Tenant Fees Bill

Debate between Earl of Lytton and Baroness Grender

Report stage (Hansard): House of Lords
Tuesday 11th December 2018 Lords Chamber

[The Earl of Lytton]

My Lords, I beg to differ slightly from the conclusions of the noble Lord, Lord Shipley, although I well understand that this involves a cash-flow issue for tenants. I pay tribute to the noble Baroness, Lady Gardner, for bringing us back to this set of amendments. The Minister himself defended the Government’s long-standing line that a six-week deposit was fair. However, as the noble Lord, Lord Flight, said, we seem to have moved away from that without apparent pause for breath.

I declare a non-interest here, as I do not charge deposits for tenants and have not done for a number of years due to special personal circumstances. The industry standard has been six weeks for a considerable time. In my part of Sussex, six weeks’ rent represents a figure between £1,200 and £1,800 in general terms. That does not go a long way if, in addition to non-payment of rent—bear in mind that defaults tend to have many heads—the tenant also leaves the property in a damaged condition, including damage to carpeting, kitchen units and electrical wiring.

Given that situation, can the Minister explain why it is now five weeks? If you strip out non-payment of the last month’s rent, under this proposal you are left with a single week’s rent to cover any other form of loss. Does that represent a fair balance? I am not sure that it does.

[Baroness Grender (LD)]

Perhaps I may ask for clarification: are we now talking about five weeks, or about default?

--- Later in debate ---

[Baroness Grender]

My Lords, there is an expression about having your cake and eating it, and this is my attempt to get a little extra icing on the top. It is a modest amendment which would ensure a £50 cap when there is a change of tenancy and the sharers recruit the new tenant. I wrote to the Minister yesterday to explain my rationale for this. In Committee, we attempted to change a bit more with regard to this cap, which is a floor rather than a ceiling at the moment; we would like it to be a ceiling rather than a floor. But I have now pared it down to have one single purpose.

In a home of multiple occupation—HMO—where people are sharing, when one of the tenants drops out and a new person comes in, they will be charged a sum. Let me give you an example from Generation Rent:

“Each tenant swap included a massive fee for a new tenant of £250”.


To us that may sound modest, but when young people are sharing and counting the pennies, it is a heck of a lot. The case study continues,

“hence making it difficult for us to find people to move in. We had to do everything, advertise and do 9 interviews”.

Students were not accepted,

“as they did not fulfil agent’s criteria to move in unless they have a UK based guarantor”.

The fee of £250,

“did not even include a reference check of £90”,

or £180 with a guarantor. The case study concludes the fees were,

“£430 in total for a new sharer”.

The sharers do the vast majority of the work—people do not want to share with someone they know nothing about, without checking them out, and checking they can pay the rent—and then have to pay for the pleasure of it. This is a tiny, modest amendment, but it recognises that when people share a place and they do the donkey work, there should be a £50 cap on the charge for the change in sharer.

[The Earl of Lytton]

My Lords, the noble Baroness, Lady Grender, may be pleasantly surprised by the fact that I agree with the vast majority of what she says. She does not need to express too much surprise. However, she will need to define the term “suitable” further. To give her a clue, in commercial landlord and tenant agreements, there is very often an assignment, or something similar, and there is usually a formula of words about an incoming tenant or the assignee being of no lesser standing legally than the outgoing tenant. There will need to be some formula of words there.

The noble Baroness is absolutely right about this issue. I support her on the principle of this because I have children who have rented accommodation in London and I know exactly what goes on, so I can relate to it. But we need a formula that can be defined in law and determined in some way. It should be determined pretty promptly; it is no good if this goes into some sort of arbitration situation for weeks on end. These things need to be sorted out quickly in the interests of everybody.

That is the only reservation I have: the term “suitable” needs better clarification and definition. The question of suitability to whom and in whose eyes needs to be capable of some sort of resolution.

Tenant Fees Bill

Debate between Earl of Lytton and Baroness Grender

Monday 5th November 2018 Grand Committee

[The Earl of Lytton (CB)]

My Lords, as I have not spoken at all on this Bill, perhaps it is right that I declare my interests. I do not in principle have an objection to quite a lot of what is in it. My interest is as a private rented sector landlord, but my involvement with the sector from when I was renting property in London as a student to the present day spans more than 50 years. For part of that, I have been involved professionally with the management and letting of residential property on behalf of others.

I share noble Lords’ views that we should make sure not only that we do not have bad landlords but that we do not encourage bad tenants. My principled objection to this Bill, if I have any, is that it does not provide that balance. It is entirely about the effects on landlords, not on controlling the activities of tenants. As with much legislation, the mechanisms chosen tend to be extremely blunt instruments. We are dealing with high levels of disparity across the country, including some acute hot spots in London. I know that that is the case there—one of my children is just finishing renting a property with others and has been renting for some time—as against, say, in the West Country, where I also have an interest. There, it is quite difficult to find a tenant in some instances. This legislation needs to cover the entire spectrum.

I will limit my comments during the debate on this part of the Bill to areas where I feel that amendments either would not have the intended effect or highlight aspects of the Bill that should be the subject of further consideration. On Amendment 1, I simply say to the noble Baroness, Lady Grender, that tenants can, and do, take things to the wire as far as landlords are concerned. By then, much of the work to check them out and make the arrangements of the tenancy has already been done, at which point they can walk. There is no contractual bond. As I understand it, the holding fee is to secure the tenancy, rather in the same way, I suppose, as asking a shopkeeper to reserve an item in their shop window. The only difficulty is that the fee given rise to by part of the activity has already been incurred.

The noble Lord, Lord Kennedy, mentioned that. It is not so much a question of whether a fee is charged but whether the fee is reasonable. The geometry of the Bill says that the fees are, in principle, unreasonable. That is how it comes across to me and, I think, to many other people. In passing, I have read briefings from Shelter and Citizens Advice but I have not received or read a briefing by ARLA or any other body representing landlords’ interests, so my views at this juncture are entirely my own, based on my experience.

The noble Baroness gave the example of where somebody, for perfectly understandable health reasons, feels that they cannot go ahead so the entire consortium of renters falls apart. I understand that because it has happened to my offspring, but I ask myself whether it is the landlord’s fault, or that of their agent, that circumstances have given rise to that situation and an inability to proceed.

[Baroness Grender]

In this case, it is not a question of fault. The tenants have offered to pay the cost of the reference checks but they want the remainder of the holding deposit back. I suggest that in previous instances, agencies might have been more flexible; I think they are getting slightly less so. I cannot talk about the specifics of this case, obviously, but there is less flexibility on holding deposits at the moment. There is no opposition from the amendments to the fact that a holding deposit is a good thing; the question is whether there is clarity and transparency when it is not returned. That is the issue.

[The Earl of Lytton]

I accept entirely what the noble Baroness said; I am glad that we are probably much more ad idem in our approaches than I had thought from her earlier comments.

There must be some process for identifying what is a reasonable cost. I am not close to open-market lettings any more—I used to be—so I do not know precisely what goes into drawing up the agreement, checking references, doing credit checks or establishing from some government department whether somebody is entitled to be in the country or to rent property, but there are probably costs beyond the simple act of picking up the phone and checking a reference.

My fear—here I address my comments to the Minister—goes back my point about legislation being a blunt instrument. Unless things are reasonably black and white, administratively you are dealing with myriad shades of grey and trying to work out which point on the spectrum is the right one. The Bill does not contain an adjudication provision. I have pointed out, in a memo to the Minister, a suggestion that I think came originally from the noble Lord, Lord Beecham, who is not here today, which had some merit. The only provision is a fine and an appeal to the First-tier Tribunal if the imposition of that fine is disagreed with. There is no other surefire, reasonably cheap and cheerful adjudication provision. Were that to be put in place by a one-liner and means could be found to fund that in the same way as some other things are dealt with, a number of these things would disappear by virtue of there being that fallback. But so long as there is not, it is more like the law of the jungle.

Turning to Amendment 18, I did a little calculation and worked out that a rent of £5,000 per calendar month would produce a holding deposit of £493 and one of £800 per calendar month would produce one of £78 under the three-day provision. That £78 is much nearer the sort of figure you might get outside the larger and more hotly contested metropolitan areas, and seems quite a slight amount of money. As I have said, tenants could take the matter to the wire and walk away knowingly having run up costs. But landlords might be unlikely to offer premises on the same basis as before the Bill came into force and might simply not undertake to retain via a holding deposit at all, in the same way as some landlords have decided that the whole business of holding rental deposits has got too difficult, and do not hold deposits but make exhaustive checks on the nature and attributes of their proposed tenants. This means that the better parts of the market—the better landlords, perhaps with better properties, looking for the better tenants—occupy one part of the space and the rest are in the same difficulties as before. The people who might be in difficulty are those who really need to get into rented accommodation because they stand no chance of getting a mortgage. This is why this sector is so important. I worry that tenants at that end of the spectrum—I will not call it the bottom end: the less well financially appointed end—will suffer more. That would be a mistake.

However, I said I was not here to cause trouble. I have just outlined some of the things associated with this group of amendments that may have long-term consequences contrary to those that the tablers suggest they ought to have. Apart from that, I shall not resist whatever the Minister may feel, in his wisdom, is appropriate here, given what I have said.

--- Later in debate ---

[Baroness Grender]

Amendment 23 takes us to the default payments issue, which, as the Minister is aware, we have discussed in considerable detail. And I am sure we are about to discuss it in considerable detail again. In summary, Amendment 23 removes the provision that would allow default payments, and in Amendment 24 we explore the option that prohibited default payments should be included in the Bill.

We welcome the greater transparency as a result of proceedings in the Commons, but still argue that this is unnecessary and that current legislation will cover all worst-case scenarios. We have had quite a debate about whether or not there could be anything other than a lost key or security device, or the late payment of interest. I have gone to great lengths to consider as many scenarios as possible to get us beyond a lost key or security device or the late payment of interest.

Imagine the following scenario: a decent landlord or a decent, fully accredited lettings agency running a block of 10 flats. Nine of the households are good, law-abiding tenants but one tenant is a problem. They park their car in front of the fire escape, and the lettings agency has to move it, and they leave rubbish and old food to mould on the carpets in common parts, incurring a cost to the lettings agency. Here, I am trying to imagine as much as possible beyond what seems to me to be a very small cost—such as a lost key—which could be borne by the landlord, but I will come on to that.

If we remove default fees from the Bill then the following will happen. First, if an agent incurs costs for these actions, they would be able to recharge these to the landlord immediately. The landlord could then recover the costs via the deposit, provided they could show evidence that the tenant had caused the damage, and evidence of the additional cost and the reasonable costs incurred. Secondly, if a landlord incurs these costs, the landlord would incur the cost initially and then recover this via the deposit at the end of the tenancy. Again, they would need to be able to provide evidence to the Deposit Protection Scheme that the tenant had caused the damage and of the reasonable costs incurred as a result. If this results in the landlord or agent incurring vast costs as a result of the tenant’s actions—although we have very little evidence to that effect so far, and the Minister would agree that we do not yet know about this—the landlord could use a Section 8 notice to evict the tenant for breaching the terms of their tenancy agreement for damage to the property or even potentially for being involved in antisocial behaviour. I fully recognise that landlords have concerns about the court system and that there are frustrations over the current Section 8 process, but that is not something that this Bill is expected to fix. We welcome the fact that the housing call for evidence announced by James Brokenshire is taking place.

It is important to remember that in the current draft of the Bill, default fees must be written into the tenancy agreement in advance if they are to be permitted. It is quite unlikely that the potential breaches I have described—or have tried to imagine on behalf of noble Lords—would be written into the tenancy agreement with an associated fee for breaching them. Therefore there is no guarantee that a landlord or an agent would be able to charge a default fee for these offences anyway. This scenario is about compensation, damages and losses caused to the landlord or the agency by the tenant’s misbehaviour. A no fees clause could fairly cover that situation as the amount of the loss has to be assessed according to the facts of each case.

There might be a way for these defaults to be written into a tenancy agreement, but that is likely to be part of a broad catch-all term such as, “You will be charged the reasonable cost to the landlord or letting agent for failing to act in a tenant-like manner in relation to common parts of the building”. But including default fees in this way is unfair because it is difficult for a tenant to assess what is expected of them. It would be better for these sorts of charges to come from the deposit where there is independent arbitration. Such a catch-all clause would also be an unfair contract term under the Consumer Rights Act 2015 because it purports to give the landlord a power to charge costs for damages without any control or adjudication by a court or an alternative dispute resolution scheme.

Overall, even if default fees were allowed, they would never be a remedy for these scenarios anyway. These examples are about damages claims and, if serious enough, they will become the basis for possession claims as well as money claims. If we remove default fees and rely on deposits, does that become an unbearable cost to the agency or landlord with too long a gap because a deposit can be recouped only when there is a change of tenancy? It could be argued that there is some tension between putting all defaults through the deposit system on the one hand while on the other hand encouraging longer tenancies than the usual six or 12-month assured shorthold tenancies. We think that there are a couple of strong arguments against this.

First, the aim of the Bill is not to encourage longer tenancies, but about ensuring fairness in the lettings market and making sure that tenants are protected from unfair charges. Ensuring that landlords can charge tenants for additional costs they incur during the tenancy, as opposed to waiting until the end of the tenancy to recover such costs from the deposit, is not an effective way of giving renters more security. If the Government genuinely want to ensure that renters are given more security, they need to change the law to give them longer tenancies. I am delighted that they are looking into that.

Secondly, most of these costs, such as replacing a key or the interest due on late rent, are small ones that a landlord should be able to cover for the duration of the time the tenant lives in the property. If the costs are so high that a landlord feels the need to end the tenancy so that they can recover them from the deposit, it is likely that this will stray into the territory where the landlord will have a ground for possession of the property. In those circumstances, the landlord is likely to want the tenancy to end as soon as possible. I go back to my scenario of the 10 flats. Even if landlords charge for these defaults during the tenancy, they will probably be keen for the tenancy to end as soon as possible if the tenant is causing them to incur such high costs. It seems unlikely that they would renew the tenancy when the initial fixed term comes to an end or continue with the statutory periodic tenancy.

With smaller costs, we see it as appropriate that a landlord should absorb them or a letting agent should charge them to the landlord as a business cost. This is particularly relevant to my example of 10 flats as the landlord will have nine other reliable streams of income which should allow for some short-term absorption of costs before recovering them from the deposit. This brings me back to the point already raised: why is this section necessary when Section 213 of the Housing Act 2004 and possession under Section 8 of the Housing Act 1988 already exist? In Scotland there is no default fee. On Shelter Scotland’s website it says:

“Legislation explicitly prohibits charging a tenant for drawing up a lease or requiring a ‘premium’ for the granting or renewal of an assured or short assured tenancy. See section 82 of the Rent (Scotland) Act 1984—applied to assured tenancies by section 27 of the Housing (Scotland) Act 1988. Section 90 of the 1984 Act defines a ‘premium’ as ‘any fine, sum or pecuniary consideration, other than the rent, and includes any service or administration fee or charge’”.


The more I look at this, the more I am tempted to believe that this is merely a compensation device for an industry that has had fair warning for years and has simply failed to be ahead of the legislation—with significant exceptions. I have already mentioned OpenRent, which started in 2012 and is now the largest lettings agency in England and Wales. It says:

“We’re against any back-door tactics or loopholes that agents/landlord could use to continue charging tenants huge fees when letting properties. Tying any payable default fees to specific costs that the agent/landlord incurs, and also requiring evidence (e.g. receipts) was a crucial move and we are glad the Government made this provision last month. We’d like this to be as strong as possible, i.e. to be statutory instead of merely being guidance. Charging more than the true cost of a default is clearly a fee and against the spirit of ‘banning tenant fees’. Our Assured Shorthold Tenancy is used in thousands of tenancies in England and Wales and it doesn’t include any default fees, including late payment fees”.


So it is possible to provide a good, responsible service, make a profit, and not charge any default fees at all.

I applaud the Government for changing their mind and banning letting fees but this Bill is here and now. This is the moment to end the loopholes that have always been exploited—to the cost of the family on a low income, the young person saving to one day own their own home or the older person who rents. Default clauses will end up being something like, “Maintain the garden”, with no clear indication of who judges that, or, “Take your shoes off in the property”, violating a tenant’s right to peaceful enjoyment and to wear whatever they like on their feet. In a worst-case scenario, it might be requiring a tenant in a poorly insulated, damp building to prevent mould through heating and keeping the windows open or to pay £100 per room to repaint mouldy rooms. It then becomes a moral question, not to mention a paternalistic one, about letting agents presuming that tenants are unable to keep a home in good condition without the threat of penalties.

All these issues can be judged fairly through the current tenancy deposit route, which has independent arbitration outside the courts. Tenants are much more able to challenge and get a fair ruling on deposit deductions than they would be on contractual default fees, which they may not understand or know how to challenge. Default is too much of a loophole. It will become a judgment call, and those who can be exploited the most will be protected the least. I thank noble Lords for bearing with me on all these arguments. I beg to move.

[The Earl of Lytton]

My Lords, I am grateful to the noble Baroness, Lady Grender, for raising this. I wondered slightly about the procedure of deletion and adding in, but I will leave that to others. I will touch on one or two things.

We must start from the standpoint that under the terms of a lease, a tenant is provided with exclusive possession of and control over the property of their landlord within the terms of the lease. It is perfectly possible for tenants to do a lot of damage in a short period of time. Mercifully, very few of them do, but the occasional one does, because they are ignorant, because they have strange lifestyles, or for whatever reason. I thought, when I looked at this part of Schedule 1, that the default, defined as performing an obligation or discharge of a liability, was probably too wide. It did not surprise me that the noble Baroness has picked up on that. To that extent, she has a point. First, the landlord absolutely must substantiate the amount in question. The noble Baroness would introduce the concept of fair condition, then limit fair condition to two items. She has explained that, but I can think of eight or 10 others that I could add to the mix, all of which could objectively be seen as fair conditions of properly occupying and generally looking after the premises by a tenant.