Letting Agent Fees (Tenants)

Lord Sharma Excerpts

Wednesday 6th September 2017 Westminster Hall

[The Minister of State, Department for Communities and Local Government (Alok Sharma)]

It is a pleasure to serve under your chairmanship, Mr Owen. I start by declaring an interest: my wife is the owner of a property that is rented out. I congratulate my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) on securing this timely and important debate. It is clear that he has huge knowledge of the sector from many years spent working in it. I think we have had a good and balanced debate in which many colleagues contributed.

A number of colleagues raised the issue of the housing market, and I agree—it is acknowledged in the housing White Paper—that it is broken. It is one of the greatest barriers to progress in Britain, and particularly to social mobility. However, we are making progress. The housing White Paper set out many of the challenges and what we plan to do, and we are moving forward with that. In terms of net additions, there has been growth—perhaps not at the rate that we would like—and we are also supporting expansion of the build to rent sector.

Fundamentally, I think we all agree that building more homes, particularly in the places where people want to live, is incredibly important. Building those homes, however, will take time. In the White Paper we set out important measures to support people with the help they need right now. Helping people now is what we are trying to address in today’s debate. The hon. Member for Lanark and Hamilton East (Angela Crawley) talked about putting tenants first, and I believe that the draft Bill will be about that.

As colleagues have noted, the private rented sector now accounts for 4.5 million households in England. The Government want to see all tenants receiving a good and affordable service from their landlord and letting agents, and transparency about the true cost of renting. The hon. Member for Great Grimsby (Melanie Onn) talked about the fees being charged and increases by agents. We are aware of that, which is why we intend to ban letting fees paid by tenants in England. We believe that a ban will help to deliver a more competitive, more affordable and more transparent lettings market. As we have heard, a ban has not had the negative consequences in Scotland that some suggested it might.

Good letting agents provide a valuable service in ensuring that properties are safe, compliant and professionally managed. The problem is that the letting agent is chosen by the landlord, so tenants can be charged unfair or excessive fees with limited ability to negotiate or opt out. Evidence shows—colleagues have referred to this—that that is a problem right across England. By banning tenant fees, we will enable tenants to see what a given property will cost them in the advertised rent levels without any hidden costs. We believe that will reduce the up-front costs that tenants face when moving home, and ensure that tenants are committing only to properties that they know they can afford.

Colleagues referred to the consultation. We sought views on how the ban should be implemented and enforced during the eight-week public consultation, which closed on 2 June. We hope to publish the outcome of that shortly. We received more than 4,700 responses, which we have been analysing. Given the range of views from across the sector, we feel it is important to ensure that the fee ban is carefully considered. As the hon. Member for Great Grimsby rightly said, we announced the tenants fee Bill in the Queen’s Speech, but we said that we would first publish the Bill in draft, to enable scrutiny of our proposals by Parliament and stakeholders before introducing the legislation.

Under our proposals, tenants will no longer have to pay letting fees, whether they rent through an agent or directly from a landlord. It is important that all tenants be treated equally under the ban. A number of colleagues asked whether rents may rise. Understandably, a key concern is that letting agents will simply revert their fees to landlords, who in turn will pass the cost on to tenants. The Government do not accept that rent levels will necessarily rise as a result of the fee ban, as there is evidence that some agents are charging excessive fees. Indeed, studies have been done on the potential impact on rents, and all of them show that while there may be increases in rents, they would be significantly smaller than the fees tenants are currently being charged. We will keep the impact on rents under review. All agents will need to be up front and clear about their landlord fees to secure business. As a result, the fees charged should be a fairer and more transparent reflection of the services provided.

A number of colleagues raised the issue of capping, which has been suggested as a more proportionate measure. I simply do not believe that a cap would be effective. A series of caps on different types of fees would be harder to understand and enforce.

On credit and reference checks, as raised by my hon. Friend the Member for Thirsk and Malton, I understand that many landlords and agents believe that the cost of a reference check should be met, or partially met, by the tenant. As with other fees, it is the landlord who chooses to engage the services of a referencing agency; that is essential to them being able to operate as a landlord. We believe that the landlord is better placed to negotiate and pay reference fees than tenants. I recognise that some agents and landlords are concerned that they will be at risk if a tenant withdraws from a property despite reference checks having been undertaken. To address that, we propose that holding deposits be exempt from the ban. That will also act as a deterrent to tenants from registering in multiple or unsuitable properties.

Trading standards do an important job of enforcing current regulations in the private rented sector, which can help keep tenants safe and protect them from poor practice. With their local knowledge of the industry, they are the clear choice when it comes to enforcing the ban on letting fees.

I understand the concern about the resources available to trading standards, and the Government are keen to ensure that they are well supported. In the consultation document, we proposed the creation of a lead enforcement authority in the lettings sector, similar to the one that exists in the estate agent sector, to provide guidance and support to enforcement authorities. I should point out that one of the advantages of banning fees outright is that it makes it easier for tenants to understand and enforce the ban themselves.

A number of colleagues have talked about looking at the sector more widely. The ban on tenant fees will be considered in the context of a strategic approach to the private rented sector, and there is scope to introduce wider regulation of letting agents and landlords. However, at present there is not a clear consensus on what kind of regulation is needed. I am interested in considering the various options and proposals put forward by colleagues and friends in the sector, including the proposals of my hon. Friend the Member for Thirsk and Malton. It is worth pointing out—he talked about this—that we intend to make client money protection mandatory for letting agents that handle client money. That will ensure that tenants and landlords enjoy the same consumer protection already in place in comparable industries. My officials are working with key stakeholders on a “How to let” guide that would complement the existing “How to rent” guide, giving landlords a single source of information for rules, regulations and best practice.

Perhaps I might address some of points raised today. Measures in the Housing and Planning Act 2016 tackle rogue landlords. There are penalties of up to £30,000, the database of rogue landlords comes into effect shortly, and banning orders will be implemented in due course. My hon. Friend the Member for Broxbourne (Mr Walker) raised the issue of deposits and what happens in the case of self-letting landlords. All landlords who take a deposit must put it in a protection scheme; that has been the case since April 2007. The hon. Members for Dulwich and West Norwood (Helen Hayes) and, of course, for Great Grimsby, raised issues about longer tenancies. Of course we encourage the offering of longer, family-friendly tenancies of three years or more in build-to-rent schemes, and we have set that out in the White Paper. My hon. Friend the Member for St Ives (Derek Thomas), among others, raised the question of the capping of deposits. Our view is that the cap needs to strike the right balance. As well as affordability for tenants, there is a need for landlords to feel that it is at the appropriate level. We shall continue to engage on that via the draft Bill.

[Mr Charles Walker]

I hate to press the Minister on this, but a self-letting landlord is not required to lodge the deposit with a third party. The requirement is only to insure the deposit. They can keep the cash in their own account and, at the end of the tenancy, deduct money from that cash and challenge the out-of-pocket tenants, who are often university students, to come and get it back. We need to look at that; it is not a perfect situation.

[Alok Sharma]

I know that my hon. Friend cares deeply about that point, which he made with great passion. I should be happy to sit down with him to have that discussion after the debate, perhaps with my officials as well.

There was discussion during the debate of whether certain fees for tenants should be allowed. Our view is clear: all fees on tenants need to be banned. My hon. Friend the Member for Milton Keynes South (Iain Stewart) raised the question of the tenant passport. Of course a ban will not prevent tenants from securing their own references if they want to. Agents and landlords will not be able to require tenants to pay for such a reference check or passport, but tenants can of course choose to procure it. The hon. Member for Lanark and Hamilton East also raised the issue of rent caps. I think the evidence, from the UK and around the world, shows that rent controls lead to fewer properties on the market, and higher rents as a result.

We have had an excellent debate; as I said, we shall publish the outcome of the consultation shortly and there will be an opportunity for colleagues to engage in the draft Bill process, which I hope will result in legislation that as well as being workable will make a difference to tenants’ lives. We believe that the proposed ban on letting fees for tenants is the right approach, and we shall publish the tenant fee Bill in draft form in due course.