Tenant Fees Bill (First sitting)

James Frith Excerpts

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

[Mr Robert Goodwill (Scarborough and Whitby) (Con)]

May I draw attention to my entry in the Register of Members’ Financial Interests. I have eight residential properties and three commercial properties, for none of which, however, we charge deposits or use letting agents.

[James Frith (Bury North) (Lab)]

I draw attention to my entry in the Register of Members’ Financial Interests. I have one property of which I am a landlord.

[Richard Graham (Gloucester) (Con)]

I draw attention to my declaration in the Register of Members’ Financial Interests. My wife and I have recently become landlords of a property.

--- Later in debate ---

[The Chair]

A number of Members are trying to catch my eye, so with the Minister’s permission, I shall hold him to the end.

[James Frith]

Q This is very interesting. In the contributions we have the new and future economic model in this industry, and the old economic model. One is protecting the status quo and one is saying, “This direction will be fine.” Adam, will you just talk us through—whatever you feel comfortable with—your growth as a business in recent years, including any employment opportunity growth that you have provided by virtue of these 70,000 properties last year, please?

Adam Hyslop: Sure. At a high level, those are the numbers, so we are taking significant market share. What is really interesting is that I do not see our business pitched against the status quo of the high street. Actually, 50% of landlords do not use an estate agent. What we try to do is to provide—our watchword—accessibility, which is in terms of not only ease of use but cost.

David is not quite correct about the service that we provide. We do not provide a fully managed service—25% of landlords use a fully managed service, in which they do not want to meet the tenants and they want a professional to handle the interaction. We do not serve that 25% of the market. We do serve the 75%, which is the 25% of people who use an agent for tenant finding and the 50% of people who effectively do everything themselves. What we try to do is to make that accessible, so for £50 we will do everything from taking that holding deposit to referencing, contracts, deposit protection, first month’s rent collection and things like that.

What we are actually doing is professionalising the 50% of the industry who do not currently use a high street letting agent. We believe the only reason they do not use a high street letting agent is cost. We think that, by doing that for £50 rather than the average fee of over £1,000 a year, we provide huge accessibility. In terms of our high-level growth, those landlords are coming from the DIY sector and obviously we are taking share from the high street as well.

In terms of actual gross employment, I do not really like the word “disruption” to describe what we are doing. There is a lot of good practice in the industry already. A lot of our processes layer technology on to that, but we are not trying to tear up the rule book and pretend that we can do something better than what is already in the Housing Act or, say, the property ombudsman code. Those are ways of working that are really important to protect consumer rights. What we think we can do is put those things in place in a very systematic way and provide access to those services to the entire market, so that basically every landlord and tenant has access to a professional tenancy creation service. By having the holding deposit placed in a sensible way, having money held in a client money account and having a professionally drafted tenancy agreement, we provide a huge consumer benefit across the industry—on both sides, actually.

[James Frith]

Q And to answer the question?

Adam Hyslop: Sorry, I meant to loop back to the question. We are not really disrupting in the sense of eliminating employment or anything like that—that is one of the myths here. Actually, most of the suppliers that we use are those used by high street agents anyway. We have a large contract with a referencing company, which does all our tenant referencing. We contract gas engineers, inventory clerks, photographers—all those different services—across the industry.

[James Frith]

Q How many people does your business employ itself?

Adam Hyslop: It employs 15 people.

[James Frith]

Q Has that grown significantly in recent times, or is that a core rump of people you have kept?

Adam Hyslop: The idea—this is no secret in the industry—is that it is possible to have good practice in the industry in terms of following a professional tenancy creation process, but to use technology to make that something that does not need lots of phone calls and interaction in between. That is one of the main insights that keeps our core headcount low. Yes, we have far fewer people working on administering holding deposits and administering contract drafting, for instance, simply because we have the technological systems and processes in place to manage those.

[James Frith]

Q Mr Cox and Ms Thomson, I take it on board that Adam is saying his business is not actually hugely disruptive. It sounds pretty disruptive in terms of some of its transformative impact and the market share he is taking from the high street, but I am assured that he uses existing networks, contractors and professionals in the sector. How are you catching up with that way of working to improve accessibility? It feels like there is an equalising quality to Adam—he is saving money for the landlord and for the tenants. Are you just behind the curve on this?

David Cox: I am afraid I would disagree. I would not characterise it in the same way at all. It is a different type of service. We have to factor in the fact that the places most tenants, buyers, sellers and landlords go to look for their properties are Rightmove and Zoopla—the big properly portals. An individual landlord renting out a property on their own cannot access Rightmove and Zoopla. Therefore, services like Adam’s, which are entirely necessary in the market, act as the entry point into Rightmove and Zoopla so that those landlords who want to self-manage and want to be able to advertise their properties on Rightmove and Zoopla can do so. That is why Adam is able to charge much lower fees. The middle service is £29 to a landlord and £20 to a tenant. A couple renting a one-bedroom property, if they reference through Adam, will actually end up paying more than the landlord. That is not the case with the traditional agencies, where the landlord always pays significantly more—around £1,000, as Adam points out.

You asked specifically about the number of people employed for those 70,000 tenancies. I can think of only one large corporate agency off the top of my head for which I know the statistics, but I know that one of the three large corporate agencies manages 60,000 properties and employs 7,000 people to do that. That is about much greater interaction on the ground on a day-to-day basis during the tenancy. I suppose the question is what we want a letting agent to do in the future. Are the Government saying that a letting agent is like a sales agent, to a certain extent? Once you hand over the keys in a sales transaction, the estate agent’s role is finished. Someone has bought the house, and they move on to the next property. In a lettings transaction, once you hand over the keys that is just the start of your relationship with the tenant. If the letting agent is managing the property they are there to help landlord and tenant throughout the entire process of the tenancy. It is a much longer term.

[James Frith]

Q In your opening contribution you talked about serving two masters. I would say that the premise of that is inaccurate. The tenant has no choice as to who the agent of their property is. The landlord instructs as the client. That relationship does not change ever, at all. The decision maker remains the landlord. A relationship might be involved; you may well have more involvement with the tenants than the landlord, but the landlord is the decision maker here, and therefore I would challenge the very premise by which you are protecting this status quo. I do not believe that the tenants hold an equal relationship.

Isobel Thomson: I do not think we are comparing like with like. I think Adam Hyslop’s service, which is obviously really good, is meeting a need for a certain part of the market; but I feel that lettings is a people business. It is the letting agent who mediates between the tenant and the landlord, so when the tenant fails the reference and something comes out of the woodwork the agent sits down with the tenant and often says, “Okay, well look, I understand you had that five years ago; I will have a word with the landlord.” It is that interface and activity that the agent is offering.

Also, for example, for housing benefit tenants, a mechanical, online technological system is not necessarily going to give that type of tenant access to the private rented sector, whereas the agent who sits down with the tenant, talks it through and presents the case to the landlord often facilitates that. It is not old-fashioned; it is a need.

[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.

Tenant Fees Bill (Second sitting)

James Frith Excerpts

Committee Debate: 2nd sitting: House of Commons
Thursday 7th June 2018 Public Bill Committees

[Neil O'Brien]

Q Just to push you a little on that, in quite a lot of other industries you do pay for the time. For example, if you get a parking charge you will get charged for all the associated legal stuff if you have bailiffs enforced against you. In lots of other industries you do get charged for the time. I wonder how you see your proposal being interpreted. Would it be for the courts to decide what is reasonable, eventually, or would you want a defined list?

Rhea Newman: In regulations we would like a defined list of the types of fees that can be charged. In terms of what comes down to reasonableness, it might be difficult for that to be set out in regulations. I guess there are already some protections in the Consumer Rights Act around what is considered fair or unfair. I think reasonableness is about what a reasonable person would expect to pay in those circumstances, which is the cost the landlord actually incurs.

It is the combination of the reasonableness with the evidence. The landlord sets out the evidence and shows what the costs are. The tenant can then look at that, potentially get some advice, and challenge it. The problem is that by just saying that it is limited to a landlord’s loss, landlords could try to put lots of extra things in there. We have been asking some of our supporters and staff about things that they are potentially charged for at the end of a tenancy. For replacing items such as a dustpan and brush you could be charged £45 because an initial procurement fee was put on to it as well. That is the kind of thing that we are trying to guard against.

[James Frith (Bury North) (Lab)]

Q This has slightly been touched on, but does Citizens Advice, or anyone else who wants to answer this, have an example of landlords taking the mick when it comes to default fees and incidental fees? We have discussed the loss of keys, but there is some concern about incidental fees, as well as the range of fees that are applied, being increased as an opportunity to recoup some of the earnings that agents or landlords might be losing. Are there any examples of that?

Katie Martin: I am sure our advisers see examples of that every day. I am afraid I do not have any off the top of my head—I do not know whether other panellists do. We know that many tenants are being exploited by landlords. Not all of them—many landlords are totally fair and reasonable, but some are not, and we think that the legislation should prevent those unscrupulous landlords from being able to take advantage of tenants. I do not have examples off the top of my head.

Rhea Newman: I was going to pick up on a point that was made earlier. Garden maintenance could be quite a good example: what is expected of a tenant in terms of maintaining a garden? If you give landlords and agents the potential to do so, some—it is only some—might attempt to write in quite creative things that put unfair expectations on a tenant, and then charge them for not meeting them.

The existing examples we see that we are particularly worried about are the letters to chase late rent as well as emails, phone calls and so on. If they are charged at, say, £60 a time and there is no limit on how often a landlord or agent can send those letters or emails, that might be considered an unfair term in the Consumer Rights Act, but as we have said, it is actually quite difficult for a tenant to challenge that. That is why we think there need to be clear provisions up front about what is chargeable and what is reasonable.

Dan Wilson Craw: We have a couple of examples. We asked our supporters for examples like this and someone was required by their landlord to have their chimney swept once a year even though their fireplace was completely out of action.

There was another whose landlord would not fix a broken extractor fan in the bathroom, so the bathroom got very damp. By the end of the tenancy, one of the cabinets had got water damage, so the landlord tried to claim for that. The tenant successfully argued that that was the landlord’s fault because of the extractor fan, and he was awarded his deposit back. But the point a lot of our supporters made was that in these cases they knew their rights and knew that they were in the right, but they felt that a lot of tenants in a similar situation would not have the confidence to take on the landlord, or perhaps could not have a deposit just held in escrow for months on end while that gets resolved.

Katie Martin: In terms of transparency, it is required that any of these incidental fees default fields are written into the contract, but we know from our research that a quarter of tenants receive their contract on the day they are moving. So they have already paid the deposit and committed without having seen the contract. We think that is far too late for those things to be made clear to them.

Rhea Newman: It is also potentially very difficult to identify charges in a contract, depending on how they are written in, and it is very difficult to negotiate. That is a really good point about when you receive the contract, but even if you received it earlier, if you want a particular property and you know that queues of tenants are trying to get it, you are in a very weak bargaining position.

[James Frith]

Q My other question is about whether holding deposits are needed. You raise an interesting point, Katie, that essentially the landlord and agents feel assured that the tenant is moving in because they have paid a holding deposit, but then they do not follow up with their own obligations and issue a contract on time. Is that what you are saying?

Katie Martin: I am saying that they do not see the contract. I am not sure about the exact requirement for when they are supposed to see it, but we know that in reality they do not see it until the point when, as I say, it is too late to challenge.

We do think there is a role for holding deposits, but we think they should be limited. We also think that the terms on which they should be refunded should be really clear. It should only be in the case of misinformation—

[James Frith]

Q So the holding deposit coming off or being the first month’s rent is the scenario for getting it back.

Katie Martin: The holding deposit is separate from the deposit that you keep for the course of the tenancy. I think the holding deposit would be capped at a certain amount. It is not something that we have looked at closely.

[James Frith]

Q So you think it should be more commonplace. It is not universal, is it?

Katie Martin: No, indeed.

[James Frith]

You think it should be.

Katie Martin: No. We can see the case for when they might be needed.

[James Frith]

Q But they should be refunded pronto.

Katie Martin: Absolutely, yes.

[Richard Graham (Gloucester) (Con)]

Q Katie Martin, I will ask you a question I wanted to ask our previous witnesses about who the best people are to try to work with tenants when there are issues effectively of breaking the law. We heard from previous witnesses that they had real doubts about vulnerable tenants turning to people such as trading standards and so on for help.

In my experience, quite a lot of tenants will turn to housing departments with questions, particularly on environmental health issues. For example, I have noticed a huge increase in the number of young mothers who go to the city council complaining about mould or damp properties. It is true that those tend to be more for housing associations than for private tenancies, where maybe the tenants feel more secure. However, do you think that if second-tier councils’ housing departments had responsibility for enforcing the measures in this Bill, tenants would be more likely to raise issues with them?

Katie Martin: I think you have hit the nail on the head about people in social housing feeling much more secure. Tenants in the private rented sector hesitate to come forward with complaints because there is a huge fear of retaliation, which is one of the reasons why we think that all of these problems should be pre-empted in the legislation rather than having to be picked up later. People do not feel like they are empowered. They are very worried about what action the landlord might take, such as not renewing their tenancy and all kinds of different things. That is definitely problematic for renters.

Tenant Fees Bill (Third sitting)

James Frith Excerpts

Committee Debate: 3rd sitting: House of Commons
Thursday 7th June 2018 Public Bill Committees

[Melanie Onn]

The hon. Lady’s point that the witnesses had concerns about how holding deposits would be used is exactly why I am raising this matter. The aim of the proposed legislation is to make things fairer and easier for tenants. The suggestion has been that tenants are somehow playing a system or a game—

[James Frith (Bury North) (Lab)]

Spread betting.

[Melanie Onn]

My hon. Friend says “spread betting” from a sedentary position. It does feel as though everyone is hedging their bets on the property of their choice. It seems nonsensical that anybody would have sufficient spare funds available to put down multiple holding deposits and undergo multiple reference checks, which would not work in their favour when it came to their credit scores. It is interesting that we heard something today that we did not hear during the Select Committee’s pre-legislative scrutiny. It was suggested that the situation could be completely reversed, with holding deposits being used unscrupulously by letting agents or with landlords holding all that money for a period of time. That would then set back individual tenants in their search for a property. There absolutely is room for improvement.