticipates a £30,000 fine will be imposed against an initial offence?
Rishi Sunak
My understanding of the amendment tabled by the hon. Lady is that that is what it proposes—an initial breach of the ban would be £30,000.
Rishi Sunak
In the Government’s version, it would be £5,000, and that is what we are discussing. My understanding of the hon. Lady’s amendment is that the financial penalty for an initial breach would be £30,000 rather than £5,000. We propose to leave it at £5,000. I am happy to take an intervention if she wants to clarify.
Rishi Sunak
No—okay.
The Government’s aim has been to provide a sufficient deterrent for an initial breach of the ban that still allows landlords and letting agents who may inadvertently commit a breach not to be disproportionately penalised. We therefore resist amendments 2 and 3.
As hon. Members have noted, breaches of legislation related to letting agents, such as the requirements to belong to a redress scheme and to be transparent about letting fees, are subject to a fine of up to £5,000. However, we have listened to concerns that a £5,000 fine may not be enough of a deterrent for some agents and landlords, so clause 8 proposes a financial penalty of up to £30,000 for a further breach of the ban.
Importantly, that upper limit is consistent with the higher rate of civil penalties introduced in April 2017 under the Housing and Planning Act 2016. Given that the repeated charging of fees is a banning order offence, we firmly believe that the level of penalty needs to be consistent with the legislation under that Act, which brought banning orders into force.
It is too early to argue that the higher level of financial penalty at £30,000 has not been successful in offering a more significant deterrent to non-compliance. In the evidence that Alex McKeown of the Chartered Trading Standards Institute gave last week, she said that she believed that £30,000 would act as a “significant deterrent”.
Richard Graham (Gloucester) (Con)
There is a slight note in the debate of some who see landlords and agents as villains and enemies to be bashed at every conceivable opportunity. For many of us, however, the issue is about how we construct a partnership that gives tenants more rights and that provides a better sense of fairness in the relationship, but which ensures that there is a strong and functioning market and that we do not go back to the 1970s when the Opposition created a situation in which there was very little provision of private sector housing, of which we know that we will need a great deal more.
Rishi Sunak
I thank my hon. Friend for another thoughtful and measured comment. He is absolutely right: we are not in the business of demonising particular groups of people; we are interested in having a fair and functioning market. The balance that that requires has been a focus throughout all the deliberations on the Bill.
Melanie Onn
Would the Minister accept that the principle of the fines is not to demonise anybody, but to act as a successful deterrent?
Rishi Sunak
Indeed, I was quoting the evidence from the Chartered Trading Standards Institute that said that £30,000 was a significant deterrent.
Melanie Onn
If the CTSI says that £30,000 is a suitable deterrent, does the Minister think that that should be the minimum?
Rishi Sunak
Again, I fear that I have been too generous in giving way. I was about to make the point that it should not be forgotten that an agent or landlord convicted of an offence under the ban is liable for an unlimited fine, if that is the route of enforcement that the enforcement agency wants to go down; £30,000 is the alternative to a criminal prosecution where fines can be unlimited and people can be subject to banning orders, which I am sure all hon. Members agree are extremely serious and significant deterrents. The guidance that we will produce will support local authorities in determining the level of the penalty in any given case. I urge the hon. Lady to withdraw her amendment.
Melanie Onn
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Rishi Sunak
We have aimed to be ambitious and tough in our enforcement approach to provide a sufficient deterrent to the continued charging of fees. Clause 8 sets out the fact that a breach of the fees ban will be a civil offence with a financial penalty of up to £5,000. However, if a further breach is committed within five years, that will amount to a criminal offence. In such a case, local authorities will have discretion on whether to prosecute or impose a financial penalty. Clause 8 provides that enforcement authorities may impose a financial penalty of up to £30,000 as an alternative to prosecution, as we have discussed. The level of fine reflects the feedback that we received during the consultation period. I will not rehash the arguments for why we think that is an appropriate level.
A financial penalty cannot be imposed if the landlord or agent has failed to return the holding deposit because they have received incorrect information about the tenant’s right to rent property in the UK. That reflects a recommendation from the Select Committee on this particular point. Before imposing a financial penalty, enforcement authorities must be satisfied beyond reasonable doubt that the landlord or agent has breached the ban on charging tenant fees. Only one financial penalty may be imposed per breach and an enforcement authority can impose a penalty for a breach outside its area. This clause should be read with schedule 3, which sets out the procedure to be followed by an enforcement authority after it imposes a financial penalty. Financial penalties, I believe, will act as a serious deterrent to non-compliance.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Schedule 3
Financial Penalties Etc
Question proposed, That the schedule be the Third schedule to the Bill.
Rishi Sunak
It is important that there is consistency in the way in which local authorities impose financial penalties and that the process is fair. This schedule sets out the procedure to be followed.
Enforcement authorities must give the landlord or agent notice of their intention to service a financial penalty within six months of the breach occurring. This notice must contain relevant information about the reasons for imposing the penalty, the amount and the right to make representations. The landlord or agent then has 28 days to respond. If the enforcement authority decides to impose a penalty, it must provide a final notice setting out the amount of penalty, how much to pay, the rights of appeal and the consequences of failing to comply. An enforcement authority may at any time withdraw or amend a notice of intent or final notice. The landlord or agent must be notified of this in writing.
Landlords and agents have a right to appeal to the first-tier tribunal against a final notice. This appeal must be brought within 28 days of the final notice and is to be a re-hearing of the enforcement authority’s decision, but the tribunal may admit evidence that was not heard before the enforcement authority, if relevant. The final notice is suspended until the appeal is determined or withdrawn. The first-tier tribunal may confirm, vary or quash the final notice. It may impose a penalty up to the same maximum penalty as the enforcement authority could have imposed. If the landlord or agent fails to pay all or part of this financial penalty, the authority can seek repayment on the order of the county court. Similarly, if the authority requires the landlord or agent to repay the tenant any prohibited fees and they fail to do so, this can be recovered under an order of the county court.
I am aware that concerns have been raised about the resources of local authorities. I trust that the Committee welcomes the schedule, as it enables an enforcement authority to retain the proceeds of any financial penalty, as we have discussed, for future housing enforcement.
Sarah Jones (Croydon Central) (Lab)
It is a pleasure to serve under your chairmanship, Mr Sharma, for our second day in Committee. As the Minister has set out, schedule 3 provides some clarity over financial penalties, including notices of intent, recovery of penalties and proceeds of those penalties. The Opposition support the schedule as drafted. We are seeking clarity, however, from the Minister on certain aspects, before we give our support for its inclusion in the Bill. I would like to focus on paragraphs 6 and 7, which deal with the specifics of appeals and the recovery of penalties.
As with any piece of legislation such as this, the right to appeal is extremely important. It is correct that this is reflected in the Bill. It is also vital that the conditions of any appeal are presented with the utmost clarity to prevent abuse or a miscarriage of justice. Pre-legislative scrutiny by the Select Committee rightly raised concerns about how the Bill defined grounds for appeal, arguing that a first-tier tribunal should decide appeals as complete rehearings, which should take into account all matters, whether known to the local authority at the time of its decision or not. We are glad that the Government took that into account and amended the Bill accordingly. However, a number of questions about appeals remain, and I hope that the Minister can offer some clarity in his response.
Rishi Sunak
It is a pleasure to respond to the hon. Lady. I am cautious, as I wish to stay on point, with your direction, Mr Sharma. The hon. Lady raised some review periods, which we will no doubt discuss more specifically towards the end of this sitting when debating the new clauses tabled by Opposition Members, and with regard to phoenix companies, which are specifically covered by clause 13. I will leave discussion on those matters to the debates on the relevant clauses.
On the hon. Lady’s broad point about the level of fines, I thank her for recognising that the Government took on board the advice of the Housing, Communities and Local Government Committee’s on drafting these clauses, and we amended the draft legislation. I hope that she appreciates that. As I said, we took on board the Committee’s specific recommendations about the first-tier tribunal and the process that will be followed.
More specifically, on the hon. Lady’s point about the level of fines that can be varied, as with all judicial matters that will be a matter for the tribunal or the judicial processes of the county court—whichever avenue the enforcement mechanism finds itself in. Guidance will be published on the appropriate level of penalty, dependent on a broad range of situations, which will serve as a framework for how local authorities will enforce that penalty. The first-tier tribunal will subsequently have regard to that. It will not be for the Minister or the Government to direct in every circumstance what the level of fine should be.
As the hon. Lady rightly recognised, it is appropriate, as it is across our judicial system, that the courts have the flexibility to determine things on a case-by-case basis. I hope she welcomes that flexibility, which was added to the Bill at the request of the Select Committee. I look forward to debating phoenix companies and other such matters with her when we debate subsequent clauses.
Question put and agreed to.
Schedule 3 accordingly agreed to.
Clause 9
Power to amend maximum financial penalties
Question proposed, That the clause stand part of the Bill.
Rishi Sunak
The clause is straightforward and contains a power for the Secretary of State to make regulations amending the amount of financial penalty that a local authority can change. This is purely to reflect changes in the value of money.
Permitting local authorities to levy financial penalties of up to £30,000 for breaches of the regulations on fees is intended to serve as a significant deterrent to agents and landlords. Including a power to amend the maximum penalty ensures that the Government can address any issue where the deterrent effect has not kept pace with inflation. We consider that regulations by negative procedure are appropriate in this case, since the changes are intended only to reflect the value of money, not to alter the intent or effect of the legislation.
Subsection (3) enables the Government to make transitional, transitory or saving provisions in relation to the uprating, in order to ensure that there is a smooth transition from one upper limit to another. In summary, the clause will enable the legislation to remain relevant over time.
Melanie Onn
It is crucial for this policy and for the hopes within it to be impactful that the fines are sufficient to act as a deterrent. Opposition Members have raised concerns throughout Committee stage that they might not be.
Any punishments for wrongdoing by rogue landlords and letting agencies must be sufficient to be seen as more than simply the cost of doing business. That is not simply my opinion but that of a landlord advocacy group. Indeed, Richard Lambert, chief executive of the National Landlords Association, said earlier this year:
“The NLA supports making the punishment fit the crime because too many of the criminals who operate in the private rented sector”—
it is somebody within that sector who said this—
“see the current level of fines as little more than a cost of doing business and we would welcome greater consistency between civil and criminal penalties.”
As is clear from the amendments we have tabled, we have concerns that the Bill will not go far enough in ensuring that its aims can be fulfilled. The fines are a clear example of where the tension between aims and the probable reality of any impact is at its greatest. If fines can be as little as £5,000, as with the penalties for the display of tenants’ fees, that seems to act as a minimal deterrent to landlords. Surely the best that we should hope for is that those fines encourage the sector to operate well within that framework, and that they do not have to be levied. In the more lucrative markets, that is a very small sum. For larger landlords, it is small fry.
To add to that hypothetical, trading standards and local government up and down the country have had their budgets decimated. As we heard at the evidence session last week from Councillor Blackburn of the Local Government Association, as I have mentioned, there has been a 56% drop in trading standards enforcement officers since 2009—more than half of them have been lost. It is a vital sector, which will enforce the Bill, but without good trading standards officers, there is a real risk that the legislation, for all its good intentions, could lack impact on the ground.
There is a lack of expertise and resources, and those problems seem likely to get worse. Rogue landlords and agencies are likely to factor the likelihood of any claims being made against them into their business calculations, as Richard Lambert of the NLA suggested. As things stand, their calculations might suggest that taking a risk is worth it, particularly in areas where tenants are not as clued up, or where local authority services and budgets have been really affected.
Any changes need to be made by means of new primary legislation, but perhaps that is not the ideal approach; perhaps the Minister or the Secretary of State should be able to look at the matter again in conjunction with evidence about how the enforcement process has been going, and whether the fines are sufficient sticks to encourage that good practice across the board. It is clear that the Government want the policy to be part of transforming letting to make the tenant’s life much fairer than it is under the status quo, but for that to be done, there needs to be some real, critical engagement with the facts on the ground from the Government in future. For the legislation to have its proposed impacts, it is key that the Minister has an open mind about how it is best put into practice. The punishments have to fit the crime, and they need to be responsive to the realities of the letting market, which means that there must be space for rethinking that which is required.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clause 10
Recovery by enforcement authority of amount paid
Question proposed, That the clause stand part of the Bill.
Rishi Sunak
We want to ensure that when a tenant has paid an unlawful fee, they are repaid as soon as possible. Clause 10 enables an enforcement authority to require a landlord or letting agent to repay the tenant or other relevant person any outstanding prohibited payment or holding deposit. Similarly, if the landlord or agent required a relevant person to enter into a contract with a third party, they may be required to pay compensation. That may be ordered if the local authority imposes a financial penalty for a breach of the Bill. It does not apply if the tenant has made an application to the first-tier tribunal to recover the payment or if the amount has already been repaid.
Clause 11 enables the enforcement authority to require the landlord or agent to pay interest on any payment referred to in clause 10. That ensures that the agent or landlord does not receive any financial benefit from a prohibited payment.
Melanie Onn
For the Bill to have an impact, it has to be possible for prohibited payments to be recovered, and for those enforcing the legislation to fulfil their roles. We have already touched on our concerns about whether there are sufficient resources for local authorities and trading standards to function as the Government would like. These clauses highlight a particular potential issue in the legislation as it stands. The need for a criminal level and burden of proof for the civil financial penalties discussed in this Bill is a flaw that could well hamper its effectiveness. We all want to see legislation that is effective, that leaves tenants and landlords clear on what is permissible and what is not, that ensures that rogue traders are dealt with effectively, and that leaves tenants able to bring claims when things do go wrong.
Rishi Sunak
It is vital that strong action is taken against irresponsible agents and landlords who persist in charging unlawful and unfair fees to tenants. This will act as a strong deterrent and better protect tenants. Clause 12 provides that a landlord or letting agent who breaches the ban on fees commits an offence if they do so within five years of conviction or imposition of a financial penalty for an earlier breach. Agents and landlords who commit an offence are liable on conviction to an unlimited fine. An enforcement authority has, in each case, the discretion to decide whether to impose a financial penalty of up to £30,000 or to pursue prosecution. A financial penalty issued as an alternative to prosecution does not amount to a criminal conviction. Subsection (6) amends the Housing and Planning Act 2016 to provide that an offence under the clause is a banning order offence, which means that if a landlord or agent is convicted of an offence a local housing authority may apply to the court to ban them from letting housing and/or acting as a letting agent or property manager in England for at least a year.
In our consultation there was strong support for prosecuting and/or banning repeat offenders. We have listened, and the clause shows that we are serious about cracking down on rogue operators. If the court makes a banning order, the local housing authority must add the landlord or letting agent to the database of rogue landlords and property agents established under the 2016 Act. By giving local authorities the power to take robust action against the worst operators we better protect tenants and ensure that reputable agents and landlords are not undercut or tarnished by rogues.
Clause 13 provides that, as well as the business itself, an officer of a body corporate or a member with management functions can be prosecuted for a breach of the ban on letting fees. The clause addresses issues raised by the hon. Member for Croydon Central and is designed to ensure that individuals with responsibility for repeatedly breaching the ban on tenant fees can, along with their organisations, be prosecuted and banned from operating. That will help to prevent the establishment of so-called phoenix companies, whereby an individual moves from a firm that has been banned and opens up a new business only to continue disreputable practices.
Melanie Onn
I want to make a couple of points. On the rogue landlords database, have the Government conceded that they will open it up, making it far easier for tenants to assess whether their potential landlord is someone from whom they wish to rent a property?
The provision regarding phoenix companies is incredibly important and I am pleased that the Minister has taken the opportunity to include it in the Bill, but is he confident that it will work in practice? I have seen such companies operating in other industries, and I am concerned about whether individuals who are overseas can be prosecuted. Will it be easy to prevent such individuals from continuing to be landlords within phoenix companies? Although an individual may be named as part of a company in Companies House records, a phoenix company can arise in the name of someone else with whom that person has a close association. Parent companies and subsidiaries can be established and registered in other names, but an individual can have an association with each of the subsidiaries of a parent company that might not have direct influence on or knowledge of what those subsidiaries are doing. That might come about regularly, so on whom will justice be brought to bear for breaches of legislation?
Rishi Sunak
I am glad that the hon. Lady generally welcomes the approach to tackling something that I think we all want to see prohibited. We are confident that the provisions will work. Overseas landlords and letting agents are subject to all the existing requirements for being a member of a redress scheme, and we have consulted on those provisions and will extend them. It is mandatory for letting agents to be a member of a redress scheme. Without such membership they cannot function in the market and will be in breach of their legal obligations. Whether people are overseas or in the domestic realm, there are multiple levels of protection and they must comply with the regulations in order to let property.
Rishi Sunak
This clause, too, is relatively straightforward. It places a duty on enforcement authorities to notify other relevant authorities when taking action. That is necessary for a number of reasons, each of which the clause provides for. First, if a local trading standards authority takes action outside its local area, or a district council takes action, the relevant local trading standards authority is notified and work is not duplicated. The relevant local trading standards authority is then relieved of its enforcement duty, unless it is subsequently informed that the proposed enforcement has not taken place. Secondly, a record can be kept by the lead enforcement authority where a financial penalty has been imposed, withdrawn or quashed on appeal. That will inform whether any subsequent breach is dealt with as an offence. A trading standards authority must notify the local housing authority if it has imposed a financial penalty or made a conviction. That ensures that the relevant information is communicated to the right authorities at the appropriate time. As such, the clause has a key but simple role in ensuring that the enforcement of the legislation is carried out effectively and all relevant parties are aware of what is happening on the ground. I urge the Committee to support the clause.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Clause 15
Recovery by relevant person of amount paid
Melanie Onn
I beg to move amendment 13, in clause 15, page 10, line 36, after “that” insert
“, with the consent of the relevant person,”
This amendment provides that the consent of a tenant or the person acting on their behalf or who has guaranteed to pay their rent must consent to the use of a prohibited payment for rent payments or tenancy deposit payments.
Under amendment 13, the tenant would have to consent to their holding deposit or a prohibited payment being used to cover rent or deposit costs. We do not object to the principle of subsection (6), which the amendment seeks to change. The payment of a tenancy deposit or a prohibited payment into a deposit or as part of rent is entirely sensible and in many cases will be an optimal arrangement for both the tenant and the landlord. In the case of the holding deposit, this can be an important agreement between the tenant and the landlord that reduces the burden of paying a deposit, rent in advance and holding deposit all at the same time. Allowing a tenant to put that money towards a deposit can make it easier to pay what for many is a high fee and a significant amount, and prevent the holding deposit being held for as much as a week after an agreement has been made, when the tenant is likely to be short of money. We are therefore glad to see the principle in the Bill.
However, as the Bill stands, the landlord will have discretion as to whether to apply that payment. Although that does not seem to be a significant problem at first, and in many circumstances may not cause a problem, allowing landlords to do so indiscriminately could lead to difficulties for tenants in certain circumstances. The first problem arises from the fact that many people pay their rent on a monthly basis, through a fixed-sum standing order. Although standing orders are amendable, that can be a time-consuming process for the tenant. To deduct the prohibitive fee from a month’s rent, they must amend the standing order twice to account for the change. Government Members might feel that that is quite a trivial point, as making changes to bank payments is part of daily life, but we believe it will result in the tenant having to go out of their way for something that is not their fault. We must remember that when considering this amendment. It would be wrong for tenants to end up doing time-consuming work to receive their money in a timely and orderly fashion, given that they are not the ones who charged the fee.
A second problem that we seek to address with the amendment is how subsection (6) would apply to people with a joint tenancy. Taking the example of a joint tenancy in which the tenants pool the rent in one account and pay it to the landlord as a lump sum, if one tenant loses their key and is required to pay a default fee, which is later deemed to be prohibited, would the landlord be able to deduct that from the rent? In that scenario, taking the prohibited fee from the rent would not be a simple way of paying back the tenant. They paid the fee from their own pocket, but the rent deduction comes out of a pool for which all tenants are jointly responsible. Given that the deduction would not automatically be tied to the person who is entitled to it, the process could be abused by other people who are part of the pool. Although in most cases such agreements are set up by families or a close group of friends, it should not automatically be assumed that it is an easy or preferred way for the relevant person to receive their money.
It is their money. I have set out several scenarios, but a significant rationale for this amendment is the principle. Put simply, it is the tenant’s money, and they should have the final say about what happens with it. As it stands, subsection (6) allows landlords to do what they want with the tenant’s money that they have been required to give back and ought not to have had in the first place. I hope that Committee members will recognise that this is a practical and fair amendment. If someone has been wronged, it should be made as easy as possible for them to receive the repayment to which they are entitled.
Rishi Sunak
An important principle of the Bill is that any unlawful payment can be recovered in full by the tenant, as it is their money. Tenants can do that either by seeking direct recovery from the landlord or agent, or by going to the local authority or applying to the first-tier tribunal. It is important to note that they can also go to their agent’s redress scheme if they are seeking the recovery of a prohibited payment from an agent. Offsetting the prohibited payment against the rent or deposit will ensure the tenant is not left out of pocket. It is best practice for a landlord or agent to ask the tenant, or any person guaranteeing their rent, whether they are happy for any unlawfully paid fee to contribute towards a future rent or tenancy deposit payment. We are planning to encourage that through guidance, and we expect that most landlords and agents will do that. We do not currently see the need for specific provision to that effect in legislation.
That said, I have been considering this broad area for a while, and I want to ensure that what we have in place works. I hear what the hon. Lady said. The clause was designed to ensure that the repayment process is relatively automatic. We did not want to put extra steps, which might delay things, into the process. We are looking at some of the areas that she mentioned. With that in mind, if she will bear with me as I look through those things, I ask her to withdraw the amendment.
Melanie Onn
I am glad the Minister is listening. He said that the automatic expectation is that, to seek redress, tenants will go through a first-tier tribunal or go to a local authority just to get back what is theirs, which is in the hands of the landlords, despite the fact that the Minister clearly thinks it is best practice for landlords to have a good relationship with tenants. It is not inconceivable that the relationship has broken down if it is deemed that a prohibited payment has been made.
I was going to press the amendment to a vote, but given that the Minister has requested that we bear with him, I will not do so. I will hold him to his word. I will withdraw the amendment, but I reserve the right to table it again if we are not satisfied with what he comes back with. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Melanie Onn
I beg to move amendment 14, in clause 15, page 11, line 4, leave out
“all or any part of”,
and insert—
“a sum of money not less than and not more than three times”.
This amendment would enable tenants to claim back prohibited payments without assistance from the local authority, along with compensation from the landlord or letting agent worth up to three times the fee paid.
The amendment would entitle tenants who seek to claim back prohibited payments without assistance from the local authority to compensation from the landlord or letting agent worth up to three times the fee paid. During the evidence sessions, we heard often how the Bill needs more resources to enforce the new provisions that it will bring in and to fully achieve its aims. One thing necessary to improve the enforcement of the Bill is to provide further encouragement to tenants to self-report and to call out the use of prohibited fees by their landlords.
Trading standards will face practical difficulties in enforcing the Bill. They face a lack of resources across the country, which has meant their losing, as we have said, 56% of enforcement officers since 2009 and therefore lacking the expertise with letting agents that they would like. There is therefore a need to look at self-reporting as an addition to trading standards, and the addition of clause 15 to the Bill shows an acknowledgment of that by the Government. The amendment would strengthen that by providing tenants with compensation, when making a claim, for three times the initial sum charged.
A three times figure is already used to enforce deposit protection regulations, so both the three times figure and the idea of compensation for mistreated tenants has a basis in current property law. The amendment would act as an extra deterrent to landlords’ and letting agents’ breaking the law, by increasing the level of punishment, and would provide sufficient motivation and compensation for tenants to go through what could be a stressful and time-consuming tribunal process. As the amendment would help to enact the purpose of a Bill that both Government and Opposition want to be effective, I hope that both will accept it and thereby increase the enforcement power of the Bill.
Rishi Sunak
Tenants absolutely should get back any unlawful payments in full, whether direct from the landlord or agent, via the enforcement authority or through an order of the first-tier tribunal. However, we do not think it appropriate for the tenant to receive further compensation, given that the landlord or agent is liable for a significant financial penalty in addition to reimbursing the tenant.
It is also worth noting that the Bill provides further protection to tenants by preventing landlords from recovering their property, via the procedure set out in section 21 of the Housing Act 1988, until they have repaid any unlawfully charged fees. To add in compensation, as the amendment suggests, risks penalising agents and landlords multiple times for the same breach, which is not fair. We believe that our existing approach strikes the right balance and offers a serious deterrent to non-compliance. I ask the hon. Lady to withdraw the amendment.
Melanie Onn
Unfortunately, I will not withdraw the amendment. I do not feel entirely satisfied by the Minister’s comments on this and I do not think that he has addressed the issues around the negative position that tenants find themselves in compared with landlords, so I will press the amendment to a vote.
Question put, That the amendment be made.
Rishi Sunak
Clause 15 works with clause 10 to establish multiple routes for tenants to be able to recover any prohibited payments. It enables a tenant or other relevant person to apply to the first-tier tribunal for compensation where they have been required to make a prohibited payment or where a holding deposit has been unlawfully retained. We have listened to the Select Committee on this point and acknowledge that the first-tier tribunal is generally more accessible for tenants as it is less formal and costly than the county court. If a landlord or agent refuses to abide by an order of the first-tier tribunal, a tenant would be required to go to the county court to have the decision enforced and to recover their fees. We have made provision in clause 16 for a local authority to help the tenant with that. I ask hon. Members to agree that clause 15 stand part of the Bill.
Question put and agreed to.
Clause 15 accordingly ordered to stand part of the Bill.
Clause 16
Assistance to recover amount paid
Question proposed, That the clause stand part of the Bill.
Rishi Sunak
Clause 16 is another straightforward clause. It provides that an enforcement authority such as a local trading standards authority can help a tenant recover unlawfully charged fees or a holding deposit that has been unlawfully withheld. That is because we recognise that tenants might require or would like assistance to navigate the county court process. The enforcement authority would help a tenant or other relevant person to make an application to the first-tier tribunal: for example, by providing advice or by conducting proceedings.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Clause 17
Restriction on terminating tenancy
Melanie Onn
I beg to move amendment 15, in clause 17, page 12, line 3, at end insert—
“(5A) No section 21 notice may be given in relation to the tenancy until the end of a period six months from:
(a) the day after the day on which the final notice in respect of the penalty for the breach was served; or
(b) the day after the day on which any appeal against the final notice is determined or withdrawn.”
This amendment would protect tenants against the issue of a section 21 notice when a penalty has been applied in relation to a breach under Clauses 1 and 2 of this Bill.
I believe the amendment would strengthen the provisions in the clause. As the Bill stands, landlords are unable to serve section 21 notices while there is still an outstanding balance of a prohibited payment or holding deposit to be repaid to the relevant person. The principle behind the clause is welcome. It would be wrong for a tenant to be served a section 21 notice while a landlord has failed to serve their obligations in terms of repaying money that was taken incorrectly. The same principle guides the inability of landlords to serve section 21 notices if they do not properly protect a tenant’s deposit, and more recently if they do not carry out their obligation to undertake any necessary improvements.
Such extra protections should improve a tenant’s rights and mean that rogue landlords cannot get away with retaliatory evictions if a tenant challenges bad practice. However, too often the principle is not matched in practice. This can be seen in the enforcement of the Deregulation Act 2015, which led to the banning of revenge evictions if a landlord was ordered to carry out repairs by a local council. A 2014 study by Shelter estimated that 200,000 private renters had been served with an eviction notice after complaining to their landlord about a problem with their home. The legislation should have led to significant action, given how widespread the problem of retaliatory evictions is, yet more than half of councils in the UK did not use the new powers in the Act a single time within a year of enactment. There is clearly a disconnect between what leaves this place as law and the reality of what is actually enforced.
Protection against section 21 evictions is vital for tenants who fear that standing up to a landlord could lead them to be evicted. It is worth remembering what landlords have to do to be exempt from serving a section 21 notice. These are landlords who do not protect tenants’ deposits, do not provide repairs in a timely manner, and who will charge prohibited fees under this new Bill. So these landlords have, at best, already shown a lack of knowledge as to their rights and responsibilities, and at worst are rogue and exploitative to the point where they will cross legal lines to avoid their obligations. This comes to the heart of why enforcement in this area is so important and needs to be done far better under current housing regulations, and needs to be enhanced in the Bill as it stands.
We know that the vast majority of landlords comply with regulations and discharge their obligations in a timely and professional manner. Those landlords would never threaten retaliatory evictions and would ensure that they followed the rules regarding serving a section 21 notice if needs be, but there are too many rogue landlords who look to shirk their responsibilities and exploit tenants at every opportunity. If a rogue landlord is willing to take a chance on a tenant’s not picking up on and reporting a prohibited fee, or to threaten a tenant with eviction when they ask for repairs, why would they suddenly act in a fit and proper manner when it comes to serving a section 21 notice?
During the evidence sessions, the NUS representative made the point that students often do not know their rights. They are often first-time renters and many will not have the experience of looking over a contract or challenging actions that are unlawful, which means that they may not be comfortable taking action against activities such as charging a prohibited fee or serving a section 21 notice. That could be particularly true if the Act required a tenant to take a landlord to court to prove that a section 21 notice was invalid, so tenants may end up leaving under an invalid section 21 notice when there is no reason for them to do so.
Too many rogue landlords get away with outlawed acts because there is not enough enforcement of the current laws that prohibit bad practice. The Government should consider carefully the evidence we heard in last week’s evidence sessions. It is fair to say there was a general feeling that there is not enough enforcement power in the Bill for it to do all the good it could do.
Enforcement could come through several different channels, such as increasing fines to increase the deterrent that rule breakers face, reimbursing a lead enforcement authority or reducing the barriers that tenants face if they report a landlord. Amendment 15 would mean that tenants were safe from retaliatory evictions that could result from reporting a landlord who charged a prohibited fee, for six months after the final notice of the penalty for the breach is served or the appeal is determined or withdrawn.
The amendment arises from what should be a guiding principle of good law making: in introducing new laws and regulations, we should learn from the mistakes of similar legislation and build a Bill that counters those flaws and pitfalls. To ensure that this Bill hits the ground running, it is important to look at other pieces of legislation that govern landlords to see where they have failed in the past.
We must learn from the effect that a lack of protection from eviction had on the repair of properties that were not in a fit or liveable state. As a result of that, tenants ended up living in houses with no protection from draughts, large damp problems and faulty electrics. No one should live in those conditions in this country, but tenants feared that if they complained about those problems, their landlord would serve them with a section 21 notice rather than carry out the repairs. Tenants were left with a choice between putting up with uncomfortable, unsafe and uninhabitable conditions and pressing their landlord to fix those issues when the landlord held the power to kick them out. No one should have to make that choice, because no one should be penalised for wanting a house that is habitable. Similarly, no one should have to make the choice between flagging a prohibited payment and keeping their landlord happy so that they do not get served with a section 21 notice.
To prevent tenants from retaliatory evictions when repairs are necessary, the Deregulation Act 2015 prevents landlords from serving a section 21 notice for six months after the council orders repairs to be made. Although there are problems with the enforcement of that Act, the principle of it acts to prevent retaliatory evictions. In particular, it prevents the serving of a section 21 notice for six months after the serving of an improvement notice, which gives tenants the same protection as they would have at the start of any tenancy. That is an extremely important addition to tenants’ rights, which helps to remove a barrier to self-reporting. There is too little extra protection for self-reporting tenants if the law simply states that the landlord can serve a section 21 notice the second they have managed to fulfil the obligation that they were reported for. That also covers self-reporting tenants who could be subject to retaliatory evictions if they report a landlord.
Just as it was sensible to extend the provisions concerning revenge evictions for repairs in the 2015 Act, it is sensible to learn from the past situation around repairs now and get the Bill right at the first time of asking, by bringing it into line with the thinking of that previous legislation and adding a six-month period in which landlords cannot serve a section 21 notice after a breach of the Bill.
Rishi Sunak
The Bill already protects tenants by preventing landlords from recovering their property via section 21 of the Housing Act 1988 until they have repaid any unlawfully charged fees. This approach is in line with legislation that already applies where the “How to rent” guide has not been provided or a landlord has not secured the required licence for a house in multiple occupation, so there is good precedence for our approach.
Further, clause 4 ensures that any clause in a tenancy seeking to charge tenants a prohibited fee is not binding on the tenant, so we do not consider that further provision is needed. The wording of this amendment would specifically mean that if a landlord appealed against the imposition of a financial penalty and this was upheld, that landlord would be restricted from using the no-fault eviction process for six months after the appeal was determined. That clearly is not fair. I therefore ask the hon. Lady to withdraw the amendment.
Melanie Onn
I thank the Minister for that response. It is unfortunate that he is not prepared to accept the amendment. It may well be the case that landlords will happily give people back the money they owe them and then still decide that they are troublemakers and seek to serve an eviction notice against them. While I accept the Minister’s comments regarding a landlord’s appeal, I think this is something that he should look at. If the Bill is about increasing and protecting tenants’ rights, this is a prime opportunity to do so. Despite that, I am happy not to press the amendment, but I reserve the right to discuss this issue further on Report. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Rishi Sunak
Clause 17 has been included following a recommendation specifically from the Select Committee during pre-legislative scrutiny of the draft Bill, and I therefore hope that it commands broad support. It ensures that a landlord cannot evict an assured shorthold tenant via the section 21 no-fault eviction procedure if the landlord has previously required a tenant to make a prohibited payment and failed to repay this payment or apply it to the rent or deposit. We agree with members of the Select Committee that this affords tenants additional protection and serves as a further deterrent to non-compliance for agents and landlords.
Similarly, a landlord cannot use a section 21 procedure if they have breached the requirement to repay a holding deposit. This clause is intended to establish a further layer of protection and security for tenants and to act as a deterrent to landlords. The approach mirrors that used to promote compliance with other housing legislation, such as licensing for houses in multiple occupation and the requirements to give tenants a copy of the “How to rent” guide and valid gas safety certificates. I beg to move that the clause stands part of the Bill.
Melanie Onn
We have made our concerns around this clause quite clear, and we reserve the right to come back and discuss it on Report. I sincerely hope that the Minister’s intention does work in practice. I think he is applying some of the principles to landlords who would never wish to be in breach of any of this legislation, and he is not considering fully the issue of rogue landlords, who are the ones we are trying to tackle.
Question put and agreed to.
Clause 17 accordingly ordered to stand part of the Bill.
Clause 18
Duty to publicise fees on third party websites
Question proposed, That the clause stand part of the Bill.
Rishi Sunak
Thank you, Mr Sharma, for permission to group these three clauses. I will discuss them briefly in turn. Clause 18 amends section 83 of the Consumer Rights Act 2015. Section 83 places a duty on letting agents to publicise their fees and information about redress under client money protection schemes in order to provide greater transparency for landlords and tenants.
In the Government consultation on banning tenant fees, concerns were raised that these transparency requirements do not apply in relation to property portals, such as Rightmove and Zoopla. These websites are often the first port of call for tenants when searching for a home to rent. To ensure that tenants and landlords have easy access to relevant information, this clause extends the transparency requirements to third-party websites. I am sure that will be warmly welcomed.
Rishi Sunak
Clause 21 amends section 135 of the Housing and Planning Act 2016. It makes enforcement of the requirement for letting agents to belong to a client money protection scheme the responsibility of trading standards authorities. That has the effect in non-unitary authorities of moving the enforcement responsibility from district councils to county councils. Trading standards are best placed to enforce this provision due to their role in enforcing other legislation relating to letting agents. The change will ensure better alignment between enforcement of the provisions of the Tenant Fees Bill and client money protection.
In November to December last year, the Government consulted on the implementation of client money protection. I am pleased to say that the majority of the respondents—74%—agreed that enforcement responsibility should sit with trading standards rather than district councils, given their skills and experience. To ensure joined-up enforcement of relevant letting agent legislation, I beg to move that clause 21 stands part of the Bill.
Question put and agreed to.
Clause 21 accordingly ordered to stand part of the Bill.
Clause 22
Lead enforcement authority
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 23 and 24 stand part.
New clause 1—Enforcement: costs—
“The Secretary of State shall reimburse—
(a) a lead enforcement authority, where this is not the Secretary of State, for any costs incurred by the authority in the exercise of its duties under section 23 or section 24 of this Act, and
(b) an enforcement authority for any additional costs incurred by that authority in the exercise of its duties under section 1 or section 2 of this Act.”
Rishi Sunak
Clause 22 establishes a lead enforcement authority in the lettings sector to oversee enforcement of the Bill and associated letting agent legislation, including the transparency requirements in the Consumer Rights Act 2015, the requirement for letting agents to belong to a redress scheme and the forthcoming requirement for letting agents to belong to a client money protection scheme. Although, in the first instance, this responsibility lies with the Secretary of State, the clause gives the Secretary of State the power to designate a local trading standards authority as the lead enforcement authority. The clause also enables the Secretary of State to make provision, via regulations, to smooth the transition if there is a change in the lead enforcement authority.
In the Government consultation, there was strong agreement from respondents across the sector to the introduction of a lead enforcement authority; 86% of respondents were in favour, stating that this would lead to more consistent operation of the regulatory framework. We consider that trading standards authorities are best placed to act as the enforcers, given their other responsibilities for enforcing requirements on letting agents and consumer protection laws.
We recognise the overlap between the lettings and estate agent sectors and will work with National Trading Standards to ensure that the new lead enforcement authority works effectively alongside the existing arrangements in the estate agent sector. We intend to provide funding to support the setting up and workings of a lead enforcement authority.
Clause 23 describes the duties of the lead enforcement authority. Broadly, those duties are to provide guidance and support to local authorities in England with regard to their enforcement responsibilities in respect of relevant letting agent legislation. The lead enforcement authority will help to develop best practice in enforcement and ensure consistent application of the legislation.
The clause also enables the lead enforcement authority to disclose information to a relevant local authority to enable that authority to determine whether there has been a breach of, or offence under, relevant letting agency legislation. That power will, in particular, enable the lead enforcement authority to disclose information as to whether a financial penalty has been issued against a landlord or agent and thus whether an offence has been committed under the Bill.
We have taken into account feedback from the Select Committee, so the clause now places a duty on the lead enforcement authority to issue guidance to enforcement authorities about the exercise of their functions under the Bill. As discussed earlier, enforcement authorities must have regard to that guidance.
Clause 23 also provides a power for the Secretary of State to direct the lead enforcement authority to produce guidance about the operation of other relevant letting agency legislation and about the content of such guidance. The lead enforcement authority will be able to provide information and advice to tenants, landlords and letting agents to help them to understand the impact of the Bill and other relevant legislation.
The lead enforcement authority’s position as a central point of contact for local authorities will facilitate its duty to monitor developments in the lettings sector and, as necessary, to advise the Secretary of State. That includes the effectiveness and operation of the Bill and associated relevant letting agency legislation and related social and commercial developments.
Clause 24 makes provision for the lead enforcement authority to enforce the provisions of the Bill and other relevant letting agent legislation. We want the lead enforcement authority to play a proactive role in enforcement and to exercise best practice and provide support when it is appropriate and necessary for it to do so.
Individual trading standards authorities will remain primarily responsible for enforcing breaches of the fee ban. However, they may want to ask the lead enforcement authority for support. Alternatively, a local trading standards authority may not be taking enforcement action in line with its duties under the Bill, leaving tenants at risk of unfair loss. The clause gives the lead enforcement authority the power to take enforcement action in such situations.
Where the lead enforcement authority steps in and proposes to take action in respect of a breach, it must provide notice to the relevant local authority. The latter is then relieved of its duty to take enforcement action in relation to the breach, but the lead enforcement authority may require it to provide assistance. Relevant enforcement authorities will be required to report on their enforcement of the legislation and other relevant lettings legislation.
The lead enforcement authority will have a number of investigatory powers at its disposal to enforce the relevant letting agency legislation. As we discussed previously, those powers are laid out in schedule 5 to the Consumer Rights Act 2015, which this clause amends. That includes the power to require information where it reasonably expects that a breach has been committed.
I hope that clauses 22 to 24 stand part of the Bill and, with your permission, Mr Sharma, I will reserve the right to respond after the hon. Member for Croydon Central speaks to new clause 1.
Sarah Jones
New clause 1 sets out that both the lead enforcement authority and local enforcement authorities will be reimbursed by the Government for costs incurred in enforcing the Bill. That is necessary because the Bill as it stands will simply not provide adequate resources for proper enforcement. That view is backed up by experts from across the sector. We have already talked about the scale of the challenge, and my hon. Friend the Member for Great Grimsby has talked about the cut in enforcement officers and the—
Tenant Fees Bill (Fifth sitting)
Tuesday 12th June 2018
(6 years, 4 months ago)
Public Bill CommitteesRead Full debate Tenant Fees Act 2019 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 12 June 2018 - (12 Jun 2018)
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Chair
I remind the Committee that with this we are discussing the following:
Clause 23 and 24 stand part.
New clause 1—Enforcement: costs—
“The Secretary of State shall reimburse—
(a) a lead enforcement authority, where this is not the Secretary of State, for any costs incurred by the authority in the exercise of its duties under section 23 or section 24 of this Act, and
(b) an enforcement authority for any additional costs incurred by that authority in the exercise of its duties under section 1 or section 2 of this Act.”
Sarah Jones (Croydon Central) (Lab)
It is a relief to come back and see that the Minister has not resigned and followed the advice of his colleagues. I am reassured that he is still here.
As I was saying this morning, new clause 1 sets out that both the lead enforcement agency and local enforcement agencies will be reimbursed by the Government for costs incurred in enforcing the Bill. That is necessary because the Bill as it stands does not, in our view, provide adequate resource for enforcement.
We talked this morning about the scale of the challenge, with 56% of enforcement officers lost since 2009. In our evidence session, the Chartered Trading Standards Institute emphasised the scale of the problem that exists with enforcement, pointing out that more than 50% of the landlords and letting agents that it works with in London are still non-compliant with the rules. Shelter has highlighted the extreme difficulty in assessing the true number of rogue landlords, saying that the number is still underestimated. Another challenge for enforcement is collecting sufficient evidence to secure convictions. This morning, my hon. Friend the Member for Great Grimsby cited the Chartered Trading Standards Institute among others, which has worries about the burden of proof and said that it will scare people off, including trading standards.
The Minister might point to the provisions to stop retaliatory measures that were included in the Deregulation Act 2015, but the lack of progress on enforcing those provisions serves only to reinforce the point. Following scrutiny by the Housing, Communities and Local Government Committee, the Government were forced to admit that overstretched local authorities were not even collecting the data that would allow them to see whether the retaliatory eviction provisions in the 2015 Act have been used. The Government wrote:
“We are currently unable to provide this data as local authorities are not specifically obliged to provide it and the Department does not routinely collect it. However, we recognise that this is an area of concern and we are writing to request this information from local authorities to inform our understanding about the effectiveness of the provisions.”
On that topic, Shelter’s most recent survey of tenants found that a quarter of renters who had a problem serious enough to report failed to report it because they were worried about retaliatory measures from their landlord or letting agent. That clearly demonstrates a failure to give tenants confidence in the policy, and backs up the point that tenants may be too scared to engage properly with the enforcement process to build a strong enough case.
The challenges to enforcing the Bill will come from all directions. We know from evidence that was provided that local trading standards authorities may not have the capabilities or expertise. For example, Shelter has raised concerns about how effectively trading standards will be able to police the use of default payments. Shelter has asked the Committee to explore whether local authorities will have sufficient powers and resources to evaluate whether a default fee genuinely represents a landlord loss, and the kind of guidance that the Government propose to provide to assist authorities in making such determinations. The Residential Landlords Association has argued that trading standards should not enforce the Bill at all, and that the responsibility should rest with environmental health departments.
Three concerns have caused us to table the new clause. The first is about getting the numbers right. We have serious concerns about the numbers being thrown around by the Government about how much it will cost to enforce this at a local and national level, as well as the confusion over how financial penalties will be calculated by enforcement authorities.
We have significant doubts about the Government’s argument that the cost of enforcement will be fiscally neutral for local authorities by year 2. The Government have been forced to admit that that will not be the case for year one. The £500,000 allocated by the Government for enforcement in the first year feels as if it was plucked from the air, with similarly little thought. It is unclear whether that figure will change if authorities’ costs are higher than estimated.
The very thin detail on enforcement costs first provided to the Select Committee in November as part of an impact assessment argued that the cost to local enforcement authorities would be £150,000 per annum. The Government’s assumption that the enforcement would be self-funded from year one was rightly questioned by the Select Committee, and the Government duly committed to providing additional funding to local authorities. In the full impact assessment published last month, the Government amended their assessment of expected costs to local authorities in the first year to £300,000. That is a significant jump from their assessment in December. The impact assessment also states that the Government assume £200,000 in set-up costs for the court system, thus reaching the £500,000 figure. However, they appear to contradict themselves in the explanatory notes to the Bill:
“We estimate that local authorities will incur a new burden in respect of enforcement costs in year one of the policy only and we estimate this to be no more than £500,000.”
Assuming that the £200,000 earmarked for the courts in the impact assessment actually goes to the courts, will the Minister confirm whether local enforcement authorities will be getting £300,000 as indicated in the impact assessment, or £500,000, as indicated in the explanatory notes? There is also confusion over whether that money is the maximum authorities will receive or whether the Government will fund the actual costs, and we note the use of the word “estimate” in the explanatory notes.
We had concerns about how the Government arrived at the year one figure before the Committee sittings began. They increased during the evidence sessions last week, when the Minister asked outright for any analysis that the Local Government Association had done on how much funding should be allocated for year one. It then emerged that the LGA had been asked for that information, but had been given just one week to provide the figure. I have a great deal of respect for the ability of the LGA, so if it cannot turn that request around in a week, I doubt that many others could.
It seems astonishing that the Government could still be unclear as to how much this crucial part of the Bill is likely to cost, and I worry that they are pulling numbers out of the air. If the Minister will not accept our new clause, will he explain how the Government arrived at this figure—and, indeed, what the correct figure is? If he cannot share the evidence now, will he write to the Committee? The key point is that, whether it is £300,000 or £500,000, it is simply not enough. As the LGA has rightly pointed out, that amount split over 340 local authorities is a laughable sum of money when we consider that the average budget for one council trading standards team is more than £650,000.
The confusion over costs extends to what enforcement authorities can charge as penalties. As we discussed earlier, the Government have so far left that open, suggesting that local authorities can take into account the need to cover the costs of their enforcement functions when setting the level of the financial penalty. As the Select Committee pointed out, that is a departure from the usual principle that penalties should relate principally to the gravity of the wrongdoing. The decision to fund enforcement from year two solely by fines risks creating a bizarre situation where enforcement areas with a lower level of offences require higher fines to cover their authority’s costs. The same logic goes for areas where the most successful preventive enforcement is happening.
Our second concern is about the pressures on local trading standards authorities. The Chartered Trading Standards Institute rightly pointed out:
“Resource is, without question, the pervasive issue which will determine the efficacy of the Tenant Fees Bill.”
However, as we have already emphasised, the pressures on local enforcement authorities are increasing at a time when budgets are stretched to an unprecedented degree. Some of the new burdens taken on by trading standards include enforcement around, as my hon. Friend the Member for Great Grimsby mentioned, the sale of knives, as well as the use of wood burners, which is related to the Government’s clean air strategy. The effect of that pressure is being seen in the private rented sector. It was pointed out on Second Reading and since then by many organisations that there is already legislation that requires letting agents to advertise their fees, but it is simply not enforced.
The fact of the matter is that after the first year, and probably during that year too, the money recouped by fines will be completely insufficient to pay for any semblance of an effective enforcement system for the Bill. Trading standards authorities will be in a vicious circle, with an inability to enforce due to inadequate resources that then leads to the funding stream getting even worse that then leads to the enforcement getting thinner, and so on and so forth until nobody is bothering to enforce the measures at all.
There is much evidence from across the sector that that will be the case, and the Government are simply ignoring it. The London Borough of Newham says that it does not consider that moneys recovered through the civil penalties will adequately cover local authorities’ enforcement costs. The Chartered Institute of Housing points out the danger of a funding gap, as well as the risk that councils will need to invest in additional resources without being able to guarantee a particular level of financial return. The Association of Residential Letting Agents argues:
“Unless specific funding is set aside for the sole purpose of enforcing these new laws, we will see the same lack of effective enforcement of the ban on tenant fees as has been demonstrated on the transparency rules under the Consumer Rights Act 2015.”
Citizens Advice says:
“The legislation in its current form is reliant on Trading Standards, which we believe risks rogue agents continuing to charge fees. The lack of capacity facing local Trading Standards means many will struggle to take on additional enforcement duties without support.”
We ask the Minister the same thing on fiscal neutrality as we did on the figure for first-year costs: he must provide evidence, either today or in writing, on how the Government arrived at that assumption, or accept our new clause for the Government to reimburse the costs. To force local authorities to pick up the bill for something his Department has not costed properly would be unacceptable.
Thirdly, we are concerned about lead enforcement authority and the pressures around information. The Bill rightly allocates a lead enforcement authority to help streamline and co-ordinate enforcement work—something that has been pretty much universally supported. However, the same questions remain about the resourcing of that body. The Select Committee recommended that the lead enforcement authority should be tasked—and, importantly, given funding—to launch a nationwide awareness-raising campaign, to promote the legislation to tenants. In its oral evidence last week, the Local Government Association again pointed out the need for a high-profile, national campaign to remind tenants of their rights and remind the sector that fees are outlawed. The need for that is made much more pertinent by the fact that Shelter’s tenant survey, which I discussed earlier, found that more than 20% of renters who had a problem that was serious enough to report failed to do so because they were not aware that they could raise it with their local council.
Unlike their other financial estimates, the Government have at least been consistent in expecting the costs of the lead enforcement authority, in line with similar lead bodies, to be between £200,000 and £300,000 a year. It is unlikely, however, that that will be enough to ensure that any significant awareness campaign is run. There is a big question mark over the ability of the lead enforcement agency to do sufficient work to spread awareness of the changes made by the Bill—and awareness is crucial to its success. As with my previous points, I ask the Minister either to support our new clause or provide details about how such an awareness campaign would be funded, perhaps through his Department.
My final point is about the pervasive disincentive that the Bill as currently proposed would create. As I have set out in detail, experts from the Chartered Trading Standards Institute, the LGA and various local authorities agreed that funding through fines will not cover the cost of enforcement if it is done properly. One of the most frustrating aspects of the Bill is that that will ruin any chances of good preventive work being done. Initial fines of up to £5,000 will not give authorities the resources or incentive to do proper work to prevent breaches. As authorities themselves point out, if trading standards enforcement activities are effective, civil penalties will rarely be charged. That is because most intensive activities of council officers concern monitoring practices and working with letting agents to comply with the law. That creates what the Select Committee called a
“pervasive disincentive for authorities to engage proactively”.
I hope that the Minister can offer us something constructive on that point. He will admit that nobody wants this important piece of legislation not to deliver what we want it to deliver. If he will not support the new clause, will he agree to look at ways to finance activity where authorities can demonstrate that good preventive work is keeping convictions down, and come back to us with a proposal to that effect on Report?
I re-emphasise the scale of criticism about the provisions in the Bill for enforcement. The Chartered Trading Standards Institute said:
“The central concept that enforcement of the ban will be self-funded from the proceeds of civil penalties recovered by trading standards is completely erroneous.”
I urge the Minister to look again at this core part of the Bill and, if he will not support new clause 1, will he agree, at the very least, to provide the information we request and consider what else he could introduce on Report to improve the situation?
The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Rishi Sunak)
We believe that the new clause, which essentially provides a blank cheque to local authorities, is not the right approach. Given that my day job is Local Government Minister, of course I am minded to ensure that local authorities have the resources that they need to carry out their various functions adequately. That is what I spend most of my time doing. The provisions in the Bill are intended to be self-financing. Local authorities will be able to retain any moneys recovered through financial penalties for future housing enforcement. That ensures that they are better incentivised to undertake enforcement activity. We believe that that incentive impact and behavioural change is important and helpful.
I draw Committee members’ attention to the consultation, where it was generally agreed that ongoing costs would be met from enforcement. We heard from landlord and agent representatives last Tuesday that they, too, thought that would be sufficient, but that some initial funding as seed money is needed in year one for familiarisation and adjustment with the new regime. Indeed, the Government agree about that, which is why we intend to provide additional funding of up to £500,000 in year one of the policy, to support implementation and education. That figure has been arrived at through consultation and analysis together with several local authorities and officials in the Department to arrive at a bottom-up estimate of what overall costs might be. We are also committed to providing funding for the lead enforcement authority of up to £300,000 a year to support its important role of providing guidance and support to local enforcement authorities.
Sarah Jones
I have listened to the arguments and we will not press the new clause, although we reserve the right to return to this matter on Report.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Clauses 23 and 24 ordered to stand part of the Bill.
Clause 25
Meaning of “letting agent” and related expressions
Question proposed, That the clause stand part of the Bill.
Rishi Sunak
Clauses 25 and 26 are reasonably straightforward definitional clauses. Clause 25 defines “letting agent” as
“a person who engages in letting agency work”
and goes on to define such work as
“things done by a person in the course of a business in response to instructions received from…a landlord…or…a tenant…seeking”
to let or rent a property. The definition of a letting agent excludes a person who carries out letting agency work under their employment contract, as we would not want to capture such people under the Bill. It also excludes legal professionals who are under instruction in a similar capacity.
Clause 26 defines various expressions used in the Bill. For example, as we discussed in our first sitting, it defines “tenancy” as
“an assured shorthold tenancy…a tenancy which meets the conditions”
regarding letting to students, or “a licence to occupy”. I commend the clauses to the Committee.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26 ordered to stand part of the Bill.
Clause 27
Consequential amendments
Question proposed, That the clause stand part of the Bill.
Rishi Sunak
The clause makes consequential amendments to the lead enforcement authority’s enforcement functions in respect of relevant letting agency legislation: section 87 of the Consumer Rights Act 2015; section 85 of the Enterprise and Regulatory Reform Act 2013; article 7 of the Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc.) (England) Order 2014; and section 135 of the Housing and Planning Act 2016. That legislation relates to transparency requirements, membership of a redress scheme and membership of client money protection schemes respectively. Its effect is to require the relevant enforcement authorities to have regard to any guidance issued by the lead enforcement authority. The duties of those authorities under the relevant letting agency legislation is to be subject to the provisions of clause 24, which provides for enforcement of the legislation by the lead enforcement authority.
Question put and agreed to.
Clause 27 accordingly ordered to stand part of the Bill.
Clause 28
Transitional provision
Sarah Jones
I beg to move amendment 16, in clause 28, page 19, line 33, leave out “one year” and insert “six months”.
This amendment would reduce the period of transitional provision from a year to six months.
The Chair
With this it will be convenient to discuss the following:
Amendment 17, in clause 28, page 19, line 37, leave out “one year” and insert “six months”.
This amendment would reduce the period of transitional provision from a year to six months.
Amendment 18, in clause 28, page 20, line 10, leave out “one year” and insert “six months”.
This amendment would reduce the period of transitional provision from a year to six months.
Amendment 19, in clause 28, page 20, line 14, leave out “one year” and insert “six months”.
This amendment would reduce the period of transitional provision from a year to six months.
Sarah Jones
Amendment 16 would deliver an important and achievable result for more than 4 million households currently in a private rental contract. Along with its consequential amendments 17 to 19, the amendment seeks simply to speed up the pace of the changes that the Bill will deliver. As we draw towards the end of this Committee sitting and prepare to discuss the European Union (Withdrawal) Bill, it is fitting perhaps that that we set about talking about the transitional period.
We believe that the transitional period set out in clause 28 is correct. Landlords and agents will need time to come up to speed with new rules and to review the elements in their agreements with tenants that will subsequently cease to have effect. Labour Members, however, argue that a year is an unnecessarily lengthy period. Among other issues, a lengthy transition period may see unscrupulous landlords and agents charging excessive fees through loopholes, such as default fees, in a rush to extract money as quickly as possible before the law changes.
In opposing the amendment, the Government might cite concerns about the capacity of enforcement authorities to develop the requisite skills and learning properly to enforce the Bill. If they truly do have those concerns, they should look again at our proposals on enforcement. When the underlying issues with an overstretched trading standards system are so serious that the National Audit Office is warning of a direct threat to the consumer protection system’s viability, a six-month difference will not change much. I fully expect the Government to highlight the need for proper consultation with landlords and tenants to ensure that they are properly briefed, which is absolutely right, but there is no reason that work cannot start before clauses 1 and 2 come into force. The Government have been clear that a strong deterrent effect will be provided by the penalties and convictions described in the Bill. We have already set out in detail our concerns about enforcement, but we agree in principle that, if enforced effectively, the penalties will be a clear deterrent. If the Government are confident about their deterrent, surely the Minister will agree that landlords and agents will be motivated quickly to come to terms with the changes they will need to make. If not, will he tell us which specific measures he expects to take up to a year to put in place?
As we have previously pointed out, a Labour Government would have introduced the Bill years ago. The cumulative total of the money lost to tenants through the Government’s reluctance to do likewise has likely been millions. We owe it to all private renters to bring the Bill into force quickly.
We will shortly discuss the issues posed by the wording of clause 32 and the merits of our amendments 20 and 21. I will not go into too much detail here, beyond pointing out that clauses 1 and 2 are not currently included in the provisions that will come into force on the day on which the Act is passed. As we will hear, clause 32 is problematic, as it allows the Secretary of State to choose the day when the full Act, including clauses 1 and 2, will come into force, and it currently sets no limit on how long he or she might delay that decision. We believe that the combined uncertainty over the effective start date and the year’s delay proposed in clause 28 would be unacceptable to tenants. If the Minister does not support the amendments, will he set out a clear timetable, either now or in writing, for how that year will be used?
The amendment is not onerous. It would not cause disproportionate hardship to tenants, agents, enforcement authorities or the Government. What it would do is ensure that tenants get more quickly the fair deal they were promised which, I think we all agree, is something they deserve.
Rishi Sunak
Clause 28 deals with how the prohibitions described in clauses 1 and 2 will apply in relation to agreements that were entered into before the commencement of the relevant parts of the Bill. Upon commencement, the fees ban will apply to all new tenancies and agreements between agent and tenant. The transitional provisions in clause 28 mean that for a period of a year the ban will not apply to tenancies the terms of which were agreed prior to commencement. Similar transitional provision is made for agents’ agreements with tenants.
The amendments that we are considering seek to reduce that transitional period from a year to six months, and we do not believe that that would be fair on landlords and agents. Although most fees are charged at the outset of a tenancy, some landlords and agents will have agreed that tenants should pay other fees at a later stage. Tenants will have signed a contract accordingly, and we need to allow time for landlords and agents to renegotiate those contracts to ensure that they are not unfairly penalised.
Data from the English Housing Survey 2015-16 shows that 48% of tenants had an initial tenancy agreement of 12 months and 39% had an initial agreement of six months. Reducing the transitional provision would mean that more landlords and agents with pre-commencement tenancies—tenancies that were entered into before the legislation came into force—would be at risk of not being able to renegotiate their contracts, and would be responsible for fees that their tenant had previously contractually agreed to pay. That strikes me as retrospective and does not seem fair, and we do not seek in the Bill to unfairly penalise landlords and agents.
We recognise the importance of having a clear date when the ban on fees applies to all tenancies, and we know that tenants are eager for the ban to come into force. That is why the Government have revised their position from that reflected in the draft Bill, which had no end date for when fees could be charged in pre-commencement tenancies. The transitional provisions as drafted here mean that all tenants will see the benefit of the fees ban a year after it comes into force. Unlike the proposed amendments, they ensure that agents and landlords will not be significantly financially affected retrospectively, and will have an opportunity to review their contracts during that transitional period. I therefore ask the hon. Lady to withdraw the amendment.
Sarah Jones
I listened to the Minister, and I agree with him that tenants are eager for the clause to come into force, but I will not withdraw the amendment.
Question put, That the amendment be made.
Rishi Sunak
Clause 28 deals with how the prohibitions described in clauses 1 and 2 will apply in relation to tenancy agreements that were entered into before the commencement of the relevant parts of the Bill. As we have just discussed, the fees ban will apply to all tenancies, but the clause provides for a transitional period of one year during which the ban will not apply to what we call “pre-commencement tenancies”—tenancies the terms of which were agreed to prior to the commencement of the ban. After one year, any term of a tenancy agreement that breaches the fees ban will not be binding on the tenant, regardless of the date on which the tenancy agreement was entered into. Any payment accepted by the landlord and not returned within 28 days will then be a prohibited payment.
Rishi Sunak
Clause 29 deals with the financial provisions of the Bill, which we have already discussed at some length, so I shall be brief. The Government intend to provide funding of up to £500,000 in year one of the policy to support local authorities in implementation and up to £300,000 per year for the lead enforcement authority.
Clause 30 deals with the application of the Bill to the Crown. The Bill will apply in relation to the tenancies of those Crown interests that are capable of granting an assured shorthold tenancy but the Crown will not be criminally liable for any breach, as is customary. I am pleased to tell the Committee that the Queen’s consent has been granted.
Clause 31 sets out the territorial extent of the Bill, which is, in part, England and Wales, and in part, England and Wales, Scotland and Northern Ireland. As the Bill will apply in relation to housing in England only, and housing is a devolved matter in relation to Scotland, Wales and Northern Ireland, the latter perhaps requires some explanation. The amendments made by clauses 6(6), 7(4) and 24(10) apply the investigatory powers set out in schedule 5 of the Consumer Rights Act 2015 to authorities enforcing the provisions of this Bill. In line with that Act, they therefore have UK-wide extent, although the application of this Bill is England-only.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Clauses 30 and 31 ordered to stand part of the Bill.
Clause 32
Commencement
Melanie Onn (Great Grimsby) (Lab)
I beg to move amendment 20, in clause 32, page 21, line 17, leave out from “force” to end of subsection (1) and insert
“on the day on which it is passed.”
This amendment would bring the Act into force on the day it is passed.
The Chair
With this it will be convenient to discuss the following:
Amendment 21, in clause 32, page 21, line 21, leave out subsection (3).
This amendment is consequential on Amendment 20.
Clause stand part.
Melanie Onn
The amendments would alter the Bill by making the provisions come into force on the day of enactment, rather than leaving them at the discretion of the Secretary of State and when he chooses to bring a statutory instrument forward. The Government’s rationale behind the Bill was that it would save tenants millions of pounds and make the market fairer and more transparent. That is a principle we have long supported. However, the potential for a delay in the enactment of legislation surely flies in the face of such an intention. Although we welcome the legislation, we cannot see it as the end of the road for measures to improve the situation that private renters all too regularly find themselves in. There are aims in the Bill that all of us in this room support, because we know how much this is costing tenants and how confusing the housing market can be, but we need the Bill to come forward and make a positive change as soon as possible.
Right now, we are in the middle of exam season across our schools, colleges and universities. That means that in around two to three months, hundreds of thousands of ex-students and graduates will be taking their first steps in their new career. For many of those new graduates, that will mean moving away from home and, potentially, facing the rental market for the first time while holding down a full-time job. People in this group are exactly the type that the Bill should do the most good for.
Unexpectedly high fees can cause huge problems for those who are moving for the first time to start a job. For many at the moment, that means finding large amounts of money before they can even start to find employment, as they will have to pay tenant fees on top of a significant deposit and the first month’s rent. That can easily run into thousands of pounds for people who might have had little income to call on to get that sort of money, or even no income at all. That might mean that people in such a scenario have to turn down dream jobs or graduate placements because they simply cannot afford to move close to work. That impacts on the country as a whole.
Those costs are highest in our capital, which is where many of those dream jobs and placements will be, but people from poorer backgrounds in our northern towns and cities, who are unable to call on family for help in affording their deposits, might find that hurdle too high to overcome. That means that some of our best and brightest will miss out on the jobs and opportunities that are afforded to people who are able more easily to commute to London from a relative’s home, or who can call on family to support start-up renting costs.
This process will happen again very shortly: many graduate jobs start in September, although others go straight on the back end of school, college or university and will start as early as next month, so we should ensure that the Bill is in place for that cohort of people to enable us to prevent yet another year of unfair tenant fees and high deposits, which present such an affordability problem for many first-time renters and graduates.
As well as providing a better deal for tenants, setting a fixed date now for the Bill to come into force would provide certainty for landlords and letting agents by giving a clear set date from which they would have to comply. I understand that the decision not to specify such a date in the Bill is not a usual one, so perhaps the Minister will explain. At the moment, that point is simply to be defined by way of a statutory instrument when the Secretary of State so chooses. That means that landlords and letting agents will have no idea when they will have to stop charging prohibitive fees and tenants will have no idea when they will be entitled to challenge a fee.
I cannot consider the reason for delay in implementing the legislation to be justified in any meaningful way. The Minister has said that work is already under way on guidance. Therefore, it must be possible to get the guidance produced, published and circulated in a speedy fashion, so that tenants would be protected at the earliest opportunity. If the Minister feels that that is not possible, he should explain exactly why tenants will continue to be penalised while the Government get their act together. Perhaps trailing an implementation date now—with Government-led advertising and awareness-raising ahead of the duties’ coming into force, a bit like with the general data protection regulation rules—would provide for readiness across the sector and local authorities.
Rishi Sunak
We, like many tenants, are keen for the legislation to come into force as soon as possible, but we have to strike a fair balance between protecting tenants and allowing landlords and letting agents adequate time to become compliant with the legislation. The ban is not about unfairly penalising landlords and letting agents or driving them deliberately out of business. Letting agents should be reimbursed for the services they provide, but that must be by the landlord rather than by the tenant.
If commencement began the day the Bill was passed, as the amendment suggests, letting agents would have no time to renegotiate their contracts with landlords, which would have an adverse effect on their business model. We propose that there should be a fair period—a few months—to allow for that renegotiation and adjustment to happen. We are also taking steps now to engage with landlord and agent groups to ensure that they are taking steps themselves to prepare for the legislation coming into force. I ask that the amendment be withdrawn.
Melanie Onn
The Minister says he is keen for the legislation to be brought into force, but he does not seem to be taking decisive action, other than offering us a few months, which is particularly imprecise. It is unrealistic to suggest that letting agents cannot start negotiations when they know that the Government’s stated intention is going through Parliament.
Rishi Sunak
I gently point out that the Government’s approach is to have a precise date, and allowing them a few months to decide enables them to do that. The amendment specifies that the Bill would come into force on Royal Assent—that parliamentary process could take place be on any particular day—whereas the Government’s approach is to allow some time after Royal Assent so that they can set a specific day for all communications and so on. That provides the sector and tenants with greater precision than having an indeterminate day that is out of the control of Ministers, Government or anyone else. The hon. Lady’s amendment would result in the parliamentary timetable deciding the date of enforcement.
Melanie Onn
I am confident the Minister will have the ear of the Leader of the House when it comes to enacting the Bill. He says that he is confident that the sector will be provided with certainty and that that will happen within a matter of months, but perhaps he could prescribe whether it will take six, eight or 10 months.
Melanie Onn
The Minister is ready to say a few months. I reserve the right to return to the issue, but I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 32 ordered to stand part of the Bill.
Clause 33
Short title
Question proposed, That the clause stand part of the Bill.
Rishi Sunak
Clause 33 sets out the short title of this legislation, which is to be the Tenant Fees Act, and as such I hope it will stand part of the Bill.
Question put and agreed to.
Clause 33 accordingly ordered to stand part of the Bill.
New Clause 2
Transferable deposits
“The Secretary of State may by regulations made by statutory instrument amend paragraph 2 of Schedule 1 to make provision which enables a relevant person, at the conclusion of a tenancy, to transfer all or part of a tenancy deposit from the landlord or agent with whom that tenancy was held to a second landlord or agent”.—(Sarah Jones.)
This new clause would enable the Secretary of State to provide for a tenant to transfer their deposit from one landlord to the next when moving tenancy, rather than needing to find the money for a new deposit before the old one had been refunded.
Brought up, and read the First time.
Sarah Jones
I beg to move, That the clause be read a Second time.
The new clause seeks to build on the positive outcomes we all hope this Bill will have for tenants by allowing for much-needed changes to the tenancy deposits system. The new clause seeks to resolve the problem faced by large numbers of tenants whereby deposits are charged on new tenancies before the deposit from a previous tenancy is returned, costing significant sums of money every time a tenant moves. There is no need for such a situation to occur, and members on both sides of the Committee support looking at ways of solving it.
As we pointed out last week, it would fail tenants and be a waste of our time if we sat here and allowed through a Bill that simply reinforced the status quo. We have said repeatedly that we welcome the Bill’s ban on agency fees. We urge the Government to go further to resolve other significant up-front fees faced by private renters.
The most significant up-front fees are tenancy deposits, which I remind the Committee are significantly higher than agency fees, often running to several thousand pounds. We have already touched on the issue of the six-week cap for tenancy deposits, but I ask the Government one more time to look at that cap before Report and to think about what we could do. A lower cap would have a measurable benefit for tenants. There are options that the Minister could consider if he really wants to make provision for what he calls “high-risk tenants”.
Mr Robert Goodwill (Scarborough and Whitby) (Con)
If I may briefly interject, the hon. Lady identifies a problem, which came through in the evidence sessions, that affects landlords as well as tenants. The frustration of having a deposit locked up with the current landlord that cannot be given to the new landlord is a problem. However, now is not the time to address it. Indeed, the hon. Lady said that we should look at ways of solving the problem. Were we to try to do that in this Bill, we could end up delaying the introduction of legislation that everyone agrees will be of great benefit to tenants, because a lot of consultation would need to be done. We would need to look at situations where, for example, the tenant misleads the new landlord that all the deposit will be released when in fact there might be some deductions.
I absolutely sympathise with the feelings expressed, but I hope the Minister will not allow this issue to delay the Bill. Although I sympathise with the hon. Lady, I am sure many on the Conservative Benches will not be able to support the new clause at this time.
Rishi Sunak
I am delighted to say that I agree with both the hon. Member for Croydon Central and my right hon. Friend the Member for Scarborough and Whitby. We fully support and encourage innovation in the tenancy deposit sector. We know that it can often be difficult for tenants to raise funds for a deposit at the outset of a tenancy, especially if they are moving from one property to another; indeed, that is partly the motivation for bringing forward the Bill.
In the Government’s response to the Housing, Communities and Local Government Committee following the pre-legislative scrutiny, we emphasised our commitment to assess the merits of alternatives to traditional security deposits and promised to report our findings to the Committee. The Government responded only in May, so I hope Members will forgive me when I say that the work is not quite completed, but it is in process.
We have been exploring this issue for a while, including in the 2017 consultation on banning letting fees. It may interest hon. Members to know that my Department, like many others, offers an employer-backed deposit scheme to civil servants living in the private rented sector. That works in the same way as a season ticket loan, allowing employees to borrow from their salary up front to pay for a rental deposit and repay it from salary payments over the course of their career. Many private businesses, such as Starbucks, take the same approach, and we definitely encourage more to do so.
I am pleased to say that in May the Minister for Housing and Homelessness held a roundtable with my hon. Friend the Member for Broxbourne (Mr Walker), who has been passionate about this issue, along with the three deposit protection schemes and Shelter, to explore further how existing tenant deposit protection was working and what further innovation was possible. I am pleased to say that, as a result of that preliminary work, the Minister has been working much harder to progress the issue and will convene a formal working group with the deposit schemes and key representatives from tenant and landlord groups to explore it further.
There are still many things that need to be considered, as was highlighted by my right hon. Friend the Member for Scarborough and Whitby. For example, the key concern with deposit passporting is ensuring that landlords are still able to recover any damages at the end of a tenancy. There is a great deal of technical complexity that needs to be examined. That would involve understanding the percentage of the deposit that could be passported, and when and how liability for providing a tenant with the relevant prescribed information about where their deposit is protected should be passed from one landlord to another.
We certainly need to consult the sector and get its input before implementation. We are also keen to explore other alternatives, aside from passporting, such as payment of deposits by instalment. I hope hon. Members can see that the Government are taking this issue very seriously. My hon. Friend the Minister has already convened groups and is continuing to convene working groups to examine this issue and figure out a way forward. With that in mind, rather than delay this legislation, I call on the hon. Lady to withdraw her new clause.
Sarah Jones
I have listened to the Minister’s response, and I am glad that there are working groups, roundtables and other such things looking at these issues. As a former senior civil servant, I know well the line that there are still many things that need to be considered, which can be used to push things into the long grass so that they never get completed.
I take the point from the right hon. Member for Scarborough and Whitby that we do not want to delay the Bill and that we need to look at these matters properly, but I urge the Minister to speed up the working groups and roundtables and to try to come forward with something. If he did, I am sure he would have the support of the Opposition. I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
New Clause 3
Report on operation of Tenant Fees Act
“The Secretary of State shall within a period of 12 months from the date of commencement of this Act and annually for the four years thereafter lay before Parliament a report on the operation of this Act, setting out the number of breaches of sections 1 and 2, the number and amounts of financial penalties levied by enforcement authorities, and the number of criminal prosecutions commenced and concluded in each 12-month period”. —(Melanie Onn.)
This new clause would require the Secretary of State to report annually for five years on the effect of the Act
Brought up, and read the First time.
Melanie Onn
I beg to move, That the clause be read a Second time.
The new clause is quite clear that it intends the Act to be reviewed and closely monitored by the Minister. There has not been a great deal of discussion around the monitoring of the implementation of this legislation so far. Assessing the effectiveness of the legislation is incredibly important, and I hope the Minister will be able to support it. We know from the experience in Scotland that legislation, even when well intended, may not be effective if the wording is not clear enough, the rights are not precisely defined, the impact is not fully, properly and regularly communicated to those who need it, and the enforcement mechanisms are inadequate. I do not want to let the Minister leave here without allowing for future Ministers and Governments to recognise early the elements of the Bill that are not quite working as intended. From the discussions we have had, it seems that the Bill will probably not come into force for 18 months, which is quite some time away. How it actually pans out in practice will perhaps be well out of our hands.
It is inevitable that there will be clauses of the Bill that, once in action, do not work quite as anticipated. To rectify that, the Government could accept this new clause, which would ensure regular assessments are undertaken of the number of breaches of sections 1 and 2, as well as providing details around the fines—how many have been issued, what revenue has been generated and whether there have been any prosecutions. It would enable the Government to show their demonstrable concern for tenants by making it clear that they were keeping a beady eye on the practicalities of the measures and not simply leaving matters to chance.
No doubt there would be a Select Committee inquiry without these changes. What do the Government anticipate that they might wish to hide? By being proactive, they would be ahead of the curve and would save the Select Committee a great deal of time that it might spend on other inquiries.
I anticipate that the Minister will say he is confident that local authorities will maintain such records. That might be suitable for him, but it would not compel him to collate such data to gain regional perspectives on the implementation. Given the failure on the display of tenants fees rules so far—so much so that they now have to be beefed up through the Bill’s enforcement powers—accepting the new clause would be an honest recognition that legislation does not always work well.
The new clause would provide for an ongoing evidence base from which future improvements could be made. It would show landlords, letting agents, councils and tenants that the Government were taking a responsible approach to a significant piece of new law and showing a keen interest in its future application.
Were it to be found that the funding for new burdens was insufficient, the Government could deal with that rapidly, rather than facing the worst-case scenario of the laws not being used and being completely useless. They could check where the laws were being best utilised, identify why and assist in the sharing of best practice around the country. They could check that the legislative process was quick and that the remedy was proportionate to the breach.
In housing, timing is often of the essence. Those who would be charged prohibited fees are most likely to be those who can ill afford them—those who are forced towards bad landlords or letting agents. Should resolution of the process take too long, a tenant may be two or three properties along since the original complaint was submitted. I urge the Minister to consider this sensible step.
Rishi Sunak
I rise for potentially the last time, to discuss new clause 3. I am pleased to tell the Committee that we do plan to monitor the implementation of the Tenant Fees Bill through continued engagement with key stakeholder groups representing landlords, agents and tenants, as well as through wider intelligence from agencies such as the lead enforcement authority and trading standards, which will enforce the requirements of the Bill. Unfortunately, however, we believe the new clause is unworkable.
We would not be able to identify all breaches of sections 1 and 2, as the new clause suggests, as we will be encouraging tenants to challenge their landlords and agents directly in the first instance if they have been charged prohibited fees. Indeed, we want landlords and agents to rectify breaches first, without the need for an enforcement authority, and it would of course not be possible or practical to record every time that that type of informal enforcement and rectification happened.
With regard to the number of financial penalties and criminal convictions under the ban, that information will, owing to the reporting requirement that already exists in the Bill, be captured by the lead enforcement authority anyway. Those agents and landlords who are banned from operating will also be captured on the rogue landlord database. Local housing authorities also have powers to include persons convicted of a breach of the fees ban on that database, as well as people who receive two or more financial penalties within a year for any banning order offence.
I hope that that reassures hon. Members that we will be tracking and reviewing the effectiveness and enforcement of the ban. We do not think it is necessary to prescribe further reporting requirements on the face of the Bill, but we will consider how to make the information available, especially regarding the lead enforcement authority. We will review the legislation within five years, in line with normal parliamentary and scrutiny practices.
Melanie Onn
The Minister says that the Department will monitor the process and the progress of the enforcement of this legislation. He also says it plans to review in five years. That raises the question of why that should not be included in the Bill. The Minister has diligently described to us all the varying places where that information is kept; the new clause simply seeks to ensure that it will be kept centrally by Ministers so that they do not have to go to various different organisations to retrieve it and will have it centrally, at their fingertips, so that reports and responses are full and accurate. Therefore, we will not withdraw the new clause.
Question put, That the clause be read a Second time.
Rishi Sunak
I gather that we are bringing proceedings to a conclusion, so if I may, Mr Sharma, I will briefly put on record my thanks to you and Mr Bone for your distinguished chairmanship of the Committee; to your team of Clerks for keeping us all on track and ensuring we followed due procedure; to the Whips for ensuring that we were all here on time and did what we were told; and to my fantastic team of officials, including those who are giving up valuable swimming and cocktail time to be with us today, which I very much appreciate. Indeed, I put on record my thanks to all hon. Members for their valuable and insightful contributions, and especially to Opposition Members for the constructive and good-natured way in which they have engaged with the topic. I look forward to continuing those debates in subsequent stages of the Bill. I make one final apology to the daughter of the hon. Member for Stockton South for depriving her party of her father’s presence.
Lastly, I put on the record my thanks to the Under-Secretary of State for Housing, Communities and Local Government, my hon. Friend the Member for South Derbyshire (Mrs Wheeler), who of course could not be with us to take the Bill through the Committee, but who put in an extraordinary amount of work in the months leading up to this point to ensure that we were discussing what I am sure we all agree—whatever our individual differences on certain points—is an important piece of legislation addressing a very important topic. She deserves enormous credit for her diligence and hard work in getting us to this point. I know we wish her well, not just at home but with all the other work she is doing to ensure that we bring fairness to the private rented sector, and we look forward to seeing her back soon.
Question put and agreed to.
Bill accordingly to be reported, without amendment.
Tenant Fees Bill
Wednesday 5th September 2018
(6 years, 1 month ago)
Commons ChamberRead Full debate Tenant Fees Act 2019 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 5 September 2018 - (5 Sep 2018)
16:49 - The House divided: - Ayes: 240 / Noes: 299 - Question accordingly negatived.
17:09 - The House divided: - Ayes: 241 / Noes: 302 - Question accordingly negatived.
The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Rishi Sunak)
I beg to move amendment 5, page 2, line 17, after “(c),” insert—
“() requires the person to do any of those things—
(i) as a result of an act or default of the person relating to such a tenancy or housing let under it, and
(ii) otherwise than pursuant to, or for the breach of, a provision of a tenancy agreement,”
This amendment means that Clause 1 prohibits a landlord from requiring a tenant or other relevant person to make a prohibited payment or take other action within the clause in the event of an act or default of the tenant where the requirement is imposed otherwise than by the tenancy agreement.
Madam Deputy Speaker (Dame Eleanor Laing)
With this it will be convenient to discuss the following:
Government amendments 6 and 7.
Amendment 1, in clause 8, page 5, line 13 leave out “£5,000” and insert “£30,000”.
Amendment 2, page 5, line 16, leave out from “exceed” to end of line 17 and insert “£30,000”.
Government amendments 8 to 23.
Amendment 4, in schedule 1, page 23, line 29, at end insert—
“Letting agent charges
3A (1) A payment to a letting agent or third party for the establishment or renewal of a tenancy is a permitted payment.
(2) In this section, a payment for the establishment or renewal of a tenancy may include, but is not limited to, fees for—
(a) administrative costs,
(b) credit checks,
(c) tenancy renewal fees, and
(d) inventory charges.
(3) The total payment under this section must not exceed £300.”
This amendment would allow letting agents to charge fees for various services connected with the establishment or renewal of a tenancy but would cap such fees at £300.
Amendment 3, page 23, line 30, leave out paragraph 4 and insert—
“Payment of Landlord or Agent expenses
4 (1) A payment that a tenant is required to make to cover a landlord’s or agent’s reasonable loss arising from a breach of a fair condition of the tenancy agreement by the tenant is a permitted payment.
(2) In this paragraph a “fair condition” is one that relates to—
(a) the replacement cost of a lost key or security device, or
(b) payment of the amount of late rent payments and interest relating to those payments
arising under or in connection with the tenancy.
(3) Paragraph 4(2)(a) does not apply if the payment required—
(a) pertains to rent that was paid within 14 days of the date due under the tenancy agreement, or
(b) exceeds the interest at Bank of England base rate on the rent from the day the rent was due to the day it was paid.
(4) Paragraph 4(2)(b) does not apply if the condition in the tenancy agreement prescribes a fixed fee to be paid for each breach of this term.”
This amendment would remove default fees as a permitted payment and permit the payment of landlord and agent expenses where there is a clear cost due to a tenant fault.
Government amendments 24 to 48.
Rishi Sunak
I will speak to all the Government amendments but, for ease, I will take them in a slightly different order from the one in which they have been set out.
I welcome the Under-Secretary of State for Housing, Communities and Local Government, my hon. Friend the Member for South Derbyshire (Mrs Wheeler), back to her place on the Front Bench. Everything we are discussing today is built on the foundations of her incredible diligence in preparing the Bill for us to consider in Committee, where I enjoyed constructive discussions with my opposite number, the hon. Member for Great Grimsby (Melanie Onn). I am delighted that my hon. Friend is back with us to help us to move the Bill through its final stages.
Amendments 5 and 6 will ensure that landlords and agents cannot charge any fees to tenants in the event of default, except under those circumstances set out in paragraph 4 of schedule 1. That now specifically includes prohibiting default fees that may have been set out in a separate agreement between the agent and the tenant, rather than in the tenancy agreement.
More generally, our provision on default fees in paragraph 4 of schedule 1 has been the source of much discussion and debate. Indeed, the hon. Member for Great Grimsby has tabled an amendment to the provision. Members from across the House, the Housing, Communities and Local Government Committee, and those who provided evidence to the Bill Committee have agreed with the principle that it is not fair for landlords to pay fees that arise due to the fault of the tenant. However, we have listened to concerns expressed by Members on Second Reading and in Committee, including the hon. Members for Great Grimsby and for Dulwich and West Norwood (Helen Hayes), and by tenant groups and the Chartered Trading Standards Institute that the default fees provisions as currently constructed may be open to abuse.
Frank Field (Birkenhead) (Ind)
May I mention a case involving my constituent, which is not uncommon in my constituency or in constituencies throughout the country? A young mother paid a deposit of £595 to her landlord for a wet, mildewed house in Rock Ferry in Birkenhead. When she was driven out by the mould, the landlord claimed that the bins were not emptied by the local authority, so she lost her £595 deposit. She wished to pay the rent for her new property on a day that coincided with her universal credit payments, but the landlord said, “Well, there’s no repayment of your previous deposit, and I want £900 up front if I’m changing the rent day.” In the meantime, during all that stress, my constituent lost her triplets. Will she be covered by the Bill, as amended?
Rishi Sunak
I thank the right hon. Gentleman for his intervention. Without going into the specific details or knowing the full facts, I can say that the example he gives is exactly the kind of bad practice that the Bill is designed to stamp out. It is not just this piece of legislation, which tackles the specific issue of tenant fees, that is relevant, because across the piece, the Government are examining the private rented sector to ensure that there is balance and fairness between tenants and landlords. He touched on the issue of health and whether properties are fit for habitation. The hon. Member for Westminster North (Ms Buck) has proposed a Bill to tackle that exact issue, and the Government are delighted to be supporting its passage through the House.
The issue of transferring deposits from one tenancy to another is out of this Bill’s scope, but the right hon. Gentleman will be pleased to know that the Government have convened a working group to examine deposit passporting. The group has already met, and the findings will be published in the spring of next year.
Frank Field
I am grateful to the Minister, and I will not intervene again, but there is no transporting of the deposit in my constituent’s case. She loses the deposit and then faces paying another deposit of £900 to get her rent payment day in line with her universal credit payments.
Rishi Sunak
The specific issue of one tenancy ending, and the process for recovering part or all of the deposit and starting a new tenancy, is out of scope for this piece of legislation, but it will be a subject for the working group set up by the Government with the sector. There are some interesting ideas about how to solve the problem that the right hon. Gentleman outlines.
Daniel Kawczynski (Shrewsbury and Atcham) (Con)
The right hon. Member for Birkenhead (Frank Field) has quite rightly raised a horror story on behalf of his constituent, but will the Minister acknowledge that there are many highly professional letting agents throughout the country who seek to provide the very best service for their customers under the difficult circumstances that they sometimes face?
Rishi Sunak
I thank my hon. Friend for his intervention, and I entirely agree. The Bill is not about driving letting agents out of business, but about levelling the playing field so that the small minority of bad actors in the industry are not able to continue to the disadvantage of the vast majority of agents who do a terrific and valuable job, which we want to see continue.
Mr Robert Goodwill (Scarborough and Whitby) (Con)
It is precisely the sort of case that the right hon. Member for Birkenhead (Frank Field) raises that gives all landlords a bad name. Most landlords are actually trying to do their best to provide a service to their tenants and hope to have long-standing tenants.
Under the current legislation, for a deposit to be retained by the landlord, there has to be agreement on both sides, otherwise there is an arbitration process. If it is just a case of someone not emptying the bins, there is no way that the landlord would be able to keep all the deposit.
Rishi Sunak
My right hon. Friend is absolutely right. The abuse that the right hon. Member for Birkenhead highlights is exactly why we are all here today to discuss this important subject.
I will return to the topic of default fees. The Bill as drafted already partly mitigates the risk of such abuse by limiting default fees to the landlord’s loss and permitting such fees only if they are expressly set out in the tenancy agreement, which the tenant will obviously have sight of before agreeing to the tenancy. But we acknowledge that more can be done, which is why the Government have tabled a series of amendments to tighten the default fee provision.
As I have said, amendments 5 and 6 will ensure that landlords and agents cannot charge fees to the tenant in the event of default, except under those circumstances set out under paragraph 4 of schedule 1. Secondly, amendment 27 will extend the limitation on what can be charged to incorporate the agent’s costs. We want to ensure that an agent cannot bill a landlord a significant amount only for that to be passed on to the tenant as the landlord’s incurred costs.
Thirdly—and similarly to amendment 3, which was tabled by the hon. Member for Great Grimsby—we introducing a provision to specify that any fees charged must be reasonable in respect of the works undertaken, rather than simply tied to actual loss or costs incurred. This will ensure that landlords and agents cannot make claims for charges that exceed the reasonable commercial value of goods or services.
James Cartlidge (South Suffolk) (Con)
Will my hon. Friend clarify how this would affect fees charged at the end of a tenancy, such as cleaning fees, which we know people will be expected to pay, although they may not have been aware of them at the start of the contract?
Rishi Sunak
I am happy to tell my hon. Friend that the fees he mentions are specifically banned under this piece of legislation. The Bill has been drafted tightly to ban all fees in connection with a tenancy. It is specifically drafted to capture fees such as the ones he raises, so those fees will no longer be in place once the Bill is enacted.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
Could the Minister expand on who will be monitoring what happens with default fees? Some charities, including Shelter and Citizens Advice, have concerns that this might be used as a loophole for additional costs. Who will monitor the Bill and the default fees arrangements after the Bill is passed?
Rishi Sunak
If you will indulge me, Madam Deputy Speaker, I will expand a little to answer that question. The great thing about the Bill and the simplicity of a ban is that tenants’ ability to self-enforce will be greatly enhanced, which is something that was recognised by various people in the industry who gave evidence to our Bill Committee. Attached to any tenancy agreement is a consumer guide on how to rent and how to let, which provides straightforward advice for a tenant on what is and is not permissible. That will enable them to know whether something they are being charged is not appropriate.
At that stage, there are several avenues for redress that the tenant can pursue. It is mandatory for letting agents to be a member of a redress scheme, and we are consulting on extending that to landlords, but in the first instance there are redress schemes that the tenant can go to. Obviously they can talk directly to the agent and the landlord themselves. If the tenant does not get satisfaction in those conversations, the next step would be to go to the first-tier tribunal. That was recommended by the Housing, Communities and Local Government Committee, and the Government were happy to introduce it into the Bill as an accessible place for our constituents to go and seek redress.
Debbie Abrahams
The Minister is being generous with his time. I absolutely understand what he is saying, and the arrangement seems very comprehensive. My concern, given the emaciated state of trading standards and other local authority enforcement agencies, is that this will not be an effective way of monitoring the situation. Tenants in such a position are still vulnerable, with potentially little legal redress other than by themselves. Is there no opportunity for the Government to monitor what is happening with default fees?
Rishi Sunak
I am sure that the hon. Lady knows that it would not be appropriate for the Government to monitor every single rental transaction that takes place, but the job of the lead enforcement agency is to have exactly that oversight for the industry. I would point out that the Government will fund the first year’s cost for trading standards and enforcement authorities to the tune of about £500,000. Thereafter, the fines under the legislation will enable enforcement authorities to recoup some of the costs, and indeed to invest some of that money in better enforcement. To go back to the heart of the hon. Lady’s question—
Dr David Drew (Stroud) (Lab/Co-op)
Before the Minister does so, will he give way?
Dr Drew
In my area, the good agents are beginning to say that those who are already exploiting the situation are trying to push up rent levels. Will the Government at least look at what has happened since the Bill was introduced to make sure that rents are not pushed up by landlords artificially to overcome this loss of money?
Rishi Sunak
On that relatively unrelated point, it is worth pointing out that when similar legislation was introduced in Scotland, we did not see any greater increase in rents than we would have anticipated.
On the specific question asked by the hon. Member for Oldham East and Saddleworth (Debbie Abrahams) about tenants’ ability to enforce and the ease of their doing so, it is worth bearing in mind that default fees are specifically required to be identified in the tenancy agreement. Up front, at the outset of a new tenancy agreement, the new tenant’s contract has to say exactly what default fees may be relevant under that contract—for example involving the loss of keys, late rent or the loss of an alarm fob. That has to be there in black and white; it is not as though the landlord can come up later on with something that they want to charge the tenant for. That will also be spelled out in the guidance, so it will be very easy for tenants to know whether the default fees they are being charged are appropriate.
Kevin Hollinrake
May I take this opportunity to draw the House’s attention to my entry in the Register of Members’ Financial Interests?
On the point the Minister was making about redress for a tenant, does he agree that the vast majority of these problems are very easily solved by contacting the redress schemes, which are very effective at resolving any disputes that may arise? Will he clarify the point about cleaning? The cleaning of a property that a tenant has left in an inferior condition should still be the responsibility of the tenant, and that is a reasonable requirement to put into any tenancy agreement.
Rishi Sunak
We are very lucky to have the insights today of my hon. Friend and constituency neighbour. He has been a successful business operator in this particular industry and I always listen to what he says with keen interest. I can tell him that he is absolutely right with regard to redress schemes. Our experience—we have heard this throughout the Bill process—is that they do work well and provide a very easy way to resolve most issues. Simply talking directly to the agent and the landlord in the first place is also a way to resolve the vast majority of issues without having to turn to a specific or formal redress scheme.
On the second point, of course a state of condition and an inventory may be attached to a tenancy, and such a cost would be recovered during the normal course of a deposit return. The tenant would obviously have obligations in that regard, and a breach of those terms would be considered damages in the normal way. However, there will not be a specific charging of fees at the outset of a tenancy; unless otherwise broadly agreed, that is covered by the damages provision in a contract.
I believe my hon. Friend the Member for Carlisle (John Stevenson) wanted to intervene.
John Stevenson
The Minister referred to certain clauses being in a tenancy agreement with which the tenant would be obliged to comply. Agricultural law lays down prescribed clauses that have to be incorporated into agricultural tenancies. Has any thought been given to the Government setting out prescribed clauses to be incorporated into a tenancy agreement for residential property?
Rishi Sunak
That is the crux of what we will come on to later. The Government’s approach has been not narrowly to specify the specific things that could qualify as default fees. There has indeed been discussion of this topic. The Government’s point of view, which I will explain later, will I hope provide some clarity on that point.
If I may return to the—
Bob Blackman
A lot of the Government proposals are formed around what is reasonable, and one of the key tests in law relates to what is reasonable. I gently ask him to set out for the House what he considers to be reasonable. To give an example, he has mentioned the loss of keys. The loss of a normal household door key may be relatively cheap, but security keys provided by only one manufacturer can be very expensive. Is it reasonable for a tenant to be charged should he or she lose such a key? If so, that would mean a default charge of quite a considerable sum of money, even if it was specified in the original contract—the lease or rental agreement. Would that need to be specified in that way, or would it be classified as a reasonable default charge if the key was lost?
Rishi Sunak
I again thank my hon. Friend for all his work on the Select Committee in helping us to improve this legislation. I know that he has given great thought to the matters we are discussing today, and we have just heard another example. I can tell him that the word “reasonable” has been chosen very deliberately, because it is a commonly accepted legal term that is widely used in various pieces of legislation and is open to interpretation in a consistent way by the courts. Indeed, the Opposition have chosen the same term in amendment 3.
Mr Jim Cunningham (Coventry South) (Lab)
To come back to the question asked by the hon. Member for Harrow East (Bob Blackman), some weeks ago I watched a documentary about this. It looked at the safety of a particular house, and it ended up with the enforcement officers directing the landlord to replace the sort of very expensive locks that he mentioned. I do not know whether that is common, but the Minister may know more than me.
Rishi Sunak
That ties in nicely with the point made by my hon. Friend the Member for Harrow East (Bob Blackman), but it would not be right for me to stand at the Dispatch Box and define what is reasonable in any particular case. There is a general test of reasonableness, which will vary from circumstance to circumstance. A simple key for a garden gate with no security attached to it will rightly cost very little—people can go down to Timpson or wherever to replace it—but a security identity fob for an alarm system may be much more expensive. The point is that the charges could not exceed the reasonable commercial or market value of such goods or services.
On that point, I reassure my hon. Friend that we want to go further than amendment 3, which was tabled by the hon. Member for Great Grimsby, would have us do. We have listened to concerns about the fact that tenants may find it difficult to challenge the reasonableness of default fees, and we believe that it would be easier for them to do so if they were offered up-front evidence of default charges. That is why amendment 28 introduces a requirement for landlords and agents to demonstrate their loss proactively by providing written evidence—for example, in the form of receipts or invoices—of the costs incurred before charging tenants. That will put the onus on landlords and agents to be clear about the charges that they want to levy, and it will give tenants additional assurance that they are paying a fair and reasonable amount.
To return to the intervention by my hon. Friend the Member for Carlisle (John Stevenson), the Government maintain that it would not be appropriate to list default charges in the Bill, given the risk that such a list will be incomplete or insufficient. We believe it is for the tenant and the landlord to determine what it is necessary and fair to include as default charges, on a case-by-case basis. There are other potential default charges besides those for late payment of rent and lost keys. Charges might also result from not parking in the space allotted to a property in a communal area, from the loss of a home automation smart remote and from the misuse of a common space—perhaps for a barbecue or other party event. Our amendments will increase transparency and fairness by ensuring that landlords and agents can recover their costs, while providing greater protection to tenants over the level of fees that they can be charged and further minimising the risk of abuse.
I turn to our other amendments regarding permitted payments. We want to ensure that the Bill delivers on the policy intention that the party who contracts a service should pay for the service. We have already been clear that where tenants procure their own third-party services—for example, a reference check or an inventory—they should be responsible for the cost. The legislation allows for that, although agents and landlords cannot, of course, require a tenant to use and pay for a third-party service.
Similarly, tenants should be able to make payments to agents whose services they contract for the purpose of finding accommodation, provided that the agent does not work on behalf of the landlord. That may be the case if a tenant lives overseas or otherwise requires assistance in relocating. We do not wish to prevent relocation agents from charging a fee for their services. Amendment 7 is designed to ensure that tenants are free to contract the services of a relocation or similar agent should they wish to do so, provided that the agent does not also act on behalf of the landlord with whom the tenancy is being agreed.
There are some further minor amendments to clause 28. Amendments 20 to 23 ensure that if a payment, such as a default charge, is required under a tenancy agreement that was entered into before the ban comes into force, that payment will be prohibited where it is paid to an agent after a period of 12 months. The Bill already prohibits that in relation to landlords, and we want to ensure that there is consistency with respect to agreements with agents.
Further to that, amendments 24, 25 and 29 to 42 make some minor drafting changes to clarify that a person acting on behalf of the tenant, or someone who has guaranteed the payment of rent—a relevant person—can also make a permitted payment. That will ensure that if somebody guarantees a tenant’s rent, they can make payments on the tenant’s behalf to a landlord or agent if required.
We have also tabled several amendments to clarify the enforcement and repayment provisions in the Bill. The amendments will ensure that the legislation can be effectively and fairly enforced, and that tenants have proper access to redress when things go wrong. First, amendments 13, 14 and 44 to 48 ensure that if a landlord or agent charges the tenant an unlawful payment, the landlord or agent must repay it as soon as is practically possible. Currently, when a tenant seeks repayment through the local authority or first-tier tribunal, a landlord or agent has 14 days or 28 days, respectively, to return the unlawfully charged payment once an enforcement order has been made.
We are talking about tenants’ money, and we want to ensure that tenants can recover it in good time. It is not fair for a tenant to be out of pocket because a landlord or an agent has charged a fee or unlawfully required a tenant to pay a third party. Our amendments will require a landlord or an agent to repay unlawful fees within seven to 14 days of the making of an order by the enforcement authority or the first-tier tribunal. The authority or tribunal will have discretion over when the payment is required, within that narrow period. We expect that most repayments will be made within seven days, but we have provided for a range because in certain circumstances it may not be possible for a landlord or agent to repay the money within seven days. I hope that this amendment addresses the concerns that we have heard about the speed of repayment when a landlord or agent is at fault, and we hope that it reassures tenants about the recovery of their money.
Mr Jim Cunningham
The last time we debated the Bill, I raised the issue of who would enforce it. The Minister has mentioned the enforcement authorities. Is it still his intention that trading standards officers should be enforcement officers, or has that changed?
Rishi Sunak
That has not changed. In Committee and during the evidence sessions, there was overwhelming support for the idea of trading standards authorities playing a key role in enforcement, given their complementary responsibilities in similar legislation. We have heard good evidence for that, and they will be supported up front by half a million pounds from the Government in the first year of the implementation of the legislation.
We want to ensure that the enforcement authorities are required to notify the lead enforcement authority in the circumstances that I have set out. At present, they are required to notify the lead enforcement authorities only when they impose a financial penalty. Extending the notification requirement to criminal offences will help the lead enforcement authority more effectively to monitor and report on the effectiveness and operation of the ban. This will also help to support local authorities better with their own enforcement actions.
Fourthly, on enforcement, when a tenant takes action to recover their fees, they should have confidence that their local authority can assist them through the process. The Bill already provides that local authorities can assist an individual in recovering a prohibited payment via the first-tier tribunal.
Maria Caulfield (Lewes) (Con)
One issue with current legislation on the requirement to publish letting agents’ fees has been the lack of enforcement. What confidence can the Minister give the House that enforcement will actually happen under this very welcome new legislation?
Rishi Sunak
My hon. Friend spoke passionately on Second Reading about renters in her constituency and the work she has done with them to ensure that they are treated fairly. I commend her for that, and for raising a very good point. I am pleased to tell her that the Government are funding enforcement activity with half a million pounds of fresh funding in the first year after the Bill is enacted. Subsequent to that, the fines that the legislation will enable local authorities to levy—potentially up to £30,000 for a repeat incidence—will help to fund ongoing activity. I am confident that we will be able to deal with the issue that she raises.
Mr Goodwill
Is the Minister confident that local authorities will have the resources and expertise to do what is set out in the Bill? We in the Bill Committee were concerned that 93% of local authorities had failed to issue even one penalty, and that the level of activity in this area was very poor.
Rishi Sunak
As the Minister with responsibility for local government, I am full of admiration for local authorities and their ability to do many things. The pace of the creation of new legislation over the past year or two means that many of the local authorities’ powers in this area are relatively new, so local authorities are getting to grips with them bit by bit. I am pleased to say that there are very positive examples on the ground of local authorities taking action to enforce housing legislation and reinvesting in enforcement the fines that they generate.
A brilliant example of that is Torbay Council, which has used the fines from civil penalties to employ an extra enforcement officer to help with exactly the activities that we are discussing.
Sir Christopher Chope (Christchurch) (Con)
Why are we not talking about a duty on local authorities to carry out enforcement? The Minister is saying that they have the powers, but the Public Bill Committee heard evidence that the London Borough of Newham prosecutes around 250 landlords and agents a year and that that represents half the total number of prosecutions in the whole sector. Why is there not a duty on local authorities to carry out enforcement?
Rishi Sunak
As I mentioned previously, Newham is obviously ahead of the curve, and the Committee did hear evidence about that, but many other local authorities are now following suit. Liverpool, Camden and Torbay are examples of local authorities that are getting to grips with the new legislation and putting it into effect in good order. I am pleased to say that, as these are relatively new powers, over the summer recess my Department conducted an extensive engagement activity across five different events throughout the country, involving almost 200 different local authorities, to talk specifically about the enforcement of regulations in the sector. Those conversations have sparked a lot of interesting collaboration across local authorities as they contemplate using the existing regulations and the new legislation in future. As we go forward together, with greater awareness and collaboration and, indeed, the greater funding that will come as a result of the legislation, I am confident that we will see enhanced enforcement activity from local authorities, where required.
Kevin Hollinrake
The Minister is doing an excellent job at the Dispatch Box, as always. Does he agree that another method of sanctioning landlords and agents who will not comply with reasonable regulations is through the redress process? The requirement for agents to be members of a redress scheme was introduced by our Administration in 2014. It was a seminal moment in the raising of standards in the industry. The requirement to be a member of a redress scheme, with an agreement going across the other two redress schemes, means that a practitioner can in effect be banned from the sector because they are not allowed to be a member of a redress scheme. If that idea is expanded to landlords, we will have another method of excluding from the sector people who will not do the right thing in the right way.
Rishi Sunak
I thank my hon. Friend for that clear example of an activity that is already happening that enables redress to be found. He is absolutely right to highlight the potential extension of membership of redress schemes from agents to landlords, which would further improve tenants’ ability to seek redress when they need it and would more generally act as an incentive for good behaviour in the first place. He will know that the Government are conducting a broader conversation about the regulation of estate agents, about ensuring that the industry is properly regulated and that standards are high and about ensuring that the actions of a small minority do not jeopardise the health of the great majority of the sector. That is an ongoing piece of work, and I am sure that we will discuss it in the House in due course.
As we discussed in Committee, when a tenant has paid an unlawful fee, it is only fair that they should be given a say in how those fees are reimbursed, and the hon. Members for Great Grimsby (Melanie Onn) and for Croydon Central (Sarah Jones), whom I am pleased to see the in their places on the Front Bench, tabled an amendment to that specific effect. As I said I would in Committee, I have considered their amendment and agree that such a provision would be a worthwhile addition to the legislation. As such, amendments 9, 10, 12, 18, 19 and 43 will place a requirement on landlords and agents to seek consent if they wish to offset such a fee against a tenancy deposit or rent payment. I hope that those hon. Members will be happy with that incorporation.
I am pleased to say that our amendments go slightly further than the one proposed by the Opposition Front-Bench team, by also requiring agents and landlords to seek the tenant’s consent if they wish to offset the holding deposit from the tenancy deposit or a future rent payment. If the landlord or agent does not seek consent from the tenant or relevant person about how the prohibited payment or holding deposit should be refunded, they will be judged not to have fulfilled their obligation to repay the fee. That will leave the landlord or agent liable for a financial penalty and give the tenant the right to recover their fee through the relevant enforcement authority. It will also restrict the landlord’s ability to serve a section 21 eviction notice.
I have already explained why we do not support the amendment tabled by the hon. Member for Great Grimsby on the default fee provision and why our proposed alternative is fairer and more workable. I wish briefly to address amendment 1, which she also tabled and which would increase the financial penalty for a breach of the ban from £5,000 to £30,000, and explain why we do not support it. We want the fine to act as a serious deterrent to non-compliance. We have listened to feedback from across the sector, and we firmly believe that financial penalties provided in the Bill are the right ones. I think that most people would agree that a £30,000 fine for an initial breach of the ban, as proposed in the amendment, would be excessive. We do not want unfairly to penalise landlords and agents who may inadvertently breach the ban on fees. In particular, that might seriously financially hurt individual landlords who, for context, collect on average rent of around £8,000 from a single properly. A £30,000 fine is almost four multiples of that.
Mr Goodwill
Does the Minister agree that a £30,000 fine might well precipitate the sale of the property and the eviction of the tenant—the very person whom the Bill is meant to protect?
Rishi Sunak
My right hon. Friend is right. He made the same points in Committee, and I appreciate his raising them again today.
The Government have listened to concerns that some agents and landlords see the £5,000 initial fines as a cost of business and thus repeatedly refuse to comply. That is why the legislation makes landlords and agents liable for a financial penalty for each individual breach of the ban that they commit. In addition, setting financial penalty at up to £30,000 for a second or further breach of the ban will act as a serious deterrent for prolific offenders. It is worth pointing out that further breaches will leave the landlord or agent liable to prosecution and an unlimited fine and, indeed, qualify as a banning-order offence. The Government believe that, taken together, this set of sanctions forms a serious deterrent to poor behaviour. To accept the Opposition amendment would be disproportionate and excessive in respect of the cases we are discussing.
Bob Blackman
There is a specific issue in relation to very corrupt landlords who exploit vulnerable people. The concern that I think many Members who have investigated the background to this issue will have had, particularly in parts of London, is that a fine of merely £5,000 will be seen as just the cost of doing business. These people are exploiting vulnerable people to the tune of hundreds of thousands of pounds, so for them even a fine of £30,000 would be nothing. I therefore urge my hon. Friend to consider this matter further as the Bill makes its way through the other place. Will he look at what can be done to take on these people? They are not landlords, but rogues and crooks. They need to be brought to account for the damage they are doing to the rental market and for the exploitation of very vulnerable people who have no choice in where they live.
Rishi Sunak
I thank my hon. Friend for that powerful intervention. He knows first hand, from the excellent work he does with his constituents to tackle this issue, the scale of the problem in particular cases. He will be reassured to know that, while existing legislation allows local authorities to levy a £30,000 fine for a second breach, if they choose not to do so, they can go down the prosecution route. For the cases he mentions, that would probably be more appropriate. The sanctions in that case are an unlimited fine and a banning order, which, for the specific landlords he mentions, would be appropriate. I think that he would agree that being banned from being able to rent any property for 12 months or longer, or an unlimited fine, would serve as a very significant sanction to the core behaviour in such cases. With that final assurance, I commend the Government’s amendments.
Melanie Onn (Great Grimsby) (Lab)
I welcome the Government’s amendments. They go some way towards making the Bill much more meaningful, and we will support them. I remain, however, disappointed at the lack of movement on the requirement for deposits, which will stay at up to six weeks. I believe that that remains a significant financial barrier into the private rented sector for many people. Deposits are currently in the region of four weeks at a natural level. Allowing deposits of up to six weeks is likely to encourage more landlords or agents to increase their length and make it even harder for people to access the private rented sector.
Kevin Hollinrake
The hon. Lady makes a point about the length of deposits. Does she not acknowledge that there can be different circumstances? For example, a tenant with pets may damage a property more than a tenant without pets. If we do not allow some flexibility, people in those circumstances might not be able to rent a property at all. Scotland provides a basis for many of the measures in the proposed legislation, and the length of a deposit in Scotland can be up to two months. Does she therefore not agree that six weeks is actually fair and covers more circumstances than simply keeping it at a month?
Melanie Onn
I respectfully disagree with the hon. Gentleman’s perspective. Four weeks is an acceptable deposit. Introducing the possibility of an increase to a maximum of six weeks is unnecessary, and I urge the Government to look at that again.
Before I move on to amendments 3, 1 and 2, I would like to return to a number of important issues raised in Committee that have not been addressed in the Government’s amendments. I hope that the Minister will provide more clarification on them. Perhaps they could be considered as the Bill goes through its next stages.
It is about 12 weeks since we last discussed the Bill, which is something like the timeframe that I and many of us had in mind when the Minister said in Committee that its main provisions would come into force in “a few months” after the Bill had passed. However, on her YouTube channel, “Agent Rainmaker—Letting Agent Growth”, Sally Lawson, the former president of ARLA Propertymark, tells us that the measures in the Bill will not come into force until April next year. That seemed to be a fairly definite date. Can the Minister advise the House on whether that is simply speculation, or whether it is the very earliest the Government can manage to bring forward these very important measures?
I would like further clarification regarding erroneous right to rent decisions by the Home Office and their impact on the return of a holding deposit. Will the Minister confirm that, if the Home Office makes a mistake with a right to rent check and misinforms the landlord that a tenant has failed the check, the landlord will not be liable for a financial penalty? Will he confirm that the landlord will simply be required to return the holding deposit to the tenant, as recommended by the Housing, Communities and Local Government Committee?
Despite the need for further clarification on those issues, I am pleased that the Government have acceded to common sense on a number of issues that we in the Opposition raised in Committee. First, I welcome the Government’s acceptance of the amendment we tabled in Committee to give tenants who are owed money following a prohibited payment a choice over how it is repaid. The original wording could have caused problems for tenants in certain circumstances. More widely, it would have contravened the principle that the money belongs to the tenant and that it is for the tenant to decide what to do with it.
Secondly, after a lot of persuasion from the Opposition, the Government are taking steps in a positive direction on their description of a default fee. It is right that it includes the definition of “reasonable” in association with costs and that there will now be a requirement to produce audits or invoices of any costs levied. Those changes will add substantial benefits to the Government’s definition of default fees and help to prevent the very worst offenders from defining unreasonable costs as a loss.
Similarly, requiring landlords or agents to provide invoices for their costs will provide greater transparency for tenants and represents a substantial shift from the Government’s position in Committee. Giving tenants an invoice allows them to account for what they are being charged and provides a platform for an appropriate challenge when the fee is considered unreasonable or prohibited. I am reassured by the Government amendments that the Minister has heard the point that simply relying on guidance, which was the initial proposal, would not be enough to prevent the continuation of tenants being overcharged. The only way to end punitive default fees, which unfortunately have turned into a cash cow for some unscrupulous landlords and letting agents, is to spell out firmly in the Bill what is and is not acceptable, rather than to rely on guidance.
Less than half of renters in this country see their deposit agreement before handing over their money, and a third have signed a tenancy agreement without fully understanding it. The Bill provides a loophole for unscrupulous landlords and agents to exploit that by placing unfair terms in their tenancy agreements. That is why I ask all Members to support amendment 3. It would provide a clear list of acceptable payments that cover a loss to the landlord. It would allow for fees to be charged only when there was a clear and indisputable cost, and it would prevent the use of tenancy agreements as a device through which to include additional charges. Although we set out a limited set of terms for permitted payments in the amendment, it would not stop landlords claiming damages or taking money out of a deposit where needed. The amendment relates only to situations where there is no dispute and there is a real, additional or exceptional cost to the landlord that falls outside usual expected business costs, such as sending a letter or email to a tenant.
Kevin Hollinrake
Are the fair conditions in amendment 3 examples of charges that may be levied or a definitive list? One thing the hon. Lady has neglected to put in the amendment, for example, is what happens if a tenant breaks the terms of the agreement and wants to leave early or change the sharer. That can result in significant costs to a landlord or agent. Is she excluding that possibility with the amendment?
Melanie Onn
I accept what the hon. Gentleman says. The amendment would serve as an example. I would be happy for it to be adopted and then to be taken on further by the Lords. It sets out examples, rather than being a full definition of the circumstances in which a tenant could be charged.
In principle, putting in place a simple paragraph such as that in amendment 3 would make it far clearer to tenants when a breach had taken place. As it stands, the Bill will still be extremely confusing for any tenant trying to tell whether a breach has taken place. That, in turn, will inhibit the right and opportunity of a tenant to properly challenge a landlord or letting agent at a tribunal. Providing clarity on the face of the Bill would remove the ambiguity. Under amendment 3, it would be easy for a tenant to tell if they had been charged an unfair fee, and they would be better able to self-enforce their rights.
Such self-enforcement may be necessary. The Minister talked about it in very positive terms, but I am not sure it is so positive. It reinforces the point that the Bill does not carry the weight of enforcement behind it to take landlords and letting agents to task properly when they continue to break the law. For the Bill to succeed, it must be backed by sufficient enforcement power.
That is why we propose amendments 1 and 2, the primary aim of which is to allow trading councils the freedom to apply higher fines to those who break the rules. That would improve the enforcement of the Bill twofold. First, it would deter landlords and letting agents from taking the chance of applying prohibited levels of fines towards tenants. Even with strong legislation, we know that tenants can often end up in illegal renting situations owing to a lack of knowledge, a lack of confidence to challenge an unfair decision or the fear that a complaint or relationship breakdown could leave them without a house and on the street. We can see this in the Citizens Advice report “Touch and go”, which highlighted the fact that 44% of tenants did not complain about a category 1 hazard in their house.
Secondly, the Opposition are worried that unscrupulous landlords and letting agents may still be tempted to charge prohibited fees in the belief that they will not be challenged until they have taken well over £5,000 in prohibited fees, and that as a result they will see those fines as a business cost. As the hon. Member for Harrow East (Bob Blackman) pointed out, it is just the cost of doing business, rather than the real deterrent it should be. I echo his point that some of the people who local authorities have been enforcing against are not genuine, upstanding, licensed and registered, above-board landlords and agents, but criminals and crooks, and the fine of £5,000 will simply not be enough to deter them.
The Minister had concerns about the £30,000 fine, but amendment 2 states only that it “must not exceed” £30,000. That need not necessarily be the first fine—that would be for the enforcement agency to determine, given the circumstances and an understanding of the situation. Still, to provide a full deterrent would certainly increase the odds against those who take the chance and charge prohibited fees.
Mr Goodwill
I do not for one second wish to defend the actions of some of these unscrupulous letting agents, but the fine will be £5,000 for each occurrence, so if they are serial offenders, they are likely to get serial penalties. At the same time, of course, some landlords may inadvertently fall foul of the law, and it would be unfair to impose on them fines as big as £30,000. As I said to the Minister, it might result in properties having to be sold and tenants losing their house.
Melanie Onn
I hear what the right hon. Gentleman says, and I thank him for his intervention, but I repeat the point that the fine “must not exceed” £30,000 but need not necessarily be £30,000 in the first instance.
Daniel Kawczynski
The hon. Lady is eloquently highlighting the importance of protecting tenants, but I am a little concerned that in all her points there is little reference to protecting landlords and letting agents. I hope she will come on to that. When ARLA Propertymark surveyed Members of Parliament, one newly elected Member informed it that there should be no private sector rentals, that they should be abolished and that we should have either owner-occupier homes or social housing. I hope she does not agree with that and that she will put on the record her support for the private sector in providing jobs.
Melanie Onn
There is absolutely no suggestion in my comments that we should do away with the private rented sector, but the balance to date has been too far in favour of a private rented sector that has grown exponentially over the last 10 to 15 years and left tenants in a tenuous situation when it comes to their properties. When properties are just being used as commercial entities, with no consideration for the fact that they are people’s homes, that is where the difficulty lies, and it is absolutely right that the Bill is primarily designed to shift the balance a little more in favour of tenants, who so far have had a very bad deal.
James Cartlidge
Further to the intervention by my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski), while we all agree that the Bill is a positive measure to help tenants, is there not a danger that if we start ramping up fines and so on, instead of a positive measure to help tenants, the Bill will look like an attack on many small businesses, the vast majority of which conduct their businesses entirely in accordance with regulations?
Melanie Onn
I thank the hon. Gentleman for his contribution. If the Government were to adopt my amendment, I am absolutely sure that that is not the message that they would want to send out to the private landlord sector. This is not about people who are operating legitimately, who do a good job for their tenants, who are supportive of tenants and who are doing everything in their power to assist them when problems arise; it is about the minority of landlords who do not care about the standard of accommodation that they are providing or about the concerns that tenants may raise with them. If we are to have legislation that has some teeth and that does what it intends to do, which is to try to prevent those people from entering the market in the first place, we should have potential fines of significant figures. That would be a positive thing, and legitimate landlords and agents would welcome it.
Maria Caulfield
To go back to amendment 3, is the hon. Lady not reassured by schedule 1? It states that
“if the amount of the payment exceeds the loss suffered by the landlord as a result of the default, the amount of the excess is a prohibited payment.”
Does that not reassure her that the Bill will protect tenants from those who want to charge exorbitant default fees, as evidence will have to be provided and the amount will have to be justified by the cost that the landlord or the letting agent has had to pay out?
Melanie Onn
As I said at the outset, we support the Government amendments and will not oppose any of them, but I am not sufficiently reassured that my amendment is not still required. As I said, we will not oppose the relevant Government amendment, which has come about as a result of constructive conversations in Committee, where a lot of these issues were dealt with in great detail.
We have not touched in great detail so far on how we can ensure that landlords do not avoid their responsibilities, and that is by enabling local authorities to enforce more proactively. The increase in the fines will go towards assisting with that, and we know that the Government have also committed some funding towards that. The evidence that we heard was that trading standards across the country is a decimated sector within local government. It is already unable to do what is required of it in making checks on letting agents—for example, on the displaying of tenants’ fees. We should therefore allow the additional funding that comes in through these fines to go to local authorities and back into enforcement, which is exactly what the Minister has proposed with the £5,000 fine. That will give local authorities greater income and revenue to provide that enforcement.
I will leave it there, but I hope that Members on both sides of the House will consider voting for the amendments that we have put forward today.
Several hon. Members rose—
Madam Deputy Speaker (Dame Eleanor Laing)
Order. It will be obvious to the House that there is one hour and one minute left to debate this part of the proceedings and that a great many people wish to speak. I quite understand why those on the Front Benches had a lot to say and took a lot of interventions; this is a very large group of amendments. I appeal to hon. Members that if anybody speaks for much more than five minutes, they will be preventing many of their colleagues from speaking at all. It is not up to me to regulate that; it is up to the honour of each Member of the House to limit their remarks, not necessarily in scope but in time, because brevity is the soul of wit.
Mr Goodwill
I was very pleased to serve on the Bill Committee and to hear the very good reasons why the Bill came forward. I am pleased that the Minister has responded to some of the points made in Committee with the Government amendments, which I am very pleased to support.
The picture painted by colleagues from the south of England, particularly from London, does not represent the position in places such as Scarborough in the north of England, where there is a very vibrant rented sector, with adequate supply and demand and where the sort of fees that some have been talking about are not extracted from tenants. However, it is obvious from what we have heard that the current system is not working to protect tenants. Ninety-three per cent. of local authorities have failed to impose a penalty, and with many letting agents not publicising their fees it is difficult for prospective tenants to know what they would actually have to pay and almost impossible to make comparisons. I have also spoken to local estate agents, who have told me about some of the charges they have to take on board. A credit check, for example, can cost as little as £15, but a rogue agent could be charging as much as £625, which is taking advantage.
Daniel Kawczynski
Does my right hon. Friend agree that in places such as Shropshire and Yorkshire the market is in the main regulating itself rather well and these changes might be perceived to be slightly excessive?
Mr Goodwill
Yes. As a landlord myself I am aware of how that operates. We have talked about private landlords and social landlords. I like to see myself as a social landlord: I do not see what I provide to my tenants as being any different from what is provided by a housing association or a local authority—indeed, I like to think I give a better service. Still, it is right that this legislation has been introduced, particularly as double-charging could take place, with both tenant and landlord paying fees to the letting agent and the letting agent doing very well out of that.
I do not agree with the Labour shadow Minister, the hon. Member for Great Grimsby (Melanie Onn), about the fines in amendment 1 and 2. A £5,000 fine for a landlord is already equivalent to a year’s rent for many properties in my part of the world. As I said, having much larger fines could jeopardise the business of such landlords. I also do not support amendment 4, tabled by my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski). We must do everything we can to help people to get into housing—I would prefer that they were able to buy their houses, but if not, we must help them to get into the rented market. A problem people often face when moving house is that the deposit put on the previous house is not made available at the same time as the new tenancy takes effect. Therefore, having to find, for example, six weeks’ rent at £100 a week plus another six weeks’ rent at £100 a week, plus maybe a £300 fee, as the amendment suggests, means a person looking to rent a two-bedroom flat in Scarborough or Whitby would need to find £1,500 of cash just to make that house move.
I was appalled to hear the nightmare stories mentioned by the right hon. Member for Birkenhead (Frank Field). As my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) made clear, the tenants’ redress scheme introduced in 2014 means that the landlord can no longer see that money as their own money that they can snaffle when the tenant moves; instead, they need to demonstrate that real damage has been done or there are real problems that require that money to be used. In the past, I am afraid, I have heard horror stories where reasonable wear and tear was put down as damage or a slight scratch on the wall was taken to indicate that a whole room had to be decorated. I was pleased to hear from the Minister that he is looking at the possibility of a passporting scheme for these deposits. That is desperately needed because it is so frustrating for a tenant wishing to move that their deposit, which they will get in due course, is frozen and cannot be used to pay the next deposit.
To return to amendment 4, it is not reasonable to introduce these fees of £200 or £300. That would become the norm and, to be fair, it is the landlord who is getting this service: it is the landlord who is interested in the creditworthiness of the tenant and who wants to see the legalities and the administration done correctly, and therefore it is not unreasonable for the landlord to pick up the bill. Indeed, many landlords will do much of this work themselves, and tenancy agreements are available to download which makes doing that much easier.
In supporting the Government amendments, I hope that my hon. Friend the Member for Shrewsbury and Atcham will not press his amendment. We certainly would not want the Opposition amendments to be pressed.
Matt Rodda (Reading East) (Lab)
I am grateful for the opportunity to speak in this debate, having spoken on Second Reading in May. It is also a pleasure to follow my hon. Friend the Member for Great Grimsby (Melanie Onn) and other Members.
In Reading East we have seen increasing numbers of young people and families entering the rental market, and it is in the vital interests of these residents and all my constituents that the rental market in our area is affordable, transparent and accessible. However, as with many other constituencies, rising rents, large deposits and high letting fees are increasingly causing difficulties for those seeking to access rented accommodation.
Along with my Labour colleagues, I welcome the Bill as a first step towards establishing a fair and reliable rental market for tenants in my constituency and across the country. However, I remain concerned that the Bill does not go far enough in its protection for tenants. In particular, I am concerned that it does not go far enough to protect tenants against default fees. As we have heard, these are the fees that are chargeable if a letting agent or landlord incurs costs due to a tenant’s actions, such as replacing a lost key or making a late payment. These fees are set at the discretion of the landlord or the agent, and have been described by agents themselves as a back door to reclaiming income lost through this Bill. I share the concern expressed by the Housing, Communities and Local Government Committee and by other respected organisations such as Shelter and Citizens Advice that the lack of clarity regarding default fees creates a major loophole that could expose tenants to unreasonable fines from unscrupulous landlords or letting agents.
Dr Drew
In a survey that I conducted in Stroud, I found that the agents were making just that point. They want complete transparency and fairness in relation to tenants as well as landlords. Does my hon. Friend see the Opposition amendments as a way in which we could strengthen the Bill and deliver that?
Matt Rodda
My hon. Friend makes an interesting point, and I urge the Minister to take this opportunity to listen to him and to the points made by our Front Benchers.
Amendment 3 provides a clear definition of default fees and limits the amount that could be charged, while still allowing landlords and agents to charge for expenses where there is a clear cost. It would provide clarity for all parties and, crucially, it would provide tenants in my constituency and elsewhere with the protection from exploitation that they so desperately need. Surely colleagues across the whole House would agree that that is the right thing to do. I therefore urge the Minister to consider this amendment and to consider strengthening the Bill to provide limits on what can be charged for. I urge him to take this opportunity to protect tenants from exploitation. It is time for the Government to listen to tenants and to deliver a fair, accessible and accountable rental market for all.
Richard Graham (Gloucester) (Con)
I rise to support the Tenant Fees Bill, which has been so clearly presented today by the Minister. The abolition of most up-front fees, the capping of security deposits at six weeks’ rent, the reduction of costs to tenants in the private sector potentially by hundreds of pounds and the increasing of transparency in the housing market—surely we can all unite in saying that these characteristics of the Bill are a good thing. We have all met constituents who rent and whose fees have gone up by roughly 60% in the period between 2010 and 2014 and who have been charged fees for the most bizarre and sometimes unfair reasons—including, for example, checks being made by the same agency on the same tenant for a different property in a short space of time. As my right hon. Friend the Member for Scarborough and Whitby (Mr Goodwill) mentioned, those fees should be paid by the landlord if they are going to be paid by anyone. As rents and demand increase, the unfairness in the marketplace from a few—I stress a few—landlords and agents that is tolerated by law requires a response from the Government.
However, the Bill is not just about saving money and increasing transparency. The principle of fairness will also be boosted because all landlords will have to be members of a redress scheme, and because tenants should have easier access to dispute resolution. That is an issue that many of us will be familiar with through our own surgeries. Agents will have to be registered as members of a client money protection scheme, as many already are, and banning orders and a database of rogue landlords will be introduced. We all know about the frequent suspects whose properties consistently fail environmental health inspections, and I suspect that they will find their way on to that list unless they change their habits, which is the point of the Bill. At the same time, there will be a further consultation on benefits and barriers relating to longer-term tenancies, which I also welcome.
The ban on fees, the capping of security deposits and much else has already been welcomed by many organisations, such as Which? and Citizens Advice, and on the face of it there is no reason why anyone should object to the changes. However, there are of course some who have opposed some of the detail of the legislation, and at a time when trust is such a crucial element in the relationship between tenant, agent and landlord it is worth touching on those objections.
Matt Western (Warwick and Leamington) (Lab)
I rise not only to endorse the changes made by the Government, but to support the amendments tabled by my hon. Friend the Member for Great Grimsby (Melanie Onn) and to welcome the Bill. The Housing, Communities and Local Government Committee heard wise evidence and counsel from various groups, including landlords’ organisations and local authorities, and it is quite clear that there has been a bit of a wild west for many years in certain parts of country. I am proud to say that I have some excellent, responsible agents in my constituency, but there are the less scrupulous exceptions for whom greater regulation is really needed, so the Bill is timely. I have lived and rented in France, where it was evident just how much tighter and more balanced the legislation was.
To echo the point made by my hon. Friend the Member for Great Grimsby, this is really about rebalancing the relationship between landlord, agent and tenant to make it much more transparent and much fairer. For many years tenants have felt disempowered in that relationship, and over the past 20 years we have seen significant growth in the proportion of people renting privately. That proportion has doubled, and in some parts of the country, such as the north-east, it has increased by 200%. It is important that we get to grips with this, and the Bill moves us a long way in doing that.
In the past week I spoke to a student in my constituency who is facing tenant fees of £595 for one year. In some cases we are witnessing extortion, particularly in sectors with high churn, typically with one-year tenancies. We could have gone further, but I welcome the main part of the Bill.
As has been said in the Chamber, and also by organisations such as Shelter, Citizens Advice and Which?, the default fees could have been more clearly and more extensively defined. As the hon. Member for Harrow East (Bob Blackman) said, what is reasonable is open to interpretation. We have seen extreme cases involving replacement key costs, for example. I support amendment 3, which was tabled by my hon. Friend the Member for Great Grimsby, in those circumstances.
The level of the deposit cap was widely raised with the Select Committee by landlords and others. I would have preferred a four-week maximum, but I understand how we got to where we are. Deposit caps are a particular issue for high-churn tenancies. The idea of passporting, as proposed by the Minister, is a welcome move.
Tim Farron (Westmorland and Lonsdale) (LD)
The hon. Gentleman makes a good point. Does he agree with the observation, which has also been made by bodies such as Shelter, that an impact of high deposits is increased homelessness? Homelessness has tripled in my area of the south lakes in the past year, despite our building more council houses. A six-week limit would mean an average deposit of £1,100, which would make a rental property unaffordable for many people.
Matt Western
The hon. Gentleman makes a valid and pertinent point. High deposits are very much part of the cause of homelessness in many areas, because people feel financially and socially excluded from the private rented sector. As I alluded to at the beginning of my speech, high deposits have made renting privately much more difficult. In the same period we have seen a 20% reduction in social rented properties, which are critical.
I will move on because of time. On the issue of compliance, the Select Committee heard how few authorities, whether it be because of less appetite or because they just do not have the enforcement officers, follow through on enforcement. As we have heard, 93% of authorities have not taken enforcement action against rogue landlords. Of course the shining exception is Newham, which, as the Select Committee heard, accounts for half those enforcement cases.
I urge the Minister to reconsider Labour amendments 1 and 2. If £30,000 is seen as too high a maximum, there should be flexibility for authorities to introduce a more appropriate figure, as my hon. Friend the Member for Great Grimsby said—the hon. Member for Harrow East mentioned that £5,000 is a cost of doing business. That is how this was all done in the past, and we have to break that for the future because of the growth and importance of the private rental sector.
I support and welcome the Bill, but I would just ask for tighter regulation of default fees.
Daniel Kawczynski
In the few minutes available to me, I wish to raise a few issues on behalf of my constituents who are involved in this sector, particularly those working for letting agencies. I thank the Minister for seeing me in the Department yesterday, along with the Secretary of State; he has been unfailingly courteous and very well informed. I thank him for listening to me, as he has to others, about some of the concerns I have shared with him on behalf of my constituents.
I had wanted to propose an amendment to cap the fees that letting agents could charge to £300 rather than abolishing these fees entirely, because this proposal directly contradicts the Conservative party’s long-held ethos of being a pro-business, pro-free market party. If these are the measures we are supporting, are we truly a pro-business party? Mr Paul Wallace-Tarry from Belvoir, a letting agents in Shrewsbury, certainly believes we are letting him down by implementing the Bill.
As someone who has rented a property in London for the past 13 years, I am acutely aware of the job that estate agents and letting agents perform. They carry out things ranging from the right-to-rent checks to negotiating contract changes, and from safety checks to organising the tenant move-in. Many times as a tenant I have called upon the agent for help. I believe it is very important to keep the equilibrium correct between the tenant, the landlord and the letting agent, and this Bill may be slightly tipping the balance in favour of the tenant, rather than the landlord.
The Government’s own findings revealed that the mean fee paid by tenants upon moving into their accommodation was £223. However, a ban on tenant fees will lead to rents increasing by around £103 per annum, so industry experts say. For a three-year lease, the tenant would therefore end up paying £309 in total, which is £86 more than the tenant fee. It has also been found that rents could increase by around £82.9 million as a result of the Bill. Clearly the services that the letting agents put in place are being implemented by professionals, and they have to be paid for in some way. The fear is that this will just go on to rents, which are less transparent and accountable than a clear, specific fee.
ARLA Propertymark has found that 90% of letting agents believe that a ban will lead to a rise in rents. Some 60% think that it will lead to lower property quality, and 40% think it will lead to a fall in employment in the medium to long term. If estate agents have to choose between their working relationships with tenants or with landlords, they will side with the landlords, given that there is no financial responsibility or duty of care between them and the tenant. This is what I want to see protected; I want that relationship to be very evenly matched.
I end by simply saying that if the Conservative party understands anything, it is the need to support small business. I feel passionately about the role that small businesses play in our constituencies. I never had the courage to set up my own business. I always worked for large-scale, multinational corporations, knowing that my mortgage would be paid at the end of the month and not having the responsibility of employing people. Many of the people we are talking about today did have the courage to set up their own business. They are entrepreneurs and they are employing professional people, and this is very important. I hope that the Minister will acknowledge the extraordinary amount of care and professionalism that many of these letting agencies in Shrewsbury implement on behalf of their constituents. The Conservative party must understand the need to support small business, with less regulation, less red tape and less taxation in order to empower entrepreneurship and empower people to create the wealth we need to fund our public services. This ban is in direct opposition to that.
As I have said already to the shadow Minister, when ARLA Propertymark conducted a survey of all Members of Parliament, a newly elected Labour Member—I would get into a lot of trouble if I named him—told ARLA that he was not interested because he wanted the whole private sector banned, leaving only owner occupiers or social housing. That is the sort of prejudice that we have to deal with, and it is important that the private sector is respected and supported.
Anneliese Dodds (Oxford East) (Lab/Co-op)
I am pleased that the Government have finally accepted the need to ban tenant fees, for which my party has called for for no fewer than five years—I have personally campaigned for the ban for four years. I support the Labour Front-Bench amendments, because the Bill does not go far enough. We need further specification of the fee regime to make it more user-friendly, and we need to increase penalties for those landlords and letting agencies that flout the new legislation.
Few places in the country are in more need of this legislation than Oxford. Only 39% of people in the city own their own home or have shared ownership—that is well below the national average. Nearly half—49%—rent privately, and that figure has risen by more than a fifth since 2001. Private renting is not just a stopgap in the city; it is the only option for huge numbers of people.
The cost of setting up and maintaining a tenancy in the private rented sector is a huge problem in the city. The sharpest end of that is seen with the exponential growth in rough sleeping in Oxford. On some nights in the 2000s, nobody would be recorded as sleeping on the street, but nowadays having 60 people rough sleeping is the new normal. That is relevant to this debate because the core reason why people in Oxford become homeless has changed. It used to be relationship or family breakdown, but that is no longer the case. The key reason for homelessness now is landlords ceasing tenancies, often because of non-payment of fees.
There are many excellent landlords and letting agents in Oxford, and I find some of the mischaracterisations of the Opposition’s approach in this area bizarre. We all know excellent landlords and letting agents in our constituencies, but a small number bring the rest of the sector down and pollute its reputation, because they do not act in a responsible manner. A significant proportion of my postbag is taken up with tenants who have been asked for unreasonable fees, as well as people who are simply unable even to rent. In fact, I have a meeting in a couple of days with someone who is trying to move into Oxford but cannot afford the different costs associated with getting into a tenancy, and that is even with the private rented sector deposit guarantee scheme operated by the local authority. People are not able to move into Oxford’s private rented sector anymore.
Labour’s amendments would ensure that the new regime that the Bill will rightly introduce would be sufficiently watertight. I welcome some of the changes that the Minister specified, but we need the fee regime to be upfront in the manner specified by my hon. Friend the Member for Great Grimsby. We need a user-friendly regime that tenants can easily understand, and that is not presently the case under the Bill.
We also need to make sure that the fees are sufficient. Oxford has one of the strictest regulatory regimes for landlords, operated by the local authority. Many landlords support it because they see that it squeezes out the rogue operators, and that it has removed many of the most unsafe and unhealthy properties from the housing market in Oxford. The regime pays for itself, and it is important that the regime under the Bill pays for itself, too. That means that those fees have to be sufficient. We have already had a lot of discussion about the cuts that have been made to trading standards, but it might also be helpful to look at how those fees—the Minister asserted that they would be sufficiently deterrent—compare with some of the profits obtained by landlords in areas such as my own.
The average property rent in Oxford is currently £1,919 per calendar month, so £5,000 is very obviously less than three months’ rent—we can all do the maths. Now, I appreciate that not all that rent will be profit, because of course there are associated costs. However, estate agents encouraging people to come into the buy-to-let market in my city inform those people that they will have an average annual return on their investment of 18%. When we talk about whether a fee is deterrent and whether a £5,000 fine is sufficient, we should reflect on that figure.
Comments have been made about the role of central Government and local authorities. Yes, it is absolutely right, as the hon. Member for Christchurch (Sir Christopher Chope) said, that there are local authorities that do not fulfil their responsibilities. There are others that want to go further but have been able to do so only at the behest of central Government. Please can we get to a situation in which local authorities that want to have more stringent regimes do not have to wait to get the okay from central Government? We need more local control.
Bob Blackman
It is a pleasure to follow the hon. Member for Oxford East (Anneliese Dodds) and the passionate view of her constituents. May I draw the attention of the House to my entry in the Register of Members’ Financial Interests?
In the absence of the Chair of the Housing, Communities and Local Government Committee, I had the honour of chairing the Select Committee pre-inquiry into this legislation. We looked at a lot of the evidence that is now coming forward. I am delighted that the Minister has seen fit to make some changes during the passage of the Bill and to accept many of the Select Committee’s recommendations.
The hon. Member for Great Grimsby (Melanie Onn) raised the matter of how many weeks’ rent a deposit should be. It is a shame that she has not tabled an amendment to that issue on Report, because I think several Conservative Members would feel very sympathetic towards restoring what the Select Committee recommended, which was a compromise. There was an argument for four weeks and an argument for six weeks, and we took the view that five weeks was the appropriate compromise for two reasons. First, if the limit is four weeks’ rent, there is a risk that the tenant will just refuse to pay the last month’s rent at the end of a tenancy. Secondly, a deposit of six weeks’ rent would almost certainly become the norm for most landlords, and would therefore be inflationary on the amount of deposit that would be charged.
I gently remind the Minister that in the last Budget the Chancellor allocated some £20 million towards a national rental deposit scheme, following representations from me and several other colleagues to set one up. The Department has not yet set up that scheme, but by saying that the limit will now be six weeks, instead of four or five, the Minister is going to reduce straightaway the number of families that can be assisted under the national rental deposit scheme when the Department finally does bring it forward. I ask him to look at this figure again, because it will limit the number of people who could be assisted through this programme.
On the issue of enforcement, I welcome the changes proposed by the Minister. Many of the changes, which are very clear, go above and beyond those proposed by the Opposition. Having looked at the evidence in relation to this legislation, many of us will share concerns about the difference between what I would classify as true costs, and charges. In answer to my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski), the key question is, who does the letting agent work for? The letting agent works for the landlord, not the tenant. It is the responsibility of the letting agent to acquire tenants on behalf of their employer—namely, the landlord—and therefore there should not be two charges incurred. The letting agent should charge the landlord for their fees, not charge the tenant for acquiring.
However, there are costs associated with acquiring a tenant—for example, when there is a requirement for a credit check. If a prospective tenant were to fail that test, there is a cost that someone has to collect. If an applicant makes a request through a letting agent and a credit check is then undertaken that is failed by the prospective tenant, it is reasonable that the cost should be passed on to that individual, particularly if they were going to knowingly fail the credit check in the first place. That is an example of a true cost as opposed to a fee charge. My hon. Friend has set out a set of areas and then a limit on the charges that a letting agent may charge a tenant. I trust that he will not press his amendment to a vote, because that goes completely against the spirit of this Bill and what we are proposing.
Kevin Hollinrake
My hon. Friend is making an important point on referencing. Does he agree that it might be beneficial if the Bill were clarified so that everybody was clear about circumstances in which some of the holding deposit might be retained by the landlord or the agent in the case of somebody failing a reference check? If that were not the case, people on low incomes, for example, could be discriminated against when they apply to rent a property.
Bob Blackman
I thank my hon. Friend for that intervention. We clearly need to be more specific. I accept the principle set out by my hon. Friend the Minister that we should not put this in the Bill, but it should be put in regulations, because we can change regulations rather more easily and add things to them at an appropriate time without having to go through primary legislation once again. This is a question of detail that I ask my hon. Friend the Minister to look at again.
The other issue is charges for, for example, lost keys, cleaning or damage that may be done to a property. Those are reasonable costs that a tenant should incur. If that has to be set out in the tenancy agreement, it must be made crystal clear in what we lay out in regulations and guidance to landlords what is allowed and what is not allowed. In particular, things that are not allowed must be specified as being completely outwith the potential of the Bill, as opposed to being in the Bill.
I thank the Minister and his team for looking at and reflecting many of the recommendations that the Select Committee made on the draft Bill. With a few more tweaks, this can be an excellent Bill that we can all be very proud of.
Bim Afolami (Hitchin and Harpenden) (Con)
I rise in support of this Bill and my hon. Friend the Minister. During the Bill’s passage, he has conducted himself, as I think everybody in all parts of this House has already recognised, with the utmost sincerity and courtesy to all parties, both inside and outside the House.
I served on the Bill Committee—entirely voluntarily, of course, Madam Deputy Speaker. Having listened to the exchanges in Committee and today, it strikes me that there are a couple of points where there is complete agreement in all parts of the House. There is agreement that the average letting agent fees have gone up by 60% over the past six or seven years, and that there is a growing problem of tenants feeling that they are less empowered in relation to their tenancies and letting in the private sector market.
Maria Caulfield
I want to touch on two issues to do with fees and enforcement. I want to put on record my thanks to the Lewes citizens advice bureau, which did extensive research for my Adjournment debate in May 2016. While the explanatory notes to the Bill say that letting agents’ fees are on average £200 to £300, in my constituency —probably because it is in the south-east—they are on average between £200 to £1,000. On top of a deposit of six weeks’ rent in advance, that means someone can have to find £2,000 to £3,000 in advance.
This legislation will make a huge difference to tenants in my constituency of Lewes. However, I have some concerns about default fees, which I raised on Second Reading and in Committee. I am pleased to see Government amendments 5 and 6, which tighten these provisions. As stated in my entry in the Register of Members’ Financial Interests, I am a patron of the charity Homelink, which provides more than £100,000 of support to tenants looking for deposits in the Lewes district. The charity is still slightly concerned about default payments, but amendments 5 and 6 are really welcome because they tighten the provisions and state that default payments have to be listed in advance in any tenancy agreement and that there has to be evidence that those fees exist.
Maria Caulfield
I will not give way, simply because of the time constraints on us.
If tenants are found to be in breach of those requirements, they will be liable to penalties and to prosecution, so I am more reassured than I was at the start of the debate. I welcome the fact that the Minister has listening ears, because he has really tried to listen to all Members on this matter.
On the enforcement issue, I am still concerned—not because of this legislation, but because of the failure to enforce the existing legislation requiring letting agents to publish their fees. I welcome the fact that, under clause 7, district councils will be able to keep the penalties charged, and I very much welcome the Minister’s announcement today that there will be £500,000 of up-front loading for councils to enable them to invest in staff and to start taking on enforcement. I want to pursue this, however, by asking what will happen if that still does not result in enforcement, because we will be no further forward with this brilliant legislation if enforcement does not happen. I also put on the record my interest as a vice-president of the Local Government Association, which asked for the up-front loading.
If we are giving councils the money in advance and they are able to keep the penalties, they really must step up to the mark and enforce the legislation. It will make such a difference to tenants’ lives if they know in advance what fees they will have to pay and that those fees are evidence-based, and if they know that if those fees are abused, there will be prosecutions and severe penalties. I cannot support the Opposition’s amendment 3, simply because schedule 1 sets out which fees will or will not be payable, while the Opposition have only given some examples of such fees. That is not really strong enough, and the amendment would severely weaken the legislation.
I congratulate the Minister, who has done a fantastic job in listening to everyone. I still have some slight concerns about enforcement and the default payments, but I am very happy to support the Bill.
Sir Christopher Chope
It is a pleasure to be able to speak in this debate. I am neither a landlord nor a tenant, but I am the chair of the all-party group on the private rented sector, and that sector is under substantial pressure on issues relating to regulation and interference by the Government.
The Residential Landlords Association has estimated that, in the past nine months alone, there have been over 25 consultations across Whitehall proposing changes that will have an impact on the private sector. More than 140 Acts of Parliament and more than 400 regulations affect landlords in the private sector already. That is why many of those landlords choose to get help from letting agents, and this Bill is a direct attack on the profession of letting agents. As my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski) has said, this is not a Conservative measure at all, and I despair at the fact that so many people seem to want to support this exercise in socialism and control.
Why should a Conservative Government be engaged in preventing professionals from charging a fee for services rendered? Doctors in my constituency charge those aspiring to become social tenants £15 a time to get a medical certificate in support of a social housing transfer. That—in response to my hon. Friend the Member for Harrow East (Bob Blackman)—is not a cost, but a charge. It is a charge, and it is an arbitrary charge: it is imposed, but payable. As I understand it, the Government are not proposing to abolish the right of doctors to charge for writing letters, so why are we proposing to prevent letting agents from charging for the services that they provide?
Sir Christopher Chope
No, I will not give way, because I want to allow hon. Members who have not yet spoken to get in.
Why are we preventing letting agents from charging for credit reference searches, identity and passport checks, and all the rest? When one looks at the evidence in support of the Bill, it is quite clear that if the existing laws were properly enforced, the need for the Bill would not have arisen. I am extremely sceptical about the Government’s assertion that enforcement will be a lot more effective. If they really believe that, why do they not place a duty on local authorities to enforce the legislation, rather than leaving it as a mere power?
The legislation will have a lot of unintended consequences. It is already difficult enough for tenants to obtain rented accommodation if they have pets. It is very difficult for tenants on housing benefit to obtain accommodation. It is very difficult for tenants who do not have clear British citizenship to get rented accommodation. All those things will become a lot more difficult as a result of this additional burden on the private rented sector.
Some 30 years ago, I was a junior Housing Minister. I was much associated with deregulating the sector—introducing shortholds, getting rid of controlled tenancies and enabling the growth that has taken place in the private rented sector. I am disappointed to see my Government working in the opposite direction. I signed amendment 4, which was tabled by my hon. Friend the Member for Shrewsbury and Atcham. I understand that he has been bought off by the Government, so I will not press the matter to a vote. However, I think that there is too much crowd-pleasing on the part of the Government and not enough sensible regulation and recognition of the important work done by those in the private rented sector.
Kevin Hollinrake
This is the perfect opportunity for me to speak. I draw the House’s attention to my entry in the Register of Members’ Financial Interests, as a result of which I recused myself from the Select Committee’s pre-legislative scrutiny of the Bill. On the face of it, the Bill will cost my business more money than I wish to think about, and it is certainly keeping my finance director awake at night; we are talking about significant sums. Nevertheless, I disagree with my hon. Friend the Member for Christchurch (Sir Christopher Chope), because we do not have a free market here. I think that it is an entirely Conservative policy to make sure that we have free enterprise and a free market.
Tenants choose properties; they do not choose letting agents. Landlords choose letting agents. Despite the cost, we should be standing up for the values of free enterprise. The business I have mentioned, which I am still involved with today, could not have been built without the opportunities provided by free enterprise, so there is no way that I could not support the Bill. I appreciate the amendment tabled by my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski), but I think that even a cap is the wrong approach. We need to abolish these fees completely, as I have consistently argued to the industry.
I want to make a couple of points about free enterprise and the private rented sector. The shadow Minister, the hon. Member for Great Grimsby (Melanie Onn), said that the private rented sector had increased exponentially over the past few years. When I started 30 years ago in this business, I operated in York, where the lack of supply meant that anyone who wanted to rent a home would probably get a shabby, damp, dark terraced house. It is because of private sector investment that we now have such tremendous supply in this marketplace, generally at fair rents.
I am not sure where the hon. Member for Oxford East (Anneliese Dodds)—she is not in her place—got the figure of an 18% yield from, but that seems incredible. On that basis, there is probably a march of investors heading down the road to Oxford East to buy property. Generally, yields in the sector are very tight—about 4%, not 18%—because of the competitive nature of the market.
I support the Government amendments to ensure that any charges are clearly defined in a tenancy agreement.
Kevin Hollinrake
I am sorry; I cannot, because of the time. Many people have been here for the whole debate and want to speak.
I cannot support amendment 3, because it is restricted to two elements: a lost key, or a late rent payment. Tenants create many other costs for landlords and agents, and it is only fair that landlords and agents should be reimbursed. As an example, one tenant recently rang one of our offices late at night on the out-of-hours phone number and said that they had forgotten where they lived and asked whether we could go and pick them up and take them back home, because they had had a little bit too much to drink. That is not a typical scenario, but there are lots of different situations in which landlords and agents may incur costs. I am thinking particularly about the chasing of rent and a change of sharer, which represent significant costs to landlords. I would support a limited and fair list—and most agents will be fair.
Mr Clive Betts (Sheffield South East) (Lab)
I apologise for not being present at the beginning of the debate; I had a meeting on the private rented sector, believe it or not.
I wish to say briefly that there is agreement in principle across the House on this Bill. It was improved by the consideration of the Housing, Communities and Local Government Committee, and I thank the hon. Member for Harrow East (Bob Blackman) for chairing the meetings in which the Committee looked at the draft Bill. I agree with him strongly that this is an issue of a contract between the landlord and the letting agent. That is the principle and that is why tenants should not be charged the fees. I see that one Government amendment clearly spells out that if a tenant goes to a letting agent and says, “Please find me a property,” that contract would be between the tenant and the letting agent and therefore a different arrangement.
I welcome the amendment that means that an enforcement authority will be able to help a tenant who wants to recover a charge awarded to them by the first-tier tribunal. That is a good amendment and I welcome the Government’s tabling it, but it surely shows the need to move to a housing court system, which the Government have promised.
Rishi Sunak
May I briefly thank all Members from all parties for their contributions today, in Committee and in the Select Committee hearings? All those contributions have helped to get the legislation into the fine shape that we find it in today. I appreciate all the insights from everyone. I welcome the broad support for the Bill. If Government or Opposition Members still want to engage on the details, I am very open to having those conversations.
Let me briefly answer the specific questions asked by the hon. Member for Great Grimsby (Melanie Onn). On timing, I am obviously not in control of the parliamentary timetable, but there will be a short period of time after Royal Assent—perhaps we should call it an implementation period rather than a transition period—after which the Act will come into force. Within 12 months of that point, any existing and legacy contracts will be subject to the Act’s provisions.
On the hon. Lady’s question about right-to-rent checks and incorrect Home Office information, I can confirm that under clause 8(5) the landlord would not be held liable.
Let me try one last time to persuade the hon. Lady not to press to a vote amendment 1, on fines. Perhaps she is not aware that the maximum fine is £1,000 under similar legislation in Scotland and that the maximum fine is just £500 in Wales. The Bill contains an initial fine of £5,000; the hon. Lady’s proposed maximum fine of £30,000 would be 60 times that of her party’s Government in Wales. I am sure she would agree that that sounds slightly disproportionate and that it gives her something to digest.
Finally, I thank my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski) for his passionate defence of the free market economy in free enterprise and competition, with which I wholeheartedly agree and to which I wholeheartedly subscribe. It has been a pleasure to engage with him on the details of the Bill, and I assure him that as a fellow champion of small business, I continue to ensure that nothing we do will jeopardise the health of that free enterprise economy. I appreciate his advocacy on behalf of small business and look forward to future conversations with him.
Question put and agreed to.
Government amendment 5 agreed to.
Madam Deputy Speaker (Dame Rosie Winterton)
I will now suspend the House for no more than five minutes in order to make a decision about certification. The Division bells will be rung two minutes before the House resumes. Following my certification, the Government will table the appropriate consent motion, copies of which will be available shortly in the Vote Office and will be distributed by Doorkeepers.
Madam Deputy Speaker (Dame Rosie Winterton)
I can now inform the House that I have completed the certification of the Bill, as required by the Standing Order. I have confirmed the view expressed in the provisional certificate published with the selection list. Copies of the final certificate will be made available in the Vote Office and on the parliamentary website. Under Standing Order No. 83M a consent motion is therefore required for the Bill to proceed. Copies of the motion are available in the Vote Office and on the parliamentary website, and have been made available to Members in the Chamber. Does the Minister intend to move the consent motion?
Rishi Sunak
indicated assent.
The House forthwith resolved itself into the Legislative Grand Committee (England) (Standing Order No. 83M(4)).
[Dame Rosie Winterton in the Chair]
David Linden (Glasgow East) (SNP)
I beg to move, That the Committee do sit in private.
The Second Deputy Chairman of Ways and Means (Dame Rosie Winterton)
I regret that I have to inform the hon. Gentleman that I cannot put his motion to the Committee. That is because he is not a member of the Legislative Grand Committee, because he does not represent a qualifying constituency—in this case, a constituency in England. Under Standing Order No. 83W, a Member who is not a member of a Legislative Grand Committee may take part in its deliberations but may not vote, make any motion or move any amendment.
David Linden
Further to that point of order, Madam Deputy Speaker. Thank you for your ruling on that. Can you just clarify for me, as you have done, that because I am a Member from a Scottish constituency I am unable to take part in proceedings of this House, and indeed that that is contrary to what the people of Scotland were told in 2014, when they were told they were an equal part of the United Kingdom?
The Second Deputy Chairman
The hon. Gentleman may take in part in the deliberations but, as I have said, he may not vote, make any motion or move any amendment.
As the knife has fallen, there can be no debate. I call the Minister to move the consent motion.
Motion made, and Question put forthwith (Standing Order No. 83M(5)),
That the Committee consents to the Tenant Fees Bill.—(Rishi Sunak).
Question agreed to.
The occupant of the Chair left the Chair to report the decision of the Committee (Standing Order No. 83M(6)).
The Deputy Speaker resumed the Chair; decision reported.
Third Reading
Queen’s consent signified.
The Secretary of State for Housing, Communities and Local Government (James Brokenshire)
I beg to move, That the Bill be now read the Third time.
I thank Members on both sides of the House for their passionate and constructive contributions to the Bill’s passage through the House. We all agree that the Bill’s aim of making renting fairer, more transparent and more affordable for tenants is important. As such, it is a key part of the Government’s housing agenda. More people are renting, and they deserve help now, which is what the Bill is all about. We want to ensure that everyone, regardless of whether they own their home or rent, or whether they are in the social or private sector, has the security and dignity they need to build a better life.
The feedback and evidence we received recognised the challenges that tenants in the private sector face, especially regarding unfair fees and the need to rebalance the relationship between tenants, landlords and agents. Having listened, we introduced amendments on Report to ensure that the Bill better delivers on our commitment to create a system that works for everyone. I thank all those who have engaged with the process, from our initial consultation through to pre-legislative scrutiny and since the Bill’s introduction to the House. That includes members of the Housing, Communities and Local Government Committee, with their invaluable pre-legislative scrutiny of the Bill; those who provided written and oral evidence to the Committee; and the organisations that have engaged so constructively with my officials in drafting guidance for the Bill.
Mr Betts
I thank the Secretary of State for his kind words about the Select Committee. Does he think that there is a wider lesson to be learned—that it would be helpful if the Government more generally provided draft legislation for Select Committees to consider, rather than simply coming to the House with proposals that they have already determined without any consideration in Select Committee?
James Brokenshire
I recognise the important contribution that Select Committees, and Joint Committees of both Houses, make to pre-legislative scrutiny of draft Bills, and we can point to a number of examples. As I am sure the hon. Gentleman will appreciate, at other times the Government need to act quickly. The Bill has been a good example of the balance needed between ensuring consultation and engagement.
I also wish to pay special tribute to the Under-Secretary of State, my hon. Friend the Member for South Derbyshire (Mrs Wheeler), for all her efforts to develop the Bill and ensure its successful introduction. We all send her our heartfelt best wishes.
I also wish to thank the Under-Secretary of State, my hon. Friend the Member for Richmond (Yorks) (Rishi Sunak), who has been instrumental in leading the Bill through the Commons and has been careful and conscientious in listening to the views of Members on both sides of the House.
We can all agree that the Bill has benefited from everyone’s input and, as a result, will be more effective in delivering on its promise to protect tenants from unfair charges. As we have heard, those charges can impose a significant burden on tenants, who often have little choice but to pay excessive and unjustified fees time and again for each property let or even just to renew an existing agreement. The Bill will put a stop to such unacceptable practices by banning unfair and hidden charges, making it easier for tenants to find a property at a price they are willing to pay and saving renters an estimated £240 million within the first year alone. The Bill will also help to introduce a level playing field for landlords and agents by protecting reputable players in the market from having their reputations tarnished by rogues.
I know that the changes have raised concerns in some parts of the letting market, but agents who offer good value and high quality services to landlords will continue to be in demand and play an important role in the sector. In addition, the Bill introduces a cap on tenancy deposits of six weeks’ rent, and we are not stopping there. We want to ensure improvements to how deposits are protected in the interests of both tenants and landlords, to reduce up-front costs to tenants. That is why we recently established a working group to look at the merits of innovative approaches to tenancy deposits, such as deposit passporting.
I am confident that the measures in the Bill will help to deliver the fairer, clearer and more affordable private rented sector that we all want to see—for tenants, yes, but also for decent, professional landlords and agents who are providing a vital service. I am happy to commend the Bill to the House.
Melanie Onn
I thank the Secretary of State for his words and my colleagues who have taken part in the debates and assisted in Committee. The conversations that we have had have been very helpful, and were certainly heard to some degree by the Minister, and I thank him for that. I am pleased that the Bill is leaving the House in a better state than when it was introduced, after pressure from Labour to improve specific elements of it. But there is still more that the Bill needs to include to stop this being a missed opportunity for 4.7 million tenants in England. Those tenants often end up in the private rented sector not by choice but because of the lack of social housing, especially in high-demand areas.
The Government need to consider further the impact of their policy, which allows default fees to continue to be open to abuse. More than half of tenants do not see their tenancy agreement before putting money down for a tenancy. Much emphasis is still placed on the ability of a tenancy agreement to signify a mutually understood and fair relationship, but that is very often not the reality for tenants. The Bill continues to place reliance on guidance, so much so that the Chair of the Delegated Powers and Regulatory Reform Committee, Lord Blencathra, has said that, since the guidance will play such an important part in the functioning of this Bill, it should be subject to parliamentary scrutiny, but we are yet to see even a hint of a first draft. I hope that the Government reconsider the current provision regarding default fees and bring in regulations to tie down tenants’ rights. If they remain steadfast against that idea, will they at least follow the advice of Lord Blencathra?
Members on both sides of the House have raised continuing issues regarding deposits and enforcement. However, Labour fundamentally supports the Bill because it will tackle many of the unfair fees that tenants face when they rent a property, and will help to build a more professional, transparent and fairer private rented sector across England. I am pleased that years of Labour pressure have finally twisted the Government’s arm on this issue and brought forward a Bill that starts to do genuine good for tenants. But the battle to create a private rented sector that works for the 4.7 million renters in this country is far from complete.
The most recent English housing survey made for hard reading for many of England’s private renters. The rental marker is affecting more and more people from a wider variety of groups. The proportion of families in our rental market is going up, with 20% more families in the private rental sector since 2010. More and more children—not just young adults and students—are growing up in rental accommodation. Although the short-term nature of rental accommodation offers flexibility for some, it can have a devastating effect on others. Families in rental accommodation are nine times more likely to move than those who own a house, incurring repeated deposits and fees. Despite today’s efforts, rental regulation in this country still leaves a lot to be desired, and tenants need far more long-term security when they rent a house.
We had hoped that this Bill would be broadened to make longer tenancies a reality, and to ensure that families do not face yearly moves and get hit with repeat fees and costs. However, despite the Prime Minister’s protests at Prime Minister’s questions today, there were reports last night that suggested that the Government are afraid to take that measure to further help millions of renters around the country.
As this Bill moves to the other place, there remain issues that could be explored further to improve rights and access to rights for renters, and to ensure that suitable deterrents and enforcement are in place to improve the private rental sector in the UK. I trust that genuine issues raised by Members today will be given closer consideration to reflect the hopes of those in the private rented sector.
Wera Hobhouse (Bath) (LD)
May I first draw the attention of the House to my entry in the Register of Members’ Financial Interests?
One of the many effects of the housing crisis is the sheer amount of people now forced into the private rented sector. It is for this reason that I am adamant that we must improve conditions for renters. The Liberal Democrats have fought long for renters’ rights, so I welcome and support this Bill. It is vital that we in Westminster ensure that tenants’ fees are abolished because of the transient nature of the private rented sector, particularly for young people. However, the housing crisis has also pushed many families into renting and, as we heard earlier, the leading cause of homelessness is the ending of a private rented sector tenancy.
While rental costs continue to spiral, people are becoming trapped. They cannot afford their rent, but nor can they afford to move because of the myriad administrative fees. We must ensure that the Bill fully ends the practice of tenants’ fees. However, as the Bill is currently drafted, there are still loopholes around default fees. The Secretary of State’s amendments go some way towards closing the gap, and ensuring that letting agents and landlords do not introduce new fees under a different name. However, the text of the Bill is still too ambiguous, leaving what constitutes a reasonable cost to the discretion of landlords or letting agents. We must also provide local authorities with appropriate funding to enforce the ban. If local authorities have no resources to enforce it, landlords and letting agents will just continue with this unreasonable practice.
I urge the Secretary of State to listen to the concerns raised today. Otherwise he will undermine legislation that could really make a difference to people’s lives. There is little merit in introducing legislation with obvious loopholes that allow individuals to continue with a practice that we want to stop. There is also very little merit in introducing legislation that we cannot enforce due to the lack of resources.
We currently have about 5 million households in the private rented sector. Today we are beginning to tackle letting fees, but there must be more wholesale reform of the private rented sector. For example, my Liberal Democrat colleagues and I believe that there must be compulsory registration of landlords, that there must be public access to the Government’s database of rogue landlords, and that those landlords should not be able to obtain a licence for houses in multiple occupation.
This Bill is, in good measure, the result of the hard work put in by my Liberal Democrat colleagues in the other place. I look forward to further improvements as the Bill progresses.
Mr Betts
It is good to be here today supporting a Bill that has secured general agreement across the House and is a positive move to help tenants in particular circumstances. I hope that, as the Secretary of State said, the work of the Select Committee has assisted in that process. As I said, I think it would be better if more Bills went through such a process on a regular basis. It is good that the Government have been listening to the Select Committee and have reflected that in their amendments.
However, the Bill raises a number of issues about the need for wider reform in the private rented sector. While we were pleased with the Government’s response to this Bill, we are probably less pleased by their response to our report on the private rented sector in general, where we think they still have a way to go in delivering real change. We will be pushing them on that.
One of the issues across the sphere of issues in the private rented sector is housing courts. That issue applies to this Bill, as I said in the debate on the amendments. If we are properly to deal with the issue of enforcement and a place to go—not merely for tenants but for landlords—to sort out disputes in an easy way that all sides can afford, we need to reform the way in which that can be done through a new system of housing courts. The Select Committee is certainly going to press on that. I hope that the Government will be responsive. They have indicated their desire to do something in that regard, but we have not yet seen what they intend.
The Secretary of State rightly said that the Minister has been particularly assiduous in listening and responding to the Select Committee’s concerns, but the Bill began under the remit of the Under-Secretary of State, the hon. Member for South Derbyshire (Mrs Wheeler). I would like to put it on record that Labour Members recognise that the hon. Lady has been through an incredibly difficult personal time in the past few months. We offer her our best wishes and sympathy and say how good it is to see her back in her place in this House today.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Voyeurism (Offences) (No. 2) Bill (Business of the house)
Ordered,
That, at this day’s sitting, the following provisions shall apply to proceedings on the Voyeurism (Offences) (No. 2) Bill:
Timetable
(1) (a) Proceedings on Consideration and proceedings up to Third Reading shall (so far as not previously concluded) be brought to a conclusion two hours after commencement of proceedings on the Motion for this Order.
(b) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion three hours after the commencement of proceedings on the Motion for this Order.
Timing of proceedings and Questions to be put
(2) If, following proceedings on Consideration of the Bill, a Legislative Grand Committee withholds consent to the Bill or any Clause or Schedule of the Bill or any amendment made to the Bill, the House shall proceed to Reconsideration of the Bill without any Question being put.
(3) If, following Reconsideration of the Bill—
(a) a Legislative Grand Committee withholds consent to any Clause or Schedule of the Bill or any amendment made to the Bill (but does not withhold consent to the whole Bill),
(b) the Bill is amended to remove any provisions which are not agreed to by the House and the Legislative Grand Committee, and
(c) a Minister of the Crown indicates his or her intention to move a minor or technical amendment to the Bill as so amended, the House shall proceed to consequential Consideration of the Bill without any Question being put.
(4) For the purpose of bringing any proceedings to a conclusion in accordance with paragraph (1), the Speaker or Chairman shall forthwith put the following Questions (but no others) in the same order as they would fall to be put if this Order did not apply—
(a) any Question already proposed from the Chair;
(b) any Question necessary to bring to a decision a Question so proposed;
(c) any Question on any amendment, new Clause or new Schedule selected by the Speaker or Chairman for separate decision;
(d) the Question on any amendment moved or Motion made by a Minister of the Crown;
(e) any other Question necessary for the disposal of the business to be concluded.
(5) On a Motion so made for a new Clause or a new Schedule, the Speaker or Chairman shall put only the Question that the Clause or Schedule be added to the Bill.
(6) If two or more Questions would fall to be put under paragraph (4)(d) on successive amendments moved or Motions made by a Minister of the Crown, the Speaker or Chairman shall instead put a single Question in relation to those amendments or Motions.
(7) If two or more Questions would fall to be put under paragraph (4)(e) in relation to successive provisions of the Bill, the Speaker or Chairman shall instead put a single Question in relation to those provisions, except that the Question shall be put separately on any Clause of or Schedule to the Bill which a Minister of the Crown has signified an intention to leave out.
Miscellaneous
(8) Standing Order No. 15(1) (Exempted business) shall apply so far as necessary for the purposes of this Order.—(Lucy Frazer.)
Tenant Fees Bill
Thursday 6th September 2018
(6 years, 1 month ago)
Lords ChamberRead Full debate Tenant Fees Act 2019 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 5 September 2018 - (5 Sep 2018)
Tenant Fees Bill
Wednesday 10th October 2018
(6 years ago)
Lords ChamberRead Full debate Tenant Fees Act 2019 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 5 September 2018 - (5 Sep 2018)
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, this Bill takes forward essential measures to promote fairness and affordability in the private lettings market by banning unfair fees charged to tenants and capping tenancy deposits—a significant move by the Government to protect consumers in the private rented sector and a commitment made in the Government’s manifesto.
It is a Bill that should be welcomed by all across this House. I echo the sentiments of the other place that it will make the market more transparent and will save tenants, especially young people and families, hundreds of pounds. Government amendments made in the other place reflect the debate there and have ensured that the Bill will firmly deliver on this intention.
The Bill’s measures have also been informed by consultation with the sector and through the scrutiny of the Housing, Communities and Local Government Select Committee. In line with the Secretary of State’s comments, I extend my thanks to all those who have made invaluable contributions to this process. We can all agree that this engagement has ensured that the Bill will be even more effective in delivering on its promise to protect tenants from unfair charges.
I am pleased that the Bill is now before the House. It is an integral part of the Government’s broader reform to create a housing market that works for everyone. I have been moved by the extensive support for banning unfair fees, and I am grateful for the work that the noble Baroness, Lady Grender, has done previously to raise this issue. That is why I am happy that we are taking the decisive action to bring forward this change.
The housing market is changing. The proportion of households living in privately rented homes has doubled over the past 20 years. This accounts for a fifth of all households in England—approximately 4.7 million households. While this has brought new challenges, we have been consistently clear that whether you rent or own your home, you deserve to have a safe, secure and affordable place to call your own. Banning unfair tenant fees and removing rogue operators is another step that the Government are taking to make this happen. It is abundantly clear that tenants need greater protection from such abuse and poor service. To that end, we have given local authorities greater tools to crack down on poor practice in the sector. In April, we introduced banning orders and a database of rogue landlords and agents. We are backing a Bill in the other place which will enable tenants to take their landlords to court if the properties that they rent do not meet minimum standards of fitness for human habitation. We have also committed to mandatory electrical safety checks every five years and are working to bring these regulations into force as soon as possible, subject to parliamentary timetabling.
However, we know that this is only part of the problem. We want to give tenants greater confidence that they can complain about problems with their home without the fear of eviction. In June, we published our new and updated “how to” guides, including for the first time a How to Let guide for landlords to help ensure that tenants and landlords alike are aware of their rights and responsibilities.
Today is World Homelessness Day. This offers an important opportunity to consider the insecurity facing some private renters. My department recently consulted on overcoming the barriers to landlords offering longer and more secure tenancies in the private rented sector. That consultation received more than 8,000 responses, which we are currently analysing and will respond to shortly. The volume of responses demonstrates the importance of a good quality and secure rented home, which the Government are committed to delivering.
We also know that we need to make housing more affordable. That is why my department is focused on building many more houses in the places where people want to live. Since 2010, we have delivered 378,000 affordable homes in England, including 273,000 for rent, and I am confident that the Government’s ambitious housebuilding programme will deliver the transformations required in the years to come. It is also important that we help people now. That is what the Tenant Fees Bill will help to achieve. It will ensure that tenants will no longer be stung by hidden costs, saving renters an estimated £240 million within the first year alone.
These costs include unfair letting fees, with tenants facing bills for hundreds of pounds for simple things such as reference checks. We know that such services can be acquired on the market for a small fee, but the Government’s 2017 consultation found that tenants have to pay an average of £137 for a reference check. Then they are hit by fees for drawing up a tenancy agreement, for inventory checks and even for just picking up keys for their property. This, I should underline, is all alongside their deposit and the first month’s rent up front. It does not stop there. There are fees on renewal, and fees when they leave the property. Tenants often have little choice but to pay excessive and unjustified charges time and time again. They are stripped of their power to negotiate these fees as agents are appointed by landlords, some of whom use tenant fees to subsidise artificially low rates charged to landlords or grossly exaggerate the market value of such services.
We are not just talking about rogue landlords and agents here—we know that well-known high street chains are charging both tenants and landlords for the same services. These charges create a further financial barrier in a system which is stacked against tenants, many of whom are trying to save to buy their own home. It is a problem right across the country. That is why we must intervene to create a level playing field. A ban on unfair fees ensures that whoever contracts the service—in this case the landlord—pays for that service. This is integral to a fair market and, more plainly, it is common sense. Some agents and landlords already operate successful business models without charging fees to tenants. Under the ban, tenants will be better placed to shop around for a property that fits their budget, safe in the knowledge that the price they see is the price they will pay.
This Bill also protects tenants from paying unreasonably high deposits. We are capping deposits at six weeks’ rent. I should stress that this is an upper limit and not a recommendation. We expect landlords to find an appropriate level on a case-by-case basis and we will provide guidance to this effect. There has been no law on the maximum amount of a deposit previously. In Scotland, tenancy deposits are capped at eight weeks’ rent and there is no evidence to suggest that deposits have increased to meet this cap. A cap of six weeks’ rent offers a balance of greater protection to tenants while giving landlords the flexibility to accept higher risk tenants such as pet owners or those currently living abroad. It also gives landlords adequate financial security. This is vital to maintain investment and supply in the sector. More broadly, we want to ensure that tenancy deposits work for both tenants and landlords. That is why we have recently established a working group within the department looking at the merits of innovative and more affordable approaches to tenancy deposits—such as deposit passporting, where a deposit can be transferred from one tenancy to another. It is anticipated that this will report in the spring of 2019.
Let me be clear: this Bill is not an attack on good agents and landlords. We value the important services they provide. Letting agents who represent good value for money for landlords will continue to thrive because they will no longer be undercut by those who rely on overcharging and double-charging fees to sustain their business. We have also committed to regulation to improve standards in the sector and drive out rogue operators. At the moment, anyone can set themselves up as a property agent regardless of their background, skills or experience. Many agents take a professional approach and sign up to standards of practice through membership of a professional body. But others do not, and a lack of minimum standards has allowed unscrupulous agents to enter the sector—exploiting both tenants and landlords. We are committed to introducing minimum training standards and a code of practice. We are establishing a working group that will be chaired by the noble Lord, Lord Best, and we will provide further details on the membership and terms of reference of this group in the next few days. I will ensure that I write to noble Lords who are participating in the debate and place a copy in the Library.
We are also requiring agents to join a client money protection scheme, and I thank the noble Lord, Lord Palmer—who is not in his place at present—and the noble Baroness, Lady Hayter, for their considerable work in this area. Mandatory client money protection will ensure that each and every agent is providing landlords and tenants with the financial protection that they want and deserve.
The key provisions of the Bill apply to assured shorthold tenancies, tenancies of student accommodation and licences to occupy housing. Clauses 1 and 2 ban landlords and agents from requiring the tenants and licensees of privately rented housing in England, including persons acting on their behalf or guaranteeing their rent, to make any payments in connection with a tenancy. Some key exceptions to the ban, as detailed in Schedule 1, are classed as “permitted payments”. These include the payment of rent, a refundable deposit capped at six weeks’ rent, and a holding deposit capped at one week’s rent. Landlords and agents will also be able to charge a tenant for payments associated with early termination or varying a tenancy where these are requested by the tenant. Other permitted payments include any reasonable costs made in connection with the tenant defaulting on a requirement under the tenancy and payments in respect of utilities, communication services and council tax. In the Bill, the term “in connection with a tenancy” refers to any payments required by the landlord or agent throughout a tenancy. This is an important point. We have ensured that this protection extends to all stages of the lettings process so that tenants are not hit with hidden charges further down the line. We brought forward amendments to this effect in the Commons on Report.
We heard the concerns that the provision permitting landlords and agents to charge a fee in the event of a tenant’s default could, as previously drafted, represent a loophole. There was agreement to the principle that it is only right that agents and landlords should not have to foot the bill owing to a fault of the tenant. However, we also want to make sure that such a provision is not abused. The amendments made in the other place will ensure that landlords and agents will now be proactively required to demonstrate through written evidence that their charges are reasonable, such as in the form of receipts and invoices. We firmly believe that this increases the protections for tenants and minimises the risk of abuse.
The legislation also prevents tenants from being required to contract the services of a third party. Again, this has been included in the Bill to ensure that landlords and agents are not able to circumvent the ban by requiring tenants to pay fees by other means. However, we have ensured that tenants are free to contract agents and pay for additional support with setting up a tenancy should they choose to do so, provided that the agent does not also work on behalf of the landlord. This may be the case, for example, where they are relocating or live abroad.
The legislation proposes amendments to the transparency requirements in the Consumer Rights Act 2015 which require an agent to display information about their fees and membership of redress and client money protection schemes prominently in their office and on their website. The Bill will extend these transparency requirements to online property portals, since many tenants use them to find a home. The Bill will require letting agents to display the name of their client money protection scheme rather than simply whether they are a member of such a scheme. These amendments are vital to ensure that existing legislation remains fit for purpose in the context of today’s market. We intend to provide separate consumer guidance on how the ban will affect landlords and tenants. We are currently working with industry groups to get this right and will share a version with the House during the passage of the Bill. As soon as the guidance is available, I will ensure that it is placed in the Library and that noble Lords receive a copy.
The Bill proposes a number of enforcement measures that offer a strong deterrent to irresponsible agents and landlords, and in doing so, protect tenants. We introduced amendments in the Commons to further strengthen the enforcement provisions and ensure that where things go wrong, tenants will have proper access to redress. First and foremost, the Bill places a duty on trading standards authorities to enforce the ban. Trading standards authorities do a good job of enforcing current regulations on letting agents. With their existing local knowledge of the industry, they are the clear choice to enforce the ban on letting fees. District councils will also have the power to enforce the ban, if they choose to do so. We want to encourage joint working across different tiers of local authorities, bringing together local housing authorities’ experience of enforcing housing legislation and trading standards’ experience of enforcing fair trading.
The Bill makes provision for a lead enforcement authority to provide oversight, guidance and support with the enforcement of requirements on letting agents. This includes the ban on letting fees and related provisions. This approach is one that has worked well in the estate agency sector. The lead enforcement authority will be the Secretary of State or a local trading standards officer who is appointed to the role. The lead enforcement authority will be responsible for issuing guidance to which all local enforcement authorities must have regard when enforcing the legislation. This guidance is still being finalised to reflect ongoing engagement with local authorities and the journey of the Bill through this House. I will share a draft with noble Lords before Committee stage.
Secondly, the Bill makes provision to enable tenants and other relevant people to recover their unlawfully charged fees. The Bill will encourage this as a ban. which is much easier to understand than the existing transparency requirements. In addition, landlords will be prevented from recovering their property via the Section 21 Housing Act 1988 procedure until they have repaid any unlawfully charged fees or unlawfully retained holding deposits. In terms of sanctions, landlords and agents will be liable for a financial penalty or prosecution for each individual breach of the ban that they commit. An initial breach of the fees ban will usually be a civil offence with a financial penalty of up to £5,000. Where a further breach is committed within five years, this will amount to a criminal offence and be liable to a fine. In such a case, local authorities will have discretion whether to prosecute or impose a financial penalty. They may impose a financial penalty of up to £30,000 as an alternative to prosecution and the penalty. We consider that this will act as a serious deterrent to prolific offenders. Local authorities will be able to retain the funds raised through financial penalties, with that money reserved for future local housing enforcement.
We also intend to provide up to £500,000 additional funding in year one of the policy to support implementation and awareness raising. My department engaged with over 160 local authorities at five summer events better to understand their resourcing needs, including how they intend to enforce the Bill, and will use this knowledge to ensure that we make the best use of the additional funding.
These important measures are above all intended to promote fairness. This Government will always stand against injustice. We recognise the need to rebalance the relationship between tenants, landlords and agents. By banning fees for tenants and capping deposits, we are delivering on our commitment to make renting fairer, more transparent and more affordable. It will make a real difference to millions of tenants across the country, especially for young people and families, and to the millions who will call the private rented sector home in the future. I beg to move.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, first, I draw the attention of the House to my relevant interest as a vice-president of the Local Government Association. Secondly, I welcome the Bill, which seeks to ban landlords’ and letting agents’ fees. It is something that the Labour Party has called for repeatedly and it delivers on a pledge that the Government made some time ago. It has taken a while to get this far. The private rented sector is a significant part of our housing tenure and an important part of the housing supply available to people. It has grown significantly and it is right that we should put legislation in place to protect people from unfair fees or practices in the private rented sector.
I rented in the private sector when I was in my 20s, having grown up in a council property with my parents, and I have been an owner-occupier for many years since. My involvement with the private rented sector was relatively short, but for millions of people and millions of families it could be the only type of accommodation they ever know. There are many excellent private landlords and letting agents who do a good job. Like lots of legislation, however, the Bill seeks to deal with unfairness, where the balance is unfairly loaded against the private renter, with fees being charged with little or no evidence of what they are for, of whether they are value for money or of any reasonable basis for how those fees were decided, and fees charged by landlords as well as letting agents.
The Bill seeks to ban landlords’ and letting agents’ fees, and most other up-front fees, by prohibiting what landlords and their agents can require a tenant to pay. As the noble Lord, Lord Bourne, has told us, the ban covers shorthold tenancies, tenancies of student accommodation and licences. Looking at the list of what can be charged for, I have an immediate concern that the Government have left the back door open and that, despite good intentions, the Bill runs the risk of not achieving all the Government want to achieve. I propose to go through the Bill and highlight those areas where I have concerns, and which I will be raising in Committee and on Report. The noble Lord, Lord Bourne, is someone I have huge respect for, as I do for the noble Lord, Lord Young of Cookham. In all our dealings, both noble Lords are courteous. I am sure they will listen carefully to the points raised around the House during our deliberations. I hope we will be able to persuade the Government that some areas of the Bill will require amendment. If not, and I am still not convinced by the arguments put forward by the Government, I will divide the House on Report stage a number of times.
Turning to the Bill and the issues that I have concerns about, what can be charged for? As the noble Lord told us, there is obviously rent. The Bill also includes a refundable tenancy deposit, capped at no more than six weeks’ rent. It is disappointing that it has been set at six weeks. This runs the risk of becoming the norm. I would prefer it to be set at four weeks, which is the level at which I believe the Prime Minister first indicated it would be set when announcing the policy some years ago. It also includes a refundable holding deposit, capped at no more than one week’s rent. I fully accept that a holding deposit should be paid, but this is set far too high. It should be capped at, say, three days’ rent or even £50—whichever is higher. At the same time, I would also like the tenant to be provided with a copy of the draft tenancy agreement, so that they can see in writing what they will be asked to sign. They can then raise issues with the landlord and/or the letting agent, while other processes are taking place. It is important for there to be full transparency on the part of the landlord or the letting agent over how they intend to treat a holding deposit, setting out clearly in writing, when the deposit is not returned to the prospective renter, the full reasons for the deposit not being returned. This will enable the renter to be more easily able to challenge the decision if they believe it is unfair.
We then have the ability for certain payments on assignment, novation or variation of a tenancy when requested by the tenant to be capped at £50, or reasonable costs incurred if that is higher. This provision appears open to abuse. How will reasonable costs be determined? What is the protection from the risk that the £50 becomes the minimum figure charged, and that tenants will pay much higher charges? I would appreciate it if the noble Lord could address that in his reply to the debate.
Payments associated with early termination of the tenancy when requested by the tenants, payments in respect of utilities, such as communication services and council tax, and payments in the event of a default of the tenant, such as replacing a lost key or late payment of a fine, are to be limited to the landlord or agent’s reasonably incurred costs, which must be evidenced in writing. This is another provision that I fear will be open to abuse. The Bill fails to protect tenants from unscrupulous practices where, in effect, the fees lost by landlords and agents will find their way back, being recouped through this provision. If the noble Lord, Lord Bourne, disagrees with me on this point, can he explain to me how the Bill in its present form guards against that? To guard against it, you have to go further than we have at present and clearly define matters, maybe in secondary legislation, saying what the Government mean and how it will apply. Secondary legislation will give the Government flexibility to amend regulations as necessary and give greater protection to tenants.
I am pleased to see the Bill dealing with enforcement and that for the first year at least some funding has been provided by the Government—although I am not convinced that it is at the right level. Trading standards, like other parts of local government, are under extreme financial pressure. The risk with inadequately funded extra requirements is that it will not be possible for the authority to deliver what is expected of it. I am not convinced that funding this work through fines levied in the future is the right model to develop a system that serves tenants, landlords and letting agents well. Perhaps the Minister can say a little about the thinking behind this when he replies to the debate.
I welcome the proposal to designate a lead enforcement agency. The Local Government Association’s suggestion that National Trading Standards should provide this function is well made and should be considered carefully by the Government when they make their final decision. Enforcement functions will be delivered by local weights and measures authorities. The local district council may also enforce provisions in the Bill if it so wishes. Can the Minister explain why the Government decided to construct the enforcement regime in this way? Is there a risk of confusion or duplication, particularly in the context of my earlier remarks about local government resources?
Where a ban is breached, tenants are entitled to a refund of illegal fees. The local authority can impose a financial penalty on the landlord or letting agent of up to £5,000 for a first offence with a further breach resulting in a fine of up to £30,000 or prosecution. In Committee, I will probe whether these fees are set at the right level. The tenant can apply to the First-tier tribunal for the recovery of illegal payments but is not entitled to any compensation. Why can the local authority not be empowered to recover the illegal payments on behalf of the tenant, in addition to imposing a fine, before passing the illegal payment back to the tenant? That would avoid the need to go to a tribunal in the first place and leave the landlord with the option of challenging the decision in the tribunal. It would be a real help to tenants.
Perhaps we should go even further with a compensation payment to the tenant who has been subjected to this abuse. It is not unusual in this country to award compensation to victims, in addition to levying a fine on an offender. If you have been ripped off and made to pay an illegal payment, you are a victim and it is not unreasonable to receive some element of compensation. That is certainly better than leaving the tenant who has been charged an illegal fee to go to the First-tier tribunal to recover the money taken from them illegally.
It is great that there is a provision in the Bill requiring fees to be published on third-party websites. My only question is: how prominently will they have to be displayed? I ask this because I am aware that companies over a certain size are required to have links to their modern slavery statements on their websites, but it is fair to say that they are not always the easiest thing to find. I want an assurance from the Government that there will be some sort of provision to ensure that they are put in a prominent place on the site. I support the provisions on client money protection schemes.
In conclusion, I look forward to Committee, where I will probe further, with a series of amendments that seek to engage the Government on the issues I have raised. I welcome the Bill. From my remarks, however, noble Lords will see that it can and should be significantly improved for private sector tenants. They are an increasing group of people who deserve regulations and legislation that afford them reasonable protection.
Baroness Grender (LD)
My Lords, as the Minister said, today is World Homeless Day. It therefore seems fitting that we are discussing the Bill. The loss of a private tenancy remains the biggest cause of homelessness. One in six households now rents privately; that includes more than 1 million families with children. It is in that context, looking out for people on low incomes who have no choice but to rent, that we should view this Tenant Fees Bill. I thank the Minister for his kind words, the regular meetings and updates, his ability to listen and the great care he shows for this subject.
I was delighted when the Chancellor announced in the Autumn Budget in 2016, while my Private Member’s Bill on this issue was still in progress here, that he would crack down on lettings fees, but I profoundly regret that the delays to this Bill caused by those higher up the Government food chain have resulted in yet more families being put into temporary homes or debt because they could not afford the prohibitive up-front fees. Shelter’s most recent survey of private renters showed that the average costs of moving were £1,400.
Our party is fully in support, but in this place it is our duty to ensure that the legislation is right. We will do that. We must ensure that there are no loopholes to be exploited by unscrupulous lettings agencies that have tenants with no choice but to use them. So if there is any fuss from the business managers on the other side of the House because of delays to get this Bill right, they would do well to remember that they hold responsibility for the delay of three years or more from announcement to implementation—that is, three more years of tenants, as the Government found in their own research, being exploited and charged arbitrary amounts, such as a reference check of anything from £30 to £220, or a tenancy renewal costing anything from £35 to £150. Shelter states that over the past five years alone tenants have paid more than £678 million in unfair fees, so when the landlords suggest that the legislation will cost them £82 million, I would look at it in that context.
When landlords also suggest that this will lead to a rise in rent I ask them to consider the following three points. First, there was no evidence of rent rises when the system was changed in Scotland. Secondly, if someone is on such a prohibitively low income that they are driven into debt by arbitrary up-front costs from lettings agents, they would rather spread that payment over a 12-month period than have to pay it up front. Thirdly, there is evidence that lettings agencies have been one of the drivers of pushing up rentals by prompting landlords to do just that.
My hope, as we scrutinise this Bill, is that we keep uppermost in our minds those very families on low incomes. The school cook, the teaching assistant—real examples that I have described when we have previously discussed this issue—are doing the right thing by looking for lower more affordable rent, but cannot afford to move to a cheaper rent and become homeless because of up-front costs.
One of the other guiding principles should be who the customer of the lettings agents is—who can call the shots and shop around for a better deal. It is of course the landlord, as this Bill sets out, and they are the ones who should pay. There are suggestions that this will jeopardise an industry, but I urge anyone making that argument to take a look at a newcomer into the sector that, in a short period, has become the largest lettings agency in England and Wales—OpenRent.co.uk, which supports this Bill. Incidentally, it also charges a flat fee to landlords, so it is entirely possible to grow and thrive in the market without the use of fees from tenants. I spoke to OpenRent today; it has only just conducted a YouGov survey in September, as yet to be published. The general public and tenants are overwhelmingly in support of the Bill and this change at 70% and 81% respectively, but the most compelling part of the survey is that 64% of landlords also support this policy. That begs the question: why are those who represent landlords lobbying against this Bill when most landlords want to do the right thing?
If we accept that the customer of the lettings agency is the landlord, I suggest that we need to examine whether the suggested default fees in the Bill are in danger of being overkill. The changes that the Government made in the other place to tighten the definitions, on the limit on the amount, the planned guidance regarding the type and reasonableness of fees—although we might want to look at whether that needs to be in the legislation rather than in guidance—and the change to introduce a paper trail are welcome, but this part of the Bill remains open to exploitation as a loophole. I question whether these default fees are necessary at all and will want to examine this in Committee.
One of the failures of previous attempts at transparency has been how limited tenants’ knowledge can be of their rights in this part of the law, and the law dealing with unscrupulous lettings agencies. If there is clarity in the law that literally no additional fee goes to a lettings agency, it would be much easier to enforce and explain. We already have two current pieces of legislation that I believe cover the default issue. I thank the Minister for our discussions yesterday and for the possibility, at least, of taking a look at this.
First, to deal with keys, security devices and late rent payment fines, I think that everyone involved in this debate would ask the Minister if there are other examples: so far they seem to have been absent from any of the debates that have taken place. What is the list of issues, and what is the estimate for these defaults? In other words, how often will this part of the Bill actually need to be used? If the answer is that the level of likely use of this default is minimal and can be covered by current legislation, then I suggest that this particular section is a sledgehammer to crack a nut.
In the Housing Act 2004 there is a system for deposit protection, and Schedule 10 sets out the role of the deposit protection scheme. This includes arbitration between landlord and tenant: under this law, if a key needs to be replaced, the lettings agency can charge the landlord. The landlord has access to the deposit and can use that money, unless it is disputed by the tenant, in which case arbitration and ultimately the county court can make a judgment. In the most severe cases of rent arrears or damages, the landlord can recover their property under Section 8 of the Housing Act 1988. Does this legislation cover the areas where the Bill has introduced a default fee?
As for the cap on tenancy deposits, I appreciate that the rental sector is a very wide market, covering everyone from people on very low incomes to those with money to burn. I hope that the policy leans towards those who we all know should not be in the private rental sector but in social rents, a problem that cannot be solved immediately. For that reason I will want to look in Committee at getting the security deposit number of weeks down. We should note that the HCLG Select Committee, which did the pre-legislative scrutiny, recommended that it should be five weeks. The suggested six weeks would mean that renters in England will still have to find an average of more than £1,100—or £1,800 in London. Citizens Advice currently estimates that six weeks will help only 8% of renters. Does the Minister agree with that figure?
On the cap on holding deposits, as I discussed with the Minister yesterday I would welcome the extension of the transparency and use of paper trails introduced on Report to the clauses on defaults to be applied to holding deposits too. I would also like to explore the issue raised by Generation Rent that while tenants are prohibited from putting down holding deposits on multiple properties, landlords and agents are not prohibited from taking holding deposits from multiple tenants for the same property. I will also want to look at a reduction in the number of days. Citizens Advice published a survey yesterday showing that more than half of renters surveyed were shown a tenancy agreement only after they had paid a holding deposit or the equivalent. How can they negotiate terms when they are not allowed to look at the paperwork until they have put some money down, whereupon they are too invested to pull out?
The funding of £500,000 for the first year of the legislation is welcome, but I will ask for further detail in Committee of what plans there are to ensure that tenants know that lettings fees have been banned. Of course, I suggest to the Minister that it would be easier to put that message across if they were banned outright and the default loophole not introduced. Tonight, as I bed down on a cardboard box next to my noble friend Lady Suttie to recognise World Homeless Day at a sleep-out organised by Depaul, a charity that supports young homeless people, I will be greatly encouraged that the Bill has finally arrived. It goes some way to preventing people on low incomes from tipping into homelessness and I really look forward to seeing it on the statute book as soon as we have given it the necessary scrutiny and removed some of the loopholes that impact on people who are in the private sector and on low incomes.
Baroness Hayter of Kentish Town (Lab)
My Lords, the Government have been on a very welcome journey with regard to the private rented sector. First, and following pressure in this House, they required all letting agents to belong to an alternative dispute or ombudsman scheme. Then, again following pressure in your Lordships’ House, they moved on client money protection. That was followed, as the Minister reported, by compulsory five-yearly electrical checks in rented accommodation, something that we started pushing for in the Consumer Rights Bill. Now, albeit after a delay—but, again, following pressure in this House—they have banned dual fee charging by letting agents; in other words, tenants cannot be charged by an agent which already represents the landlord. Furthermore, I have only just heard—maybe I missed it before—the very welcome announcement of what we are going to put on the broad shoulders of the noble Lord, Lord Best: the requirement on letting agents for training and codes. We now need only the right to a habitable property and we might actually have a really good private rented sector.
The Bill is good in itself. It will save tenants hundreds of pounds just when they are trying to put together the money for a deposit and to move, which alone can cost up to £1,000. Although the average letting agent charge to tenants—in addition to what they have charged the landlord—is £300, one in seven pays up to £500. It is good that the Bill puts an end to that but it is also important for the housing market because any such money extracted unfairly as fees is lost to both the tenant and the landlord, sucking some £240 million a year out of the housing sector. That money could be better used by landlords to improve homes rather than spent by letting agents, which generate no new properties.
I am sad to see ARLA, which represents letting agents, still arguing against the Bill, claiming that it will harm the private rented sector. In fact, it will do the opposite, partly, as I have said, by keeping funds within housing, rather than with agents, but also, vitally, by increasing tenant trust in the private rented sector. David Cox, the chief executive of ARLA, really ought to know that distrust in agents is not just apocryphal. It is based on hard evidence. He should also recognise, as I have long argued to him and his members, that the inherent conflict of interest within tenant fees is unethical and unprofessional. No service provider should have both parties to a transaction as clients. It cannot owe a duty of care to both. Charging both for the same service—letting a property—gives letting agents a dual responsibility which they simply cannot meet. Arguing on behalf of the landlord that rent should go up, or be paid on a certain day, can hardly be done by the same person arguing on behalf of the tenant that until a bathroom is fixed the rent is not due. Who is the client at that point? This is particularly important following the Consumer Rights Act. We have to be clear: who is the consumer in the transaction and therefore who gets the rights contained in that Act?
When we argued for a ban on the fees charged to tenants in your Lordships’ House, Ministers claimed that making agents’ fees transparent would be sufficient to drive down prices, as consumers could shop around. We sought at that point to explain that in fact tenants cannot shop around; only landlords can. If a tenant wants a particular property, they have to deal with the agent selected by the landlord and have no negotiating power at all over the fees charged, nor the quality of service provided. They cannot swap agents. So I greatly welcome the Bill and wish it a speedy path on to the statute book for the sake of millions of tenants, about whom we have just heard from the noble Baroness, Lady Grender.
Changes will obviously be needed as the Bill goes through in Committee. But following the very constructive way that Ministers have dealt with us over those earlier issues, we have every confidence that the Government will accept our amendments in Committee, particularly on default fees which, without protection, could be exploited, as the noble Baroness, Lady Grender, has again just noted. There is also the issue of the size of the cap on deposits, as mentioned by the noble Baroness and my noble friend Lord Kennedy.
We will also seek reassurance that proper enforcement will take place, with more meaningful penalties for those who flout the law. As my noble friend Lord Kennedy said, trading standards departments are highly stretched at the moment, with far too few assets, so we will look to the Government to ensure that the penalties due back into the enforcement system will be sufficient to enable action to be taken wherever tenants are being ripped off. Sufficient levels of fines are anyway essential to act as a deterrent to bad behaviour.
I will make one further point about how the Bill demonstrates the value of regulation. I am afraid that I had to watch the coalition Government abolish the National Consumer Council, which took away a source of thoughtful advice on when regulation is necessary to protect consumers. I have also had to witness, whether in relation to Brexit or more generally, the endless mantra from this Government and some of their supporters that red tape or regulation is bad for business. Not only is that not true; it ignores the interest and well-being of consumers who, without appropriate protection, are vulnerable to shoddy goods, rip-off merchants and poor service. I particularly welcome the Bill’s acknowledgement that this large group of consumers, who we have heard about, need legal protection to get a fair deal.
I wish the Minister well with the Bill and all strength to his arm in persuading others back at the ranch—or up the food chain, which I think was the term just used—that he be given the freedom to respond positively to the amendments we will table. We will be happy to give him all the credit for the movement that he makes.
Lord Best (CB)
My Lords, I am very pleased to follow the noble Baroness, Lady Hayter, who has done such great work in this field. I declare my interests in lettings and letting agents: my wife and I own rental property, managed by a reputable firm of letting agents; for eight years, until last year, I chaired the council of the Property Ombudsman, which handles complaints about property agents; I am a vice-president of the Chartered Trading Standards Institute, which has enforcement powers for property agents, and of the Local Government Association. I co-chair the Home Office’s right to rent consultative panel and have recently been very pleased to accept an invitation from the Minister for Housing and Homelessness, as mentioned by the Minister today, to chair a working group to advise government on the regulation of property agents. In these various capacities, I greatly welcome this Bill and a number of other welcome measures where legislation is needed to catch up with the phenomenon of the extraordinary growth of the private rented sector.
At later stages, we will no doubt consider some of the Bill’s finer points of detail—as highlighted by Shelter, Citizens Advice, Generation Rent, the LGA and others—and there may be some modest amendments to the Bill which we can pursue, but in this Second Reading debate I will stick to the big picture and the reasons why this legislation is definitely good news. In the light of some criticism of the Bill in the other place, I want to address two broad questions: first, what exactly is the market failure here? We pay fees for many services and we shop around for the best deal, so what is so different about letting agents charging fees to tenants? Secondly, will a ban on fees overcome the alleged market failure, or could it have unfortunate side-effects?
A spin-off from the astonishing growth of the PRS, which now numbers some 2.3 million landlords, is the growth in the lettings industry. Many firms provide an excellent service to both landlords and tenants, but the rapid expansion of the sector has also meant a proliferation of unregulated new letting agents, often with no qualifications or training. In order to secure a share of the market, agents need to attract local landlords, and a way to do this is by undercutting the fees charged to landlords by rival firms. This may sound like healthy competition and good news for landlords. However, it has changed the basis on which private sector lettings are handled. In order to make their profits, despite cutting fees to landlords, many agents have charged the tenant instead. The trouble is that, unlike landlords, tenants cannot shop around for another agent; they must go through the agent chosen by the landlord if they want to have the house or flat, and then they must pay any extra fees which that agent demands.
We will all have our stories of tenants with no option but to pay rip-off fees to agents alongside big deposits and many weeks’ rent in advance. This can lead to tenants borrowing the money needed, incurring expensive credit card debts or, worse, having to go to loan sharks. In securing references, credit checks and right-to-rent checks, a letting agent is acting for the landlord. The agent cannot simultaneously act for the tenant. My intern showed me the list of agent fees for her flat: each of the three sharers had to pay £275 up front to the agent: a total tenant letting fee of £825 for the agent on top of the fees charged by that agent to the landlord. When she moved out and her sister took her place after a few months, the agent required £250 for early termination from her and another £275 from her sister: total fees of £525 for the most minimal input by the agent and not a day’s rent lost, but the tenants—the consumers in these circumstances—cannot exercise any choice in the matter.
The problem here goes deeper. If the agent’s profits depend on charging fees to incoming tenants, the agent is incentivised to bring in new tenants as often as possible, rather than to encourage the landlord to grant longer tenancies or to renew tenancies. This creates insecurity and disruption to the lives of tenants, who are forced to keep moving around and paying more fees when short, fixed-term tenancies end, and the ending of tenancies is now the most common precursor to homelessness. Yet, while high turnover may be good for agents, it is most unlikely to be in the best interests of landlords. Every changeover costs them money in lost rent, redecorating and so on. Banning the charging of tenant fees, as envisaged by this Bill would, therefore, be helpful for landlords as well as for tenants by removing this trigger for some agents to act against the interests of their landlord clients.
I turn to my second question: could a ban have downsides or untoward consequences? It is said that, if agents can no longer extract fees from tenants, they will have to charge more to landlords, and landlords in turn will then instruct agents to raise rents. I have several responses to that. First, rents are set by the market, not the whim of landlords or agents. The experience in Scotland when a ban on fees was imposed was for rents to rise by no more than in the rest of the UK. Secondly, not all landlords use agents to manage their properties; perhaps only 40% pay for a full management service, so a ban would by no means affect all landlords, and the market for rents is made by the whole sector. Thirdly, some reputable agents charge tenants only nominal fees so they will be able to absorb the loss of these without noticeably increasing their charges to landlords. Fourthly, some landlords will gain financially from greater stability in their lettings once there is no incentive for agents to move tenants on, so they will be better off even if management fees rise. Finally, if rents rise—by £2 per week, for example, according to one guesstimate—it could still be better for tenants since they would be spared the up-front charges that they must currently find, often by borrowing on expensive terms. One other effect of the ban is certainly likely to emerge: a number of the here-today-gone-tomorrow letting agents that have appeared on our high streets are likely to go out of business. Those that make their money mostly from tenant fees will not survive. Frankly, that is no bad thing.
I conclude that the Bill’s provisions are very necessary to correct an inherent market failure and that the dangers of untoward, unintended consequences are negligible. When we move to the details of the Bill there may be more to say about enforcement of the legislation, although I know the Ministry of Housing, Communities and Local Government has worked very hard to close loopholes and prevent avoidance and evasion of the new measures. At this stage, I warmly welcome the intent and the content of the Bill. I applaud the noble Baroness, Lady Grender, for first raising the matter in your Lordships’ House, and I congratulate the Secretary of State and his housing Ministers on bringing it forward.
Baroness Gardner of Parkes (Con)
My Lords, I declare my interests as listed in the register. I will say at the outset that I shall make a few comments that the noble Earl, Lord Lytton, passed on to me because he was not able to stay for this debate. He is very well informed on this subject, as all noble Lords will be aware.
I think that there has to be an understanding. I strongly support the idea that no agent should be able to charge both sides and make a double killing; that is almost immoral, and it is certainly very much against the tenants if they have to pay twice. But the noble Earl made the point that not all tenants are pleasant, honest or good, and we must not be carried away with the idea that all landlords are bad and all tenants are good. That is not the way that things are. This is about a transaction between adults. These are the points that he was making.
The noble Earl says that there is a huge amount of advice available to renters. Funnily enough, I have not found that myself; I found that the amount of advice for renters is not perhaps as adequate as it could be. The inequalities in bargaining power and opportunities for exploitation are very high in areas of very high value or deprived locations, and they are not necessarily representative of the entire market. Checking out tenant credentials is a repetitive activity and, because of the significant liabilities in relation to some of these, such as the right to rent, they add to the cost, which needs to be met somehow. It is true that references have to be taken up and nationality has to be proved, along with the right to be in the country; quite a lot of things come up with that. I hope the noble Earl will join in at later stages of the Bill because I believe that he has a considerable part to play.
I know that everyone is well aware of the interest I have in short-term lettings—holiday lets—and the damage that that is doing to ordinary tenants. Recently the Mayor of London made a statement about the damage that it has done and how the huge loss of rental properties is very much against tenants’ interests. People want properties available to rent, and for them to be reasonable to live in and enjoy. I have quoted before about the block in which I have had an interest in properties for many years, with long-term tenants of over five years in one and four years in the other. I am lucky to have them, because we have had all these terrible tenancies, totally illegally. People have been letting on short holiday lets, although that is strictly banned in the leases they have. These people are terrorising others in the block. One particular lady in her 90s is abused all the time. Rotting food is left everywhere around the building.
It is quite incredible that it is so bad now because power has been taken away from local authorities. When I have asked Questions for Written Answer about whether the Government would encourage local authorities to apply to have control in these matters again, the answer has always been a definite no. The Government are just not interested. They should be interested, because if local authorities had a right to register properties, there would be a safer position for lots of people. I do not think that it is fair.
To mention in passing, because it has been a long battle and is another very important point regarding the landlords’ situation: you cannot really ask people to abide by a lease for short lets for Airbnb. I spoke to the Minister when he was going to have a meeting with Airbnb. He said it told him that it asks people whether they have a right to sublet. But I asked Airbnb the same question, and it told me it does not, although it had said yes to the Minister. What is the truth? Only by some external authority being able to take over, such as local authorities if they were willing, is there going to be anyone checking on these things. At long last, under the right to manage scheme, you can only obtain—what is the word? Reclaiming the property. I am sure that everyone knows the word.
Baroness Gardner of Parkes
That is it. I hope Hansard was able to take that down. You can only do that if you are the head lessee or the freeholder. If you have set up your right to manage, there is a legal link missing which does not authorise you to recover the property for compensation if it has been mishandled. The woman who owns the places that are being let illegally—three or four blocks, one is normally a brothel and the other three are Airbnbs or something similar—has had herself certified under the Mental Health Act, so during that time no one was able to repossess anything.
Now the Court of Protection has appointed someone to take over, and it is all under way. As soon as these people put out the illegal people, they smashed all the windows and external structures in the brothel, which is in the basement, and the other places are being attacked on other floors. This is very disturbing. If you were a tenant living in that flat, you would be very worried about your personal safety, and would think, “Is what I’m paying fair?”, for a place that is just being allowed to do whatever it wants because there are no suitable controls.
Again, I make a plea to the Minister that it should be possible for local authorities that wish to do so to be able to return to the short-let licensing which they had in the past. That would protect long-term residents in a block, and the Mayor of London is absolutely right to say that these short lets have reduced the number of properties available in London. It is therefore quite right that people should be checked in all these financial ways. However, I recall clearly when I used to let the basement of the first house I ever lived in and Harold Wilson’s Government brought in a complete freezing of rents. That was ineffective, and worked so badly that after a while it had to be removed again. When that happened, everything went through the ceiling overnight. So it is far better to have a housing market that develops in a more normal way and works out for people in a fair way on both sides. I commend the noble Baroness, Lady Grender, for what she has done on this. It is an important but small part of a huge problem that the Government should be allowing local authorities to get on with.
I have one comment about the Written Answer I received the other day. The latest problem is commercial waste. People who come on holiday lets put out rubbish at the end, on any old day they feel like. The Answer I received said that this was commercial waste. If it is commercial, only the council can arrange to collect it—but how can it arrange to collect the rubbish fee if it has no idea who is to pay it, and when that person has vanished? This is a new problem, and apparently it is occurring all over London; waste is building up because it is just thrown out on any old day you happen to leave the place. I have said more than enough; I just wanted to give noble Lords a feeling of my views. I will look to see if there is anywhere I can add a little to the Bill.
Lord Strasburger (LD)
My Lords, returning to the Bill, I start by drawing the House’s attention to my declaration of interests in the register, specifically to the fact that I own 11 investment properties, either solely or jointly with my wife, and have done for something like the last 20 years. I also have a shareholding in a small letting agent in Bath. I am therefore in a position perhaps to bring a slightly different perspective to proceedings.
Speaking for myself and for the letting agency, I strive hard to be a caring and ethical landlord, and I have tenants who have been in place for 10 years or more. I insist on the same standards from the agency, Reside Bath. We do not charge landlords and tenants for the same service, and we are positioned very much at the top of the scale for quality of service and integrity. That is the raison d’être of the business. Our mantra is that a happy tenant is a good tenant; it is very much in the interests of the landlord that the tenant is happy and will look after the property. Almost every single unsolicited review of the agency on Google by tenants—there are many—has five stars. I wanted to set the standards a little. I will therefore put the perspective of a reputable part of the letting industry to the House today.
Landlords and letting agencies are relentlessly pilloried in the press and by politicians. They are convenient scapegoats for a broken housing market, caused by there being too few properties, particularly properties for social rent, and big barriers to entry for first-time buyers. The lack of social housing means that a lot of less well-off tenants have been forced into the private sector, where they should not be. They should be properly cared for, with good housing at rents they can afford.
Most agents do a decent job and most landlords are sensible and fair. The private rental market meets an important need for those who do not qualify for social housing, or cannot get it, and those who cannot buy their own homes. I fully accept that there is a minority of rogue landlords and rogue agents. A member of my close family was a victim of such a rogue agency in London not long ago, which indulged in the most appalling and illegal behaviour. I do not stand here defending rogue agents in any way. I favour strong accreditation rules to stamp the rogues out—which this Bill will not do. But it is fair to say that this is a two-way street; there are some awful tenants too, and I have had my share of them.
I would like to defend the six-week deposit. Some tenants who pay monthly are in the habit of not paying their last month’s rent. They assume it will be taken out of the deposit. If the deposit was only four weeks, it would not cover the rent; if five weeks, it would cover the rent, but with virtually nothing left to give the landlord any defence against genuine—I stress genuine—dilapidations to the property, for which the tenant is responsible. Six weeks is a balanced number that is fair to both tenant and landlord.
From the industry side of the fence, the Bill seems to imply that all tenant fees are unfair and exploitative. While the Minister referred to unfair fees, the Bill bans all fees, whether fair or unfair. Most tenant fees recover real costs that agencies incur. I accept that some agents abuse tenants’ fees and charge for completely imaginary services and costs. That practice would be better covered by a cap on tenant fees rather than an outright ban.
What will be the consequence of a total ban on fees? The rental marketplace is very mature and efficient; every action leads to a reaction. Things vary in different parts of the country, but landlords mostly pay for the ongoing management of the property and tenant during the tenancy. The tenant fees usually cover the costs incurred at the beginning and end of the tenancy—for example, marketing costs, company viewings, creating the tenancy agreement and end of tenancy negotiations about dilapidations. All this really does cost money, which agents cannot absorb. The agency market is highly competitive and margins are very tight. Agents cannot absorb the loss of revenue caused by a ban on tenant fees, so the costs will be passed on to landlords. I have talked to a lot of agents and they are all planning to do that. Landlords will then try to recover this new cost through higher rents. I accept the argument that rents are to a large extent set by the market, but evidence from the Scottish example is not clear. Depending on who you believe, rents increased by between 0% and 5%, but I accept that it is an art, not a science.
Also, in trying to recover these extra costs, some landlords will try to trim their maintenance costs, and that will have obvious consequences for the quality of accommodation. It is very hard to quantify this but there will definitely be upward pressure on rents and downward pressure on standards. It is worth noting that this is the latest of many assaults on the viability of landlords’ business models. Gone are the days when buy to let was a lucrative alternative to saving for your pension. A few years ago, George Osborne mounted a double tax raid on landlords, the last part of which is only just coming into effect. He increased stamp duty on property purchases for landlords and others, and he scrapped—in a phased way; it is just finishing now—the tax relief on interest. That means that landlords pay tax based on revenue, not profit, unlike every other business, and so can end up paying tax even if they make a loss.
Noble Lords could not expect me to stand here and make a speech without mentioning Brexit, which is a factor in this. In the unlikely event that the Government can cobble together some sort of deal that they can get through the House of Commons, there is a risk to the housing market and to the price of houses. The Governor of the Bank of England forecast to the Cabinet that property prices could fall by 30% to 35% after Brexit, and that could mean negative equity and large-scale bankruptcies for landlords. For some landlords, taking over the costs currently covered by tenant fees might be the last of a large number of straws. Some will choose to sell, some will go out of business and new entrants will be deterred. I cannot put a figure on this but there are likely to be fewer landlords, and fewer landlords means few properties to rent, which means higher rents and less choice for tenants.
In summary, the law of unintended consequences applies here and I believe that the Bill misses the real target. Tenants will get a short-term gain but they might incur the long-term pain, currently unquantifiable, of higher rents, less availability and possibly lower property standards. I would have preferred a strict cap on tenant fees and compulsory accreditation of all letting agents at a very high standard.
Having said that, I will go along with the Bill and any Bill that improves the standards of the rental market. I and my letting agency business will make the best of it for all concerned, especially our tenants, and will try to mitigate the downsides.
Baroness Jenkin of Kennington (Con)
My Lords, I declare an interest in that I let rooms in my home in London, motivated mainly by the fact that accommodation in London is very expensive and I think it is unfair of those of us who have extra space not to use it. However, I have never used an agency and hope never to have to do so.
On top of increasing rents, tenants often face an arcane list of fees: administrative fees, credit check fees, tenancy renewal fees, referencing costs—and the list goes on. Therefore, I support the Bill in its intention to make renting fairer, more transparent and perhaps even more affordable for tenants. Getting this right will improve life for millions of people, including many young people from what is sometimes termed Generation Rent.
However, even well-framed legislation can risk unintended consequences, and it is the Bill’s potential impact on the home share sector to which I draw your Lordships’ attention. Home share is a global movement, but it has for many years remained stubbornly small in the UK. With an investment of more than £2 million from the Big Lottery Fund and the Lloyds Bank Foundation for England and Wales, this has finally started to change. The growing number of small home share agencies in the UK are at a crossroads, with the opportunity to become a major force to reduce loneliness among both older and younger people, as well as to provide affordable housing and a good start in life to young people and others. It is an arrangement which involves housing, but whose primary purpose is to set up a mutually supportive relationship across the generational divide.
Home share is a system whereby someone who needs help or companionship to continue to live independently in their own home is matched with someone who has a housing need and can provide a little support. Householders are often older people who have a few support needs or have become isolated or anxious about living alone. Home sharers are often younger people—students or key public service workers—who cannot afford housing where they work but are happy to provide an agreed low level of help or companionship. One thing which motivates me is finding a resource which meets a need and putting the two together, which is why I am such a fan of home share. Home sharers help out and pay no rent. There is a national network for the UK’s home share schemes, supported by the charity, Shared Lives Plus.
Home share is a widely supported concept. A short film produced by the BBC to mark Tracey Crouch’s new role as the world’s first Minister for Loneliness showed how Florence, 95, and Alexandra, 27, support each other by living together in Florence’s home. In the film, Florence talks about the crushing effect of loneliness after the death of her husband, the fear of something happening to her and no one knowing, or of being “bored to tears” and the emptiness in a life which had previously been active. Alexandra also talked about loneliness and said of living with Florence: “I have a new friend and somewhere that is really homely. I can feel safe and not isolated in a big city”.
This film has been watched 25 million times on social media. Councils are now investing in home share, with others exploring how to support independent home share organisations to support more older people. Paul Ellis, the cabinet member for adult care and health at Wandsworth Council said:
“This is a common-sense approach that tackled two problems at once in a creative way. Loneliness is a hidden problem in our communities, and as well as providing more homes, this scheme will provide companionship and bring different generations together”.
Parliament clearly does not intend to create red tape or financial challenge for such a valuable model, but there is a risk that home share schemes will be captured by the definition of letting agent used in the Bill, because the younger home sharer has a licence to occupy provided by the older person. The home share agency carefully selects older participants who need support, sometimes because they have the very early stages of dementia, but sometimes just because they are isolated and worried about living alone. Younger participants are also carefully selected, and there is time and financial cost to this: the young person is interviewed, references are taken up and an enhanced DBS police check is usually required before they can carry out a support role for a vulnerable older person, which can include shopping and therefore handling money. Home share is comparable to a befriending scheme for older people, where an enhanced DBS check is considered standard. Most schemes need to charge for these services.
Home share is based on a matching process. Both parties are introduced to each other, they then decide whether they are compatible and are supported to draw up an informal home sharing agreement, which outlines the expectations on both sides and usually includes the young person providing about 10 hours a week of practical help and often being in the house for a number of nights. Home share matches typically last about a year, but there is no formal contract stipulating the length of an arrangement, nor enforceable periods of notice. Home share has had a remarkably good safeguarding track record in the decades during which it has existed in the UK, based on careful selection and matching participants, clear expectations and building trusting relationships in which both parties take responsibility for the arrangement’s success, rather than resorting to law. Its relational nature makes it feel valuable and fulfilling to its participants, and marks it out from a more formal commercial arrangement. The young person has a licence to occupy their room, and the right which that implies, but they pay no rent to the older person. They usually contribute to the older person’s household bills.
One of the strengths of home share is that, unusually among preventive services which councils under the Care Act 2014 have a duty to develop, it does not require ongoing charitable or state funding. It is funded through both participants paying the home share agency to enable that agency to employ co-ordinators who find, recruit, prepare and match participants, and then continue to provide ongoing support and advice for them, stepping in if something goes wrong and also arranging new matches where a match comes to an end, such as when a young person moves on or an older person needs more formal care. Typically, the young person will pay an upfront fee to cover the costs of ascertaining that they will be able to support an older person. Then the older person will pay a monthly fee, with the younger person paying a larger monthly fee; £30 a week for an older person and £40 for a younger person is typical. The older person pays far less than they would for more formal support, and the younger person far less than if they were renting housing in the normal way. Some home share schemes are formally constituted as charities or community interest companies. All in the Shared Lives Plus Homeshare UK network have signed up to work within a good practice framework and continually evaluate themselves against a self-regulatory quality assurance programme, with Shared Lives Plus staff providing support and a community of practice.
Of the 23 home share schemes which are part of the Shared Lives Plus network, six now report that they are financially sustainable through this model, and the number of older people supported has risen from 250 in 2017 to 350 in 2018. In other European countries the figure is already in the thousands, and 17 other countries have home share programmes globally.
If home share schemes are considered to be letting agencies under the definition of the Bill, and if the fees they charge younger people are considered to be banned under its provisions, the home share model as it stands would have to alter in ways its practitioners consider would make it unsustainable. It is considered essential to the model that the younger person does not pay rent. This is not only because the model selects young people who want to support an older person, and older people who want companionship and help, but because it selects young people to give them a start in life, rather than people who want to engage in a commercial boarding arrangement. Often, older people do not have the confidence to let a room commercially. Younger people too report that they would not be able to provide the support an older person requires, especially those with early signs of dementia, without the specialised support of a home share agency.
For the home share sector to continue with its laudable aim of being self-sustaining, rather than reliant on charitable or council funding, the Bill could require the older person to begin charging rent to the younger person. Furthermore, this rent would then need to be collected in increased fees to the older person by the home share agency. This would be confusing to the older person in particular, and could require them to submit complex information about their income and outgoings to HMRC for taxation purposes, and could impact on their benefits status. This would add to the challenges of the sector’s aim of bringing home share to lower-income older people. It would lose its simplicity.
Home share is a no brainer. In the words of Dawn Austwick, Chief Executive of the Big Lottery Fund:
“Homeshare offers a new and sustainable model for people to live more independently and take control of their lives through supporting one another”.
I am sure none of us would wish to place barriers to its growth at a time when our health and care systems, and the older people they support, desperately need innovative solutions to the scourge of loneliness and to the shortage of good social support many older people experience. Low-level support and companionship at an early stage can reduce or delay the need for more formal and expensive crisis support later on. Home share clearly does not financially exploit younger people. It provides them with a valuable role, companionship at a time when younger people’s loneliness is also in the spotlight, and accommodation at lower cost than the traditional alternatives.
Obviously, it is important not to create any loopholes through which commercial letting agents could jump. However, could not genuine home share programmes be excluded from the provisions of the Bill by virtue of the fact that they act in a way that no commercial letting agents could imitate? In a genuine home share, the “landlord” is paid nothing for accommodation by the tenant or the co-ordinating organisation. No commercial letting agent could operate on the basis that a landlord would be paid nothing by either it or the tenants.
Furthermore, although home share involves accommodation, it is based around the provision of support and companionship, and its charges are primarily for arranging that support for a vulnerable adult safely and effectively. If the younger person ceased to pay the home share agency, they would not lose their accommodation, which is in the gift of the older person and not the home share organisation. Therefore, I would be grateful if the Minister could confirm that fees charged by a home share organisation to set up and facilitate the support provided by the younger person to the older person would not fall foul of the provisions of the Bill, providing it is clear in any agreement between the young person and the home share agency that their accommodation is not contingent on any such fees.
Good befriending schemes for older people always involve similar selection processes, interviews and enhanced DBS checks. Does my noble friend agree that home share schemes should also be able to carry out these processes and to pass on the costs of those as they need to, as the processes are required by virtue of the support offered to a vulnerable older person and not in order to arrange the accommodation?
Further, given the issues raised by the Bill for the nascent home share sector, might this not be an opportunity to define “home share” in law? This would help its growth as an invaluable source of support and companionship for older people and avoid any risk of unscrupulous commercial organisations misleading older people. I very much hope it will be possible for this admirable Bill to achieve its purpose without penalising the thousands of older and younger people who could benefit from home share if we create an enabling legislative framework.
Baroness McDonagh (Lab)
My Lords, I welcome the Tenant Fees Bill, as I welcome the Prime Minister’s announcement at the Conservative Party conference to lift the cap on housebuilding imposed by the previous Conservative Prime Minister in 2012. However, while welcoming the Bill, having read it, I see that it does not live up to its promise. It feels as though someone who understands the issues wrote the first half of the Bill and somebody else, who does not understand the issues, came along and put in so many exclusions that they negate what the Government are trying to achieve. I am therefore disappointed that, when we come to Committee, we will be in Grand Committee, which reduces our ability to amend—and this Bill needs amendment.
Let me give noble Lords a recent example of what tenants face. I appreciate that the tenants in this example would not be protected by such a Bill, as the actions involved are illegal. Two Sundays ago, the Member of Parliament for the community in which I live—here I declare an interest, as she is also my sister—was canvassing with her team. She received many complaints from local residents about the number of black bags on the streets. They identified the rubbish as coming from a commercial office block. The intrepid canvassers and said MP knocked on the door of the office block only to find that it was full of tenants: each office had a family in it. As there were no cookers in the offices, each office had a hotplate, and the families were using the ladies and gents toilets. These tenants did not have tenancy agreements but licences. I am very nervous about the number of landlords now creating licences, allowing them to subvert a lot of the regulations we are putting in place.
The families in that block were being charged £1,100 per month for each office space, completely unlawfully. But why did they take that accommodation? They took it because they were absolutely desperate. Having heard that story, if noble Lords reread the exclusions in the Bill, would those same tenants be able to argue their case? I understand the point made by the noble Lord, Lord Strasburger. Many hundreds of thousands of landlords in this country are perfectly reasonable and do a good job, and we are talking about hundreds of thousands—one in five people over 65 now own a second property that they rent out. The Bill is about rogue landlords. If you behave well, you have nothing to fear from it.
What sorts of things did I hope to find in the Bill? First, six weeks is too long for a deposit. I ask the Government to think again about that, particularly in London and the south-east. In the community where I live, a property that would house a mum, dad and two children would easily cost a minimum of £2,000 a month. People looking for that housing are largely on minimum-wage jobs. We are talking about a £3,000 deposit. I ask the Government to consider either reducing that to four weeks or putting a financial cap on the amount that can be charged.
Secondly, I would expect to see normal consumer protection. An example would be a cooling-off period for tenants. There is no provision for that in the Tenant Fees Bill. It is wrong that you have greater protection if you buy a telecommunications package, digital television or washing machine than a home.
When the Minister replies, I would like some clarification on some of these exclusions. Schedule 2(8) to the Bill states:
“The landlord is reasonably entitled to take into account the difference between the information provided by the tenant and the correct information in deciding whether to grant a tenancy to the tenant”.
If the landlord sees that those two pieces of information are different, they do not have to give back the holding deposit. How can the landlord be judge and jury of that?
Lord Young of Cookham (Con)
I gently draw the noble Baroness’s attention to what the Companion says. Any speaker in the gap is expected to be brief and speak for no longer than four minutes.
Baroness McDonagh
I apologise to the Minister. I will finish with those points about exclusion. Each exclusion clause is written in defence of the landlord, not of the tenant. There is no process for tenants to complain.
Lord Shipley (LD)
My Lords, this has been a helpful Second Reading debate. It has identified a number of issues that we will need to explore further in Committee. Indeed, the noble Baroness, Lady McDonagh, despite the limitations of time, has raised a number of issues that would be worthy of spending a little time on in Committee if that were felt by her to be appropriate. I remind the House that I am a vice-president of the Local Government Association.
I refer first to the contribution by the noble Baroness, Lady Jenkin of Kennington, which I found very helpful. One good thing about a Second Reading debate is that it enables us to identify things that may be a problem or an unintended consequence. She talked about the home-share model. I want to raise with the Minister another one that we need to be clearer about. It relates to local authority incentive payments to landlords which prevent homelessness. On the one hand, a landlord may claim that they do not require a payment; on the other hand, any agreement would reflect the fact that a payment was being made. It would appear, under the Bill as it is currently drafted, that that could well be illegal. When the Minister responds about the home-share model, I hope that he might be in a position to respond about local authority incentive payments to landlords which prevent homelessness.
I want to welcome the Bill and to pay tribute to the work of my noble friend Lady Grender who has campaigned for some time on this matter—it is good to see us in the position that we are—and to pay tribute to my noble friend Lord Palmer of Childs Hill and to the noble Baroness, Lady Hayter, for their work on the client money protection scheme. These are all part of a trend to remove rogue landlords and letting agents from the industry. There is no doubt that the Bill will bring transparency, as the Minister said, to the sector; it will provide protections for tenants and it will prevent double charging. It is good to see the proposed ban on letting fees and most other up-front fees paid by tenants, in particular the proposed cap on security deposits, the new duty on trading standards authorities, and the new penalties on any landlord or letting agent who contravenes them. As my noble friend Lord Strasburger reminded us, “most agents do a decent job”, and, in the words of the noble Lord, Lord Best, “this Bill will end the ‘here today, gone tomorrow’ letting agencies”. I think we need to pause and repeat that we are dealing here with those who do not abide by the system properly. The vast majority of letting agents and landlords operate in a caring and ethical manner, and represent the reputable part of the lettings industry.
One of the problems that we are dealing with is the impact of 4.7 million households in the private rented sector. The noble Lord, Lord Best, referred to the enormous growth which requires the Government to legislate more and more to keep up with the problems which have arisen as a consequence of that growth. Many people in the private rented sector are having to move more often because of the nature of the tenancies they have currently, and when they do, they are having to pay more than they otherwise would if they had longer tenancies. Of course, as the Minister will know, one of the solutions to this problem is to build more social housing. I am absolutely convinced that the problems we now have in relation to the private rented sector are caused by not having enough social homes for rent. There will be other opportunities for us to debate that in the coming weeks.
The Government are to give £500,000 to assist with setting up costs. I want to concur publicly and absolutely with the Minister’s view that this should be self-financing. I think it does need to be. There are other areas, particularly in the treatment of rogue landlords, where local authorities can make themselves cost-neutral in terms of their investment. However, setting this up does require £500,000. It would be helpful if the Minister explained why this figure was selected; it does sound like quite a lot of money. On the other hand, there are an awful lot of local authorities in the country, all of whom will want some of it, I imagine. My suggestion is that there does perhaps need to be sub-regional training and sub-regional structures. The Government need to be very careful about how that money is allocated because I do not think that simply divvying it out to every council would work.
There is a general need for publicity. Presumably, money for that will come out of the £500,000. Perhaps it will, perhaps not, but I think that it will. If so, we need to be careful about ensuring that there is enough publicity for those who need to understand that the law has changed: landlords and letting agents on the one hand and tenants on the other. It needs to be made much clearer to people what their legal rights and responsibilities are. I am very pleased to hear about the new role of the noble Lord, Lord Best, which will be hugely helpful in this respect. There has been a debate about the cap and the figure of six weeks’ rent. That may be right; we will need to explore it in Committee. A five-week figure may be better. I take my noble friend Lord Strasburger’s point about the problem with a four-week figure in months with five weeks and we need to look carefully into that.
The issue of default fees is becoming more important. They must not permit agencies to bring in hidden extras that cannot be challenged. When people sign a lease, they need to be clear about what they are committing themselves to. My noble friend Lady Grender asked why such fees are needed at all, which we will need to explore in Committee. Equally, we have had several briefings on the Bill, but I was particularly taken by what was said by Citizens Advice:
“The default fee clause has the potential to fundamentally undermine the Government’s aim to end tenant fees and prevent unfair practices … The Government must significantly tighten this clause with a clearer definition of when a default fee is legitimate. Leaving this to non-statutory guidance risks inconsistent outcomes for renters”.
That is true. We need to be very careful about that danger.
Will this measure result in higher fees? The evidence I have read from Scotland suggests that it will not, but it may. I was taken by two comments: first, that rents are set by the market, as was said by the noble Lord, Lord Best. That is an important consideration. The second was the comment made by my noble friend Lady Grender that many tenants would prefer to pay monthly if they had to pay a higher sum overall. Again, I hope that we will explore that further in Committee.
I will make two final points. First, it would help enormously if the draft regulations, given their importance, were made available to us prior to Committee stage, which I understand may be on Monday 5 November. I hope that this will not be one of those Bills where the draft regulations appear at or around Third Reading, or occasionally not at all. Our deliberations will be detailed so it would be helpful to have them made available. Secondly, the Minister said something about electrical safety checks; I am trying to recall his words. He rightly identified that this is part of an overall package of improving conditions in the private rental sector. He said that the legislation for electrical safety checks would be forthcoming, the parliamentary timetable permitting. Can he tell the House what might prevent that timetable undertaking something substantial that really matters? Overall, the Bill is welcome and I commend it on our behalf.
Lord Beecham (Lab)
My Lords, I refer to my interests in the register as a vice-president of the Local Government Association and a Newcastle City councillor. The ward I represent has a number of private rented properties, many of which were former council houses that were sold under the right to buy and now have people living in them paying considerably higher rents than would have been the case had they remained council properties.
However, this is a well-intentioned Bill that received broad support in the Commons and has been generally welcomed in this Second Reading debate. I was particularly interested in the contribution of the noble Baroness, Lady Jenkin. It was extremely informative and I have no doubt that she will talk to her ministerial colleague and friend. I hope that the Government will listen and see whether the points she made can be incorporated in the Bill as we proceed.
There are, in any event, a number of issues that need to be addressed or clarified, some of which, in addition to the noble Baroness’s point, have been identified today. One critical matter is funding, mentioned just now by the noble Lord, Lord Shipley. The Government’s commitment to provide £500,000 in the first year of the new regime to support enforcement activities is, of course, welcome, but the assumption that this will be sufficient to meet all of the costs of the new regime and that it will ultimately be self-financing is somewhat dubious. The responsibility now being imposed on local authorities is within the new burdens doctrine, under which the Government should meet the cost of responsibilities imposed on councils. Therefore, will the Government guarantee to meet the difference between the cost incurred and any sums recovered from landlords or agents?
The Bill bars additional charges to tenants except if they fall within a range of matters, including, for example, a variation of the terms of the tenancy or its renewal, many of which might be very simply achieved. It is unclear what the effect of that would be. Should there not be guidance about the size of such levies in those circumstances? Will the Government review the charging system after a time to ensure that the charges are reasonable? It is welcome that financial penalties might be imposed on landlords or managing agents for certain activities, but why should the failure to return a deposit, for example, not be treated as a criminal matter? The money will, effectively, have been stolen.
There are a number of questions about other provisions in the Bill. It lists a number of payments to landlords that are permitted. They include, oddly, payments to a local authority via the landlord of council tax. Could the Minister explain the rationale for this and for the inclusion of an alternative provision under which the landlord or agent could require the tenant to pay the council tax to the authority? Is it not the tenant’s obligation to pay the council tax anyway? There is also a provision that tenants could be required by the landlord or agent to pay for gas, electricity, fuel or water. Would this not be the normal position in any event, although I can understand that there might be difficulty for multiple occupants of a property? Could the Minister explain whether this provision will therefore apply to all tenancies, or is it designed for the situation where more than one tenancy is involved in a particular building? The same question arises relating to the landlord’s or agent’s requirement of a tenant to pay the BBC television licence or for telephones and the internet.
Paragraph 3 of Schedule 2 requires the holding deposit to be refunded if the parties do not enter into the tenancy agreements,
“for reasons, broadly, under the landlord or agent’s control”.
Will the Minister say how “broadly” is to be defined? Paragraph 7 of that schedule touches on the sensitive area of immigration, stipulating that the landlord or agent does not have to refund a holding deposit if a tenant does not have the right to rent property under the Immigration Act, provided that they, the landlord, were unaware of the problem. Given the appalling record of the Home Office in Windrush and other cases, is there not a real risk of injustice in that provision?
Clause 15 allows tenants to apply to the First-tier Tribunal for compensation from the landlord or agent if they have been required to make an improper payment or have been unable to recover a holding deposit that has been unlawfully withheld, but will legal advice and, if a hearing is required, legal aid be available for a tenant of limited means? Or is the provision in Clause 16 that provides that, “An enforcement authority may”—I emphasise “may”—help a tenant, a substitute for legal advice and/or aid? What criteria would be adopted to assist that enforcement authority in a decision as to whether or not to offer such advice and support?
The Bill places significant duties, under Clause 21, on what might be thought to be a somewhat curious choice of organisation, namely local weights and measures authorities, to enforce client money protection schemes. This vests the function in county councils and two-tier areas, in contrast to the unitary areas, where the local authority already has a significant role in housing. What steps do the Government propose to take to ensure the necessary liaison between the different county and district councils? What steps are planned to equip the officers at county and unitary council levels with the necessary skills—or indeed those district councils, as opposed to unitary councils, which may choose to exercise the role?
Clause 22 deals with the lead enforcement authority. Oddly, that title is defined as either,
“the Secretary of State, or … a person whom the Secretary of State has arranged”,
which is a curious word,
“to be the lead enforcement authority”.
In the latter case, what will be the criteria for an appointee and how will he or she be selected? Will local government have a role in the appointment process? The clause goes on to list a number of things that the Secretary of State may arrange or regulate, though in the latter case the type of secondary legislation is not identified. I assume it will not be in the affirmative mode, but in any event can the Minister say when these are likely to emerge, and whether the Local Government Association will be fully consulted, alongside other relevant bodies representing tenants, landlords and agents?
Clause 23 sets out the duties of the lead enforcement authority. Will the officeholder be required to consult with local authorities about the exercise of his or her duties? Will there be an annual report of the work undertaken and contemplated? In particular, will the duty of the officeholder,
“to keep under review and … advise the Secretary of State about … social and commercial developments in England and elsewhere”—
as the Bill says, somewhat curiously—relating to tenancies, agency work and related activities extend to include local government?
Clause 24 sets out in detail the way the lead enforcement authority is to work, and the relationship between the authority and the relevant local authorities. The key subsections (3), (4) and (5) require the enforcement authority to notify the relevant action it proposes to take. It is not clear whether “the relevant authority” to which notification should be given is the relevant housing authority or, in a two-tier area, the county council which provides the local weights and measures service. Should the housing authority, or the district council in two-tier areas, not at least be notified of the position? After all, they have the ultimate housing responsibilities.
The Local Government Association is concerned about the impact of the provision in Clause 3 that proscribes the payment to a landlord in order to secure a tenancy. This is absolutely legitimate in relation to ordinary lettings, but it has a potentially serious impact on the practice of some councils, as we heard from the noble Lord, Lord Shipley, to make incentive payments to secure the rehousing of homeless people. Councils have a duty, as housing authorities, to help the homeless to be housed, and the recent Homelessness Reduction Act and the homelessness code of guidance in February allow councils to provide support to applicants, financial or otherwise, to access private rented accommodation. The noble Lord identified that point and I hope the Minister can provide some satisfaction. The code explicitly refers to making small grants to property owners to facilitate housing these vulnerable people. I hope the Government will accept this and ensure that the Bill recognises this growing need.
Finally, I raise again the urgent need to facilitate selective licensing as a means of ensuring decent standards of housing and good housing management. There are too many people living in poorly managed properties, often in appalling conditions. This not only affects the residents of those properties but has a damaging effect on those who live either as owner-occupiers or tenants of well-maintained rented homes. I speak with experience of precisely that situation, which exists in the ward I represent and in some other wards in Newcastle. We have some selective licensing schemes but it is a very difficult and prolonged process to ensure that one can be given. The Government have undertaken a review of the issue and I invite the Minister to indicate when this will be concluded and whether, if action is recommended, the Government will look to implement it.
I join most of the noble Lords who have spoken in welcoming the Bill. Certainly, on these Benches we will seek to work with colleagues across the House to look at possible improvements and ensure that the Bill emerges fit for purpose, as undoubtedly the Government would wish.
Lord Bourne of Aberystwyth
My Lords, we have had a very valuable debate and I am grateful for noble Lords’ contributions, which have taken us round the circuit to look at the main provisions of the Bill, possible lacunae in the Bill and, in some cases, things that are extraneous to the Bill, which I will try to deal with. I will take the contributions in the order they were made and will try to provide answers. If I am unable to—some very technical issues were raised, quite rightly—I will ensure that a write-round letter goes to all Peers who participated in the debate and a copy is left in the Library.
I thank our partners who have helped in framing the legislation and discussing relevant issues. Again, I thank the noble Baroness, Lady Grender, for her role and—she should take a double bow here, really—in relation to Shelter, which has been valuable; I also thank Generation Rent, Citizens Advice and of course the LGA, which is close on much of the detail of this, as your Lordships would expect. I will try to pick that up as I go along.
First, I thank the noble Lord, Lord Kennedy, for his general support. I agree that—it was a recurring theme—most landlords and agents act appropriately and we are dealing with the exception. That does not make it any less important but it is vital that we indicate that the issues that need looking at are in relation to only a minority. The noble Lord raised issues about the level of deposit, which I appreciate is something we will want to look at ahead of Committee. I am happy to give a commitment to look at the issues that were raised. Comments were made by at least one Member about Committee stage being in Grand Committee. I understand from speaking to my Whips and Whips in other parties that it is not unusual for Committee stage to be taken in Grand Committee because votes in Committee are very rare; it would be more unusual, certainly, on Report. That is the point. This was done through the usual channels, as noble Lords will appreciate.
The noble Lord, Lord Kennedy, asked about the novation provisions in Schedule 1. Again, only reasonable costs can be covered in relation to that. That is true also in relation to the cost of default fees. As I said, that was added as an amendment in the other place. I appreciate from comments made by noble Lords that we will want to look at that ahead of Committee to see how we can improve it. The noble Lord also raised the interaction between district councils and trading standards, which is the relevant authority that has been designated. Regulations can be made, I believe, by the Secretary of State under Clause 7, which governs that issue.
The noble Lord, Lord Kennedy, asked about compensation in relation to recovery of a deposit that is improperly held. I think that would be unusual. This is somebody suing for a debt. If there is a loss that emanates from the lease under normal contractual principles, either the tenant or the landlord would be able to sue for that compensation. Compensation is only in relation to a loss. If it is a matter under the lease, that should be subject to normal contractual principles. The noble Lord asked, quite rightly, about transparency and for that to be given a prominent role in relation to the naming of the agent. I can confirm that the legislation requires this to be prominently displayed. This is something that we would want as well, so I thank him for raising that.
I thank also the noble Baroness, Lady Grender, for her supportive comments and for her work on this. I share with her the view that there is no evidence of rent increases in Scotland, where this is operational, being any different from the rest of the country. So far as one can see, they are broadly in line. I also share with her the need to keep the beneficiaries of the Bill much in mind. I agree that openrent.co.uk is a successful business model, which is worth looking at. It is also notable that most landlords support the legislation, which is reassuring. We will no doubt return to the issue of default fees.
The intention here, as I think all Peers appreciate, is to cover situations where something is taken up by the agency on behalf of a tenant: the key is the classic example and in normal circumstances, that would be paid for once the receipt is given. Nevertheless, there may be such cases and I do not want to damage a possible situation by outlawing them totally and then finding that that disturbs a perfectly good relationship, where it may be easier for the agent to recover it if the tenant is working away from home and unable to do that sort of thing. Let us come back to that ahead of Committee. I think we all want the same things; it is about ensuring that we have that.
The noble Baroness, Lady Grender, also asked about the percentage of deposits being reduced—I think that was the relevant phrase—and the evidence that the citizens advice bureaux brought forward. The figure we have from our impact assessment is of 14% of deposits being reduced rather than the CABs’ 8%, so we differ on that.
I also thank the noble Baroness, Lady Hayter, for the role that she has played in this general area. She talked about £240 million being taken out of the housing market overall. Of course, a lot of that will be in the reduction of charges paid for by tenants so it will be desirable to that extent. I understand her point but it is not as if this is not doing some good when it clearly is. I agree with her on one very telling phrase: one cannot owe a duty of care to two parties in a contractual relationship such as this. That point was well made and, while we do not always agree on everything, I certainly agree with her on the value of regulated markets. I do not need convincing of this and, as she rightly said, I am low down in the food chain so any support I can be given on that is certainly warmly welcomed by me. I thank her very much for her contribution.
The noble Lord, Lord Best, in declaring his interests, demonstrated why, when you want something doing, you ask a busy man or woman. I am very grateful that he is taking on the role that I outlined in the letter sent to Peers. It is welcome in relation to training for letting agents and generally ensuring that they are up to standard. I repeat: the majority are doing a good job. In his useful contribution, the noble Lord looked at the nature of the problem that we face and the possibility of side-effects. Again, I share the view that he put forward, which was also put forward by the noble Baroness, Lady Grender. I do not foresee side-effects—other than good ones, as it were.
My noble friend Lady Gardner of Parkes then made a contribution and I thank her for her general warm welcome for the legislation and her comments on it. I appreciate that she has particular issues in relation to short-term lettings. Many of these matters, if they are against the lease, should be taken up by the landlord. It sounded as if some other issues she referred to should certainly be taken up by the landlord. If, for example, there is a brothel, local authorities certainly have the power to act. No doubt we will continue the discussion on these issues.
The noble Lord, Lord Strasburger, perhaps came to it from a different direction with his experience in this area. I do not need telling that he is an ethical landlord; I am sure he is and I agree that a happy tenant is a good tenant—hence in many ways this legislation, which I am sure will help. But he is right to talk of the need to appreciate that we are trying to strike a balance between the interests of the landlord and the tenant regarding the deposit. That is something to focus on. I appreciate that there is a tendency to say that this is a particular problem for London and the south-east but the rents and the value of property are of course higher there, so in so far as we are trying to strike that balance, we need to do so throughout the country. The question is therefore about trying to get that right.
I thank my noble friend Lady Jenkin for highlighting the problem of home share and Shared Lives. I agree with her. We are aware of this issue and are engaging with Shared Lives to see how we can move forward on this. She underlined how important home share is and the great value of the work. That is something we should support in seeking to combat loneliness. That is happening on a global basis and is something we should applaud. She is right that it covers licensees. This point was also raised by the noble Baroness, Lady McDonagh. The Tenant Fees Bill applies not just to tenancies but to licences and student accommodation as well.
I shall flash forward to the point made by the noble Lord, Lord Beecham, about student accommodation. It may be the answer to some of those points about shared utilities, TV licences and so on. We will double check that and cover it in the letter, but I suspect that that may be the answer. We are trying to cover the relatively small percentage of incidents where this happens. Noble Lords will appreciate that starting off with an outright ban, which I think is the right thing, and making exceptions means that we would have to have a pretty exhaustive list of exceptions. So I will pick up those points in the write-round letter.
I thank the noble Baroness, Lady McDonagh, for her generally warm welcome for the legislation. I think I have dealt with the points on the Grand Committee and licences. I agree that there are issues to look at on the holding deposit, although the key point there is that there are only certain grounds on which it can be retained by the letting agent. We just need to nail that down. We can try to do that ahead of Committee, but I think that I will be able to give the reassurance sought that it is a very limited set of circumstances.
I once again thank the noble Lord, Lord Shipley, for his broad support and I agree with his comments and his point on bringing forward local authority incentive payments for preventing homelessness. That point was echoed by the noble Lord, Lord Beecham. We are aware of the issue and we are seeking to bring forward an amendment that we think is probably necessary to allow that. I hope that we can keep in touch on that issue.
The noble Lord, Lord Shipley, referred to the growth of the private rented sector. That is true. It presents fresh challenges, hence the increased need for this legislation. I thank him for his support on the general point about self-financing with the fines paying the costs of setting up this system. There is a set-up cost. I have been asked to justify it. I do not have the figures to hand so I will do that in a write-round letter. I take the point that we have to look closely to make sure that that is what is happening.
The noble Lord, Lord Beecham, asked what will happen if there is a shortfall. There may be a shortfall in one year and an excess in the next year, and we would not be claiming back the excess. I think he will appreciate that there has to be some sort of smoothing mechanism; you could not look at one year in isolation. I will look at that point and pick it up in the write-round letter. It will be a long letter. I am sure noble Lords will appreciate that it will be better than a short letter that does not cover the many points that have been raised.
On electrical safety checks, the noble Lord, Lord Shipley, asked about “when parliamentary time permits”. That is a saving provision. Any Government, including even the coalition Government, will always say that. The intention is to bring this forward as quickly as possible. If I can give more information on that I will certainly do so.
There were many detailed points from the noble Lord, Lord Beecham, who also has a lawyer’s eye. I do not have the answer to many of the points that he raised but I will certainly make sure that they are covered in the letter, and I am grateful for his acquiescence on that point.
This has been a very valuable debate. As noble Lords will know, I am very keen to take this forward as far as we can on a consensual basis, because I think we all want to kick in the same direction and achieve the same things—but there is work to be done on that. With that, I beg to move that the Bill be read a second time.
Tenant Fees Bill
Tuesday 20th November 2018
(5 years, 11 months ago)
Lords ChamberRead Full debate Tenant Fees Act 2019 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 129-II Second marshalled list for Committee (PDF) - (16 Nov 2018)
Baroness Grender
Baroness Grender (LD)
My Lords, I shall speak also to Amendments 29 and 30 and in support of Amendment 28, tabled by the noble Lord, Lord Kennedy. I thank the Minister for all the meetings with him and his officials and for the meeting today on guidance. I look forward to continuing to meet to make sure that we do what the noble Baroness, Lady Williams, described and make sure that the Bill is beautifully polished before it receives Royal Assent.
Amendment 27 would cap the change of sharer charge to £50 and Amendment 29 would avoid exorbitant charges to end a tenancy. Amendment 30 would avoid what I hope is an unintended consequence, which is that paragraph 6 of Schedule 1 allows landlords to insist on all the rent for the remainder of the fixed term. It aims to make the provision a little more tenant friendly by limiting the tenant’s liability for the rent to the point at which the property is relet.
Regarding a change of tenant, if a sharer moves out, it is normally their and the remaining housemates’ responsibility to find a replacement. The alternatives are for the remaining housemates to pay rent on an empty bedroom or for them all to move out, with the associated costs. Currently the fees associated with changing a tenant are comparable to those of starting a new tenancy. Indeed, Generation Rent recorded an average of £248 in its research. This reflects the limited options available to tenants rather than the actual costs involved. As the tenants tend to do all the marketing though sites such as Gumtree and SpareRoom, the landlord’s costs are limited to the referencing process. Even then, the existing tenants have an incentive to find a new housemate who will pass the referencing process and whom they can rely on to pay a regular rent.
If there is to be a fee, it should reflect the landlord’s or the agent’s reduced cost in that circumstance. The Bill as drafted says that the charge is capped at £50, but it still allows landlords to charge more than that—so it is not really a cap but more of a floor. The possibility remains that landlords would charge as much as they could. A true cap would not permit fees above a specified sum.
I turn to Amendments 29 and 30. People will always need to move unexpectedly in circumstances where their personal or professional life changes. The Government have recognised this through their proposed longer-tenancies model, which we welcome, giving tenants the flexibility to exit the tenancy without penalty before the fixed period ends. However, paragraph 6 of Schedule 1 allows landlords to insist on all the rent for the rest of the fixed term, which is unnecessary if they are able to relet the property, has the potential to create financial hardship for tenants and could even see some people trapped in difficult relationships. The amendments would limit the tenant’s liability for the rent until the point when the property was relet, which should take place within a reasonable timeframe. I very much appreciate that there is a little more clarity in terms of the draft guidance at the moment, but that is of course draft guidance and I am seeking to probe what can be in the Bill regarding this issue.
Regarding costs at the end of a tenancy, no one makes the decision to move lightly. To end your tenancy early would mean that you face significant changes in your personal or professional life. The Bill should therefore limit the cost of this where possible. As it currently stands, my understanding is that it would appear to make a tenant leaving a tenancy liable for the rent for the remainder of the fixed term, plus the costs of remarketing the property. A tenant moving out could pay all of this and the landlord could still get a new tenant within a month of the tenancy. The landlord therefore could possibly receive several months of double rent through sheer luck. To make it more of a level playing field and limit the departing tenant’s liability, the Bill should apply a reasonableness test. As soon as the property has a new tenant, the former tenant’s liability should end, and the landlord should have an obligation to deal reasonably with any request to leave. I beg to move.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, as this is my first contribution to the proceedings, I draw the attention of the House to my relevant interest as a vice-president of the Local Government Association.
This group of amendments covers Schedule 1 to the Bill, specifically around issues of changing or terminating the tenancy agreement. Amendment 28 is in my name and I have also put my name to Amendments 29 and 30, while I support the intention behind Amendment 27 in the names of the noble Baronesses, Lady Grender and Lady Thornhill. Amendment 27 would cap the amount that could be charged for a change in tenancy to £50, and that seems very reasonable. As the noble Baroness, Lady Grender, said, otherwise the £50 becomes a floor rather than a ceiling. The problem with the clause as worded is that it leaves the way open for a large amount to be charged. I think that that is unfair and not reasonable.
My Amendment 28 seeks to ensure that in a situation where the only change is that of a tenant, a charge cannot be made. I hope that the Government will agree that there is no loss of rental income if you are just replacing one name with another, and to allow a charge to be made in that situation seems very unfair.
Amendment 29 would require the landlord to react reasonably to any request for an early exit, including when taking steps to relet the property. If they do not do so, this payment would be a prohibited payment, for all the reasons that we have heard in this short debate. Amendment 30 seeks to provide better clarification than is provided by the schedule as presently worded.
The Earl of Lytton (CB)
My Lords, I rise to speak to Amendment 29. I entirely understand the points made by the noble Baroness, Lady Grender. A number of individuals collectively forming “tenant” particularly occurs in London and other metropolitan areas. Those of us who inhabit the countryside tend to have single tenants in a building, rather than a system of sharing.
I have absolutely no problem with the idea of ensuring that landlords are not overcharging beyond reasonable cost. My concern is that this is beginning to look like micromanagement of the letting process. The question is, “reasonable” by whose standards? For instance, a group of tenants—perhaps four of them—decides to take on a property on a two-year term. Let us suppose they collectively decide that they want to finish the tenancy after one year and want to move out in the run-up to Christmas, which is known to be a difficult time for the letting market because things tend not to get going again until into the new year. By whose standards would “reasonableness” be measured? Would it be by reference to the tenants, who, after all, have agreed to take on the property on a two-year basis and wish to terminate after one year; or by reference to the reasonable costs the landlord would run up in that process? All sorts of things hang on that—for example, rent voids and running costs such as heating and security while the place is unoccupied, were that to happen.
I appreciate that things get more difficult when you have a number of tenants and one wants to go, because that creates a dynamic which, as the noble Baroness rightly said—and has said previously—affects the other occupants. It would be really undesirable if landlords responded by simply deciding not to agree to early termination. That would be the worst of all possible worlds. As a private sector landlord, I have never used that other than when someone wants to terminate at short notice and before the property can reasonably be re-let. That tends not to happen in the high-pressure circumstances of inner-London shared residential, but with a freestanding property in the countryside, where things are quite different. The Bill will apply across the nation.
I counsel a little caution here, and perhaps the Minister would care to comment. If the culture creeps in whereby no early termination of a lease is possible or will be agreed, we will be back here later with another measure to say that landlords must provide that facility. I do not see this as necessarily being the endpoint, and I should like to tease out that issue to give some closure on what we are doing with residential landlord and tenant. Hopefully, the situation can stabilise so that everyone will know where they are for, at any rate, the reasonably foreseeable future.
Lord Best (CB)
My Lords, it is worth underlining that this part of the Bill is an important measure to prevent what is a pretty common abuse, which is, when there is a change of tenancy, at little or no cost to the landlord, the agents involved making serious amounts of money, which the Bill would prevent them doing in future.
At Second Reading, I cited an illustration from my last intern, whose sister was taking her place in a flat share of three. Each of them, on entering the flat, needed to pay the agent a fee of £275 for the privilege of signing up. When one of the occupiers left and was replaced by her sister, the outgoing one was charged £250 for termination of the tenancy agreement and her sister, who was moving in on the same day with her packed suitcase, was charged £275 as a new tenant. The agents got £525 for this transfer from one sister to another. The landlord received exactly the same amount of rent, because there was no discontinuity in the rent paid.
In such circumstances, paying £50 as a takeover fee for the privilege of signing a photocopied document when one person moves in in place of another sounds quite enough. The guidance may be the best place to put this, but the test must be whether the landlord has suffered a loss of rent. If there is no such loss, surely the £50 should kick in as the maximum which the agents can take. One can understand the need to compensate if there has been a loss of rent because of a gap when one tenant has moved out and no new one has arrived. Otherwise, £50 sounds like a maximum not a floor.
Lord Young of Cookham (Con)
My Lords, I am grateful to all noble Lords who have taken part in this short debate relating to the charges that can be imposed for variation, assignment, novation or termination of a tenancy where these are requested by the tenant. We have previously set out that it is not fair to ask landlords and agents to pay reasonable fees where these arise from the action or request of a tenant. Following pre-legislative scrutiny, we clarified that both early termination and change of sharer costs were permitted, so long as these were fair. As a result, the Bill provides that a landlord or agent can charge a tenant in these circumstances, but such fees are capped at £50—one-tenth of the fee charged in the case cited by the noble Lord, Lord Best—or reasonably incurred costs if higher.
Amendments 27 and 28 seek to impose a hard cap on the amount that can be charged and to prohibit this charge in relation to a change of sharer. When considering how to manage these amendments, we share the caution mentioned by the noble Earl, Lord Lytton. We want to ensure that landlords and tenants can agree reasonable requests to vary a tenancy. Although we do not expect this charge to exceed £50, it is only fair that, where it does so, landlords and agents are able to recover their reasonably incurred costs. For example, if a landlord is required to undertake a search, conduct reference checks and amend tenancy deposit protection arrangements for a new tenant with no help whatever from the outgoing tenant, those costs may be higher than normal. Landlords and agents will need to be able to demonstrate, if challenged, that their costs are reasonable. They will have to justify them and, if they cannot do so, trading standards officers may have a case to investigate.
Crucially—this point was mentioned by the noble Earl, Lord Lytton—we do not want to create a situation where landlords are reluctant to agree to a change of sharer because they do not believe they can recover their reasonable, justifiable costs. This would not help tenants, who would be required to break their contract if they wanted to leave, nor would it help those hoping to move in to replace the sharer moving out. This matter was discussed during pre-legislative scrutiny and tenant representative bodies recognised the need for the ability to charge in such circumstances, provided that the risk of abuse was mitigated, which we have done by imposing a cap of £50 and requiring any additional costs to be reasonable. In its report, the Housing, Communities and Local Government Committee said that:
“We welcome the Government’s intention to clarify the legislation and to permit charges related to a change of sharer where these are requested by the tenant”.
Amendments 29 and 30 would place an obligation on the landlord to take reasonable steps to re-let the property where they have agreed to terminate a tenancy early. These amendments would also limit the loss a landlord can recover to the period reasonably required to find a new tenant, even if he was unable to find one.
An assured shorthold tenancy is a contract where a tenant commits to pay the landlord rent for a given period of time, the fixed term. The landlord is entitled to the rent for the entirety of that term. If the tenant seeks to leave the tenancy before the end of it, then they would need to seek agreement of the landlord to do so. Where possible, landlords should agree to this, and can ask the existing tenant to find a suitable replacement. We encourage them to do so through our guidance.
Turning to the amendment introduced by the noble Baroness, Lady Grender, paragraph 6(2) of Schedule 1 says:
“But if the amount of the payment exceeds the loss suffered by the landlord as a result of the termination of the tenancy, the amount of the excess is a prohibited payment”.
In other words, the landlord can only recover any loss they incur in permitting a tenant to leave early. They cannot double-charge for the same period of time. They are entitled to recover only the sum of any rental payments which would not be met by the start of a new tenancy. If a replacement tenant is found and there are no void periods, we would expect no early termination charge to be levied to the outgoing tenant. This has been reiterated in the consumer guidance for tenants and landlords, and we welcome the constructive comments made by the noble Baroness on our draft guidance.
However, looking at the amendment, we cannot necessarily expect landlords to know how long would reasonably be required to find a replacement tenant. This depends on several factors, including the rental market in the local area. Therefore, we expect landlords and tenants to consider on a case-by-case basis the likely void period and any reasonable charge for early termination. Again, we do not want to harm tenants by disincentivising landlords agreeing to a reasonable request to end a tenancy early or to a variation of a tenancy. That is not what this Bill is seeking to achieve, but there is a real risk of this if the amendments are agreed to. On that basis, I hope that the noble Baroness will withdraw her amendment.
Baroness Grender
My Lords, I thank noble Lords who have spoken about these amendments. When the noble Earl, Lord Lytton, talks about how one defines “reasonable”, a good look through the guidance will drive him in the direction of asking that question quite a lot, because quite a lot hinges on “reasonable” on both sides of the argument. The idea that we do not expect landlords to charge more than £50, rather than that they should not charge more than £50, is the issue here. I am trying to ensure a proper balance between tenant and landlord when a tenancy ends. I will seek to discover if there is a better way of drafting my amendment for Report or if there is a better way of clarifying this in guidance, and with that in mind I beg leave to withdraw the amendment.
Lord Kennedy of Southwark
“( ) In the case of a payment to a landlord, such a payment is a permitted payment only if the landlord is required by the tenancy agreement to review the contract or contracts annually and make arrangements to switch tariffs or suppliers if this would be beneficial to the tenant.”
Lord Kennedy of Southwark
My Lords, Amendments 31 and 32 in my name seek to add two new sub-paragraphs to paragraph 8 of Schedule 1. The schedule is concerned with permitted payments and paragraph 8 is concerned with payments in respect of utilities. Amendment 31 seeks to place a requirement on the landlord to review the various utility contracts and switch tariffs or suppliers to one that would be the most beneficial to the tenant.
We are all aware that the utility market is competitive and that there is a whole range of offers and deals. If the landlord or letting agent is able to make a charge for utilities, it is not unreasonable to require them to do something about getting the best deal and the best value for the benefit of their tenant. Looking at the market to see what is available is not too onerous a task and a reasonable obligation.
Amendment 32 proposes that the amount charged to the tenant must be the reasonable costs incurred, and any excess would be a prohibited payment. This amendment seeks to close a potential loophole by restricting what can be charged to reasonable costs incurred. I beg to move.
Lord Shipley (LD)
My Lords, I support the noble Lord, Lord Kennedy, in these two amendments, which would help to tighten up the Bill. As he said, paragraph 8 of Schedule 1 is very open-ended, and he referred to a loophole potentially lying within it as it is worded. I think his amendment will tighten it and will do so partly because it is in the interests of the tenant, who may secure a cash saving in the amount they pay for a utility even though they may have to pay a fee to achieve it. I therefore hope the Minister might be willing to look at that carefully. As paragraph 8 of Schedule 1 is currently drafted, it simply refers to the fact that the tenancy agreement may require the payment to be made, but it does not define why it would have to be made. That is why the amendment in the name of the noble Lord, Lord Kennedy, is so helpful.
The Earl of Lytton
My Lords, I have great sympathy with this amendment but I would have more were it possible to ensure that utility providers themselves acted reasonably. While I will not name any names, one particular well-known supplier of electricity, with what is generally regarded as an extremely cheap and competitive tariff, has gained for itself an extremely poor reputation because of what happens when one wants to change to another supplier. Indeed, so tortuous are its processes—of which I have had direct experience—that many landlords specify in their agreements that the tenant may not change to that supplier, and with good reason.
I had a situation myself concerning the commercial supply of electricity to an agricultural building. My wife and I were faced with a demand from this company for over £30,000 for a period of some 15 months, when the only thing that happens in this shed is that for a period of about three weeks a series of low-wattage lights are used to assist with lambing, and for a period of about 10 days in another part of the year they are used for a sheep-shearing operation. By no stretch of the imagination could the fee have totalled that amount. When, finally, the company rang up my wife and said, “We’re going to take you to court”, her answer was, “Make my day”. It was not until the matter was referred to its lawyers that it became apparent that there had been a complete muck-up. It had simply not got an initial reading and was trying to steamroller that payment through in the hope that we would crack and pay it. I know that other landlords in the private rented sector are sometimes faced with the same situation.
These people run up the most appalling costs. While I have great sympathy that this should not be laid solely at the door of tenants, it is none the less an occupational hazard that afflicts both parties to this arrangement. That is the only reason why I have a reservation about the amendment in the name of the noble Lord, Lord Kennedy—because there is another dimension to this, where certain suppliers are acting utterly unreasonably and unconscionably.
Lord Young of Cookham
My Lords, the Countess of Lytton is clearly even more formidable than the noble Earl.
I too have a lot of sympathy with these amendments, but I believe there are already sufficient existing protections—not in this Bill but in other legislation—which address the concerns raised by noble Lords. Landlords who resell energy to their tenants for domestic use are governed by maximum resale price provisions set by Ofgem under Section 44 of the Electricity Act 1989 and Section 37 of the Gas Act 1986. This prevents landlords from overcharging tenants; they cannot charge the tenant more than the landlord has paid. If the landlord does overcharge, the tenant is entitled to have the charge lowered and overpayments refunded. The tenant can also bring a claim against their landlord to the small claims court for the amount that has been overcharged plus interest. In addition, on other utilities, landlords are prohibited from overcharging tenants for the resale of water under the maximum resale price provisions set out in the Water Resale Order 2006. If the landlord does overcharge, the tenant can take legal action through the small claims court to recover any overpayment and the tenant is eligible to recover interest at a rate of twice the average base interest rate of the Bank of England for the period they have been overcharged.
Amendment 31 would specifically require landlords to review any contract held for the provision of utilities and to consider switching provider if this would be beneficial to the tenant. In the majority of cases, tenants will be responsible for paying their own energy bills; they will pay them direct to the supplier and not to the landlord. So in most cases, tenants will already have the right to choose their own supplier. The tenancy agreement will set out who is responsible for paying these charges. Where the landlord is responsible for paying the bills, they may seek to recover these costs through the rent or directly from the tenant but, as I have already explained, they are already prevented from overcharging for this for energy and water.
Through, for example, the How to Rent guide, we encourage tenants to speak to their landlord or agent if they think their utilities payments are too high or if they want to request a change of supplier. In many cases, it may be in the interest of the landlord to move to a more competitive supplier as that may help to market their property in the future.
In addition, the Government’s Domestic Gas and Electricity (Tariff Cap) Bill received Royal Assent on 19 July. This requires Ofgem to implement a price cap on standard variable and default tariffs, which will guarantee protection for the 11 million households currently on the highest energy tariffs.
Against that background, I hope the noble Lord will feel able to withdraw his amendments.
Lord Kennedy of Southwark
I thank all noble Lords who have spoken in this short debate, and particularly the noble Lord, Lord Young of Cookham, for his very helpful response. I will withdraw my amendment shortly, but I would like to check something. He helpfully set out the legislation which will prevent people from being overcharged by landlords, but I cannot recall off the top of my head whether this will be clearly laid out in the guidance so that people will be very much aware of their rights and obligations. That would go some way to allaying the fears that are behind these amendments.
Lord Young of Cookham
Before the noble Lord sits down I would like to say that that is a very helpful suggestion. We will indeed look at the guidance to see whether that suggestion can be incorporated.
Lord Kennedy of Southwark
In that case, I am happy to withdraw the amendment.
“Payment in respect of identity and immigration status checks
11 (1) A payment for or in connection with the costs associated with carrying out identity and immigration status checks on the tenant is a permitted payment.(2) But, in the case of a payment to a landlord, if the amount of the payment exceeds the reasonable costs incurred by the landlord for or in connection with the provision of the identity and immigration status checks, the amount of excess is a prohibited payment.(3) In sub-paragraph (1), a check on the immigration status of the tenant means the conduct of checks by the landlord pursuant to ensuring compliance with section 22 of the Immigration Act 2014.”
Baroness Gardner of Parkes (Con)
My Lords, I have moved this amendment simply because it is essential for people to know what they can be charged and what they cannot. The noble Lord, Lord Kennedy, commented at the end of his speech on just that fact: that people need to know. If something was in the guidance that would indeed be very valuable, but at the present time people have no idea what they will be charged.
A lot of people have no idea that they have to prove they have a right to be in this country. I am sure most of us remember the embarrassing start of this whole problem, when a very impressive member of the Government at the time found that she had not checked on someone she employed. That is where all this started. As I understand the situation, there is now a fixed amount that people would be asked to pay for such an official designation of their nationality and the rights they have here. People are often totally unaware of this.
I understand that overcharging should not take place—I am not for a minute suggesting that—but people will need to know that, to rent a property, they have to prove that they are an ordinary person entitled to live here and not limited in what tenancy they can undertake. That is the purpose of this amendment. I claim no expertise in the wording of it, as the Public Bill Office very kindly helped me. I would be interested if people have comments on that. The principle behind it is to enable people to know what is and is not legitimate. Whether it is the agent, the prospective tenant or anyone else who provides that necessary information, it costs. You do not get it for nothing; that is the problem. I feel that the Bill is rather restrictive at the moment. I beg to move.
The Earl of Lytton
My Lords, the noble Baroness has made a valid point. I recall some years ago having to check the identity of an applicant for a business tenancy, who produced a passport from a Commonwealth country which was in date but did not contain the crucial words in the out-of-date one, also presented, which described the bearer as having the right to remain in the United Kingdom. I have always felt very nervous about trying to sift through this, because of the penalties that can be visited on one professionally—in this case, it would have been on a client landlord—in connection with letting. Getting these things right and carrying out identity and immigration status checks cannot be left to the tea boy. They need to be done by somebody who knows what they are doing and can take responsibility.
This takes us back to the question of where the two-way street between landlord and prospective tenant should lie and whether it is right that the landlord provides a property that he has warranted as clean and tidy, fit for purpose, not unsafe and so on, and the tenant is responsible for the cost of verifying their bona fides, as the noble Baroness says in her amendment. It seems that that is fairly unarguable, particularly in London where there are people of so many different nationalities. A further issue that needs to be addressed, assuming that eventually this country will leave the European Union, is European citizens’ right to remain here. The noble Baroness raises a valuable point, and I look forward to hearing what the Minister says.
Lord Best
My Lords, I take an opposing view. I am sad to do so on the noble Baroness’s amendment, since she does so much good work in this sector. I declare my interest as a co-chair of the Home Office’s right to rent consultative panel, which looks at the right to rent that people require before taking up a letting.
For sure, somebody has to pay for the identity and immigration status check which now has to happen. The question is whether tenants should pay the agent for this—they would do so whether British citizens or not—or whether the landlord should ultimately expect to pay, getting their agent to do it on their behalf. It is one of the functions of an agent to check whether the tenant is an illegal immigrant or has the right to be in this country. That task is for an agent to perform, just as they need to make sure that the landlord’s property has a gas safety certificate or an energy performance certificate. This is part of the process that an agent is paid for. There is a fundamental principle that the landlord is ultimately responsible for the letting, along with the agent who acts for that landlord, and they and not the tenant should be the ones who pay. In the same way, the tenant does not have to pay for their own reference—that is something that the agent takes up. This is part of the process taken on by an agent and it justifies the fees that agents charge their landlords. What else do we want agents to do but look after the landlord’s interests in cases of this kind?
Therefore, I think that the Government have this right. This is not an area where the tenant should be asked to make a supplementary payment to the agent, and the agent may well charge the landlord a good deal already. As the Bill spells out, it is a matter on which no fee should be payable by the tenant.
Lord Shipley
My Lords, I agree with the noble Lord, Lord Best. It is important that we are able to discuss this matter through the amendment moved by the noble Baroness, Lady Gardner of Parkes, but there is an issue of principle here, which is that it should be a charge not on the tenant but on the landlord and the letting agent, who is not mentioned in the amendment.
The principle is that, if a service is contracted for formally between a tenant and a landlord, a payment can be required. However, that should not be required for either reference checks or identity checks, where the responsibility lies with the landlord or the letting agent. The basic problem here is that the Bill attempts to eliminate up-front tenants’ fees but the amendment might reinstate some tenants’ fees that would not be justified as a charge on the tenant.
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government and Wales Office (Lord Bourne of Aberystwyth) (Con)
I thank noble Lords very much and particularly my noble friend Lady Gardner for bringing forward this amendment. She does much work in this area.
I cannot accept the amendment because, as the noble Lord, Lord Shipley, has just indicated, it would fundamentally undermine the policy intention of the Bill, which is to ban letting fees paid by tenants and to ensure that the party that contracts a service pays for that service.
This issue was dealt with under Section 22 of the Immigration Act 2014. It was very clear then that this was to be a liability for the landlord, not the tenant, to discharge. Therefore, the amendment would effectively drive a coach and horses through the intention of that legislation. I am not sure what the collective term for a coach and horses would be. It would probably be a stampede or possibly a cavalcade of coaches and horses, but it is clearly not the intention.
Despite the very good arguments put forward by my noble friend and the noble Earl, Lord Lytton, on this point, I very much agree with the noble Lords, Lord Best and Lord Shipley. A landlord should be responsible for the costs associated with these checks. As I have indicated, they are required under the Immigration Act to undertake these checks to verify that a tenant has the legal right to reside in the United Kingdom before progressing with any tenancy agreement.
The Home Office produces detailed guidance for landlords and agents carrying out these checks, and I will certainly ensure that it is circulated to my noble friend and the noble Earl, and indeed to everybody who has participated in the debate.
Although the onus is on the landlord to verify a tenant’s right to rent, we have made provision in the Bill that, where a holding deposit is sought and a tenant fails a right-to-rent check, landlords and agents will not be unfairly penalised if the tenant is at fault. I hope that that gives some comfort to my noble friend and the noble Earl. With those assurances, I respectfully ask my noble friend to withdraw her amendment.
Baroness Gardner of Parkes
My Lords, I was very interested in the comments that were made and I will certainly take them on board. I heard people talking about how easy it is to get the right of abode and that is exactly what I have had here for 40 years. Every time my passport comes up for renewal, I have to send in the original documents, which after 40 years are beginning to disintegrate. Why can the Home Office not keep a record of these things? I have only one marriage certificate; it is turning into a bit of old rubbish now because it is getting so worn out although I have always valued it.
I am sure noble Lords know about the Member of your Lordships’ House who made the mistake of employing someone who had no right to be in this country. It is not a light remark to say, “They will just produce that”. You have to reproduce things every time you get a new passport and, as I said, the original documents are insisted on. It is a pretty major thing and I will face it again next year.
The position in this House is that you can be here provided that you are deemed domiciled; you have to prove that you are paying full taxes, which is one of the big factors. But a lot of people may not be aware that you have to have any proof of who you are at all in anything. If the time comes when people want to rent a place and are asked, “How can you prove that you are entitled to be here?”, they will not have the documentation, whereas they would if that requirement were set out in the guidance.
The Minister said that this issue is included in immigration law, but it needs to be mentioned in some way in this legislation, which affects people’s lives on an everyday basis. When they want somewhere to live and find a place they like, they do not suddenly want to lose it because it takes so long to get the correct papers. That should be in a guidance document prior to wishing to rent something. It should not be part of the rental process.
Doing this yourself, as has been suggested, presumably means meeting the costs yourself as well. This whole thing seems to be a little muddled. I do not accept the view of the noble Lord, Lord Best, that we should not burden ordinary people with these things—perhaps I am wrong in asserting that—when they are burdened by them every day in their own living standards. But I appreciate the Minister has given a good answer and I beg leave to withdraw the amendment.
Lord Kennedy of Southwark
Lord Kennedy of Southwark
My Lords, all the amendments in this group are in my name except Amendment 37, although I support that amendment as well. They seek to amend Schedule 2, which concerns holding deposits. Amendment 33 would remove from the Bill the ability for a holding deposit to be withheld if the prospective tenant is prohibited from being granted a tenancy due to the restrictions of the Immigration Act and has failed the right to rent check. It is of course a probing amendment and I look forward to the Government setting out their case to justify this part of the Bill.
Amendment 34 would strengthen paragraph 8 of Schedule 2 by adding the word “knowingly”. That is a reasonable bar to have to reach for a deposit to be lost. Otherwise, it is unfair on the prospective tenant. If you knowingly provide false and misleading information, fine, but if it is unintentional, it seems harsh that the deposit can be withheld.
Amendment 35 would allow a tenant to decide not to proceed with a tenancy by notifying the landlord or letting agent before the deadline. It gives the tenant a reasonable period in which they can change their mind and not lose the deposit. I hope the Government can respond positively to that amendment.
Amendment 36 seeks to put into the Bill a requirement, where a holding deposit is withheld, that the landlord or agent say why they are doing so; that they set out the information they believe is false or misleading and which has been relied upon to withhold the deposit; and that they explain how the tenant can challenge the decision, including how to get advice on doing so, to ensure that the decision is sound. Again, I hope that the Government can respond to this amendment because people should be able to understand why a decision has been made and be clear on whether there is anything they can do. If your deposit is withheld, it must be right that you be told why and that the reasons be set out. If you do not like the decision, you should be told where you can go to get further advice and challenge it.
The final amendment in the group, Amendment 37, has been tabled by the noble Baronesses, Lady Grender and Lady Thornhill. It looks sensible and I look forward to hearing the explanation behind it. I beg to move.
Baroness Thornhill (LD)
My Lords, I rise to speak briefly to the final amendment in this group, Amendment 37. I thank the noble Lord, Lord Kennedy, for his remarks and I should say that we support his amendments.
If the Bill is rightly concerned with redressing the balance of power a little more towards tenants, this modest amendment would surely do that. Its purpose is to ensure that on payment of a holding deposit, which can sometimes be a significant amount of money, the tenant actually gets to see the tenancy agreement and therefore knows the terms of the contract that they will be asked to sign and abide by. The real question is whether there is a good reason for tenants not automatically and always being given this right. I am at a loss to understand this. In life, if we buy a product or a service, we see all the terms and conditions. We tick the “I agree” box online, while on paper we sign on the dotted line—although, like me, I suspect that we do not actually read all of the small print. The situation we are discussing would not arise in any other consumer transaction, so the amendment seeks to ensure that the same applies when people rent their home.
It is impossible for tenants to spot and negotiate out of the tenancy agreement any unfair terms if they have not received it before signing or moving into the property, the more so as they might ultimately incur default fees. Even if they receive the agreement in good time, they do not have much power to negotiate the terms because they stand to lose their holding deposit if they walk away. The ability of tenants to negotiate unfair terms out of a contract would be made just a little easier through the provision in this amendment.
It is equally important that the Bill makes it clear that the draft tenancy agreement must meet a certain universal standard. Thus the amendment refers to the Consumer Rights Act 2015, the legislation that would form the basis for the standard. The rationale is that if the tenancy agreement contained unfair terms, the tenant could ask for those to be removed. If the landlord refused to remove them, the tenant could pull out of the tenancy and claim the holding deposit back on the basis that the draft agreement did not comply with the Consumer Rights Act.
Existing government guidelines for the Act on what are and are not “unfair terms” are quite clear. They talk about transferring risks to consumers—in this case the tenant—that cannot be controlled. The tenancy agreement might be the first time the tenant gets to see what default fees the landlord is setting, and sometimes, even more significantly—and perhaps horrifically—it does not specify the level of default fees they might subsequently wish to apply. Efforts elsewhere in the Bill to define default fees more tightly might help to address these concerns, but surely it is both fair and reasonable for tenants to have some ability to negotiate the terms of their contract before signing it.
Lord Bourne of Aberystwyth
My Lords, I thank noble Lords for their contributions and the noble Lord, Lord Kennedy, for moving his amendment.
This set of amendments deals with the treatment of holding deposits under Schedule 2 to the Bill. As I have set out on previous occasions, the purpose of a holding deposit is to enable both the landlord and the tenant to demonstrate their commitment to entering into a tenancy agreement while reference checks are undertaken. It is important that there is earnest from both parties to the agreement. As I have said on a previous occasion, it must be wrong for a landlord to have more than one agreement with a tenant; there can be only one on both sides. So that we have a case of what is sauce for the goose is sauce for the gander, we have to be careful in looking at the amendments.
Amendments 33 to 35, in the name of the noble Lord, Lord Kennedy, seek to make changes to the circumstances in which landlords and agents can retain a holding deposit. From the outset of this policy, landlords and letting agents have expressed concern that tenants speculating on multiple properties might be a side-effect of the ban. That is why we are allowing a landlord to ask for a holding deposit so that tenants can demonstrate that they are sincere in their application—as I am sure they are, in the vast majority of cases. It is a pledge from the tenant to a given property. This mitigates the risk of landlords and agents being out of pocket if a tenant registers an interest, only to withdraw if something better comes along. I therefore cannot agree to Amendment 35.
We also want to ensure that landlords do not take an overly cautious approach and preselect tenants that they perceive as the most likely to pass a reference check. Permitting landlords to retain holding deposits in circumstances where a tenant fails a right-to-rent check—which I referred to in discussion on the previous amendment, moved by my noble friend Lady Gardner of Parkes—is a key mitigation against such behaviour. I therefore cannot accept Amendment 33.
Amendment 34 suggests that a landlord or agent should refund the holding deposit only if the tenant “knowingly” provides false or misleading information. Again, I am afraid I cannot accept such an amendment, although I appreciate the spirit in which it was moved. Requiring the landlord to refund the holding deposit in these situations would be near-impossible because the landlord is unlikely to have the necessary evidence to prove whether a tenant has done something knowingly. It would simply be one party’s word against the other. Given that the landlord is liable for a significant financial fine, we believe that the inclusion of a “knowingly” test is more likely to lead to them taking a risk-averse approach, which would not help tenants. I firmly believe that the approach set out in the Bill with respect to holding deposits is the fairest to both landlords and tenants.
As I have said, I recognise the desire expressed by noble Lords for greater transparency regarding the treatment of holding deposits; I have previously indicated that I will look at that. I understand the rationale behind Amendments 36 and 37. Without a commitment on where we will end up, I am happy to look at this issue ahead of Report. I appreciate the valuable points made during the debate on these amendments and the importance for tenants of understanding how their holding deposit is handled and why it may not be returned. That seems entirely fair. I have listened to noble Lords’ concerns on these issues and will be happy to return to them on Report. I listened to the point made by the noble Lord, Lord Kennedy, and the points made by the noble Baroness, Lady Thornhill, on Amendment 37 in relation to sight of the agreement ahead of entering into it. Again, that seems to have some strength in it and I am happy to look at it.
I should say that we are making great progress; I believe that noble Lords who have looked at the guidance notes will acknowledge that. The notes, which will set out the procedures for, and the rights and obligations of, landlords and agents will provide great assistance in this area. That will support tenants in understanding how to seek appropriate redress if they are dissatisfied, including through provision of draft letters to help tenants raise concerns with their landlords and agents around the treatment of their holding deposit. As I have indicated, I am very happy that noble Lords from around the Committee should engage in this process with officials to help us to clarify points made in the guidance notes to improve them in the interests of landlords and tenants. I acknowledge that we have made some important strides in the process of making sure it is much more lucid and transparent, and less riddled with jargon.
Landlords and agents should give tenants sufficient time to understand the terms of any agreement before signing. I am clear on that. That is why the period before the deadline for agreement is there; it is intended to allow that. I will also ensure that a link to the consumer guidance on the Bill is included in the How to Rent guide. That will also help. Landlords are of course required by law to give their tenants these guides to help raise awareness. I hope those assurances enable the noble Lord and the noble Baroness not to press their amendments.
Lord Kennedy of Southwark
My Lords, I thank the noble Lord, Lord Bourne, for that thoughtful and helpful response to this short debate. I will happily withdraw my amendment shortly. Of my four amendments the most important was Amendment 36, which the noble Lord responded to in detail. I was pleased that he did so, because it is only right and fair that if your deposit is withheld you should understand why and how you can challenge that. I will certainly look at that and I hope to bring something back on Report. I thank him very much for that.
I also listened very carefully to the noble Baroness, Lady Thornhill. I thought she made a very strong case for her amendment. Again, I am very pleased that the noble Lord will look at that. I hope we will have something on Report that we can all agree on. At this stage, I am very happy to withdraw my amendment.
Tenant Fees Bill
Tuesday 11th December 2018
(5 years, 10 months ago)
Lords ChamberRead Full debate Tenant Fees Act 2019 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 129-R-I Marshalled list for Report (PDF) - (7 Dec 2018)
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, I will first speak briefly on Amendments 1, 2, 5 to 12, 16 to 19, 33, 35 to 41, 60 and 66, which are minor and technical and are intended to bring consistency and ensure the Bill best delivers on its policy intent.
First, while unlikely, as the Bill is drafted a letting agent could conceivably require a tenant to enter into a contract for services with themselves for additional services related to letting, such as providing an inventory. Amendment 5 clarifies that letting agents are prohibited from requiring a tenant or other relevant person to enter into a contract with themselves.
Secondly, it is possible that a relevant person other than a tenant might be a party to a tenancy agreement or an agreement with a letting agent. We have made amendments to Clauses 1 and 2 to be clear that, where a person is acting on behalf of a tenant or guaranteeing a payment of rent, that person cannot be charged a default fee unless otherwise permitted by the Bill.
In the same vein, Amendments 9 to 12 to Clause 4 provide that a term of agreement which breaches Clause 1 or Clause 2 does not bind a relevant person. Similarly, Amendments 33 and 35 to 41 replace the references to “tenant” in Clause 28 as it applies to pre-commencement tenancy agreements and agreements with letting agents with references to “relevant person”.
Finally, we want to ensure that we use consistent language and terminology throughout the Bill. Amendment 66 changes a reference to “incorrect and misleading information” to “false and misleading information” to align with other references in Schedule 2. Amendments 16 to 19 ensure that the language on day and date in Clause 11 is consistent, and Amendment 60 makes it clear that the definition of a television licence in paragraph 9 of Schedule 1 applies to the entire Act.
Lord Shipley (LD)
My Lords, since we have begun Report I should declare my vice-presidency of the Local Government Association. I simply say that these are helpful and relevant amendments that have our support.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, as this is the first time that I have spoken on Report, I draw the House’s attention to my relevant interest as a vice-president of the Local Government Association, as the noble Lord, Lord Shipley, did. I thank the noble Lord, Lord Bourne of Aberystwyth, and his officials for a number of the amendments we will discuss, in this group and others. Generally they are very helpful and improve the Bill. That is good news for tenants, and I am genuinely very grateful for that. That is not to say that I agree with everything in the Bill, but I am pleased to say we are making progress. I am very happy to support these amendments and I concur with the noble Lord’s comments.
Lord Bourne of Aberystwyth
My Lords, I am very grateful for the noble Lords’ support. I beg to move.
Lord Bourne of Aberystwyth
My Lords, we are all clear that the purpose of the Bill is to ban agents and landlords from charging unfair letting fees to tenants. However, in achieving this objective it is crucial that the legislation does not have an adverse impact elsewhere. Amendments 3, 4 and 29 to 31, in my name, ensure that the Bill does not prevent vital work supporting tenants more broadly.
First, Amendments 3 and 4 exclude local housing authorities or organisations acting on behalf of a local housing authority from the definition of “relevant person” under the Bill. I am most grateful to the noble Lords, Lord Shipley and Lord Beecham, for raising this issue during Second Reading. Local authorities have a duty, as housing authorities, to help the homeless to find accommodation. This is set out in the Housing Act 1996, the recent Homelessness Reduction Act and the homelessness code of guidance. We recognise that, as part of this, councils might need to provide support to applicants—financial or otherwise—to access private rented accommodation. This is vital work, and Amendments 3 and 4 ensure that it can continue. These amendments will ensure that local housing authorities can make payments in connection with a tenancy when acting on behalf of a tenant or guaranteeing their rent.
Secondly, Amendments 29 to 31 ensure that the important work of Homeshare schemes, and its parent network in the UK, Shared Lives, can continue. I have said on multiple occasions that the Government strongly support the work of organisations such as Homeshare in matching a licensee, usually a young person in housing need, with a licensor, usually an elderly householder in need of companionship, sometimes combined with some low-level care or assistance. I know that support is shared throughout the House.
The Bill would have unintentionally prevented Homeshare organisations operating by banning payments made by the licensor in respect of the advice and support received from Shared Lives. I reiterate that the intention of the Bill is not, and never was, to undermine or prevent this important and innovative work continuing. I thank in particular my noble friends Lady Jenkin and Lady Barran for taking up this issue and bringing it to the House’s attention.
The Government recognise that we must take this opportunity to amend the Bill to ensure that such work is not adversely affected. To do this, our amendments provide for changes to Clause 26 to exclude from the Bill such licences as those granted under a Homeshare scheme. We have specified that an excluded licence will be one granted to the licensee by a licensor who resides in the housing, where particular conditions surrounding the grant, renewal and continuation of that licence are met. These conditions include a requirement for a charity or a community interest company to give advice to the licensee or licensor in connection with the grant, renewal or continuation of the licence and where the licensee provides companionship or companionship and low-level care or assistance, together with one or more payments in respect of council tax or utilities, for example. Such arrangements are indicative of Homeshare organisations.
The amendments will therefore ensure that excluded licences that meet the conditions I have just set out are exempt from the tenant fee ban. I hope that my noble friend Lady Barran will agree that these amendments address the concerns she raised in Committee and that this achieves our shared ambition—one we can all surely support—which is that organisations such as Homeshare can continue doing their fantastic work well into the future.
Lord Shipley
My Lords, the Minister referred to what I said at Second Reading and he is entirely right. I welcome Amendments 3 and 4. They are hugely helpful because they give local housing authorities the flexibility they need to do their job properly, and for that reason they have our support.
Lord Beecham (Lab)
My Lords, I join the noble Lord, Lord Shipley, in supporting these government amendments. It certainly is an important function for local authorities. I have to confess—and I refer to my interest as a sitting local councillor—that I am not entirely sure where the funding for this comes from. Do the Government support this financially, or is it left entirely to local authorities? In the latter event, will he look into the extent to which authorities are financing this important element of support for tenants? We certainly support both amendments.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Lords, Lord Beecham and Lord Shipley, for their support. I will write to the noble Lord, Lord Beecham, but I suspect that this money comes from local authorities—although of course it finds its way from successive Governments. I suspect that this is part of their functions, but I will certainly cover that in a letter, if I may. The noble Lord never misses an opportunity to focus on an issue such as this, and I will be very pleased to respond to him.
“(10) The reference in subsection (9)(b) to a person does not include—(a) a local housing authority within the meaning of the Housing Act 1985 (see section 1 of that Act),(b) the Greater London Authority, or(c) a person acting on behalf of an authority within paragraph (a) or the Greater London Authority.”
Lord Bourne of Aberystwyth
My Lords, Amendments 14, 15, 45 to 48, 61 to 65 and 67 to 70 in my name relate to the treatment of holding deposits. I have been sympathetic to some of the arguments put forward by noble Lords on holding deposits, and I agree that more action is needed to address these issues. I propose to do that in the Bill, rather than in guidance or regulations, to improve transparency and enforcement.
Baroness Thornhill (LD)
My Lords, I declare my interest as one of the happy band of vice-presidents of the Local Government Association. I agree with much of what the Minister has said, but with specific reference to Amendment 48 I thank the Government for listening and accepting our amendment, moved in Committee, regarding letting agents and landlords receiving multiple holding fees from several people for one property. The arguments for this were well made in previous stages of the passage of this Bill. It has been recognised by pressure groups, by the industry itself—interestingly enough —and now by the Government that taking financial advantage of prospective tenants is totally unacceptable and bad practice. This simple but significant amendment corrects an injustice and will help many for whom navigating the private rental market is already a stressful and expensive business. We look forward to a speedy implementation, which I believe will be in May 2019.
The Earl of Lytton (CB)
My Lords, I declare my interests as a vice-president of the LGA and also as a practising chartered surveyor and private rented sector landlord. Mercifully, I have managed to steer clear in a personal capacity of managing agents—at least for the last many years.
I have one query on the way in which the holding deposit arrangements are intended to function. I quite understand the geometry that sits behind this and the reason for it, so I will not go over it again. But let us suppose that a prospective tenant, having been provided with all the relevant information, pays a holding deposit and then, through some reason of default which would allow the agent to retain part or all of that deposit, there develops an argument as to what proportion—perhaps the whole—should be retained or not. That could take some while to resolve. Meanwhile, the agent is debarred from taking a holding deposit from anybody else, even though it may be clear beyond peradventure that the original deal with, and intention of, the tenant, whose holding deposit is still being hung on to, will not go ahead.
I can see that this could put an undesirable element of drag into the situation. I can also see that it might be the godmother of unforeseen consequences, in that the agent may feel that it is becoming a problem—a rather metropolitan problem, if I may say so; I think of zones 2, 3 and 4 of central London as the areas where a lot of this goes on, although I know it is not unique to there. The corollary to that is that the agent may say, “I’m not going to take a holding deposit at all. It is on a first-come, first-served basis. I have various people interested and the first who comes through my door with the relevant boxes ticked gets it”. That does not seem at all helpful either. That does not happen in my part of leafy Sussex, because we do not deal with things in that way and do not have that sort of high-pressure tenant demand. But I can certainly see it happening in zones 2 and 3 and I wonder what the Minister has to say about how he sees that working in practice, without having some perverse effects on the market.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Baroness, Lady Thornhill, and the noble Earl, Lord Lytton, for their contributions to the debate on this part of the Bill. I thank the noble Baroness very much for her comments and support.
I thank the noble Earl very much for his support and for raising the issue relating to holding deposits. First, as he will be aware, there is no obligation upon an agent or a landlord to operate a holding deposit system if they do not want to do so. It is optional. But where it applies and there is a dispute, if the two parties agree that there is no chance of pursuing the tenancy, it would obviously be open at that stage for the landlord or agent to take another holding deposit in relation to the land in question, as it were, where that matter is truly settled. If it is not settled, a lot will turn on the particular circumstances of the case. If the noble Earl feels that he would like to discuss this further, I will ensure that officials are available to discuss possible scenarios with him. It may be that he wishes to discuss a particular scenario, but in the meantime I commend these amendments to the House.
“The Housing and Planning Act 2016 is amended as follows.( ) In section 134 (client money protection schemes: approval or designation), after subsection (2) insert—“(3) Regulations under this section may confer a discretion on the Secretary of State in connection with—(a) the approval or designation of a client money protection scheme,(b) conditions which must be complied with by the administrator of such a scheme,(c) the amendment of such a scheme, or(d) the withdrawal of approval or revocation of designation of such a scheme.”( ) In section 135 (enforcement of client money protection scheme regulations)—(a) in”
Lord Bourne of Aberystwyth
My Lords, I shall speak also to Amendments 22, 27, 32 and 71 in my name which relate to client money protection legislation as set out in Part 5 of the Housing and Planning Act 2016, the Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) Regulations 2018 and the Client Money Protection Schemes for Property Agents (Requirement to belong to a Scheme etc.) Regulations, which are due to come into force on 1 April 2019.
Client money protection schemes ensure that landlords and tenants are reimbursed in the event of a letting or managing agent going into administration, or where the agent misappropriates their money while in their control. This client money can include rent paid by tenants as well as money passed on by landlords for the purpose of making repairs to a property. Client money protection is designed to be the last resort once a tenant or landlord has already pursued the agent directly or exhausted recovery via the property agent’s insurance. I take this opportunity to thank the noble Baroness, Lady Hayter, for all the hard work she has done in this area alongside the noble Lord, Lord Palmer, on this important legislation that will give tenants and landlords the financial protection that they deserve.
The client money approval regulations set out the conditions that scheme providers must meet in order to be an approved provider. My officials have been working with scheme providers since the summer to support them in making an application. The requirement regulations require property agents who handle client money to belong to an approved scheme. They are due to be implemented on 1 April 2019.
During our extensive engagement with schemes it has become apparent that certain elements of the regulations do not work as originally intended. I thank noble Lords for their discussion of these points in Committee, which I have considered carefully. I am keen to ensure that the client money protection legislation delivers on our commitment to give landlords and tenants financial security but not in such a way as to impose disproportionate and unnecessary burdens on industry, which could have the adverse and perverse effect of increasing costs for tenants and landlords. The amendments in my name ensure that the rules strike a balance while giving tenants and landlords robust protection. This is so that the amount of cover that schemes are required to provide is proportionate, taking into account the availability of insurance and the level of risk posed by members. We are committed to maintaining our published timetable so that mandatory client money protection can come into force on 1 April 2019. Our intention is that, once we have approved sufficient schemes, we will make the requirement regulations and of course they will be made before the relevant provisions in this Bill amending these regulations are commenced.
Turning to Amendments 21, 22 and 17, first, we have clarified that money that has already been protected through a government-approved tenancy deposit scheme is not required to be doubly protected by a client money protection scheme. This was never our policy intent. Secondly, we will not require schemes to pay out where certain risks are excluded by insurers. These policy exclusions typically refer to events such as war, terrorism or confiscation by the state. It was never the policy intent for such unlikely events to be covered. We believe it would be unreasonable to require schemes to pay out where they may be unable to underwrite their risk with insurance because such insurance cover is commercially unavailable.
Thirdly, we are providing that the level of insurance held by schemes is proportionate to the risk of client money loss rather than requiring scheme providers to ensure they can provide cover for every penny held in an agent’s client account. We will in guidance ask schemes to determine the appropriate level of insurance cover necessary to cover a worst-case scenario—their maximum probable loss. This allows schemes to consider controls that their members have in place as well as the amount of client money that is at risk. We will challenge schemes’ calculations through our assessment of their applications for approval to ensure that they are robust.
Fourthly, we are specifying that client money protection schemes can allow limits per individual claimant and scheme aggregate limits that are at least equivalent to the scheme’s maximum probable loss. Allowing schemes to set a limit per individual claimant ensures that they are not required to pay out without limit. It will ensure that more sophisticated large corporate landlords take responsibility for the control of client money held on their behalf. The Financial Services Compensation Scheme has similar individual claim limits, and we are seeking to replicate this accepted practice. It is, of course, vital that consumers are aware of any such limits and we are requiring schemes and their members to be transparent with clients about the limits of protection. The limit would be designed to be more than sufficient to cover likely claims, but if it became apparent that that was no longer the case, the limit would need to be changed.
We expect schemes to act reasonably and to apply to amend the scheme rules if it becomes apparent that their level of cover is no longer sufficient. Any scheme that cannot demonstrate that it has obtained sufficient cover to pay out on all likely claims will not be approved. Allowing both individual and aggregate limits ensures that tenants and landlords have sufficient financial protection, which is the purpose of client money protection, but not in such a way that would have a disproportionate impact on the industry.
Further, for a transitional period of 12 months taking us to 1 April 2020, we are permitting agents to join a scheme if they are making all efforts to apply for a client account but have not yet obtained one. We fully expect all agents to hold their client money in a separate account to ensure that client money is suitably protected. As the Government work with the banking industry, we do not wish to impose unrealistic barriers around a client account that agents are unable to meet by 1 April 2019.
Finally, the duty to enforce the requirement for letting agents to belong to a client money protection scheme is set out in Regulation 5 of the client money protection schemes for property agents regulations. We have therefore clarified in Amendment 32 that the lead enforcement authority set up under the Bill can also enforce the regulations. Amendment 71 is a consequential amendment to the title of the Bill.
Without Amendments 21, 22, 27, 32 and 71, there is a risk that certain scheme providers will be unable to comply with the regulations and therefore leave the market, or that the costs of cover will increase substantially for agents, which could have knock-on consequences for landlords and tenants.
I am proposing these amendments to this Bill to ensure that implementation of mandatory client money protection is not delayed and can be delivered as promised from 1 April 2019. I thank the noble Baroness, Lady Hayter, for giving attention to these matters and raising her concerns.
I also address Amendments 23 to 26, which the noble Baroness tabled. I understand her concern that if notice is served on a scheme without any reasons requiring the scheme to amend its rules within 30 days, the scheme may be unable to comply and feel that it has no other option but to wind up its operation. Clearly such a situation would be in neither the Government’s nor the scheme’s interest.
However, I do not believe that the amendments tabled are necessary and as such do not propose to accept them. Specifically in relation to the timeframe and the giving of reasons, the Government are bound by general public law obligations which include acting transparently and fairly and supplying reasons for decisions. I am happy to reaffirm that. We could not seek arbitrarily to serve notice without having discussed our concerns and options with the scheme. The notice is likely to be the final step in the process, having explored with the scheme what amendments would be required. The 30-day notice period is subject to a different period being set out in the notice and therefore we do not believe that Amendment 26, which amends the timeframe, is necessary.
Nevertheless, as noble Lords will appreciate, the Secretary of State needs to be able to serve a notice to compel schemes to make changes where, for example, there has been a significant change in the size for a scheme. With an increase in the membership base, it might be necessary to increase the cover. It is on that basis that I hope that the noble Baroness will understand that I cannot accept her proposal but, with the reassurances that I have given, I hope that she will not press the matter.
Baroness Hayter of Kentish Town (Lab)
My Lords, first, I thank the Minister for his sympathetic and speedy response to the issues that I, along with the noble Lord, Lord Palmer of Childs Hill, with the support of the noble Lord, Lord Best, who is in his place, and the noble Lord, Lord Deben, who is not in his place at the moment, raised in Committee about how the department was implementing these otherwise very welcome plans to introduce mandatory client money protection for letting agents. It was because the noble Lord, Lord Palmer, and I had worked very well with the Minister on that initiative that we were concerned that the whole thing was going a bit pear-shaped because of the introduction of unrealistic requirements on the main providers of CMP protection. But, thanks to the Minister—I have to thank him for that—the department moved very rapidly, as it is well able to, and responded to make the significant changes that the Minister has now introduced. We both thank and congratulate the people who drafted those changes. They will, of course, help ensure that both RICS and ARLA can continue to protect both landlords and tenants through their schemes.
There was just one area on which I sought clarification, which is indicated in the amendments to which the Minister has already responded. I know that these have been discussed with RICS, ARLA and officials. I am getting nods from the Box. The government amendments introduce a power, as has been said, for the Secretary of State to serve notice on scheme administrators, requiring them to amend their scheme rules in respect of the cover they may hold. We consider this a sensible addition because it ensures that appropriate cover will be in place and, importantly, it will prevent arbitrage between the different schemes. That is something that we had not thought of but we are very grateful that officials did so.
As has been noted, our concern is with the current wording, which we did not feel gave sufficient clarity on how such a scheme, where it proved necessary, could close in an orderly manner where the Secretary of State’s justified requirements proved unworkable. The amendments I tabled were therefore to clarify that schemes may alternatively close in an orderly manner in such a scenario, rather than leaving administrators open to a lot of uncertainty. I know that the Minister appreciates those points, as we have heard. It was a backstop—if I may say that—that we were looking for: something we hoped would never be needed but should be there in case. I think the Minister has given the reassurance needed about flexibility and the use of normal other legislation to ensure that such reasons are given, and in the right way. I am getting nods from other people on that point.
Although I tabled the amendments, they were clearly only a bit of final tidying up. We are very pleased and grateful that, as a result of what we raised in Committee, it has been possible to bring this forward in such a timely manner that we can go ahead on 1 April not just, unfortunately, to leave the European Union, but, perhaps a little more importantly, to have client money protection in place.
Lord Flight (Con)
My Lords, I refer to my interest as a modest landlord, as declared in the register. The new rules to protect rent paid by tenants to agents do not protect landlords fully. Letting agents will have to join the new government-approved client money protection insurance scheme, but changes proposed by the Government as to the level of insurance held by these schemes will not cover the full value of rental money held by agents. I cannot see the point of that. Is it not in the interests of all parties for the insurance effectively to cover all potential liabilities? The scheme will not pay out in some circumstances; it will be able to cap the amount it pays out. Surely it would be more sensible for the scheme to provide for full protection.
Lord Palmer of Childs Hill (LD)
My Lords, first, I thank the Minister for his incredible help and support in getting this legislation through, and the noble Baroness, Lady Hayter, who has done a lot to make this Bill work.
I want to pick up on a point made by the noble Lord, Lord Flight, because it is one of the questions that arises from these amendments. Perhaps I may tackle it by dealing with the level of insurance required, which is what the noble Lord, Lord Flight, was talking about. The best way of looking at it is perhaps to think about what the Residential Landlords Association —the RLA—has recently said. It advises, consequent to the changes to the legislation, that to help reduce the risk, landlords should spread their properties across a number of agents so that they reduce the need to go over whatever insurance limits were agreed with each one. The RLA summed this up by saying:
“Otherwise we will encourage landlords to ensure that they do not put all their eggs in one basket and spread the risk”.
Are the Government aware of landlords spreading their risk rather than keeping it with one agent, and what will the Government’s attitude be? I believe that is the point raised by the noble Lord, Lord Flight. This is a great improvement to the legislation but I would like the Minister to respond to my question.
Lord Bourne of Aberystwyth
My Lords, I thank noble Lords who have participated in the debate on this part of the legislation and turn to the various contributions. I thank the noble Baroness, Lady Hayter, very much for her support, for bringing this forward and for the characteristic grace with which she has dealt with the matter today. Our calculations have been made on the best assessment of the highest probable loss; that should be the basis for deciding cover. We have also taken heed of the fact that, for example, for bank deposits there is a maximum amount currently protected; it would be somewhat perverse if this were a higher amount. Such matters have influenced what we seek to do. It is not the maximum loss; we have taken heed of the highest probable loss, as is the customary arrangement. We also have to take account of what the industry can bear and what is in the interests of all tenants and landlords; that is what has guided us.
On landlords seeking more than one form of cover, I will write to the noble Lords, Lord Flight and Lord Palmer of Childs Hill, so that they get the full picture. With that, I commend the government amendments in this group and reject the others.
“Client money protection schemes: approval and designation
(1) The Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) Regulations 2018 (S.I. 2018/751) are amended as follows. (2) In regulation 2 (interpretation), in the definition of “client money”—(a) in paragraph (a), for “agency”, in the second place it occurs, substitute “management”, and(b) at the end of paragraph (b) insert “,but does not include money held in accordance with an authorised tenancy deposit scheme within the meaning of Chapter 4 of Part 6 of the Housing Act 2004 (see section 212 of that Act);”.(3) In regulation 4 (amendments to an approved scheme), after paragraph (3), insert—“(4) This regulation does not apply to an amendment made in accordance with a notice served under regulation 8(1D)(b).”(4) In regulation 5 (conditions which must be satisfied before approval may be given)—(a) in paragraph (1)(a)(iii), for “and without any deduction” substitute “, subject to paragraph (1A)”,(b) in paragraph (1)(c)(i), for “administration of the scheme” substitute “failure of scheme members to account for client money to persons entitled to that money”,(c) after paragraph (1) insert—“(1A) The Secretary of State may determine that the condition in paragraph (1)(a)(iii) is satisfied where the rules of the scheme have the effect that the scheme administrator is required to make good M’s liability—(a) only up to such amount as the Secretary of State considers appropriate,(b) only if or to the extent that M’s liability can be made good without exceeding such aggregate limit on the liability of the scheme as a whole as the Secretary of State considers appropriate, or(c) only if M’s liability arises in relation to a risk that the Secretary of State considers it is appropriate for the scheme to insure against.”, and(d) after paragraph (2) insert—“(2A) The rules of the scheme are to be treated as complying with paragraph (2)(f) if they provide that, until 1 April 2020, they have effect as if they required scheme members to make all reasonable efforts to hold client money in a client money account with a bank or building society authorised by the Financial Conduct Authority.”(5) In regulation 8 (conditions with which scheme administrators must comply)—(a) in paragraph (1), after “practicable” insert “—(a) after that member joins the scheme, and(b) after the scheme rules are amended under paragraph (1D)(a) or in accordance with a notice served under paragraph (1D)(b).”,(b) after paragraph (1) insert—“(1A) Paragraphs (1B) to (1E) apply if the rules of the scheme have the effect of requiring the scheme administrator to make good the liability of a scheme member—(a) only up to a certain amount, (b) only within an aggregate limit on the liability of the scheme as a whole, or(c) only in relation to certain risks.(1B) The certificate provided under paragraph (1) must include—(a) information about the amount referred to in paragraph (1A)(a), (b) information about the limit referred to in paragraph (1A)(b), or(c) details of where to find information about the risks referred to in paragraph (1A)(c),as the case may be.(1C) Paragraphs (1D) and (1E) apply if the Secretary of State considers that—(a) the amount referred to in paragraph (1A)(a) is no longer appropriate,(b) the limit referred to in paragraph (1A)(b) is no longer appropriate,(c) it is no longer appropriate for the rules of the scheme to exclude liability in relation to one or more of the risks referred to in paragraph (1A)(c), or(d) it is appropriate for the rules of the scheme to exclude liability in relation to one or more risks that are not among the risks referred to in paragraph (1A)(c).(1D) The Secretary of State may—(a) where the Secretary of State is the scheme administrator, amend the scheme rules with the effect that the amount, the limit or the risks are replaced with such different amount, limit or risks (as the case may be) as the Secretary of State considers appropriate;(b) in any other case, serve a notice on the scheme administrator requiring that person to amend the scheme rules with the effect that the amount, the limit or the risks are replaced with such different amount, limit or risks (as the case may be) as the Secretary of State considers appropriate.(1E) The scheme administrator must comply with a notice served under paragraph (1D)(b)—(a) within the period of 30 days beginning with the day on which the notice is served, or(b) within such longer period beginning with that day as the Secretary of State may specify in the notice.”,(c) after paragraph (3) insert—“(3A) The scheme administrator must maintain insurance that—(a) covers any foreseeable liability which may arise in connection with the failure of scheme members to account for client money to persons entitled to that money, and(b) is appropriate with regard to the size and number of scheme members and the amount of client money held by scheme members.(3B) Before renewing the scheme’s insurance, the scheme administrator must obtain the approval of the Secretary of State to the type and amount of insurance.(3C) The Secretary of State may approve the renewal of the scheme’s insurance only if the Secretary of State is satisfied that, if the insurance is renewed as proposed, the scheme administrator will continue to comply with paragraph (3A).”,(d) in paragraph (5), at the end of sub-paragraph (a) for “; and” substitute “,(aa) where paragraph (1B) applies— (i) information about the amount referred to in paragraph (1A)(a),(ii) information about the limit referred to in paragraph (1A)(b), or(iii) information about the risks referred to in paragraph (1A)(c),as the case may be, and”, and(e) after paragraph (6) insert— “(7) In this regulation, references to renewing a scheme’s insurance (however expressed) include obtaining new insurance.(8) Paragraphs (2), (3B), (3C) and (4) do not apply where the Secretary of State is the scheme administrator.”(6) The amendments made by this section are without prejudice to any power to make an order or regulations amending or revoking the regulations mentioned in subsection (1).”
“Client money protection schemes: requirement to belong to a scheme etc
(1) The Client Money Protection Schemes for Property Agents (Requirement to Belong to a Scheme etc.) Regulations 2019 are amended as follows.(2) In regulation 2 (interpretation)—(a) in the definition of “client money”—(i) in paragraph (a), for “agency”, in the second place it occurs, substitute “management”, and(ii) at the end of paragraph (b), for “; and” substitute “,but does not include money held in accordance with an authorised tenancy deposit scheme within the meaning of Chapter 4 of Part 6 of the Housing Act 2004 (see section 212 of that Act);”, and(b) at the end of the definition of “regulated property agent”, insert “;“scheme administrator” has the same meaning as in the scheme approval regulations (see regulation 2 of those regulations); and“scheme approval regulations” means the Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) Regulations 2018.”(3) In regulation 3 (requirement to belong to a client money protection scheme), omit paragraph (2).(4) In regulation 4 (transparency requirements)—(a) before paragraph (1) insert—“(A1) Paragraph (1) applies if the scheme administrator of an approved or designated client money protection scheme provides a certificate under regulation 8(1) of the scheme approval regulations to a regulated property agent.”, and(b) in paragraph (1)—(i) in the words before sub-paragraph (a), for “A” substitute “The”, and(ii) omit sub-paragraph (a).(5) The amendments made by this section are without prejudice to any power to make an order or regulations amending or revoking the regulations mentioned in subsection (1).”
““excluded licence” means a licence which is granted to a licensee by a licensor who resides in the housing where—(a) a charity or community interest company gives advice or assistance to the licensee or the licensor in connection with the grant, renewal or continuation of the licence, and(b) the only consideration for the grant, renewal or continuation of the licence is—(i) the provision by the licensee of companionship to the licensor, or such provision together with the provision by the licensee of care or assistance (other than financial assistance) to the licensor, or(ii) provision of the kind referred to in sub-paragraph (i) together with one or more payments in respect of council tax, a utility, a communication service or a television licence;”
““television licence” has the meaning given by paragraph 9(2) of Schedule 1;”
“(6) In regulation 5 of the Client Money Protection Schemes for Property Agents (Requirement to Belong to a Scheme etc.) Regulations 2019 (enforcement)—(a) in paragraph (1) omit “, subject to regulation 8(3)”,(b) after that paragraph insert—“(1A) Paragraph (1) is subject to—(a) regulation 8(3), and(b) section 24 of the Tenant Fees Act 2018.”, and(c) in paragraph (3), after “the Secretary of State” insert “or the lead enforcement authority (if not the Secretary of State)”.(7) The amendments made by subsection (6) are without prejudice to any power to make an order or regulations amending or revoking the regulations mentioned in that subsection.”
(a) the amount of five weeks’ rent, where the annual rent in respect of the tenancy immediately after its grant, renewal or continuance is less than £50,000, or(b) the amount of six weeks’ rent, where the annual rent in respect of the tenancy immediately after its grant, renewal or continuance is £50,000 or more,”
“( ) “five weeks’ rent” means five times one week’s rent,”
“(5) A payment of a holding deposit is not a permitted payment if—(a) the landlord or letting agent to whom the deposit was paid has previously received a holding deposit (“the earlier deposit”) in relation to the same housing, (b) the landlord or letting agent has not repaid all or part of the earlier deposit, and(c) none of paragraphs 5 to 11 of Schedule 2 have applied so as to permit the landlord or letting agent not to repay the earlier deposit or the part that has not been repaid. (6) The reference in sub-paragraph (5)(a) to a landlord or letting agent receiving a holding deposit does not include the landlord or letting agent doing so before the coming into force of Schedule 2 .”
Lord Bourne of Aberystwyth
My Lords, I shall speak also to Amendments 51 and 53 to 57 in my name, and to Amendment 54, which is in my name and that of the noble Baroness, Lady Grender. These relate to payments made in the event of a default under Schedule 1 to the Bill.
As noble Lords will be aware, the Bill permits landlords and agents to charge default fees where a tenant fails to perform an obligation or discharge a liability arising under or in connection with the tenancy. This provision has been subject to much debate and discussion, and I have welcomed noble Lords’ valuable contributions on it—in particular, those from the noble Baroness, Lady Grender, and the noble Lord, Lord Kennedy.
I maintain that we should not seek to remove default fees provision from the Bill entirely and that landlords and agents should be able to recover certain costs sustained during the tenancy where the tenant is at fault. However, I have listened carefully to the representations that have been made and I appreciate the concern that landlords and agents might seek to use the default fees provision as a backdoor to charging tenant fees. This is certainly not something that we want to see happen and, although the Government have already taken considerable steps to minimise abuse, I agree that more can be done.
I believe that there are two main instances where tenants may be required to pay a default fee: if they lose their key or other security device giving access to the housing or if they fail to pay their rent on time. With that in mind, our amendments specify that these are the only circumstances under which a landlord or agent can charge a default fee. Amendment 54 will ensure that landlords and agents cannot write arbitrary default fees into tenancy agreements and makes very clear to tenants, landlords and agents where a default fee can be charged.
Landlords or agents will be able to require a default fee for the late payment of rent where the payment has been outstanding for 14 days or more. Amendment 56 sets out that landlords or agents will be able to charge interest at no more than an annual parentage rate of 3% above the Bank of England’s base rate for each day that the payment is outstanding. Any amount above this will not be permitted; it will be a prohibited payment.
With respect to the charging of a default fee to cover the costs associated with replacing a lost key or other security device, any such charge must not exceed the landlord’s or agent’s reasonable costs incurred and must be evidenced in writing to the person who is liable for the payment. The amount of any payment which exceeds the reasonable costs to the landlord or agent in respect of the default will be a prohibited payment. I believe that the risk of such a list being incomplete is mitigated by the provision in Clause 3 to bring forward amendments to the list of permitted payments through affirmative regulations, should this prove necessary.
I take this opportunity to speak to Amendment 52, tabled by the noble Lord, Lord Kennedy. This amendment seeks to provide that if one tenant loses their key or pays their rent late then other tenants in a joint tenancy cannot be held accountable. I am afraid that I cannot agree to such an amendment. Joint tenants are jointly and severally liable for the rent and for maintaining the property. That is the essence of a joint tenancy. If one joint tenant does not pay the rent, the landlord can seek repayment from all the other tenants. This is what tenants agree when they sign a joint tenancy and Amendment 52 would introduce a significant change as to how joint tenancies work in that regard. It would risk unfairly penalising landlords and unsettling the law in an established area.
With regard to a lost key, tenants will, again, be jointly responsible for the keys in the same way as they are all responsible for any damage to the property. Of course, tenants can make their own arrangements, and I am sure that the person who loses the key will generally be the one who makes any associated payment, but the tenants are all responsible to the landlord for the keys. It would be a significant change to alter this position and one that could be quite hard to enforce if there were disagreements between the tenants about who lost the key.
Finally, it has never been the intention that the Bill should affect a landlord’s or agent’s right to recover damages for breach of contract. Amendment 57 clarifies this position and ensures that such payments will not be outlawed under the ban. I am aware that there has been some concern about this provision and would like to provide reassurances now, as well as explaining why I cannot accept Amendment 58. Given that we are now listing default fees in the Bill, it is important that we include the provision permitting charging for damages. Otherwise it could be interpreted that we are prohibiting contractual damages. This would not be fair and would be a significant and substantial change to existing law.
Amendment 58 has no substantive effect. I believe that the intent of the noble Lord is to ensure that any damages payments are reasonable and evidenced in writing. It is not necessary to provide an amendment to this effect. In general, damages are meant to put the innocent party back in the position they would have been in had the contract not been breached—nothing further. No reasonableness test is therefore needed, nor appropriate. Similarly, to enforce a damages claim landlords or agents are required to go to court or to seek to recover them from the tenancy deposit. In both cases, they need to provide evidence to substantiate any claim. There is already a large amount of case law dealing with what is appropriate in a contractual damages case. I assure noble Lords that the inclusion of the damages provision is not a back door to default charges, as was suggested by the recent Citizens Advice briefing. Its analysis of this situation is inaccurate.
Regardless of whether an amount is specified, Clauses 1(6)(b) and 2(5)(b) prohibit an agent or landlord attempting to insert a clause requiring a payment—for example, saying that if you do X, you must make a payment—except in so far as this is permitted by paragraph 4 of Schedule 1, as amended. Both the examples of types of damages given in the Citizens Advice briefing do this and would therefore be banned under the Tenant Fees Bill. I appreciate the concerns raised by the noble Lord and seek to reassure him about this. I believe we had sought to agree that I could give reassurance on this at Third Reading, but I understand that we have not been able to come to any agreement about not voting. Perhaps the noble Lord will be able to give that reassurance shortly, or am I getting inaccurate information?
Lord Bourne of Aberystwyth
Right. Perhaps the noble Lord will be able to cover that.
As I have said, long-standing case law supports the courts not enforcing clauses that have no relation to the loss actually sustained, which in most cases would constitute an unfair contract term under applicable consumer law. The amendment proposed by Citizens Advice in its briefing would have no substantive effect. It is already the case in the Bill as drafted that the relevant person may recover the amount, or part, of damages where a claim for damages has been determined by the court or settled by agreement between the parties.
I believe the amendments in my name will help protect tenants from spurious charges by making it very clear when a default fee can be charged. I also remind noble Lords that we have made a number of significant amendments to respond to all the key concerns raised to date. I believe the amendments proposed in my name provide a fair compromise. I hope noble Lords agree with this, and I know it is in our interests to proceed with this vital legislation. I beg to move.
Baroness Gardner of Parkes (Con)
I apologise to the House; I would have spoken earlier, but it did not seem that Amendment 42 was actually moved. Even now, I think it is appropriate to mention my concern about that. Why cut back to five instead of six weeks? I declare my interest, which is in the register. Many landlords find that, towards the end of a tenancy, the tenant pays nothing and they are well out of pocket—even if they have six weeks’ rent—if the property is damaged, which happens more frequently than one would hope. I cannot see that it is worth making the major differentiation between five and six weeks. I was perfectly happy with six weeks, and I thought it was fair that everyone should be in the same position.
Lord Flight
My Lords, I similarly would like to speak to Amendments 42, 43 and 44, on tenancy deposits. The objective for everyone is to have a fair balance that works. I note that, at Second Reading in the Commons, the Secretary of State referred to the then proposal of six weeks as,
“a balance of greater protection to tenants while giving landlords the flexibility to accept higher-risk tenants”.—[Official Report, Commons, 21/5/18; col. 642.]
I also note that Scotland has an eight-week as opposed to a six-week arrangement.
I urge the Government to think again on this issue. Reducing the security deposit to five weeks’ rent rather than six leaves scope for unfairness to landlords. There is always the risk that, at the end of a long tenancy, the tenant will leave the property in a poor state or will have had pets. Cutting the deposit to five weeks’ rent will quite likely leave the landlord out of pocket. In turn, that will make landlords more cautious about the tenants they take on, at a time when the need for more rented accommodation is acute. This is not a huge issue, but the Government’s previous proposition of six weeks was the sensible and fair balance. I do not understand why they have moved to five weeks, and nor does the industry—having not been consulted or advised about this, it feels somewhat mistreated by the Government.
Lord Shipley
My Lords, if I might, I will intervene at this stage to speak to Amendment 43, which is what we are currently talking about. In the flurry of amendments not being moved, no debate took place, but the issue has now been raised by two noble Lords.
My name is attached to the amendment that refers to five weeks, and I think it is the right conclusion. I want to thank the Government for having agreed a change from six weeks to five. At Second Reading and in Committee, we went through every option: from the Scottish model of eight weeks to my probing amendment proposal of four weeks. As I recall, the Government at that stage said the figure would be between the four weeks we requested and the eight weeks that apply in Scotland.
There is a lot of money at stake here for tenants. Having heard from the perspective of landlords, I would like to speak on behalf of tenants. For a large number of poorer people, a change from five to six weeks could make finding that level of deposit a strain. Anything that can be done to minimise that strain is a good thing. The figure was described as being “up to” six weeks, but the fact that it is now five weeks will be of benefit to a large number of tenants. Because it covers the difficulty that, in some months, four weeks may not be a month and many people operate tenancy agreements on a monthly not weekly basis, it is legitimate for the Government to propose that we go to five weeks. I want to express our support for the Government’s decision.
The Earl of Lytton
My Lords, I beg to differ slightly from the conclusions of the noble Lord, Lord Shipley, although I well understand that this involves a cash-flow issue for tenants. I pay tribute to the noble Baroness, Lady Gardner, for bringing us back to this set of amendments. The Minister himself defended the Government’s long-standing line that a six-week deposit was fair. However, as the noble Lord, Lord Flight, said, we seem to have moved away from that without apparent pause for breath.
I declare a non-interest here, as I do not charge deposits for tenants and have not done for a number of years due to special personal circumstances. The industry standard has been six weeks for a considerable time. In my part of Sussex, six weeks’ rent represents a figure between £1,200 and £1,800 in general terms. That does not go a long way if, in addition to non-payment of rent—bear in mind that defaults tend to have many heads—the tenant also leaves the property in a damaged condition, including damage to carpeting, kitchen units and electrical wiring.
Given that situation, can the Minister explain why it is now five weeks? If you strip out non-payment of the last month’s rent, under this proposal you are left with a single week’s rent to cover any other form of loss. Does that represent a fair balance? I am not sure that it does.
Baroness Grender (LD)
Perhaps I may ask for clarification: are we now talking about five weeks, or about default?
Lord Bourne of Aberystwyth
My Lords, it might be helpful to the House if I deal with the rental issue first. If anyone wants to speak on that, I suggest they do so now. I apologise that we glossed over it earlier.
If there are no other points on the rental, I shall deal with the issues raised by my noble friends Lady Gardner of Parkes and Lord Flight, the noble Lord, Lord Shipley, and the noble Earl, Lord Lytton.
On the point that we have moved significantly from six weeks to five weeks, yes, it is a movement, but it is scarcely, as the noble Lord suggests, a fundamental shift. It is not as if we are moving from 10 weeks to one week. Perhaps I may provide some reassurance. All the evidence is that most people currently take deposits of between four or five weeks. It is not therefore massively inconsistent with current practice.
At the top end of the market we are retaining the six-week limit for the most expensive properties where the fittings and fixtures may be more costly. It will remain at six weeks where the annual rental is more than £50,000. I hope that provides some reassurance to those noble Lords who have raised the concern.
These are not issues of principle so much as matters of judgment. It is the judgment of Solomon and there will always be some people who disagree with where we are. However, as I say, we have looked at current practice, listened to what outside organisations have said and on that basis we have fixed it at five weeks for most people, but at the top end of the market we have retained the six weeks.
Lord Kennedy of Southwark
My Lords, we have jumped around these groups of amendments today. There appears to be an issue with the printing of the Whip’s sheet.
I wish to address my remarks largely to Amendments 50 to 58. Generally, I am happy with what I have heard from the Government today on most amendments, particularly those in this group. The exception is Amendment 57, to which I will address most of my remarks.
Members of this House discuss amendments to Bills all the time, but most are never voted on: they are probing and have been tabled to get answers from the Government. We go backwards and forwards as we seek to improve the legislation. My Amendment 58 is very much in that vein. The Government have put down Amendment 57, which I fully accept deals with damages and makes it clear that if there are any issues, the terms can be clarified in the future. Somehow, damages are being turned into prohibited payments, and I do not want to do that either, so I am with the Government on this issue.
However, on looking at Amendment 57, we were concerned about the heading, “Payment of damages”. We went to the Public Bill Office and talked to colleagues. We are concerned that, as written, it could be deduced—obviously, it is open to argument—that the reasonableness and fairness of such a payment cannot be questioned. It is not so much about going to court, but what happens when people are drawing up agreements and so on. We should remember that we are dealing with tenants and landlords, and the relationship between the two is not always one of equals.
For that reason, I have proposed, as an amendment to Amendment 57, my Amendment 58, which would simply remove the three words of the heading: “Payment of damages”. The provision would be retained but the heading would go. Removing the heading would, in effect, add the provision to the previous group, where a protection is provided: actions have to be reasonable, and reference is made to “evidence”. That is all my amendment is intended to do. I do not know if this is the right way to do it, but it has certainly enabled us to have this discussion today.
I tried to get an assurance from the Government that they would come back at Third Reading and discuss this issue further. It may be that people cleverer than me can come back with a better amendment. All I am trying to do is ensure that tenants are treated fairly and properly. I was happy to come back to this issue at Third Reading, and gave an assurance that we would not vote on it. I have the text message to prove it on my phone; I do not know what else I can say. To then be told that I did not give such an assurance—that is just not the case. I am really upset about this.
All I want to do is get this right. I do not want the Bill to become law and in a year’s time, we find the Government saying, “Oh, we made a mistake. We will change it when parliamentary time allows. We should have this on the rogue landlords’ database. We did not listen to you last time, Lord Kennedy, but of course you are right. When parliamentary time allows, of course we will put it right”. My intention is to get this right today. I have given that commitment and I have the text message, so I cannot see what the problem is in coming back at Third Reading in a few weeks’ time and getting it right. We are not going to vote on it, but I think the position should be clarified.
Baroness Grender
My Lords, I will come on to damages in a moment, but first perhaps I may take us back to the celebratory moment on this group of amendments: the fact that there has been a significant change on default. This has been welcomed loudly and clearly by those who lobby most for tenants. This is an extremely significant change which this House has introduced through a government amendment to which I have added my name. It specifies what a default fee is: it is now going to be for a key or a security device or for late payment on interest for rent.
I know that we are trying to sort out the damages issue, but I want to thank the Minister and in particular his Bill team. I am sure that they will read this tomorrow in the Official Report. I also thank Rhea Newman and Poppy Terry at Shelter, Hannah Slater and Dan Wilson Craw at Generation Rent and Caroline Aliwell at Citizens Advice. We have all been working extremely hard behind the scenes with many meetings, for which I thank the Minister and the Bill team, to get to a very good place with regard to default. Our original intention was to get it out of the Bill altogether, but the fact that the wording has been greatly tightened and is now so specific is a very big leap forward. It goes back to the original intention that many of us had when we wanted to propose this Bill in the first place.
Before we go back to the controversial issue of whether a loophole has now been introduced as regards damages, I would like to take a moment to remind us of what has now gone and was going to be charged by landlords, some of whose tenants are on an extremely low income or even no income. One of my favourites is £45 for the procurement of a dustpan and brush. Another is £500 for a reference and credit check, £200 to remove a new set of saucepans that had been left for the next tenant—a lovely example—and £100 for cobweb removal. Those are some examples of things that will no longer be a threat as a result of a loophole, thanks to the extremely welcome change of default.
Lord Bourne of Aberystwyth
My Lords, it may be convenient for me to say that I regret any misunderstanding. I too thought that we had an agreement on this matter. Perhaps I may say two things. First, I propose to accept the amendment in the name of the noble Lord, Lord Kennedy. Secondly, I will be very happy to engage in discussions on this issue ahead of Third Reading. As the noble Baroness, Lady Grender, suggested, I am convinced that there is no reason for the noble Lord to be concerned—but I know that he is and so I will be happy to engage in discussion ahead of Third Reading. I hope that that is helpful.
Lord Kennedy of Southwark
I am absolutely delighted. I thank noble Lords for that. There was obviously some confusion, but I am sure that we can get this sorted out by Third Reading. I thank the Minister very much.
(a) the loss of a key to, or other security device giving access to, the housing to which the tenancy relates, or(b) a failure to make a payment of rent in full before the end of the period of 14 days beginning with the date (“the due date”) on which the payment is required to be made in accordance with the tenancy agreement.”
“(4) If, in the case of a payment required to be made to a landlord or a letting agent in respect of a relevant default within sub-paragraph (2)(b), the amount of the payment exceeds the amount determined in accordance with sub-paragraph (5), the amount of the excess is a prohibited payment.(5) The amount referred to in sub-paragraph (4) is the aggregate of the amounts found by applying, in relation to each day after the due date for which the rent remains unpaid, an annual percentage rate of 3% above the Bank of England base rate to the amount of rent that remains unpaid at the end of that day.(6) In sub-paragraph (5) “Bank of England base rate” means—(a) the percentage rate announced from time to time by the Monetary Policy Committee of the Bank of England as the official dealing rate, being the rate at which the Bank is willing to enter into transactions for providing short term liquidity in the money markets, or(b) where an order under section 19 of the Bank of England Act 1998 is in force, any equivalent percentage rate determined by the Treasury under that section.(7) If—(a) a landlord requires a relevant person to make a payment to the landlord in respect of a relevant default within sub-paragraph (2)(b), and(b) a letting agent subsequently requires a payment to be made to the letting agent in respect of the same default,the payment referred to in paragraph (b) is a prohibited payment.(8) If—(a) a letting agent requires a relevant person to make a payment to the letting agent in respect of a relevant default within sub-paragraph (2)(b), and(b) a landlord subsequently requires a payment to be made to the landlord in respect of the same default,the payment referred to in paragraph (b) is a prohibited payment.”
“Payment of damages
_ A payment of damages for breach of a tenancy agreement or an agreement between a letting agent and a relevant person is a permitted payment.”
Lord Kennedy of Southwark
Baroness Grender
“( ) If, in relation to a change of tenant in a shared tenancy, the current tenant or tenants find a suitable replacement tenant, then a payment under this paragraph in excess of £50 is a prohibited payment.”
Baroness Grender
My Lords, there is an expression about having your cake and eating it, and this is my attempt to get a little extra icing on the top. It is a modest amendment which would ensure a £50 cap when there is a change of tenancy and the sharers recruit the new tenant. I wrote to the Minister yesterday to explain my rationale for this. In Committee, we attempted to change a bit more with regard to this cap, which is a floor rather than a ceiling at the moment; we would like it to be a ceiling rather than a floor. But I have now pared it down to have one single purpose.
In a home of multiple occupation—HMO—where people are sharing, when one of the tenants drops out and a new person comes in, they will be charged a sum. Let me give you an example from Generation Rent:
“Each tenant swap included a massive fee for a new tenant of £250”.
To us that may sound modest, but when young people are sharing and counting the pennies, it is a heck of a lot. The case study continues,
“hence making it difficult for us to find people to move in. We had to do everything, advertise and do 9 interviews”.
Students were not accepted,
“as they did not fulfil agent’s criteria to move in unless they have a UK based guarantor”.
The fee of £250,
“did not even include a reference check of £90”,
or £180 with a guarantor. The case study concludes the fees were,
“£430 in total for a new sharer”.
The sharers do the vast majority of the work—people do not want to share with someone they know nothing about, without checking them out, and checking they can pay the rent—and then have to pay for the pleasure of it. This is a tiny, modest amendment, but it recognises that when people share a place and they do the donkey work, there should be a £50 cap on the charge for the change in sharer.
The Earl of Lytton
My Lords, the noble Baroness, Lady Grender, may be pleasantly surprised by the fact that I agree with the vast majority of what she says. She does not need to express too much surprise. However, she will need to define the term “suitable” further. To give her a clue, in commercial landlord and tenant agreements, there is very often an assignment, or something similar, and there is usually a formula of words about an incoming tenant or the assignee being of no lesser standing legally than the outgoing tenant. There will need to be some formula of words there.
The noble Baroness is absolutely right about this issue. I support her on the principle of this because I have children who have rented accommodation in London and I know exactly what goes on, so I can relate to it. But we need a formula that can be defined in law and determined in some way. It should be determined pretty promptly; it is no good if this goes into some sort of arbitration situation for weeks on end. These things need to be sorted out quickly in the interests of everybody.
That is the only reservation I have: the term “suitable” needs better clarification and definition. The question of suitability to whom and in whose eyes needs to be capable of some sort of resolution.
Lord Young of Cookham (Con)
My Lords, the co-pilot is in charge of this last amendment, which relates to the charges that can be imposed for variation, assignment or novation of a tenancy. I am grateful to the noble Baroness, Lady Grender, for focusing the amendment, which we discussed in Committee, on capping fees on a narrower range of circumstances than originally proposed, namely where the outgoing tenant finds a replacement. I agree that this should reduce the costs for the landlord and therefore the amount he can charge, because, as the noble Baroness said, the tenant would have done all the donkey work.
However, we have previously agreed that it is not fair to ask landlords and agents to pay fees arising from the action or request of a tenant that varies the original contract they both signed. The Bill provides that a landlord or agent can charge a tenant for a change of sharer, but such fees are capped at £50 or reasonably incurred costs if higher. We do not want to impose a hard cap on the amount.
Landlords and agents should feel able to agree reasonable requests to vary a tenancy. While we do not expect this charge to exceed £50, it is only fair that where it does so landlords and agents can recover their reasonably incurred costs. Further, we do not want to create a situation—I am sure the noble Baroness does not either—where landlords are reluctant to agree to a change of sharer because they think that they will not be able to recover their reasonable costs. This would not help the tenants, who would be required to break their contract if they wanted to leave.
I understand and support the principle of the noble Baroness’s amendment, but I do not think it is necessary. Landlords and agents will need to be able to demonstrate when challenged that their costs are reasonable—for example, if they have incurred a loss in rent from agreeing to a change of sharer. If, therefore, a tenant found a suitable replacement who took over the tenancy and the landlord or agent suffered no loss it would not be reasonable to charge for this and any amount charged in those circumstances would be prohibited by the Bill. A landlord or agent could not double-charge rent.
However, to focus specifically on the noble Baroness’s amendment, there could be circumstances where, even though the tenant found a suitable replacement—I take the point from the noble Earl, Lord Lytton, that it is suitable for the tenant but not necessarily for the landlord—the costs incurred by the landlord or agent could exceed £50. This could occur, for example, if more significant referencing were needed with the replacement tenant or there were disagreements respecting the return of the tenancy deposit that required additional time and renegotiation. Although we envisage such a scenario to be rare, it would not be fair to penalise the agent or landlord in those circumstances. We also would not want the landlord to refuse the replacement tenant found on the basis that referencing and other pre-tenancy checks were likely to be more complicated.
The landlord or agent is not permitted to charge more than is reasonable, so would have to be able to evidence any such additional costs. Our guidance makes the position under the Bill and existing law clear to tenants, landlords and agents. With these assurances, although I understand the disappointment clearly etched on her face, I hope the noble Baroness feels able to withdraw her amendment against the assurances I have given.
Baroness Grender
I thank the Minister for his reassurances. I will stick there, since I have the noble Earl, Lord Lytton, backing something I have suggested. With all the amendments we now have in the Bill, which are extremely welcome, we need it to go through as quickly as possible. With that in mind, I beg leave to withdraw the amendment.
“_(1) The person who received the holding deposit must repay it if—(a) that person believes that any of paragraphs 7 to 11 applies in relation to the deposit, but(b) that person does not give the person who paid the deposit a notice in writing within the relevant period explaining why the person who received it intends not to repay it.(2) In sub-paragraph (1),“the relevant period” means—(a) where the landlord decides not to enter into a tenancy agreement before the deadline for agreement, the period of 7 days beginning with the date on which the landlord decides not to do so;(b) where the landlord and tenant fail to enter into a tenancy agreement before the deadline for agreement, the period of 7 days beginning with the deadline for agreement.”
“12_ Paragraph 9, 10 or 11 does not apply (so that paragraph 3(c) does apply) if, before the deadline for agreement—(a) the landlord or a letting agent instructed by the landlord in relation to the proposed tenancy breaches section 1 or 2 by imposing a requirement under that section on the tenant or a person who is a relevant person in relation to the tenant, or(b) the landlord or a letting agent instructed by the landlord in relation to the proposed tenancy behaves towards the tenant, or a person who is a relevant person in relation to the tenant, in such a way that it would be unreasonable to expect the tenant to enter into a tenancy agreement with the landlord.”
Tenant Fees Bill
Tuesday 15th January 2019
(5 years, 9 months ago)
Lords ChamberRead Full debate Tenant Fees Act 2019 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 152-I Marshalled list for Third Reading (PDF) - (14 Jan 2019)
Lord Taylor of Holbeach (Con)
My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Tenant Fees Bill, has consented to place her prerogative and interest, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.
Clause 11: Interest on payments under section 10
Amendment 1
(i) in a case within paragraph 4 of Schedule 2”
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, I will speak briefly to Amendments 1 and 2 in my name. They are minor and technical, and consequential to an amendment we agreed on Report that would require landlords and agents to be up front about why they are retaining a holding deposit. Amendments 1 and 2 to Clause 11(3)(c) specify the day on which interest is to be payable where reasons for retaining the holding deposit have not been provided within the required period, and the holding deposit needs to be repaid. This date is the day after the end of the relevant period. I beg to move.
Baroness Grender (LD)
My Lords, on these Benches we accept this amendment. I take this opportunity to thank the Minister and his team for all their hard work. The last time I thanked them, they were a little busy trying to sort out a little local difficulty regarding definitions of damages. I am pleased to learn from Citizens Advice that it is now reassured that sufficient clarity will be given in guidance. If there is a latest draft of the guidance, having suggested some of the amendments, I would be happy to take a look at it. I am sure that my noble friend will do the fulsome thanks in the next bit but I just wanted to thank the ministerial team and the Minister very much for progressing the Bill. I look forward to its further rapid progress and would like to hear from the Minister when he thinks it will be enacted.
The Archbishop of York
My Lords, I too thank the Minister for listening. He has been very attentive in listening to the suggestions, comments and evidence from tenants and all those people involved with this part of the Bill. I have been in correspondence with the Minister, starting in the Moses Room. He has been very attentive to people’s concerns and cares. The Bill is what it is because of that attention.
Lord Foulkes of Cumnock (Lab Co-op)
I have a question for the Minister about the definition of the day. Does it include any day of the week or is it just a weekday, excluding Saturdays and Sundays?
Lord Kennedy of Southwark (Lab Co-op)
I look forward to hearing the Minister’s response to my noble friend. I accept that these amendments are minor and technical and I am happy to support them.
Lord Bourne of Aberystwyth
My Lords, I thank noble Lords for their contributions concerning these amendments. I will say more at the final stage of the Bill—the passage, I hope—about the points the noble Baroness, Lady Grender, raised, but I thank her very much indeed. As always, I thank the most reverend Primate very much indeed for his positive contributions and engagement, and his most kind comments. He is extremely gracious. As always, the noble Lord, Lord Foulkes, asks a question that goes straight for the middle stump. I will write to him, if I may, on that issue because I do not want to mislead him.
Lord Foulkes of Cumnock
I am grateful and anticipate being the recipient of a letter. However, if we agree it may be too late because, before we agree, should we not know if Saturdays and Sundays are included, or if it is only weekdays? I normally find that weekdays are the only days counted for this purpose, and that Saturdays and Sundays, when offices are closed and people are unable to take payments and so on, are not included. I do not know if help is on its way, but I think it would be helpful to know exactly before we agree this.
Lord Bourne of Aberystwyth
My Lords, I now have the answer, and it is “any day”. I am very grateful to the noble Lord for coming back on the issue, which gave me the opportunity to get expert advice on it. I hope he is content with that. I also thank the noble Lord, Lord Kennedy, for his contribution.
(ii) in a case within paragraph 5 of that Schedule, the day after the end of the relevant period within the meaning of that paragraph.”
Lord Bourne of Aberystwyth
My Lords, I will make a few concluding remarks. It has been clear throughout that this is a Bill that we all support, and one that will deliver important changes to the private rented sector, improving lives for millions of tenants. I am grateful to all noble Lords from all parts of the House who have engaged so thoroughly and passionately during the proceedings in this House.
Specifically, I thank the noble Baroness, Lady Grender, for her work to date in promoting a ban on letting fees, which has been notable. I also thank the noble Lords, Lord Kennedy and Lord Shipley, for their significant contributions during our debates. I thank the noble Baroness, Lady Hayter, who is not in her place at present, for helping to ensure that the client money protection regulations work as intended and the considerable work that she has done on this, as well as the noble Lord, Lord Palmer of Childs Hill. Finally, I thank my noble friends Lady Barran and Lady Jenkin for raising the important issues of home share schemes, which I think we all value.
I firmly believe that all the amendments made in this House strengthen the Bill and offer greater protections for tenants while not unfairly impacting on landlords and agents. I thank industry groups and local authorities for their constructive engagement and support in strengthening the Bill’s provisions and offering feedback on our draft guidance.
We will continue to work closely with stakeholders to ensure that the ban is properly communicated to tenants, landlords and agents, particularly with regard to contractual damages, which were the subject of debate on Report. I reassure the House again that there are already large amounts of case law that deal with what is appropriate in a damages case. Damages are generally not meant to do anything more than put the innocent party—“innocent party” being a legal term—back in the position they would have been had the contract not been breached. They are not a back door to default charges. I will repeat that: they are not a back door to default charges.
We are committed to working with Citizens Advice, Shelter and other industry groups to ensure that tenants fully understand their rights with regard to paying and challenging contractual damages. I know that it is in all our interests to ensure that this vital legislation becomes law as quickly as possible.
Implementation is, of course, subject to parliamentary timetables, and amendments we have made need to be considered in the other place. We also need to allow a period of time following Royal Assent to enable agents and landlords to become compliant with the new legislation. We therefore intend for the provisions of this Bill to come into force on 1 June 2019. This would mean that the ban on letting fees would apply to all new tenancies signed on or after this date.
I conclude by thanking officials who have worked diligently on this Bill and have performed massive tasks in ensuring that we are in the position we are now. I thank Becky Perks, Rosie Gray, Tim Dwyer, Nigel Bousfield, Elly-Marie Connolly, Laurence Morton, Jane Worthington and, from my own office, Lucjan Kaliniecki. I beg to move.
Lord Shipley (LD)
My Lords, I thank the Minister for his statement. He said that the Bill would improve the lives of millions of tenants, and he is absolutely right. It is a much better Bill as a consequence of the close cross-party co-operation it has undergone in your Lordships’ House.
I thank the Minister for his willingness to give a great deal of time, meeting regularly with us to identify outstanding issues. From these Benches, I thank my noble friend Lady Grender, whose assiduous campaign over a substantial period has led to fruition in this Bill, which is indeed a significant milestone in the support of tenants’ rights. I also thank Sarah Pughe, in the Liberal Democrat Whips’ Office, for her help. I also extend my thanks to the Bill team and all the officials who gave us a great deal of time in recent weeks while the detail of the changes that were being made in your Lordships’ House was finalised.
We lowered the level of the deposit cap to five weeks’ rent, listed default fees on the face of the Bill, introduced greater transparency around holding deposits, removed local authorities—I declare that I am a vice-president of the Local Government Association—and those acting on behalf of local authorities from the definition of a “relevant person”, and we addressed deficiencies in the client money protection scheme, among a number of other changes. Some of those changes are very important, and enable the Minister to say that the Bill will indeed help financially a large number of tenants.
I thank the Minister for his co-operation throughout this process. The last few weeks have been very productive, making sure that the Bill will stand the test of its application.
Lord Kennedy of Southwark
My Lords, the Bill before us leaves this House in a much better state than when it arrived. It has had a positive consideration across the House, and I thank every Member who has contributed to our debates and discussions, bringing their expertise and ideas. We have made a real difference and, as the noble Lord, Lord Shipley, outlined, some improvements to the Bill, so we have made progress. We have certainly made a positive contribution to the rights of tenants in the private sector, and it is important that we do that. I also thank the Bill team from the department, who have been courteous, helpful and informative, and have engaged with me and my noble friend Lord Beecham at any time. I am very grateful to them for that.
I thank the noble Lord, Lord Bourne, for whom I have great respect. We spend a lot of time on these Benches batting things back and forwards, and I have always found him courteous, friendly and engaging, and always willing to talk to me both inside and outside the Chamber. I also thank my noble friend Lord Beecham for his support and hard work, and I thank Rhian Jones from the opposition office. She has supported me with research and draft amendments and has helped me to understand the Bill—she understands it much better than I ever would—sending me out to battle with the right papers at the right time, fully briefed, so that I can raise things here. I am very grateful for all the work she does for us in our office, and I thank her very much for that. I am delighted that the Bill is where it is today, in a much better place.
Tenant Fees Bill
Wednesday 23rd January 2019
(5 years, 9 months ago)
Commons ChamberRead Full debate Tenant Fees Act 2019 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Commons Consideration of Lords Amendments as at 23 January 2019 - (23 Jan 2019)
14:37 - The House having divided: - Ayes: 293 / Noes: 220 - Question accordingly agreed to.
Mr Speaker
I remind the House that the Bill has been certified as relating exclusively to England and within devolved legislative competence. Any Divisions will be subject to double majority voting, whole House and Members representing constituencies in England.
The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Mrs Heather Wheeler)
I beg to move, that this House agrees with Lords amendment 1.
Mr Speaker
With this it will be convenient to discuss the following:
Lords amendments 2 to 35.
Lords amendment 36, and amendment (a) in lieu.
Lords amendment 37, and amendments (a) and (b) thereto.
Lords amendments 38 to 47.
Lords amendment 48, and amendment (a) thereto.
Lords amendments 49 to 60.
Mrs Wheeler
I draw Members’ attention to my entry in the List of Ministers’ Interests.
I am delighted that today we have a final opportunity to scrutinise the Tenant Fees Bill. I am grateful for the considered contributions from hon. Members to date. In particular, I thank the members of the Housing, Communities and Local Government Committee, chaired by the hon. Member for Sheffield South East (Mr Betts), for their pre-legislative scrutiny. I also thank the Opposition Front Benchers, the hon. Members for Great Grimsby (Melanie Onn) and for Croydon Central (Sarah Jones), for their constructive engagement.
It has been clear throughout that the Bill is one that we all support and that will deliver important changes in the private rented sector, improving the lives of millions of tenants. Letting fees can impose a significant burden on tenants, who often have little choice but to pay them time and again. The Bill will put a stop to such practices by banning unfair and hidden charges, making it easier for tenants to find a property at a price they are willing to pay, and saving renters an estimated £240 million in the first year alone. I know the changes may worry some in the lettings market, but agents who offer good value and high-quality services to landlords will continue to be in demand and play an important role in the sector.
Before I speak to the Government amendments made in the other place, I want to put on the record my thanks to my noble Friend and ministerial colleague Lord Bourne of Aberystwyth, who ably steered the Bill through the House of Lords, and to my noble Friend Lord Young of Cookham, who assisted. I also thank all peers who contributed positively to the debate. The Bill has benefited from their constructive engagement and scrutiny. Finally, I thank the Under-Secretary of State for Housing, Communities and Local Government, my hon. Friend the Member for Richmond (Yorks) (Rishi Sunak), for his efforts in leading the Bill through this House last year.
I believe the Lords amendments strengthen the Bill and respond to many concerns raised during the debate in this House. Lords amendments 1, 2, 5 to 12, 15 to 18, 28 to 35, 49 and 55 are minor and technical inclusions that ensure consistency in the Bill and that the Bill best delivers on the policy intent. Lords amendment 5 clarifies that letting agents are prohibited from requiring a tenant or relevant person to enter into a contract with themselves—for example, for additional services such as providing an inventory. Lords amendment 1, 2, 6 to 12 and 28 to 35 replace references to “tenant” with references to “relevant person”. Amendment 55 changes a reference to “incorrect and misleading information” to “false and misleading information”, to align with other references in schedule 2. Amendment 15 to 18 ensure that the language around “day” and “date” in clause 11 is consistent, and amendment 49 makes it clear that the definition of a television licence in paragraph 9 of schedule 1 applies to the entire Bill.
I know that many hon. Members feel passionately about capping tenancy deposits. The issue has been discussed in great detail in both Houses, and we have listened carefully to the arguments made. That is why we tabled Lords amendments 36 and 37 to lower the cap on deposits to five weeks’ rent for properties where the annual rent is less than £50,000; where the annual rent is £50,000 or more, the deposit cap will remain at six weeks’ rent. The vast majority of tenants will be subject to a deposit cap of up to five weeks’ rent. The higher six-week deposit cap will apply only to properties where the monthly rent is £4,167 or more. Valuation Office Agency data show that across England the median monthly rent is significantly less than that. The upper quartile monthly rent for properties with four or more bedrooms in London is £3,142. The higher deposit cap is intended to apply not to the bulk of the private rented sector, but to high-end rentals—a niche area of renting where the costs involved are greater, making a deposit cap of six weeks’ rent more appropriate.
The Government took a balanced view. We wanted to ensure that landlords had sufficient financial security and flexibility for their properties, but recognised concerns that a six-week cap for all tenants might not best deliver the changes to affordability that are needed at the lower end of the market. Importantly, a cap of five weeks’ rent for properties with an annual rent of less than £50,000 extends the benefits of the deposit cap to an estimated one in three tenants. I am sure hon. Members agree that that is a laudable outcome. Also importantly, a cap at five weeks’ rent also aligns with a recommendation made by the Housing, Communities and Local Government Committee.
The amendment tabled by the hon. Member for Great Grimsby would lower the tenancy deposit cap to three weeks’ rent for all tenancies. Above all, the amendment would not help tenants and it risks distorting the market and causing behavioural change. Using data from deposit protection schemes, we estimate that some 93% of deposits now exceed three weeks’ rent. A cap of three weeks’ rent would greatly increase the risk of the deposit not fully covering damage to the landlord’s property or any unpaid rent.
Mr Mark Prisk (Hertford and Stortford) (Con)
As a member of the Housing, Communities and Local Government Committee, I am delighted that the Government have adopted the recommendation of five weeks. Does my hon. Friend agree that having a three-week cap is a rather peculiar notion? I do not recall a single piece of evidence from any expert citing that cap. Does she agree that the evidence for such an amendment needs to be produced?
Mrs Wheeler
My hon. Friend is completely right. The evidence to the Select Committee showed that there was no reason to have a three-week cap and that five weeks was better.
Richard Graham (Gloucester) (Con)
The Minister is absolutely right: the Select Committee was clear in its recommendation, and when the matter was discussed in the Public Bill Committee, a lot of evidence was produced to demonstrate that five weeks was a good compromise, which landlords could accept and which would benefit most tenants. The Opposition’s object in proposing three weeks is purely political, enabling them to say to tenants, “We tried to get it much lower,” when in fact the result would surely be many fewer properties available in the market for renting, which would hurt our constituents.
Mrs Wheeler
I could not have put it better myself. We do not want to create a situation that encourages landlords to withdraw from the market or ask tenants for more rent in advance, thus decreasing the overall net benefit of the ban on unfair charges. Also, we do not want to legislate in a way that would disadvantage certain groups, including pet owners and those who have lived abroad or have a poor financial history.
The real risk, as we have heard throughout the parliamentary process, is that a cap of four or three weeks’ rent could encourage tenants to forgo their final month’s rent payment. The Housing, Communities and Local Government Committee and peers in all parts of the other House recognised that risk and agreed that a deposit of five weeks’ rent was the right compromise. Lords amendments 36 and 37 are the result of cross-party discussion and agreement. It is worth noting that the hon. Member for Great Grimsby publicly welcomed the five-week deposit cap when it was announced. With that in mind, I hope hon. Members recognise that the Government have already proposed the best solution to the tenancy deposit cap.
Kevin Hollinrake (Thirsk and Malton) (Con)
Is my hon. Friend aware of anywhere in the world, and certainly any part of the United Kingdom, where deposits are capped at three weeks’ rent? Indeed, as she knows, the cap in Scotland is eight weeks’ rent.
Mrs Wheeler
I thank my hon. Friend. He has great knowledge of these matters and it is always helpful to hear that. In Scotland, it is eight weeks. We are putting forward five weeks. No, I am not aware of a cap at three weeks.
Liz Twist (Blaydon) (Lab)
The Minister will recall that, during the pre-legislative scrutiny in the Select Committee, one of the issues raised was about enforcement of rights. Does she agree that it is necessary to properly fund local authorities so that they can challenge landlords who seek to charge unfair fees?
Mrs Wheeler
Yes, indeed. I thank the hon. Lady for her intervention. I will get on to that point later in my speech, so she will have to stay and listen to the end, I am afraid.
Kevin Hollinrake
I must draw the House’s attention to my entry in the Register of Members’ Financial Interests. The Minister talks about agents and landlords having reassurance about being able to make reasonable charges where their action or work is required through the fault of the tenant. The Bill does make provision for this in a situation with the loss of keys, but it makes no provision for the costs of chasing late rent, despite the fact that it may take several attempts to collect it. In effect, that means that charges would be increased on the landlord at the expense of good tenants, on the basis that some bad tenants who do not pay their rent on time create a lot more work for the agent or the landlord.
Mrs Wheeler
Again, I thank my hon. Friend for his intervention. He is so deeply imbued with knowledge of these issues that I take note of it. I think he will find that later in the Bill there is a clause that might be helpful to him.
There is also a power in clause 3 to amend the list of permitted payments, including the level of the deposit cap and types of default fees that can be charged, should this be required.
Lords amendment 48 clarifies that landlords and agents will still be able to charge for any damages for contractual breaches as they do now. On this point, the hon. Member for Great Grimsby has tabled an amendment seeking to ensure that, where a landlord or agent wishes to charge a payment for damages, they must provide evidence in writing to demonstrate that their costs are reasonable. I would like to reassure her, and other hon. Members, that that amendment is not necessary. It has never been the intention that the Bill affects a landlord or an agent’s right to recover damages for breach of contract under common law. That is why we brought forward Lords amendment 48 to clarify the position and to ensure that such payments will not be outlawed under the ban. I want to reassure hon. Members that this does not create a back door to charging fees. I repeat: it does not create a back door to charging fees. Damages are generally not meant to do anything more than put the innocent party back in the position they would have been in had the contract not been breached. No reasonableness test is therefore needed. There are already large amounts of case law that deal with what is appropriate in a damages case. If an agent or a landlord attempts to insert a clause that requires a payment—for example, saying, “If you do X, you must make a payment”—this will be prohibited under clause 1(6)(b) or clause 2(5)(b). Further, landlords or agents are required to go to court if they want to enforce a damages claim, or they could seek to recover them from the tenancy deposit. In both cases, they would need to provide evidence to substantiate any claim, and they would only be awarded any fair costs.
As such, the hon. Lady’s amendment is unnecessary. It would also not be appropriate for this Bill to start tweaking years of existing case law regarding damages payments. We are more likely to confuse the landscape than to clarify it. We are committed, on this matter, to working with Citizens Advice, Shelter and other industry groups to ensure that tenants fully understand their existing rights with regard to paying and challenging contractual damages. We have already taken steps to update our guidance to make this point clear. I hope that, with those reassurances, the hon. Lady feels able to withdraw her amendment.
Hon. Members will be aware that the Bill introduces a clear set of rules around holding deposits. This will improve transparency and provide assurances from both tenant and landlord around the commitment to entering into a tenancy agreement. To minimise the risk of abuse, Lords amendment 54 introduces a formal requirement for landlords and agents to set out in writing why they are retaining a deposit. This will empower tenants to challenge decisions that they believe to be unfair. It will also ensure that tenants do not continue to apply for properties and risk losing their holding deposit time and again without understanding why.
We also agree that it is not right that landlords and agents accept multiple holding deposits for the same property. That is why Lords amendment 41 ensures that a landlord or an agent can only take one holding deposit at any one time for a property, unless permitted to retain the earlier deposit. Lords amendment 50 will ensure that a tenant receives their holding deposit back when the tenancy agreement is entered into. Previously, it could have been the case that a landlord might have had grounds to retain the holding deposit, and done so but entered into the tenancy anyway. Further, Lords amendment 59 clarifies that a holding deposit must be refunded where a landlord or an agent imposes a requirement that breaches the ban or behaves in such a manner that it would be unreasonable to expect the tenant or relevant person to enter the tenancy. This will, for example, give tenants greater power to object where a landlord or agent has asked them to pay an unlawful fee or to enter into an agreement with unfair terms.
Rebecca Pow (Taunton Deane) (Con)
This is a very stressful time for tenants; I have had a case raised with me very recently. That is particularly so for those who are forced, for one reason or another, to move frequently, which seems to happen more often in London than elsewhere, including Taunton Deane. Does the Minister agree that these amendments and this Bill are going to make a real difference to their security, particularly the fact that they have redress over the deposit issue, which is incredibly stressful if they have to try to claim it back?
Mrs Wheeler
My hon. Friend is quite right. It does seem to be a bit more of a thing in the south-east than anywhere else. Nevertheless, this Bill, which we hope to get through tonight with no ping-pong, will apply across the whole of England, and it will help tenants going forward, so I thank her for her question.
Lords amendments 13, 14, 19, 20, 38 to 40, 51 to 53 and 56 to 58 are consequential to those on holding deposits that I have just described.
I would like to discuss some amendments made to ensure that the Bill does not adversely affect organisations that were never intended to be in scope. We have taken local housing authorities and the Greater London Authority, or any organisation acting on their behalf, out of the definition of “relevant person”. Lords amendments 3 and 4 ensure that those authorities and those acting on their behalf will be able to make payments in connection with a tenancy when acting on behalf of a tenant or guaranteeing their rent.
Local authorities have a duty to help the homeless find accommodation. We recognise that, as part of this, councils may need to provide assistance to applicants—financial or otherwise—to access private rented accommodation. We do not want inadvertently to prevent a local authority from carrying out that vital work.
Further, Lords amendments 24 to 26 exclude certain licences to occupy where advice or assistance is provided in connection with the grant, renewal or continuation of the licence by charities or community interest companies. The types of licence that will be excluded are those that have been granted primarily for the provision of companionship or companionship combined with care or assistance where no rent is paid. This ensures that the important work of schemes such as Homeshare can continue. Homeshare matches a person in housing need—often a young person—with a householder, who is often elderly and needs companionship, sometimes combined with low-level care or assistance. I am sure we all agree that that is a worthy cause that was never intended to be in scope of the ban on letting fees.
Lords amendments 21 to 23 and 27 ensure that the forthcoming client money protection provisions work as intended. We want to give landlords and tenants financial security, but not in such a way as to impose disproportionate and unnecessary burdens on industry, which might adversely impact tenants and landlords. We have clarified that money that has already been protected through a Government-approved tenancy deposit scheme is not required to be doubly protected by a client money protection scheme. That was never the policy intention.
We will also not require schemes to pay out where certain risks are excluded by insurers. Those policy exclusions typically refer to events such as war, terrorism or confiscation by the state. Neither can we expect schemes to hold insurance for every penny held by agents. Our amendments ensure that the level of insurance held by schemes is proportionate to the risk of client money being lost. We are permitting schemes to impose limits per individual claimant and aggregate limits, where they are at least equivalent to the scheme’s maximum probable loss. That is an accepted industry practice, and the Financial Services Compensation Scheme imposes such limits.
The amendments on client money protection also provide for a transitional period of 12 months after the requirement to belong to a scheme comes into force, permitting agents to join a scheme where they are making all efforts to apply for a client account but have not yet obtained one. We want to give agents sufficient time to find a bank that offers a pooled client account. Schemes will be able to work with agents to find an appropriate banking provider where they are having difficulty. I would like to be clear that the 12-month transitional period only applies in relation to applying for a pooled client account and not the requirement to belong to a client money protection scheme more broadly. That is intended to come into force on 1 April 2019, prior to the ban on fees, and as long as we do not have ping-pong.
Lords amendment 27 clarifies that the lead enforcement authority set up under the Bill can also enforce the client money protection regulations, and Lords amendment 60 is a consequential amendment to the title of the Bill. These amendments will ensure that client money protection gives tenants and landlords the financial security that they want and deserve, without imposing unreasonable and disproportionate costs on industry, which could increase costs for tenants and landlords.
Above all, these amendments improve affordability, strengthen protection for tenants and minimise the risk of abuse by the minority of rogue landlords and agents. They ensure that the Bill’s key provisions are clear and transparent on the face of the Bill, offering tenants the certainty and security that they deserve. I hope that Members will welcome the changes that have been made, which I firmly believe address the key concerns raised in this House. I am confident that the measures in the Bill will help to deliver the fairer and more affordable private rented sector that we all want to see for tenants, but also for decent, professional landlords and agents who are providing a vital service.
It is in all our interests to see this crucial legislation become law as quickly as possible and avoid any delay that ping-pong would inevitably cause. We need to allow a short period following Royal Assent to enable agents and landlords to become compliant with the new legislation. We therefore intend the provisions in the Bill to come into force on 1 June 2019, which means that the ban would apply to all new tenancies entered into on or after that date.
Bob Stewart (Beckenham) (Con)
Does the Minister feel, as I do, that the Bill will incentivise private landlords to give more tenancies, particularly to people who are on social benefits?
Mrs Wheeler
Always gallant. The Bill will help enormously to ensure landlords’ safety, while financially benefiting tenants.
Bob Blackman (Harrow East) (Con)
I think my hon. Friend is coming to the conclusion of her contribution. She mentioned when these measures will come into force for new tenancies. Could she clarify that the Bill will apply to not only brand new tenancies, where a tenant moves into a property, but also existing tenancies that are renewed by being rolled over or where the tenant remains in situ and enters into a new tenancy agreement?
Mrs Wheeler
I thank my hon. Friend, who has been assiduous in his time on the Housing, Communities and Local Government Committee. The intention is for the Bill to apply to all new tenancies signed after 1 June. As he said—he must have better eyesight than anyone—I am close to concluding.
The exception to the 1 June date is the client money protection provisions in the Bill, which, as I have said, come into force on 1 April 2019. Ahead of that, we will continue to work closely with key stakeholders to support implementation of the ban. We will work with industry groups to ensure that the ban is properly communicated, and we continue to work with local authorities to ensure that they are ready to enforce it. I have already shared the draft consumer and enforcement guidance with Members, and it is now being updated to reflect the Lords amendments.
Jeff Smith (Manchester, Withington) (Lab)
I am pleased that the Government want to act quickly on this. Given how hard-pressed local authorities are, what will the Government do to help them manage this situation?
Mrs Wheeler
Like my hon. Friend the Member for Harrow East (Bob Blackman), the hon. Gentleman is prescient about what I am about to say. We are working with National Trading Standards to appoint the lead enforcement authority under the Bill. That will be a local trading standards authority appointed by the Secretary of State, and we intend the body to be in place ahead of implementation.
In conclusion, I very much hope that Members will support the amendments made by the Government and look forward to seeing the legislation implemented. I also hope that the hon. Member for Great Grimsby, having heard and accepted my assurances, will withdraw her amendments.
Melanie Onn (Great Grimsby) (Lab)
It is a pleasure to speak in this important debate. I would like to thank the Minister for her approach and the Under-Secretary of State for Housing, Communities and Local Government, the hon. Member for Richmond (Yorks) (Rishi Sunak), who steered the Bill through Committee and was open to hearing the Opposition’s views on this small but very important Bill.
I shall speak in support of amendment (a) to Lords amendment 36; amendments (a) and (b) to Lords amendment 37; and amendment (a) to Lords amendment 48. I shall also pay tribute to the work that has been done in Committee, where there was a lot of fruitful conversation and consideration, and in the other place, which has resulted in the Bill arriving back in the Commons in a far better state. It is not just my hard work or the Minister’s hard work that has gone into the Bill. We are backed up by an enormous number of people, including charities, members of the Housing, Communities and Local Government Committee, who are listening keenly to our debate, and civil servants, who have put in many hours to make sure that the Bill is fit for purpose. I am very grateful to all those people who have participated.
In Committee and on Report, we discussed at length the default fee clause. Originally, the Government fought very hard against opposition from Labour and charities such as Shelter to remove a gaping loophole, which would have left the definition of a default to the discretion of those drafting tenancy agreements. It is interesting that Lords amendment 47 bears a striking resemblance to amendment 3, which I pressed on Report. Back then, the Under-Secretary of State for Housing, Communities and Local Government, the hon. Member for Richmond (Yorks), said:
“We believe it is for the tenant and the landlord to determine what it is necessary and fair to include as default charges, on a case-by-case basis. There are other potential default charges besides those for late payment of rent and lost keys.”—[Official Report, 5 September 2018; Vol. 646, c. 208.]
It is welcome that the Government have rowed back on that, despite being so bullish about it during the Bill’s passage through the Commons. I do hope that they bear that in mind when considering amendments to future housing Bills, in which I hope to play a role, and are more thoughtful. If amendments are tabled in good faith, I hope that Government Members would accept that, and if they are worth adopting, do so at an early stage, so that we do not appear conflicted on measures that are positive overall, particularly in this case for people in the private rented sector who are seeking a home and trying to access one.
As the Under-Secretary of State for Housing, Communities and Local Government, the hon. Member for South Derbyshire (Mrs Wheeler), pointed out, Labour always welcomes Government acceptance of the principles and details of our ideas, and we welcomed their acceptance of a Labour proposal in Lords amendment 47 to enshrine what counts as a default fee in the Bill. We believe that that will close a significant loophole in the Bill, moving it far closer to the type of tenant fees Bill that Labour has been proposing since 2013.
We have a number of concerns about the Lords amendments, as the Bill still does not reach its full potential to protect tenants from unscrupulous landlords who want to charge unfair fees. We are very keen to point that this is about the unscrupulous few, not the fair-minded, reasonable and proper many who exist out there. First, Lords amendment 48 adds a new permitted payment of damages to the Bill. The Minister touched on that, so I may have to revise what I am going to say—I hope that hon. Members will bear with me. We tabled an amendment because we are concerned about Lords amendment 48, but that does not extend to a belief that damages in principle are fundamentally wrong. Landlords should not have to pay for repairs when tenants cause damage to their properties, but we do not understand why the Lords amendment is necessary, and why it seemingly misses out a number of protections that are present in other parts of the Bill.
Richard Graham
When we discussed this matter in Committee the hon. Lady was very reasonable, and seemed perfectly happy with the five-week proposal that the Government have made in the Lords amendment. It would be much easier if the hon. Lady did not press her amendment, so that we may secure confirmation across the House that this is the best way forward, especially given that there is not a single Labour Back Bencher present to support the hon. Lady’s amendment
Melanie Onn
It is a busy day in other parts of the Palace of Westminster; we should give colleagues credit for the fact that they have other work to do. I shall come on to the detail of my amendment and the issue of five weeks. I think that the hon. Gentleman has misremembered the extent of my acceptance of the five-week period. It was a reluctant acceptance at the time, with a view to tabling a further amendment if we thought that necessary. Having heard the Minister’s explanation, I think that it is still necessary to press that point, and I shall address it further in my speech.
I am discussing the damages that landlords can claim if a tenancy agreement is breached, rather than the issue of deposits. I urge the hon. Gentleman to bear with me and allow me to finish making that point. The fact that this is the first reference in the Bill to claiming damages shows that the Government were confident until recently that the Bill as originally drafted would not interfere with the current system. Indeed, the Government’s draft guidance, which we received from the Minister on 5 November, said:
“The Act does not affect any entitlement to recover damages for breach of contract…If a tenancy agreement does not permit a landlord or agent to charge default fees, the landlord or agent may still be able to recover damages.”
It continued:
“What is the difference between a default fee and damages? A default fee is a payment that can be required by a landlord or agent under an express provision in the tenancy agreement and would therefore be permitted under the Tenant Fees Act.”
Finally, it said:
“Can a landlord or agent recover costs for damages if they didn’t write them into the tenancy agreement? Yes. The Act does not affect the landlord’s entitlement to recover damages”.
The draft guidance that we received from the Minister’s Department only two months ago indicated on multiple occasions that the Bill would not impact on a landlord’s ability to claim damages, and it spelt out the difference between a default and a deposit. There is therefore a concern, because what was seemingly settled has become unsettled as the result of an addition which, to all intents and purposes, and given the explanation that we received, does not need to be made. What is the purpose of that? However, the Minister’s assurance on the intention to reassure landlords and innocent parties that they are simply going to be in the position that they were in before any such harm was caused perhaps gives me reason to reconsider.
Kevin Hollinrake
Does the hon. Lady think that good tenants who comply should subsidise poor tenants who do not comply?
Melanie Onn
I think it is absolutely right that if a landlord experiences a breach of tenancy, those tenants are considered responsible for the situation. It should not rest on others who adhere to the tenancy agreement that they signed, so I concur with the hon. Gentleman.
I really do not see why Lords amendment 47 on default fees necessitates change, as the Government clearly defined damages as separate from defaults. I therefore wonder why Lords amendment 48 is necessary in the first place. Without it, would the Bill impede the current system? Would it prevent landlords from claiming damages through deposits or the courts? Can the Government reassure me—I would say that perhaps they have done so to some extent—that Lords amendment 48 will not create powers for landlords to bypass current systems and charge as they see fit? I certainly hope that the Minister believes that to be the case. If Lords amendment 48 is not necessary, perhaps it is in the Minister’s gift to reconsider the position and remove the provision, rather than adding confusion, as it is not necessary, and previous statements have made it clear that it is not necessary.
My amendment (a) to Lords amendment 48 would bring that into symmetry with powers in the Bill and add a requirement for charges brought under the amendment to be reasonable, and to be evidenced by invoices. That is just to ensure that no loophole is sought. Throughout the debate we have discussed the need for permitted payments in the Bill to be subject to rigorous checks and balances, to ensure that unscrupulous landlords and letting agents cannot continue to charge unjustified amounts for things such as a lost key. Thanks to the hard work in both Houses, we have closed a number of loopholes that could have been exploited to allow some landlords to profit from tenants by unfair and unjustified means.
Lords amendment 48 does not contain those protections and seemingly could allow for open-ended charges without mind to the cost to the landlord, and to whether the charges could be backed up by evidence. I do not intend to press the amendment to a Division, but I would welcome additional reassurances from the Government that the principles discussed throughout the Bill will not be undermined by the Lords amendment, and that it is not a new loophole that landlords and letting agents can exploit for profit.
Mrs Wheeler
I am always willing to give the hon. Lady greater reassurance. Lords amendments 42 and 47 ensure that landlords and agents can charge default fees only in specified circumstances, which are listed in the Bill. Lords amendment 48 permits landlords and agents to recover costs for damages only in breach of contract.
Melanie Onn
I thank the Minister for that very helpful further explanation.
Another Opposition concern about the Lords amendments is that the Bill still does not go far enough to remove the barriers that high deposits pose to millions of renters across the country. Our amendments seek to address two points. The Minister says that reducing the deposit cap from five weeks to three would not help tenants, but I believe it would. A reduction of two weeks’ advance payment will of course help tenants to access properties. It would reduce barriers for private renters and enable them to access the rental markets, including for the first time. Turning that into a negative takes some extraordinary creative gymnastics, on which I congratulate the Minister.
Mr Prisk
The Select Committee looked at the Bill in detail in pre-legislative scrutiny. We all signed up to five weeks, including six distinguished Labour Members, including the Chairman, the hon. Member for Sheffield South East (Mr Betts), who knows the subject well. Why does the hon. Lady believe they are wrong?
Melanie Onn
Having served on that Committee with the hon. Gentleman previously, I absolutely support its work and congratulate it, but it is always in the interests of a Select Committee to achieve consensus whenever possible and to try to agree a report that has unanimous support. That is the purpose and intention, and this case is a demonstration of excellent chairmanship and co-operation.
I congratulate the hon. Gentleman on playing his part in that, but it is the Opposition’s role to speak up for tenants. If we can make the process better, and if there is an opportunity for the Government to go further in assisting tenants—tenants are hard-pressed and this is a very expensive period of their lives—it is right that we speak up for them. We should try to encourage the Government to accept that they can reduce the barrier of high deposits to assist people directly. I just cannot support the view that charging more will assist renters in any way.
The Minister mentioned that I welcomed the Government’s reduction. I am delighted that they have listened to common sense and reasonableness, and that they have reduced the cap to five weeks from six, which was far too high, but it is not enough. If the Government can go further, I believe they always should.
Melanie Onn
I will move on because I am absolutely convinced that hon. Members will want to address these points in their speeches—they are committed to the subject and have taken a close interest, whether in the Bill Committee or in Select Committees. I look forward to hearing their comments in the remainder of the debate, but I will move on if that is okay.
Melanie Onn
I have already given way generously.
The first point that our amendments seek to address is the financial staggering for the cap level that landlords are allowed to impose. I have sympathy with the Government’s aim of prioritising a reduction of the deposit burden on those at the cheaper end of the market, but the specific provisions in Lords amendment 36 could mean that those in joint tenancies end up being subject to the higher cap, despite individually paying significantly less in rent than is used as a threshold in the amendment. It is counterintuitive to create a cap that allows deposits to be relatively higher for someone paying £5,000 a year in rent in a 10-bed large house in multiple occupation than for someone paying £45,000 in an individual rent, so I would welcome reassurance that joint tenants will not be short-changed by the differential cap. If they will be, I would welcome an explanation of the logic behind the decision to allow those in joint tenancies to be charged relatively more.
Regardless of the functioning of the differential cap, the Lords amendment will do little for the majority of tenants in this country. The cap will have a negligible effect on the majority of deposits in the country and will allow the current system to function virtually unchanged. For the graduate who cannot afford the up-front costs to move to a city for a new job, or for the family given just two months to save enough money to find a new flat and avoid homelessness following a section 21 notice, the system is simply not fit for purpose and needs urgent change.
According to the English housing survey, a five-week rental deposit will set new tenants back an average of almost £1,000 across the country, and over a staggering £1,500 in London. For many in society who are living pay cheque to pay cheque, saving that sort of money would take an enormous amount of time, and certainly far longer than the two months that tenants are given when they are served with section 21 notices. That means that many struggle to access the flexibility that renting should offer. They fear being served notice to vacate because that could result in homelessness. That is simply not how the private rented sector should function.
Our amendments would change that. Lords amendment 36 introduces an ill-thought-through staggering system. Amendment (a) in lieu would reduce the cap on deposits from five or six weeks to three, and our amendments together will reduce deposits to three weeks for all, closing the loophole that could be opened by Lords amendment 36.
I was interested to hear the Minister’s announcement of the enactment date. A written statement is due today, which I look forward to reading. I was also interested to hear her comments in response to my hon. Friend the Member for Manchester, Withington (Jeff Smith), who is no longer in his place, on enforcement and trading standards. She said that the consumer money protection measures in the Bill would be in place before enactment. I would appreciate clarity on whether she meant enactment on 1 June 2019, which is rapidly approaching, or whether she was referring to the commencement date of April next year.
Labour’s amendments would give private rented sector tenants a very welcome helping hand at a very expensive time. If passed, the amendments would reduce the deposit barrier by almost £400 across the country, and by over £600 in London, offering significant change to tenants from all backgrounds and building a better private rented sector for the many.
Bob Blackman
I draw the attention of the House to my entry in the Register of Members’ Financial Interests.
It is a pleasure to follow the hon. Member for Great Grimsby (Melanie Onn). I had the opportunity to chair—and the challenge of chairing—the Housing, Communities and Local Government Committee during pre-legislative scrutiny in the absence of the elected Chairman of the Committee, the hon. Member for Sheffield South East (Mr Betts), who unfortunately was undergoing health treatment at the time. I take absolutely the praise that the hon. Lady pours on me for reaching the judgment of Solomon—[Interruption.] It was possibly unintended at the time. From the outset of our pre-legislative scrutiny, on an all-party basis, we sought to balance good landlords and tenants, who are the overwhelming majority, with the small minority who are rogue landlords and rogue tenants. The risk here is the balance that is struck.
I do not intend to go over all aspects of the Bill but, clearly, I am absolutely delighted that the Government have seen fit to endorse all the Select Committee’s recommendations, especially the reduction of deposits from six to five weeks’ rent. I will again set out why we came to that conclusion. As Members might recall, we had a long discussion about it in Committee. Some promoted the concept of a six-week deposit and some a four-week deposit. No one but no one on the Select Committee promoted less than four weeks, for very good reasons.
Our view was that a six-week deposit was clearly too onerous for tenants. I accept what the hon. Member for Great Grimsby says about the cost to tenants of a six-week contribution, but there is also a clear risk with only a four-week deposit—or, worse still, her proposed three-week deposit—because we might get to a position in which, in the last month before the end of a six-month assured shorthold tenancy, a tenant has no incentive whatever to pay their last month’s rent. Tenants could just skip, and the landlord would then have to pursue them through the courts, bearing incredible costs unreasonably.
The issue for us was that four weeks would lead to a position whereby the tenant had an incentive to say, “Okay, I won’t pay the last month’s rent—just take it out of the deposit,” and then if the landlord could reasonably wish to claim money from the deposit because of damage or other reasons, they would have to pursue court action to recover it. That would be grossly unfair on good landlords, who are the vast majority in this country. Other members of the Committee promoted six weeks, so we ended up with the view that five weeks struck a balance between giving tenants an incentive to pay their last month’s rent, in the knowledge that they would get back their deposit had they been good tenants, and landlords being forced to go through a proper claim process to recover moneys as a result of damage by a tenant.
Richard Graham
I am afraid that the Opposition spokesperson, the hon. Member for Great Grimsby (Melanie Onn), will not give way on this matter because she is making a purely political point by wishing to appear to be helping tenants more, but the interesting silence in the debate so far has been from Scottish National party Members, because of course there is an eight-week deposit in Scotland. What does my hon. Friend think about that?
Bob Blackman
Clearly we are not talking about the position in Scotland, but I suspect—I might be wrong—that rental levels in Scotland are very much lower than elsewhere in our urban conurbations, and certainly in London. Scotland also perhaps has a lot more social housing than England—
Bob Blackman
I see the hon. Lady nodding about that point. Those two things are equally important.
Another consideration, which has not yet come out in the debate, is the economic impact of what happens with deposits. If we lowered deposits, I suggest that landlords would likely increase the rent over the period and—this is the key point—tenants would end up far worse off as a direct result, because landlords would have inflated the rent in order to recover the moneys due.
Mrs Wheeler
Let me clarify something about the ban applying to all new tenancies from 1 June. There will be a 12-month transition for tenancies signed before 1 June during which tenants can be charged. After 1 June 2020, no tenants can be charged fees banned under the Bill, which gives a clear date for when the provisions of the Bill will apply to all tenancies.
Bob Blackman
I thank the Minister for that helpful intervention, which clarified her earlier remarks and what was said when I intervened on her speech.
It is reasonable to set a position whereby we are abundantly clear in the Bill—I hope it will soon become an Act—that letting agents, estate agents or whoever are working on behalf of landlords, not tenants. I therefore warmly welcome the Lords amendment on holding deposits that was wisely tabled by the Government. What happens at the moment is an absolute outrage: some unscrupulous letting agents take a variety of competing holding deposits to inflate rents by almost having an auction for rental properties. That is grossly unfair on prospective tenants who are just looking for a property, so I warmly welcome that decision. It will be a welcome change for tenants throughout the country.
I am glad about the clarity of the Lords amendments that ensure that we are clear about the charges a landlord can make, what their purposes are and what the standards of evidence must be so that tenants do not bear a ridiculous price for, say, a lost key. Any charge will have to be evidence-based—the cost of replacing keys or other such security devices will be set out—and any cost will be reasonable, not inflated. One of the problems has been that certain unscrupulous individuals have been getting away with ripping off tenants with such charges in a grossly unfair way.
I warmly welcome the Lords amendments. The whole Select Committee welcomes the fact that the Government have finally got to where we were in the first place on deposits. I trust that we will reject the spurious Opposition amendments and ensure that the Bill, which has been warmly welcomed throughout the country, rapidly becomes law so that we can implement a process that is fair for tenants.
One thing that we desperately need to introduce is a national rental deposit scheme. My hon. Friend the Member for Colchester (Will Quince) and I managed to convince the Chancellor to do that at the time of not the most recent Budget, but the one before, and money was allocated to the Department to make that happen. When the Minister sums up, I would welcome her assuring us that we will speed up the process of introducing such a scheme so that those for whom the deposit is the key issue in getting a tenancy can be funded by public money, thus protecting them and giving them the opportunity to get a tenancy and a home of their own.
Angela Crawley
As the lonely Member on the SNP Benches, and given that the Bill applies solely to England, I will endeavour to keep my comments brief. The Government’s Bill is, however, welcome.
This Government are playing catch-up with the Scottish Government, who abolished tenant fees in 2011. The Scottish reforms gave tenants longer notice periods, indefinite security of tenure and limited rent rises, so it is most welcome that this Government are making changes here now. In Scotland, in many instances, money has gone back into the pockets of Scottish renters, but renters in England are currently losing out due to this Government’s inaction and failure to offer the same protections.
The Government have maintained the right-to-buy policy, but they must recognise that to give people the greatest choice and flexibility, they have to ensure that the opportunity of the right to buy is matched with an increase in home building and access to socially affordable housing. I am afraid the Government have not quite hit the mark on that yet, and people are simply being driven into the private rented sector, which limits their options and opportunities.
The Bill is very welcome. As we heard from Conservative Members, there remains the fear that this policy will mean that the costs of the abolished fees will be passed on to tenants in an underhand way, but that concern is unfounded. It has not happened in Scotland, where there has not been a significant spike in rents since the ban on fees, so I hope that the Government will take heed of that fact. Independent research commissioned by Shelter found that since 2012 landlords in Scotland had been no more likely to increase rents than landlords in other parts of the UK. Between 2012 and 2016, rents increased by 5% in Scotland, compared with 9% in England, so the abolition of tenant fees does not appear to have had a significant impact on costs.
That said, although such a policy has been shown to work in tenants’ favour, we must be vigilant about rent prices, so I hope that the Minister will outline how the Government will ensure that their policy puts tenants first. Landlords in Scotland can only increase rents with three months’ notice and no more than once a year, and tenants can contact a rent officer if they think that a rent increase is too high. I would be interested to know whether the Minister envisages similar protections and criteria for the policy in England. In Scotland, other than rent and a refundable deposit, which is capped at no more than two months’ rent, landlords cannot levy any additional charges, which means no holding deposits, administration fees, premiums or additional charges, whether refundable or not.
Tenants are secure when landlords can end a tenancy only on strict eviction grounds. The Scottish National party commends the work of charities and campaigners who secured additional renters’ rights from the Government in the House of Lords, and both Shelter UK and Generation Rent are happy for the Bill to pass with the Lords amendments. These rights include a short definitive list limiting default fees to charges for chasing late rents and for replacing lost keys or equivalent security devices. I noted the comments made by the hon. Member for Thirsk and Malton (Kevin Hollinrake) and I hope he is reassured that welcome mechanisms are in place. The provision closes the default fee loophole so that landlords will no longer be able to charge for a whole host of spurious defaults. It is also clear to landlords that they can continue to recover damages as they do now.
I welcomed the comments of the hon. Member for Harrow East (Bob Blackman), who, when comparing the position with the cap set in Scotland, rightly mentioned the greater availability of social housing in Scotland. He observed that a five-week cap was welcome, especially given that rents in England and Wales can be two to three times higher than those in Scotland. A five-week deposit cap is reasonable and will help renters to meet the initial fees needed to secure a home. Although Shelter originally argued for a lower cap, even it has said that it is
“pleased that the government didn’t stick at 6 weeks and we believe the 5-week cap will be a big improvement”.
That takes heed of the fact that costs are substantially higher in England, meaning that a five-week cap is much more reasonable.
Holding deposits are now illegal in Scotland, and that ought to be the case in England as well. Under the Lords amendments, if a tenancy does not go ahead, landlords or letting agents will be required to set out in writing the reasons why—they will also be required to give reasons for withholding some of a deposit—and they will have to do so within seven days of the decision not to progress with the tenancy. That will give tenants some clarity on exactly what happened to their money and ensure that there is a paper trail, which will make challenging unfair practices easier. Ultimately, both the landlord and the tenant will have more protection.
The ban on tenants fees in Scotland has made the rental sector fairer and easier to access. While I congratulate the Government on taking this positive step in the interests of people in rented accommodation, I urge the Minister to consider my points about abolishing tenant fees, while balancing protections for landlords with the rights of renters. The Bill will protect renters, many of whom do not have the luxury of owning their own home, and that ultimately is what we all want.
Kevin Hollinrake
I will try to keep my comments brief—apparently time is pressing—although there is much I would like to say about the Bill. I draw the House’s attention yet again to my entry in the Register of Members’ Financial Interests.
I am in principle and in practice very supportive of the Bill—I have been right from the start—despite my business interests and despite the extreme consternation within the industry at my support. It is absolutely right that there be a firewall around a tenant’s ability to shop around when they have found a house or flat they want to rent. We are right to believe in free and competitive markets. This was not a free and competitive market, and it is right that we act in this area. It is right that landlords pay for their own tenancy agreements, inventories and referencing. I support all those things. I also want to put on the record my support for the Minister. She has done a great job on the Bill and engaged with me and other colleagues who have had concerns about some of its provisions.
I would like to touch on two things: deposits and default fees. I will begin with Lords amendments 36 and 37. To say that three weeks would be an appropriate deposit length, as the hon. Member for Great Grimsby (Melanie Onn) has done, shows a complete misunderstanding of the issues. She is absolutely right to want to protect tenants—everyone in this place wants to protect tenants—but to do that we must be fair to landlords as well. She asked how a longer deposit period would help tenants. It would not help tenants not to be able to find properties to rent. If we deterred landlords from entering the marketplace, as a three-week cap would do, that would not help tenants.
I speak as somebody who has been in this business for 30 years. When I started, the only thing I could find in the marketplace was a shabby, damp, dark terraced house in the middle of York. It was not like today’s marketplace; tenants now have a breadth of choice, and that is because landlords have invested because they are treated fairly. The hon. Lady wants to treat tenants fairly, as I do, but we would not be treating them fairly if our policies resulted in their being refused tenancies by landlords worried about not getting their rent, not regaining possession of a property that had had significant damage done to it or not having enough deposit left for the remedial work. Her proposals would potentially put landlords in that situation, given that many tenants use their deposit as the last month’s rent, meaning there would be nothing left.
I still have concerns about restricting the deposit length to five weeks. As we know, it is eight weeks in Scotland. The average deposit in London is five and a half to six weeks, and in the rest of England it is not far below that, so the Bill will mean a change for many landlords, and we will have to keep this under review to make sure it does not have adverse consequences for tenants—that is the principle. Landlords are happy as long as they keep their properties well maintained and the rent is paid. If that is not the case, landlords will exit the market, which is not good for the tenants the hon. Lady looks to protect.
Bob Blackman
Does my hon. Friend recall that, during the Select Committee process, one of our considerations was that, if we set a six-week deposit limit, every landlord would rapidly move to six weeks from the current UK average of between four and a half and five and a half weeks?
Kevin Hollinrake
No, I do not agree with that because at the moment we have some flexibility. Under the Bill, we have no flexibility above five weeks. The trouble with that is this. I could charge a tenant five weeks, but what if they have a pet or certain other circumstances that make me less likely to want to rent it to them? I, as a landlord, will be less likely to rent to that person, under this measure, whereas with six weeks I would have some flexibility. We must make sure that this does not deter landlords from renting properties to people with pets. We do not want that, but it could happen. The Minister has promised to keep this measure under review, and I am absolutely sure that she will.
I want to touch on default fees and amendments 42 to 47. I welcome the clarification from the Minister in the letter she sent me a couple of days ago. She assured me that landlords and agents would still be able to charge for things above and beyond their existing obligations, and that is absolutely right, but the Bill itself only makes a couple of provisions on default fees, and one of those is for the replacement of keys. It sounds like a simple process, but it is possible to spend hours and hours chasing the tenant, chasing the keys, and then chasing the tenant to come and collect the keys. Someone has to pay for that work. It is not a question of the keys themselves; it is a question of the time and labour involved in their delivery.
Wera Hobhouse (Bath) (LD)
I, too, draw the House’s attention to my entry in the Register of Members’ Financial Interests.
The Bill has returned to the Commons in a much better state than it was in when it left. The loophole relating to default fees has now gone. The detail on default fees will be on the face of the Bill, which will specify
“a key…or other security device”.
There is much more transparency in relation to the holding of deposits, with a fairer transaction between letting agents and tenants, and the deposit levels are better aimed at people on low incomes, having been reduced to five weeks’ rent.
I listened carefully to both sides of the argument about the length of deposits. I listened to what was said by the hon. Member for Great Grimsby (Melanie Onn), but I also listened to the counter-arguments. I entirely agree with the hon. Lady that we need to protect tenants and make the system easier for them, because there is a tough world out there for people on low incomes. I also agree that we should not inadvertently disadvantage renters. As long as we do not have the number of affordable and social homes that we need, they will always be in that tough world in which, ultimately, they are at the mercy of landlords when it comes to charges. This is only the beginning of an overall improvement for renters, and I hope very much that we will continue to make changes in the law that will make life easier for them, but I also hope that we will eventually provide the number of homes that we need in order to create an entirely fair rental market.
I pay tribute to my colleagues in the House of Lords, Lord Shipley and Baroness Grender. Lady Grender initiated these proposals in a Private Member’s Bill in 2016 and, with Lord Shipley, worked assiduously with the Government to improve the Bill. I also congratulate the groups that have long campaigned for this change in the law, including Shelter, Generation Rent and Citizens Advice.
For too long, upfront costs—often rip-off fees charged to tenants by unscrupulous lettings agencies—have pushed people into unmanageable levels of debt, and sometimes into homelessness. The current system means that people, particularly those on low incomes, must pay as much as £3,000 to move, even if they will be paying a lower rent. Some have predicted that we will see a rise in rents as a result, but evidence from Scotland suggests that that is unlikely. If rents rise, the relatively small amount per month will be manageable in comparison to the extortionate amount that it costs to move.
For too long people living in the private rented sector have been treated as second-class citizens, and the Bill goes some way towards putting that right. The Liberal Democrats welcome it, and welcome the Conservatives’ change of heart. We look forward to its introduction on 1 June, with only the small regret that it has taken so long for it to reach this stage. As I said earlier, I hope that we will continue to make changes in the law to make it easier for people to rent in a fair market where there is a good number of affordable and social homes.
Mrs Wheeler
With the leave of the House, Madam Deputy Speaker. I shall be very short and very pithy.
I thank Members on both sides of the House for their passionate and constructive contributions to the Bill’s passage. I also thank the civil servants who have worked so hard to bring the Bill to this successful stage. We particularly wanted that to happen quickly so that the lady who is pregnant would not give birth in the Box. I have told her that if the baby is a boy, it must be called Bill!
I hope we can all agree that improvements have been made, thanks to the work of many Members on both sides of the House, and that as a result the Bill will be even more effective in delivering its promise to protect tenants from unfair charges. I hope that the assurances I have been able to give will mean that the Commons amendments will not be pressed to the vote.
Lords amendment 1 agreed to.
Lords amendments 2 to 35 agreed to.
Schedule 1
Permitted Payments
Motion made, and Question put, That this House agrees with Lords amendment 36.—(Mrs Wheeler.)
The House proceeded to a Division.
Madam Deputy Speaker (Dame Eleanor Laing)
I remind the House that the motion is subject to double majority voting of the whole House and of Members representing constituencies in England.
Madam Deputy Speaker (Dame Eleanor Laing)
We now come to motion 4 on private Members’ Bills.
Sir Christopher Chope (Christchurch) (Con)
On a point of order, Madam Deputy Speaker. That motion would have given us some certainty that this House would be sitting on Friday week, for example, to consider private Members’ Bills. Is it not extraordinary that we now have no certainty about that? The presumption now is that we will not be sitting on Friday 1 February. At one stage we were told that we would be sitting on Friday 25 January. My point of order relates to the amendment that I tabled to the business in motion 4. Prior to hearing that the motion was not going to be moved, I sought to find out whether my amendment had been selected. It is the convention of this House that if someone has tabled an amendment, they get advance notice prior to the debate as to whether it has been selected. We often get printed papers telling us which amendments have been selected and in what order. Can you tell us, Madam Deputy Speaker, whether my amendment and/or the one tabled in the name of the Labour environment spokesman, amendment (b), were selected for debate, subject of course to the debate starting at the behest of the Government? The other point I would like to make is to ask whether I am correct in saying that the only way in which we can avoid this sort of scenario is for Back Benchers on both sides to sign Government motions so that they cannot be withdrawn?
Madam Deputy Speaker (Dame Eleanor Laing)
Order. I beg the House to be a little quieter because, as a matter of practicality, I could not hear the hon. Gentleman—[Interruption.] I am politely asking for a little bit of quiet. Just talk quietly among yourselves.
The hon. Gentleman makes a perfectly reasonable point. As to whether it is extraordinary, I cannot possibly comment from the Chair. However, he has asked me, as a point of order, whether his amendment (a) to motion 4 was selected and, indeed, whether amendment (b) was selected, and I can tell him that I do not know the answer to his question. The selection of amendments is entirely a matter for Mr Speaker, and the Deputy Speakers have no part in the consideration or discussion of whether an amendment should be selected. I do not know whether either amendment was selected, but I have every sympathy with the hon. Gentleman.
Sir Christopher Chope
Further to that point of order, Madam Deputy Speaker. I accept your ruling in relation to the prerogative of the Speaker to decide which amendments are selected and which are not, but what I was really concerned about was the fact that the Member who tabled the amendment was not notified as to whether it had been selected. Is there now a new convention in this place that a Member does not know whether their amendment has been selected until the debate starts? If that is a new convention, let us all be clear about it, but my understanding, after more than 30 years in this place, is that if a Member moves an amendment, they normally get advance notice of whether it has been selected.
Madam Deputy Speaker
The hon. Gentleman again makes a perfectly reasonable point about his experience over the past 30 years, but we live in ever-changing times, and I genuinely do not know the answer to his question.
Hilary Benn (Leeds Central) (Lab)
Further to that point of order, Madam Deputy Speaker. First, if the Government Whip had not said, “Not moved,” we would now be in the debate on the motion. If we had had that debate, I would have spoken against the amendment of the hon. Member for Christchurch (Sir Christopher Chope), so at what point would those who had put down amendments have known that they would be put to a vote? Secondly—maybe the Leader of the House can assist with this—have you had any indication that the Government intend to move the order relating to private Members’ Bills days at some point in the future? If so, when might that be?
Madam Deputy Speaker
Again, the right hon. Gentleman makes a perfectly reasonable point. I should point out to him and to the House that Mr Speaker‘s selection of amendments is published as a provisional selection of amendments. It is then up to Mr Speaker which amendments he finally selects. That would be the normal course of action. I am unaware of a provisional selection of amendments having been published in relation to motion 4 today.
Mr Mark Francois (Rayleigh and Wickford) (Con)
Further to that point of order, Madam Deputy Speaker. As you can well imagine, there may be a lot of interest in this House about the selection of amendments over the next few weeks, so this is not merely some esoteric question. Now, I have been here for only 18 years—I am a relative newbie—but the Speaker’s conference would have taken place this morning, and the usual practice is that a provisional selection of amendments is issued thereafter. As you say, it is provisional, but it can at least guide the House as to what is likely to be available for debate.
Now, today’s Bill was relatively uncontroversial. Being able to rent a home is important, but it was not as controversial as, say, some of last week’s debates, so it was not beyond the wit of man to work out that the debate on the Tenant Fees Bill would end early. The Speaker’s conference should have practically been able to foresee this situation. That being the case, why was no provisional selection of amendments issued in the normal way?
Madam Deputy Speaker
I appreciate the right hon. Gentleman’s point, and I can give him a very direct answer. I will not disclose to the Chamber or in any other way what happens at the Speaker’s conference in the morning. It is a private meeting between Mr Speaker and his Deputies and senior Clerks, and I will not and cannot answer questions about it.
Ms Angela Eagle (Wallasey) (Lab)
Further to that point of order, Madam Deputy Speaker. As someone who has been here for 27 years, my service is obviously larger than that of the right hon. Member for Rayleigh and Wickford (Mr Francois). Can the—[Interruption.]
Madam Deputy Speaker
Order. The hon. Lady is making an important point. Just be quiet.
Madam Deputy Speaker
I am delighted to answer the hon. Lady’s perspicacious point of order. She is absolutely correct that amendments cannot survive the withdrawal of the main motion. I will say it again that the selection of amendments is entirely a matter for Mr Speaker, and I am sure that if Mr Speaker had been here, as he will be at some future point, he would have been delighted to answer these questions.
Sir Oliver Heald (North East Hertfordshire) (Con)
Further to that point of order, Madam Deputy Speaker. Can you confirm that it would be in order for the Government to propose a future motion—hopefully very quickly—that would allow the Service Animals (Offences) Bill finally to make progress and get its Third Reading? The Bill has support on both sides of the House and had cross-party support in Committee last week.
Madam Deputy Speaker
I am happy to confirm to the right hon. and learned Gentleman that that would be perfectly in order. He also reminds me that I did not answer the second point of the right hon. Member for Leeds Central (Hilary Benn) about whether the Government intend to bring forward motion 4 again at a future time. I am not aware at this point of any such intention, but one would hope so.
Royal Assent
Tuesday 12th February 2019
(5 years, 8 months ago)
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