The Secretary of State for Communities and Local Government (Sajid Javid)
The Government want a private rented sector that provides fairness, security and stability for tenants and landlords and are keen to see all tenants receiving a good and affordable service. We recognise the valuable service that good letting agents provide to both landlords and tenants in ensuring that properties are safe, compliant and professionally managed.
We continue to promote competition as the best driver of value and service. However, the Government are prepared to act where markets are not working for all consumers, and the lettings market is a clear example of this. Tenants have little control over letting fees because the agent is appointed by the landlord and as a result those fees can run into hundreds of pounds. This is not fair.
It is not simple for tenants to understand and compare agent fees since there is significant variation in the way that agents charge for their services. Further, agents charging fees to both landlords and tenants increases the risk of unfair practices in the form of double charging.
The Government committed in their manifesto to banning unfair letting fees paid by tenants following an announcement at the 2016 autumn statement. A ban is necessary to recognise the stronger market position of landlords and to reflect that agent services are primarily provided on their behalf. Landlords will choose the agent that provides the quality of service that they are seeking at a price that they are willing to pay. Banning unfair letting fees will sharpen and increase letting agents’ incentives to compete for landlords’ business, resulting in a more transparent and competitive private rented market with a higher quality of service.
The ban will make renting fairer for tenants by enabling them to see what a given property will cost them at the advertised rent level without any additional hidden costs. This will facilitate movement into and within the private rented sector. Tenants will have confidence that they are only committing to a property that they know that they can afford.
The draft Bill sets out the Government’s detailed approach to banning letting agent fees to tenants. The Bill will also ban landlords from charging tenants letting fees and ban agents and landlords from requiring tenants to make payments to third parties. This mitigates the risk of tenants being charged agent fees through other routes, avoids creating a situation where landlords are encouraged to self-manage their properties purely on financial grounds and avoids some tenants being charged fees while others are not.
The Bill will cap the amount of money that can be required as a deposit at the outset of a tenancy at six weeks’ rents. This will improve affordability for tenants while ensuring financial security for landlords.
The Bill enables agents and landlords to charge a holding deposit to a tenant to ensure that there is a financial commitment from a tenant to a given property. It also sets out the circumstances in which agents and landlords will be required to refund the holding deposit to tenants.
The Bill requires local authorities to enforce the ban and contains a provision for tenants to recover any unlawfully charged fees. It creates a civil offence with a fine of £5,000 for an initial breach of the ban and creates a criminal offence where a person has been fined or convicted of the same offence within the last five years. Civil penalties of up to £30,000 can be issued as an alternative to prosecution.
The Bill will amend the Consumer Rights Act 2015 as it applies in relation to housing in England to clarify that the requirements on letting agents to display any letting fees, which redress scheme they are a member of, and whether they have client money protection should apply to property portals. It makes new provision regarding fines in the event of a continuing breach of these requirements in England and will also require letting agents to display the name of the client money protection scheme to which they belong (if they are required to belong to such a scheme).
Finally, the Bill will establish 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, the requirement to be a member of a redress scheme under the Enterprise and Regulatory Reform Act 2013, the fees transparency requirements of the Consumer Rights Act 2015 as they apply to letting agents in England, and the requirements to be a member of a client money protection scheme under the Housing and Planning Act 2016.
We very much welcome the forthcoming parliamentary scrutiny on whether the draft Bill achieves its aim of delivering a fairer, more competitive, and more affordable lettings market where tenants have greater clarity and control over what they will pay and where the landlord is the primary customer of the letting agent.
[HCWS212]