Tenant Fees Bill

Lord Best Excerpts

Monday 5th November 2018 Grand Committee

[Lord Best (CB)]

My Lords, I declare my interests as set out in the register, in particular that with my wife I am the owner of rental property managed by letting agents. I thoroughly commended the Bill at Second Reading because it is an excellent piece of work. If we can improve it, that will be all to the good, but even if we leave it as it is I am sure it will be an extremely useful legislative measure.

Three separate issues are at stake in the amendments we have before us. Two directly concern holding deposits and one is about putting material into regulations rather than into guidance. On holding deposits, there is the question of when one would lose one’s holding deposit. I have come across circumstances in which it is quite difficult to determine exactly what is fair and reasonable. When four people are sharing a property, they will all contribute to the rather large holding deposit. If one turns out to have given misinformation about their circumstances, that will enable the agent to say quite properly that all four will be rejected as a group. Will they lose the contribution that each has made to the single large deposit that has been placed, especially if they had no idea that one of the sharers was in that circumstance? Difficult decisions will have to be taken, on which firm guidance will be needed.

The second point concerns the period that can be covered by a holding deposit being three days instead of seven. Again, a blanket figure of one week somewhat needs finessing in the guidance that will follow. A week in the north-east for a single person occupying small premises might be £50, while for four sharers in Fulham a week might be £1,000. Very different sums of money are involved in different parts of the country. The point about finessing elements of the Bill in later guidance is well made by all.

That brings me to whether guidance that ultimately is not in the Bill or in secondary legislation is strong enough. It may be that having regulations that follow through a statutory instrument would be a better way of dealing with the tricky issue of holding deposits, along with other measures that will come before us as we work our way through the Bill. I should like the Minister to explain the down sides to using regulation in the form of a statutory instrument to cover the issue rather than guidance, which, I suspect, could be open to dispute and disagreement. I fully understand that one clear disadvantage of going down the route of using regulations is that if we are to have secondary legislation, it needs to follow the enactment of the Bill before we can get going on the practicalities. That would put back the moment when the very good things in the Bill would begin, so I see that there might be a delay. However, that might be a price worth paying if the Bill is improved in this way. Could the Minister let us know what kind of delay we are talking about and whether there are other down sides to the use of secondary legislation and regulations in place of guidance, which, as I say, may be subject to a good deal of dispute?

[Baroness Gardner of Parkes (Con)]

My Lords, I declare an interest as a landlord. I think one’s week rent is fairly good and clear as a deposit. For some years I have found that some tenants deliberately withhold their final rent so that you do not have a fair amount money at hand to cover whatever damage they have done to the property. Often, the work that has to be done takes every bit of the deposit and more, although sometimes of course it does not—some tenants keep the place beautifully, pay their rent properly and are the tenants everyone wants. However, until tenants are in occupation, you just do not know whether they are good or bad, and I do not think that this provision in the Bill should cut the period to three days. That will leave landlords in a real quandary when people do not pay their last month’s rent—they usually pay monthly rent. It would be a worry if people did not make the last payment. I agree with everything else that other people have said.

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[The Earl of Lytton]

My Lords, I am very pleased that these amendments have been tabled. They enable me to make one or two comments. On Amendment 2 on transferable deposits, moved by the noble Lord, Lord Kennedy, what he has set down might make for an awkward arrangement requiring quite a raft of safeguards so that landlord one can transfer a tenant’s deposit out of their account into the account of landlord two, which, as I see it, is what happens.

I am a practising chartered surveyor. Those involved in residential property management have to accord with all sorts of professional regulations, including rules on holding clients’ money. Tenants’ deposits would certainly come in that category. They have to be very punctilious about what they do and very transparent about the process. I know that not every agent or, for that matter, landlord holding a deposit is a member of the Royal Institution of Chartered Surveyors. It might be different if they were, but that will never be likely. I am saying that there are two parallel sets of requirements. It will be interesting to know what discussions or information had been obtained from others such as ARLA on this sort of transfer, how it would be documented and how we would ensure it was seamless.

The noble Lord, Lord Kennedy, raises a valid point. For tenants to have to wait for a deposit to come back to them and to pay another deposit at the same time—in other words, a double overhead—is awkward, but other things lurk here. The noble Lord, Lord Shipley, mentioned one, but there is the other question of whether any unpaid services and outgoings lurk there. Sometimes these do not come through for some particular period. Noble Lords will know from dealing with utility companies and this sort of thing, including some of the cut-price ones, which seem extremely difficult to deal with at times—no names mentioned here, though—that it can be quite difficult to make sure that you have closure on the amount of money for which a tenant might be responsible. There is an issue relating to the period to which the amount might apply. That might depend on the circumstances, such as whether it was a furnished or unfurnished letting, or fully equipped as well as being furnished. Obviously, the amount of damage that can be done and what might become apparent would not necessarily be known until right at the end of the lease. While I am pleased to confirm from my experience that the majority of tenants have been absolutely excellent people, the odd ones are feckless, overload electrical systems and do other damage that is not immediately apparent.

I wish there was a better way of dealing with this. I can see where the noble Lord, Lord Kennedy, is coming from. It is a valuable thing to raise because of the rigidity it creates within the tenant cohort. We should be doing things to make sure that there are not those rigidities because that, in effect, is a barrier to them renting property in the first place. However, I see a number of technical difficulties with the amendment. I hope that the Minister will comment on some of them.

[Lord Best]

I support the amendment on transferable deposits. It is an absolutely commendable concept. How can people possibly find a second fat deposit when they have not had the first one back? This proposal would be a really helpful move, and I hope the Minister will take it very seriously and look at it in some depth.

On the question of a six-week, five-week, four-week or eight-week period, I was impressed by the Citizens Advice survey, which indicated that only a very small percentage of tenants—2%, I think—did not pay their last month’s rent, the deposit being absorbed or used for that purpose. However, I asked Citizens Advice about its survey and discovered that it was exclusively of tenants. I suspect that the percentage might have been different if it had been a survey of landlords or agents. This is bad news for landlords but I am told by agents that, naughty as it is, a lot of students will not pay the last four weeks’ rent because they fear that there will be a big dispute about their deposit at the end. Especially if the student has come from overseas and is returning, they will have no trouble over the deposit because they will instead have withheld their last month’s rent. I suspect that landlords would always be very hostile to the idea of a limit of just four weeks’ rent when students behave like that.

[Baroness Gardner of Parkes]

My Lords, the question of how much deposit you can pay back immediately to a tenant is a difficult one. Very often a lot of people are required to check exactly what damage has been done, particularly in cases of very heavy damage. I have mentioned before the block where we have a right to manage. A person owing a large service charge has recently had herself certified under the Mental Health Act. Someone has now been appointed to take over and the four flats in her name are being handed over. One flat in the basement was being used illegally as a brothel and the people who vacated it smashed the whole place to pieces—the windows, the walls and pretty well everything else, as far as I understand.

The legitimate tenant is perfectly entitled to think that they should have as much of their deposit back as possible, but where someone does what they did in that flat—as yet, we have not seen the other three that have been recovered from illegal lettings—it is quite worrying if you do not have any deposit to go towards repairing the damage. Therefore, the situation is more complicated than people realise.

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[Baroness Gardner of Parkes]

My Lords, as the Minister knows, I am very concerned that people are letting their flats for short lets, which is strictly prohibited under the terms of their tenancy. Is there anywhere in the Bill that this matter could be rectified, perhaps by placing an obligation on the tenant to inform people that it is not a legal letting or by the new tenant themselves confirming that what they are taking on is not a legal letting? There is a big loophole in the law here.

[Lord Best]

I would like to offer a word of support for the intent behind this proposed new clause. Perhaps the best organisations to get the message out to tenants and prospective tenants are the new websites—or not so new anymore—such as Zoopla and Rightmove. So many people looking for somewhere to rent now do so online. Those agencies have the power to reach nearly everybody with the important information contained in this provision.

[Lord Bourne of Aberystwyth]

My Lords, I thank all noble Lords who participated in the discussion on Amendment 3. I will seek to deal with the points made. The first and entirely reasonable point raised was from the noble Lord, Lord Kennedy, and was echoed by other noble Lords. I am committed to ensuring that tenants, landlords and agents understand their rights and responsibilities under the legislation. As the noble Lord, Lord Shipley, rightly said, it is not just a question of the law being passed; it needs to be the case that people understand the rights and obligations that follow therefrom.

That is why my officials have been working hard with key stakeholder groups to produce comprehensive consumer guidance to support implementation. However, I do not agree that it is necessary to mandate that in the Bill, as we have discussed and as we will look at again. I have shared draft versions of the guidance for tenants, landlords and agents with noble Lords, and I hope they found them informative and detailed. Once again, I state that we are happy to engage on that if it is helpful to noble Lords. I hope noble Lords agree that the guidance provides important information on the points suggested by the amendment, including the date on which the provisions will come into force, information about what is prohibited and permitted, and information about where tenants can access help and advice.

We intend to share this guidance with tenants and tenant groups in advance of the legislation coming into force and as soon as possible after Royal Assent. We will seek to ensure that tenants, landlords and agents are aware of this guidance, including through online publication and promotion through our media channels, and by using smaller groups, as the noble Earl mentioned. I am grateful to the noble Lord, Lord Best, for mentioning Zoopla and Rightmove; Purplebricks is another one. Those and others are groups we can engage with to make sure that we get the relevant message across. We will also encourage landlords and agents to make tenants aware of the guidance, using our existing relationships with stakeholder groups to do so.

The noble Baroness, Lady Gardner of Parkes, asked about seeking to enforce the provisions of tenancies through this legislation. That is not something we are seeking to do here. It is a contractual matter and short-term tenancy agreements are, I think, beyond the scope of the Bill. However, I do know of the noble Baroness’s concern and, as she is aware, I engage with the short-term tenancy association on a frequent basis to see how we can carry things forward.

I think that deals with the points made by noble Lords and will, I hope, allay concerns ahead of Report. On that basis, I respectfully ask the noble Lord if he will withdraw the amendment.

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[Lord Young of Cookham]

I hope the noble Lord will accept that, unlike other occasions when new responsibilities have been imposed on local authorities, in this case we are actually offering to help them with some pump-priming finance before the revenue stream comes on board. I hope he will accept that this is a welcome step forward from other initiatives taken by Governments of all complexions, where local authorities have been asked to do things with no resources at all and no opportunity of self-funding downstream. I can only repeat what I read out a few moments ago: the Government estimate that local authorities will incur a new burden in respect of enforcement of £500,000. I will make detailed inquiries to see if we can shed more light on exactly where that sum came from and will write to the noble Lord, with copies to other Members who have shown an interest. I will do that before Report.

[Lord Best]

Will the proceeds of the financial penalties be hypothecated for more enforcement? Trading standards officers work very hard in very difficult circumstances, after all the cuts they have had to face. The danger is that the fines come in but go into the big pot of local government finance and are used—poor old local authorities have many other calls on their time and money.

[Lord Young of Cookham]

I am happy to give the noble Lord the assurance that he seeks that the money will be reimbursed to the relevant section of the local authority that enforces this legislation and other related legislation dealing with rogue landlords.

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[Lord Deben]

I wonder if I can help the noble Lord. I know he always worries when I get up and say that I am going to be helpful, but on this occasion I might be. I remind the Committee that I am chairman of the organisation that represents independent financial advisers and those who deal with wealth management. Therefore, I understand a lot about the parallel circumstances referred to by the noble Baroness, Lady Hayter, when she pointed out the protection accorded to bank accounts and the different sorts of protection in the financial services industry. What I really want to say is that I hope my noble friend will think very carefully about this because we have seen the huge difficulty that people now have—even the most excellent of firms—in getting proper protection from the insurance industry.

The noble Baroness made an important point about being proportionate as to what the real risks are. I want to make a point about the dangers of not being proportionate. This is an industry of great importance and I am absolutely excited by the Bill because it does a whole lot of things that need to be done. However, we have to be very careful about importing into it those things that will result in unexpected and unwanted additional results.

I am not sure that civil servants are always as expert in these detailed aspects of insurance as those who deal with them daily. All the advice is that there really is no need to protect any more than the kind of protection that ARLA and RICS already provide. You do not really need that advice: the fact is that they have run the system very effectively up to now. I remind my noble friend that the party he represents is always very much in favour of free enterprise and people getting together to organise things on their own. Would it therefore not be a good idea for us to be very careful about not taking that advice?

We know that the 40% that do not belong to these organisations are, by nature, either not very careful or painfully close to the edge of the law. There is a real range. But I remind the Committee of the last speaker, who rightly said that we do not want to enfranchise the 40% by disfranchising the 60%. That does not seem a sensible answer. I hope my noble friend will take the advice of those who have had to deal with these things in other areas: that it is extremely dangerous if you get yourself into a position in which you lay too heavy a weight of insurance when it is not necessary. I have a long history of defending the consumer, but I do not see how consumers are better protected by excluding from the market the two organisations that have so far dominated it—if that is the right word.

The last thing I want to say is this: I have often spent time trying to encourage ARLA to become a more professional body. One of the successes of recent years has been precisely that, and we ought to be encouraged by what ARLA has done. It would therefore be a great pity if, on this occasion, we ignored its experience, which has come about through its own change from its history to today, or indeed the 150 years’ experience of RICS.

[Lord Best]

I want to offer my support to the noble Baroness, Lady Hayter, who has done so well in getting us to this point with CMP. It is so disappointing for those of us who have supported her efforts to hear of this last-minute significant hitch. The reason that a number of us were very supportive of CMP being introduced was not because of the 60% but because of the 40%. It was not just to make sure that the 40% had some insurance so that landlords’ and tenants’ money was properly protected. It was rather more sinister than that: it was to drive out that part of the 40% that just would not be able to get insurance, because when their accounts were viewed by those providing insurance, they would be told, “I’m sorry, we’re not insuring you”. This was, and I hope still will be, a way of weeding out the fly-by-night agents who set up shop and who we do not need in this business.

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The noble Baroness referred to condensation. Such was the frequency with which I was asked about condensation professionally that, at one stage, I had a complete piece on my website about the causes of, and how to deal with, condensation. About two years ago, an architect asked me to look inside a property because she needed to speak to the tenant about a condensation issue. I was able to have some input, because the tenant had not been informed that the windows were fitted with trickle vents, which were all closed. The tenant had decided that the extractor fans for both the kitchen and bathroom were noisy, and had turned them off at the isolator switch. Because the tenant did not like the cost of operating the dryer part of the washer-dryer, clothing was dried on a concertina rack in the living room of this flat. Noble Lords will not be surprised when I say that this produced some extremely unhealthy conditions, of which some, but not all, might have been expected to be in the landlord’s initial briefing. I think that limiting fair condition to only two items does not go far enough, just as I think that the Bill, as drafted, is probably a little too wide. How would you define whether the obligation was reasonable and whether the discharging of a liability was a proper one to be included in the lease? There is a happy medium somewhere. I commend that thought to the Minister.

[Lord Best]

I think we are all aware that if there is the possibility of a loophole being discovered, somebody out there will discover it. The absolute, 100% intention must be to block it.

The noble Baroness, Lady Grender, suggested two alternative routes. One is for the costs that legitimately fall to the tenant, not the landlord or the agent, to be picked up in the tenancy deposit scheme so that you do not get so much back at the end. I wonder whether the tenancy deposit scheme is tightly defined enough and whether it is possible to take from the deposit sums relating to, for example, the cleaning of the common areas where No. 9 of the 10 flats has been up to no good or where someone has parked the car in the wrong place and so on. I am not sure whether such things can be taken out of the deposit; that is a technical question.

The other alternative suggested by the noble Baroness is that the landlord will be so fed up that they will not renew the tenancy or will evict the tenant. That is a bit harsh. It would be better to find a way to come to an accommodation with the tenant rather than take extreme measures. I will need to hear from the Minister the series of ways in which all the possible loopholes and abuses can be blocked because that must be the Bill’s intention.

[Lord Kennedy of Southwark]

My Lords, Amendment 23, moved by the noble Baroness, Lady Grender, has my full support. It would remove default fees from the Bill. I share the concerns expressed here today that this provision could be used as a vehicle for unscrupulous landlords and letting agents to recoup lost income resulting from the ban. We cannot allow this loophole to go unchallenged. I also agree with the comments of the noble Lord, Lord Best; if something can be got around, someone will usually be smart enough to work it out and get around it. We should always be aware of that; it is very important to stop that.

In the Bill, the Government seek to limit default charges and fees to costs that are “reasonably incurred”, which must be evidenced in writing. However, this will prevent landlords and agents including unfair terms in tenancy agreements and trying to charge unreasonable amounts. Of course, we will come back to this issue of what is reasonable; we have come back to the issue of guidance many times. In responding to the debate, can the noble Lord explain how he believes that tenants will be protected from this unfair practice? How does the legislation, as it is framed now, protect people from ingenious people looking to get round almost anything? How can we be confident that the Bill is watertight?

Amendment 24, in the names of the noble Baronesses, Lady Grender and Lady Thornhill, and my Amendment 25 seek to make provision for default fees to be more transparent if they remain in the Bill and, as drafted in my amendment, to be detailed in regulations setting out what is a permitted payment in this regard. This would provide a clearer, legal definition of default fees. That would prevent abuse, protect tenants, ensure that tenants understand what they could be charged for and increase confidence in challenging illegal, prohibited fees. In contrast to guidance, regulations would act as a deterrent and give tenants a statutory basis from which to challenge prohibited fees. The late payment of rent and lost keys are the most commonly cited examples; in each scenario, the purpose of the fee would be clear to the tenant, which would limit the opportunity for exploitation.

I take on board the points made by the noble Earl, Lord Lytton. If we were all reasonable people, we would not need legislation at all; unfortunately, there are good and bad tenants and there are good and bad landlords. Often, we have to legislate for the worst excesses in all cases, and that is partly what we are trying to do here. However, I accept that the noble Earl has made some fair points—I am not suggesting that that is not the case. I look forward to hearing what the noble Lord, Lord Bourne, has to say on these matters.