Tenant Fees Bill (First sitting)

Chris Philp Excerpts

Committee Debate: 1st sitting: House of Commons
Tuesday 5th June 2018 Public Bill Committees

[The Chair]

The trouble with these sittings is that we could go on forever, because it is so interesting and it helps the Committee enormously, but a number of Members want to ask questions, so I will move us on.

[Chris Philp (Croydon South) (Con)]

Q I would like to pick up on the question of conflict, which David Cox brought up at the beginning. Is it not the case, Mr Cox, that in most regulated industries, such as financial services, it is already unlawful for a professional service provider to charge both sides of the transaction, which in this case means both the tenant and the landlord? The reason that in regulated activity such as financial services it is unlawful to charge both sides of the transaction is that it creates a conflict of interest. Is it not therefore appropriate, Mr Cox, that under the Bill agents should charge only one side of the transaction—the landlord—because that will eliminate the conflict of interest?

David Cox: I am afraid that, not having worked in those industries, I do not know. I will take your word for it. I do not think it creates a conflict of interest. It is why we have a lot of the systems in place that already exist—to a certain extent to take the agent out of those conflict of interest issues. For example, before the Housing Act 2004, tenancy deposit protection was only voluntary. Our organisations required our members to put the moneys in a deposit protection scheme. The Housing Act 2004 put that into law, and that cleaned up the deposit protection and deposit market completely because it takes the agent and landlord out of those conflict situations.

Particularly, when I talk about being the servant of two masters, it comes down to things that Adam has mentioned in the default fees. If the agent is managing the property and the tenant locks themselves out at 2 o’clock in the morning, they phone the agent. An agent who is not providing a service to the tenant is unlikely to get out of bed at 2 am, drive to the office, pick up the keys, drive to the property, let the tenant in, drive back to the office, drop off the keys, drive back home and go to bed again. At that point, is it a conflict of interest or a service purely for the tenant?

[Chris Philp]

Q Would not that be allowed as a default fee under the Bill?

David Cox: That is certainly what we are arguing, and what we are hoping for, but I do have to factor in those sorts of situations.

[Chris Philp]

Q I will come on to default fees in just a moment. In your earlier evidence you mentioned that one of the services paid for by the tenant was to provide the best tenant for the landlord, but there is clearly a conflict there. From a landlord’s perspective, they want the most creditworthy tenant, but any individual tenant just wants to get the house. There is an inherent conflict there, and to represent both sides of that is misleading. I put it to you that this legislation clears up that conflict by making it clear that the agent is acting for the landlord.

David Cox: I think we have to factor in what would happen if a tenant took a property that they could not afford. Government statistics already suggest that now that the private rented sector is larger than the social sector, the largest cause of homelessness is ending an assured shorthold tenancy. That makes sense now that the private sector has overtaken the social sector. Tenants regularly have eyes larger than their pockets—I cannot find a better way of saying that—and they will try to take a tenancy that they simply cannot afford. The agent is there to say, “You can’t afford this tenancy. If you want to move in you are going to dig yourself into massive debt, and you will end up getting evicted. This is not the right property for you.” They will then say, “However, we’ve got all these other properties.” When the ban comes into force, it is unlikely that people will even get to that point. We are expecting pre-viewing vetting to start taking place, so that agents, with the best will in the world, do not waste hours every day going on viewings with tenants who cannot afford the property.

[Chris Philp]

Q That is fine because it will not waste the tenant’s time either.

David Cox: But it is the tenants who want the properties. The agent is serving the tenant.

[Chris Philp]

Q But you are saying that they cannot afford those properties, so it will avoid tenants wasting their time. Let me move on to your other point. You suggested that in 2012 rents in Scotland went up, whereas in the rest of the UK they were flat or very slightly down, and you sought to ascribe that to the changes in fee arrangements. Are you potentially confusing coincidence with causality? The first thing you get taught when you study science is that correlation is not the same as causality.

David Cox: I have no evidence to create a direct link, but it was the only major change in legislation between the two nations that year.

[Chris Philp]

Q I am interested that you have conceded you have no direct evidence—that is a very important admission. I suggest one reason might be that whereas average incomes in England and Scotland are broadly similar, average rental prices in England are about 50% higher, so that relative move you described simply closes a very small part—about one tenth—of the relative differential between those two nations. You said you do not have any direct evidence, which is a very helpful admission.

Before I turn to your comments on referencing, Mr Hyslop, let me commend you on setting up such an effective and efficient business. It has clearly grown very quickly and I was impressed by what you said about the way your company operates and the low costs that you have managed to deliver to both tenants and landlords. Congratulations on innovating in that way. As a former entrepreneur, I strongly endorse what you have done.

Adam Hyslop: Thank you.

[Chris Philp]

On your question about misleading information, you gave examples of information that is clearly misleading, such as a mis-stated salary. You went on to give examples of things that are less clear, such as a poor credit score or employer reference. Is the point that the prospective tenant will not have made a representation or statement about their credit score or their employer’s reference, so they will not be guilty of having given misleading information? They will not say, “My Experian credit score is at least 800,” so they will not get caught by the clause because they will not have provided misleading information?

Adam Hyslop: My point is that this can fall on either side. Sometimes a tenant who applied in good faith might lose their holding deposit, and other times a landlord who accepted an application in good faith might not be able to retain a holding deposit. The example you have given is one that would disadvantage the landlord because they cannot charge for referencing. Essentially, you would have an asymmetry of information. The tenant knows their own situation far better than the landlord. Indeed, the purpose of referencing is to close that gap.

A tenant might not know their exact Experian score, but they will have a good sense of whether they might pass this referencing—or at least a better sense than the landlord. In the case you described, you might have a situation where a tenant does not think they can afford the property but they might be in a desperate situation so they will apply anyway, knowing that, because they never stated their precise credit rating or anything like that on the form, if the landlord later discovers the tenant is not suitable, the landlord is obliged to refund the entire holding deposit. The landlord is out of pocket by the cost of referencing and however many days the property was held off the market. That is a case where the disadvantage is to the landlord, and I think the remedy is the same: the referencing fee should be permitted to a reasonable level at cost.

[Chris Philp]

Q Are you suggesting £20?

Adam Hyslop: That is about the market price. You can pay more than that; you can pay a bit less.

[The Chair]

I am going to have to cut you short on that. I am conscious that I promised the Minister to allow him in before the end.