Monday 21st May 2018
(6 years, 6 months ago)
Commons ChamberTenant Fees Act 2019 Read Hansard Text
This text is a record of ministerial contributions to a debate held as part of the Tenant Fees Act 2019 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
Tuesday 5th June 2018
(6 years, 5 months ago)
Public Bill CommitteesTenant Fees Act 2019 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 5 June 2018 - (5 Jun 2018)
This text is a record of ministerial contributions to a debate held as part of the Tenant Fees Act 2019 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
Thursday 7th June 2018
(6 years, 5 months ago)
Public Bill CommitteesTenant Fees Act 2019 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 7 June 2018 - (7 Jun 2018)
This text is a record of ministerial contributions to a debate held as part of the Tenant Fees Act 2019 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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.
Thursday 7th June 2018
(6 years, 5 months ago)
Public Bill CommitteesTenant Fees Act 2019 Read Hansard Text 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.
This text is a record of ministerial contributions to a debate held as part of the Tenant Fees Act 2019 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.)
Tuesday 12th June 2018
(6 years, 5 months ago)
Public Bill CommitteesTenant Fees Act 2019 Read Hansard Text 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.
This text is a record of ministerial contributions to a debate held as part of the Tenant Fees Act 2019 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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”.
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—
Tuesday 12th June 2018
(6 years, 5 months ago)
Public Bill CommitteesTenant Fees Act 2019 Read Hansard Text 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.
This text is a record of ministerial contributions to a debate held as part of the Tenant Fees Act 2019 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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.
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.
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.
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.
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.
Wednesday 5th September 2018
(6 years, 2 months ago)
Commons ChamberTenant Fees Act 2019 Read Hansard Text 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.
This text is a record of ministerial contributions to a debate held as part of the Tenant Fees Act 2019 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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 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]
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.
Wednesday 10th October 2018
(6 years, 1 month ago)
Lords ChamberTenant Fees Act 2019 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 5 September 2018 - (5 Sep 2018)
This text is a record of ministerial contributions to a debate held as part of the Tenant Fees Act 2019 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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 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.
Tuesday 20th November 2018
(6 years ago)
Lords ChamberTenant Fees Act 2019 Read Hansard Text Amendment Paper: HL Bill 129-II Second marshalled list for Committee (PDF) - (16 Nov 2018)
This text is a record of ministerial contributions to a debate held as part of the Tenant Fees Act 2019 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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 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.
Tuesday 11th December 2018
(5 years, 11 months ago)
Lords ChamberTenant Fees Act 2019 Read Hansard Text Amendment Paper: HL Bill 129-R-I Marshalled list for Report (PDF) - (7 Dec 2018)
This text is a record of ministerial contributions to a debate held as part of the Tenant Fees Act 2019 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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;”
“(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,”
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.
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.
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.
“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 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.
Tuesday 15th January 2019
(5 years, 10 months ago)
Lords ChamberTenant Fees Act 2019 Read Hansard Text Amendment Paper: HL Bill 152-I Marshalled list for Third Reading (PDF) - (14 Jan 2019)
This text is a record of ministerial contributions to a debate held as part of the Tenant Fees Act 2019 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
(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.
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.
Wednesday 23rd January 2019
(5 years, 10 months ago)
Commons ChamberTenant Fees Act 2019 Read Hansard Text 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.
This text is a record of ministerial contributions to a debate held as part of the Tenant Fees Act 2019 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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.
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?