Tuesday 11th December 2018
(5 years, 11 months ago)
Lords ChamberTenant Fees Act 2019 View all Tenant Fees Act 2019 Debates Read Hansard Text Amendment Paper: HL Bill 129-R-I Marshalled list for Report (PDF) - (7 Dec 2018)
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, I will first speak briefly on Amendments 1, 2, 5 to 12, 16 to 19, 33, 35 to 41, 60 and 66, which are minor and technical and are intended to bring consistency and ensure the Bill best delivers on its policy intent.
First, while unlikely, as the Bill is drafted a letting agent could conceivably require a tenant to enter into a contract for services with themselves for additional services related to letting, such as providing an inventory. Amendment 5 clarifies that letting agents are prohibited from requiring a tenant or other relevant person to enter into a contract with themselves.
Secondly, it is possible that a relevant person other than a tenant might be a party to a tenancy agreement or an agreement with a letting agent. We have made amendments to Clauses 1 and 2 to be clear that, where a person is acting on behalf of a tenant or guaranteeing a payment of rent, that person cannot be charged a default fee unless otherwise permitted by the Bill.
In the same vein, Amendments 9 to 12 to Clause 4 provide that a term of agreement which breaches Clause 1 or Clause 2 does not bind a relevant person. Similarly, Amendments 33 and 35 to 41 replace the references to “tenant” in Clause 28 as it applies to pre-commencement tenancy agreements and agreements with letting agents with references to “relevant person”.
Finally, we want to ensure that we use consistent language and terminology throughout the Bill. Amendment 66 changes a reference to “incorrect and misleading information” to “false and misleading information” to align with other references in Schedule 2. Amendments 16 to 19 ensure that the language on day and date in Clause 11 is consistent, and Amendment 60 makes it clear that the definition of a television licence in paragraph 9 of Schedule 1 applies to the entire Act.
Lord Shipley (LD)
My Lords, since we have begun Report I should declare my vice-presidency of the Local Government Association. I simply say that these are helpful and relevant amendments that have our support.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, as this is the first time that I have spoken on Report, I draw the House’s attention to my relevant interest as a vice-president of the Local Government Association, as the noble Lord, Lord Shipley, did. I thank the noble Lord, Lord Bourne of Aberystwyth, and his officials for a number of the amendments we will discuss, in this group and others. Generally they are very helpful and improve the Bill. That is good news for tenants, and I am genuinely very grateful for that. That is not to say that I agree with everything in the Bill, but I am pleased to say we are making progress. I am very happy to support these amendments and I concur with the noble Lord’s comments.
Lord Bourne of Aberystwyth
My Lords, I am very grateful for the noble Lords’ support. I beg to move.
Lord Bourne of Aberystwyth
My Lords, we are all clear that the purpose of the Bill is to ban agents and landlords from charging unfair letting fees to tenants. However, in achieving this objective it is crucial that the legislation does not have an adverse impact elsewhere. Amendments 3, 4 and 29 to 31, in my name, ensure that the Bill does not prevent vital work supporting tenants more broadly.
First, Amendments 3 and 4 exclude local housing authorities or organisations acting on behalf of a local housing authority from the definition of “relevant person” under the Bill. I am most grateful to the noble Lords, Lord Shipley and Lord Beecham, for raising this issue during Second Reading. Local authorities have a duty, as housing authorities, to help the homeless to find accommodation. This is set out in the Housing Act 1996, the recent Homelessness Reduction Act and the homelessness code of guidance. We recognise that, as part of this, councils might need to provide support to applicants—financial or otherwise—to access private rented accommodation. This is vital work, and Amendments 3 and 4 ensure that it can continue. These amendments will ensure that local housing authorities can make payments in connection with a tenancy when acting on behalf of a tenant or guaranteeing their rent.
Secondly, Amendments 29 to 31 ensure that the important work of Homeshare schemes, and its parent network in the UK, Shared Lives, can continue. I have said on multiple occasions that the Government strongly support the work of organisations such as Homeshare in matching a licensee, usually a young person in housing need, with a licensor, usually an elderly householder in need of companionship, sometimes combined with some low-level care or assistance. I know that support is shared throughout the House.
The Bill would have unintentionally prevented Homeshare organisations operating by banning payments made by the licensor in respect of the advice and support received from Shared Lives. I reiterate that the intention of the Bill is not, and never was, to undermine or prevent this important and innovative work continuing. I thank in particular my noble friends Lady Jenkin and Lady Barran for taking up this issue and bringing it to the House’s attention.
The Government recognise that we must take this opportunity to amend the Bill to ensure that such work is not adversely affected. To do this, our amendments provide for changes to Clause 26 to exclude from the Bill such licences as those granted under a Homeshare scheme. We have specified that an excluded licence will be one granted to the licensee by a licensor who resides in the housing, where particular conditions surrounding the grant, renewal and continuation of that licence are met. These conditions include a requirement for a charity or a community interest company to give advice to the licensee or licensor in connection with the grant, renewal or continuation of the licence and where the licensee provides companionship or companionship and low-level care or assistance, together with one or more payments in respect of council tax or utilities, for example. Such arrangements are indicative of Homeshare organisations.
The amendments will therefore ensure that excluded licences that meet the conditions I have just set out are exempt from the tenant fee ban. I hope that my noble friend Lady Barran will agree that these amendments address the concerns she raised in Committee and that this achieves our shared ambition—one we can all surely support—which is that organisations such as Homeshare can continue doing their fantastic work well into the future.
Lord Shipley
My Lords, the Minister referred to what I said at Second Reading and he is entirely right. I welcome Amendments 3 and 4. They are hugely helpful because they give local housing authorities the flexibility they need to do their job properly, and for that reason they have our support.
Lord Beecham (Lab)
My Lords, I join the noble Lord, Lord Shipley, in supporting these government amendments. It certainly is an important function for local authorities. I have to confess—and I refer to my interest as a sitting local councillor—that I am not entirely sure where the funding for this comes from. Do the Government support this financially, or is it left entirely to local authorities? In the latter event, will he look into the extent to which authorities are financing this important element of support for tenants? We certainly support both amendments.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Lords, Lord Beecham and Lord Shipley, for their support. I will write to the noble Lord, Lord Beecham, but I suspect that this money comes from local authorities—although of course it finds its way from successive Governments. I suspect that this is part of their functions, but I will certainly cover that in a letter, if I may. The noble Lord never misses an opportunity to focus on an issue such as this, and I will be very pleased to respond to him.
“(10) The reference in subsection (9)(b) to a person does not include—(a) a local housing authority within the meaning of the Housing Act 1985 (see section 1 of that Act),(b) the Greater London Authority, or(c) a person acting on behalf of an authority within paragraph (a) or the Greater London Authority.”
Lord Bourne of Aberystwyth
My Lords, Amendments 14, 15, 45 to 48, 61 to 65 and 67 to 70 in my name relate to the treatment of holding deposits. I have been sympathetic to some of the arguments put forward by noble Lords on holding deposits, and I agree that more action is needed to address these issues. I propose to do that in the Bill, rather than in guidance or regulations, to improve transparency and enforcement.
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.