Tenant Fees Bill

Lord Young of Cookham Excerpts

Monday 5th November 2018 Grand Committee

[Lord Young of Cookham (Con)]

My Lords, the co-pilot is in charge of this leg of the legislative journey, so there might be some turbulence.

There are two amendments that consider the resources available for the enforcement of the ban and I would like to take them together. I am grateful to the noble Lord, Lord Shipley, for his gentle dismantling of the arguments that the noble Lord, Lord Kennedy, put forward for Amendment 4. I recognise the pressure on the resources available to local authorities but we do not think that a provision that essentially provides a blank cheque to local authorities is the right approach. It would be a very unusual arrangement, and essentially one-sided, as the Secretary of State would bear all the losses and the local authority would keep all the gains.

We believe that allowing local authorities to retain money from financial penalties would be a significant funding stream for future enforcement, and the Government are providing some pump-priming funding for the initial period. There might be a role for hypo- thecated grants but I do not believe that this is one of them.

Financial penalties of up to £30,000 that can be retained by local authorities were first introduced in April 2017 under the Housing and Planning Act 2016, and I am sure that the noble Lord, Lord Kennedy, will welcome at least one measure under that Act that has found favour with him. We are aware that local authorities already benefit from the proceeds of financial penalties issued under that legislation. Liverpool, for example, has issued 42 civil penalties and has recovered the majority of them; Torbay Council has used the revenue from civil penalties to fund an extra enforcement officer for its housing team; and Newham and Camden have also issued and recovered a number of civil penalties.

However, we appreciate that this model depends on local circumstances and that it can take time to embed within existing frameworks of enforcement. That is why, as I said, we are committing £500,000 of additional funding in year one of the fee ban policy to support education and implementation of the legislation. I agree with what the noble Lord, Lord Shipley, said in the earlier debate—that ideally this measure should be self-funding. If one looks at page 19 of the Explanatory Notes, one finds the following:

“The Government estimate that local authorities will incur a new burden in respect of enforcement costs in year one of the policy only and it estimates this to be no more than £500,000. The enforcement of the provisions contained in this Bill by enforcement authorities is intended to be fiscally neutral from year two since enforcement authorities may retain the proceeds of any financial penalties for the purposes of any of its enforcement functions relating to the private rented sector under this Bill or any other legislation”.


That is basically where the Government are coming from on resources.

Further, we are introducing the lead enforcement authority, mentioned by the noble Lord, Lord Kennedy, to provide guidance and assistance to local authorities in undertaking proactive enforcement. We have committed funding of up £300,000 per annum to support the lead enforcement authority in its duties, and we have based the funding model on that of the National Trading Standards Estate Agency Team, but we will keep it under review.

Statutory guidance issued by the lead enforcement authority or the Secretary of State will cover matters to be taken into account by enforcement authorities in determining the level of the penalty in any given case. We have been engaging with local authorities to get this right, and my noble friend Lord Bourne has shared a draft version with noble Lords and has placed a copy in the Library. More generally, the lead enforcement authority will be primarily responsible for monitoring enforcement of the ban and ensuring that local authorities have the guidance and support that they need.

Turning to the proposed new clause which deals with reporting requirements, Clause 23 already requires the lead enforcement authority to report to the Secretary of State on the ban. This will include updates on any developments that might be relevant to enforcement of the Bill or to relevant letting agency legislation, including those that might seek to undermine the aim and enforcement of the legislation. It could also include resources, mentioned by the noble Lords, Lord Shipley and Lord Kennedy. The Government will work closely with the lead enforcement authority and key stakeholders representing tenant, landlord and agent groups to monitor the operation and effectiveness of the ban. Against those assurances, I hope the noble Lord will feel able to withdraw his amendment.

[Baroness Gardner of Parkes]

My Lords, although an answer was given earlier by the other Minister, why in a Written Answer to me did the Minister say that the Government are unwilling to consider allowing local authorities to license these short lets? Short lets are damaging—badly—every bit of accommodation in the housing market in London, in particular, and in the rest of the country, which can be taken over, illegally, against the contracts. Why are the Government unwilling to allow local authorities to charge a fee to register and check that they are in order? In that case, would that not be a far better answer than losing all the accommodation that we are losing now? Why is it not appropriate to bring it into the Bill under the proposed new clause?

[Lord Young of Cookham]

As my noble friend the Minister said a few moments ago, the Bill covers assured shortholds and other lettings. It does not cover the sorts of lettings that concern my noble friend Lady Gardner and which are offered by Airbnb and other agencies. My noble friend has raised an issue that has been the subject of many exchanges in Questions. Our answer is that we believe that local authorities have enough powers to take action where a nuisance is caused by these activities. In many cases, it is up to the manging agents to enforce the terms of the lease.

As I have said on many occasions in the Chamber, many leases specifically preclude the letting of a property for periods of less than six months, and it is up to the managing agents of the block to ensure that the provisions of the lease are met. Again, I say to my noble friend that I have quoted from the action taken by one managing agent when they discovered that a flat in the block for which they were the managing agent was being advertised on Airbnb; that immediately stopped the letting of that flat and any other flats in that block. So the short answer—I fear it was a long one—is that we believe that powers are already available without giving local authorities the additional powers that my noble friend has asked for.

[Lord Kennedy of Southwark]

Before I withdraw my amendment, can the Minister tell me something about the amount of money provided? On the face of it, £500,000 seems a lot of money but how many councils is that actually for? I do not know off the top of my head, but I think it is for at least a few hundred of them. What sum will each council get? Will it be £2,000 or £3,000 each? When it is broken down like that, it could be quite a small sum of money in terms of an overall council budget.

[Lord Young of Cookham]

About 152 trading standards offices could potentially be eligible for this. It would be wrong to assume that £500,000 would be divided among them so that they each get a small sum. There are other models for providing the initial help. For example, a team from the department could go out to help the trading standards agencies set up the necessary skills and training to take forward the measure after year one. At the moment, we are discussing with the LGA exactly how best to spend the £500,000. Although one option would be to divide it up, that is not the only option; others are being explored. Before the Bill becomes an Act, we hope to find a way forward on how the money should be spent.

[Lord Kennedy of Southwark]

I thank the Minister for that answer. I accept that the money may not necessarily be divided up. I am just trying to understand the number of authorities and the amount of money available. Looking at things like that, it is not a huge sum of money at all.

The Government think that this will be funded by fines and other fees, so it will be self-financing in that sense. I am conscious that local government will say, “Well, they would say that, wouldn’t they?”. Local government often says that the Government do not provide enough funding for various things. How was this figure arrived at? Where did it come from? Did the Government use some formula or methodology, or was is just a case of, “Oh, we’ve got a spare half a million knocking around and we can make it available”? I do not know. I want to understand how that figure came about. Again, I am sure that local government will say that it is nowhere near enough, as it would say about other things. I am thinking particularly of the Homelessness Reduction Act, where there is the risk of a very good piece of legislation being affected by the amount of money provided by the Government.

[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.

[Lord Kennedy of Southwark]

I thank the Minister for his response, and all other noble Lords who spoke in the debate. At this stage, I am happy to withdraw the amendment.

--- Later in debate ---

[Lord Deben (Con)]

I wonder whether my noble friend will address the point raised by the noble Baroness when she referred to the number of letting agents that did not obey the law on their websites. I have found that in many areas—including modern slavery, an issue I am particularly interested in—a number of people just do not obey the law. It seems to me that it would be odd if we left it to the local trading standards officers. What is the arrangement? If you find such a case, who in government is supposed to enforce it? This also is a piece that might be dealt with in this legislation. If it is true—I assume that it is—that 17% of letting agents do not even obey the law of having to say what their fees are, that is outrageous.

[Lord Young of Cookham]

I am grateful to all noble Lords who have taken part in this debate. The Bill proposes a number of enforcement measures that offer a strong deterrent to irresponsible agents and landlords. It also makes provisions to enable tenants and other relevant people to recover unlawfully charged fees, if other attempts have failed, by going to the First-tier Tribunal, which will order reimbursement to the tenant of money that should not have been paid. Of course, tenants should get back any unlawful payments in full, whether that is direct from the landlord or agent, via their enforcement authority or through an order of the First-tier Tribunal. However, in certain instances, we think it is also appropriate for the landlord or agent to be issued with a financial penalty, as well as ensuring that the tenant receives their money back. This is to deter future non-compliance.

Amendment 6 prevents an enforcement authority imposing a financial penalty under Section 12 if the tenant has got their money back. We think that giving a power to impose financial penalties for breaches of the legislation is an important tool for enforcement authorities. Therefore, we cannot accept Amendment 6. However, the enforcement guidance will stress that enforcement authorities should take account of the landlord’s and agent’s conduct and past behaviour when considering the level of financial penalty to charge, if any. This includes whether the landlord or agent has reimbursed the tenant quickly when asked to do so.

Turning to Amendments 7 and 8, while we think it is right that agents and landlords should be issued with a financial penalty, we do not think it is appropriate for the tenant to receive further compensation in addition to repayment of the money owed. To add compensation risks penalising agents and landlords multiple times for the same breach, which we do not believe is fair; for example, it would not be right to ask a landlord who has been fined up to £5,000 for an initial breach to also pay three times the amount of a prohibited payment to a tenant. This would in effect be two financial penalties for the same breach. The deterrent effect, mentioned by the noble Baroness in her opening remarks, would of course be secured by the fines under the Act.

It is also worth noting that Clause 17 already provides further protection to tenants by preventing landlords recovering their property via the Section 21 procedure in the Housing Act 1988 until they have repaid any unlawfully charged fees. This approach is in line with legislation that already applies; for example, where the How to Rent guide has not been provided or where a landlord has not secured the required licence for a house in multiple occupation. Further, Clause 4 ensures that any clause in the tenancy seeking to charge a prohibited fee is not binding on the tenant.

We do not consider that further provision is needed along the lines proposed by Amendment 8. For example, it is not fair if a landlord who appeals against the imposition of a financial penalty, and this appeal is upheld, is then restricted from using the no-fault eviction process for six months. Under the noble Lord’s amendment, this would be the case—although that may not be what he intended. We firmly believe that our existing approach restricting a landlord’s ability to serve a Section 21 notice strikes the right balance and offers a serious deterrent to non-compliance. I hope the noble Lord will not move his amendment.

I suspect the short answer to the questions raised by my noble friend Lord Deben is: the trading standards officer. I would like to write to my noble friend setting out in more detail what is being proposed, under both this and existing legislation, to prevent misleading information appearing on websites and tenants being misled.

[Lord Kennedy of Southwark]

My Lords, I was a little surprised at the Minister’s response on the question of compensation. We would have a situation where a tenant is illegally charged a prohibited payment—it is against the law, and they have been wronged. The Minister says that, in those cases, compensation would not be appropriate. I do not understand that. Surely, as we have highlighted in other areas, it is totally reasonable that, if somebody has done someone a wrong—they have committed an offence, overcharged somebody—that person should be able to seek some sort of redress and have compensation paid to them. I do not see how the Minister can say that would not be fair.

[Lord Young of Cookham]

The noble Lord has a choice. He can have either a situation where the tenant gets the compensation and there are no financial penalties imposed under the Bill, or the situation we suggest where the tenant gets his money back, the fine is imposed and the money goes to the local authority. What the noble Lord wants is for the landlord, in effect, to be penalised twice: first by paying compensation up to three times, and secondly by paying a fine up to £5,000. The Government’s position is that you can have one or the other, but doing both is not fair.

[Lord Kennedy of Southwark]

I think the Minister will find that, in other areas, people can be fined and be required to pay compensation as well, so I do not see the logic. Clearly, if it is an issue of amounts, that can be looked at. We are not going to agree on this, clearly. The principle that you can be fined and be required to pay compensation clearly is the case elsewhere. It is very unfair that the tenant—the victim, the person who has been out of pocket, ripped off and treated badly—should be thankful just to get their money back. It does not seem to be a very good place. Clearly, we are not going to agree on that at this stage.

[Lord Kennedy of Southwark]

On my Amendment 8, if somebody has gone to a tribunal and the landlord has won then fair enough, they should be protected, but I am trying to get to an example where someone has enforced their rights. This poor tenant cannot get compensation but they get their money back, then the next day a Section 21 notice is served on them. That is the issue I want to deal with. It is really unfair for the tenants in these situations—proved right in a court of law, then given a notice to leave the next day. Without this, that could still happen.

[Lord Young of Cookham]

The defect in the noble Lord’s amendment is that, if the landlord won the appeal, he would still be banned. As I said, that may not have been the noble Lord’s intention, but it is what the amendment would do.

I say in response to the noble Baroness, Lady Grender, that I detect in the Committee enthusiasm for the two-track approach to penalties, for both the tenant and the local authorities recouping fines. That message has come through. Without giving any commitment, I will have another look at this, in view of the strength of feeling on the matter. I am happy to accept the noble Baroness’s offer.

--- Later in debate ---

[Lord Kennedy of Southwark]

My Lords, Amendment 11 seeks to put a new clause into the Bill. If agreed, it would require the Secretary of State to report to Parliament within 12 months, then every four years after that. The report would provide valuable information on the number of breaches, financial penalties levied and criminal prosecutions in each 12-month period. It must also consider the points as listed in proposed new subsection (2), which are important when looking at the impact of the Act on the sector. I suspect that the amendment will not be greeted with great enthusiasm from the Minister, but can he tell the Committee whether any of the information referred to in the amendment would be collected by the department anyway? I may have a few more questions for the Minister after listening to his response. I beg to move.

[Lord Young of Cookham]

I am grateful to the noble Lord, Lord Kennedy, for his amendment. I assure him that we plan to monitor the implementation of the Bill through continual engagement with key stakeholder groups, represented landlords, agents, tenants and those in housing need, as well as through wider intelligence from agencies such as the lead enforcement authority and trading standards, which will enforce the requirements of the Bill.

I have no difficulty with the objectives of the noble Lord’s proposed new clause. However, bits of it are impractical. We will not be able to identify all the breaches of Clauses 1 and 2 as set out in proposed new paragraph (a) because we will be encouraging tenants to challenge their landlords and agency with a view to rectifying breaches if they have been charged prohibited fees. The enforcement authorities would not be involved if the breach were resolved between the tenant and the landlord, so it would not be possible to record every time that this happens.

However, owing to the reporting requirements set out in the Bill under Clause 14, information on the number of financial penalties and criminal convictions under the ban will be captured by the lead enforcement authority. In the light of what the noble Lord suggested, we will consider how best to share this information with Parliament. Both agents and landlords that are banned from operating will be captured on the rogue landlord database; the Prime Minister made it clear that we plan to make this information public. Local housing authorities also have powers to include persons convicted of a breach of the fees ban on that database, as well as including persons who received two or more financial penalties in a year for any banning order offence committed at a time when the person was a residential landlord or a property agent.

Further, Clause 23 places a duty on the lead enforcement authority to keep under review social and commercial development relating to the letting sector and the operation of relevant letting agency legislation, as well as to advise the Secretary of State about it from time to time. I hope this reassures the noble Lord that we will track and review the effectiveness and enforcement of the ban and its impact on the private rented sector. I hope that will we achieve what his amendment wants but we do not think it necessary to prescribe further reporting requirements in the Bill. As I said, we will consider how best to make this information available in the light of the debate.

We will also, as the noble Lord may know, review the legislation within five years in line with normal practice and submit that review to the appropriate Select Committee in the other place. We do not intend to review the Bill in isolation. Recently a number of legislative changes have been made to the lettings industry with more planned related to the regulation of letting agents. These changes, along with the Bill, support and deliver on our commitment to rebalance the relationship between tenants and landlords and to make renting fairer. We will keep all of these issues under review. With those assurances, I hope that the noble Lord will feel able to withdraw his amendment.

[Lord Kennedy of Southwark]

I thank the noble Lord for that response and I am pleased with some of the commitments that he has made. At this point I am happy to withdraw the amendment.

--- Later in debate ---

[Baroness Grender]

My Lords, I support these amendments. I have already raised my considerable concern about the timings. As the noble Lord, Lord Kennedy, said, the Government announced this measure in the autumn of 2016, at the same time as my Private Member’s Bill was progressing through the House, and I was absolutely delighted at their announcement. However, it feels as though it is taking a very long time. I know that the Ministers concerned are not responsible for that—they have worked very hard to push this through.

When the Government first started consulting on this issue, they rightly changed their mind and agreed to take a look at it. The consultation showed that the poorest tenants are being ripped off time and again, and that will not stop. If anything, it will get worse in the intervening period before this legislation is introduced. I am hugely in support of the legislation being introduced as quickly as possible. Generation Rent was talking to me about this only this morning. It is receiving evidence that letting agents are becoming more assertive over their administration fees to make up for what they believe to be a shortfall.

As I said at Second Reading, other organisations are playing a significant role in this matter. OpenRent, which I will mention in later arguments, started in 2012 and is now the largest letting agent in England and Wales. It has made a profitable model on the basis of never charging fees to tenants. Therefore, it is perfectly possible for an industry to be ahead of the legislation. However, with the exceptions that I have described, this particular industry is not ahead of the legislation, although it has been warned again and again. There has been working group after working group on this issue.

I was absolutely delighted that the Government decided, very wisely, in the Autumn Budget Statement of 2016 to flex their muscles and get on with this, but we need to do it. I would find any further delay, or suggestion of it, in the Bill extremely worrying, which is why I support the amendment.

[Lord Young of Cookham]

I am grateful to noble Lords for taking part in the debate. They have made their impatience over the date of commencement absolutely clear. We agree that we want this legislation to come into force as soon as possible, not least to protect the tenants referred to by noble Lords.

However, we need to strike a fair balance between protecting tenants and allowing landlords and letting agents time to become compliant with the legislation. The ban is not about unfairly penalising landlords and letting agents or driving them out of business. We have said that implementation will not be before April 2019; we intend it to be as soon as possible after that. Of course, at the moment we do not know when it might get Royal Assent. I understand that but we believe that there needs to be a reasonable gap between it reaching the statute book and it being implemented.

Turning to Amendment 13, the transitional provisions in Clause 28 provide that for the period of a year, the ban will not apply to tenancies whose terms were agreed prior to commencement. Similar transitional provisions are made for agents’ agreements with tenants. The amendment moved by the noble Lord, Lord Kennedy, seeks to reduce the period in which a landlord or agent could accept a payment prohibited by Clause 1 from one year to six months. We have already sought to give tenants greater clarity and protection with respect to the commencement date. Crucially, we have revised our position from that in the draft Bill, where there was no end date by which fees could be charged in pre-commencement tenancies. There has been a considerable shift towards protecting those who have already signed their contracts.

The noble Lord, Lord Kennedy, recognised that a transition period is necessary—his amendment proposes a slightly shorter one—because although most fees are charged at the outset of a tenancy, some landlords and agents will have agreed that tenants should pay other fees, such as a check-out inventory fee, at a later stage. Tenants will have signed contracts accordingly; we need to allow time for landlords and agents to renegotiate them to ensure that the legislation does not have a significant retrospective effect.

Our view is that 12 months is fair for the transition period. Data from the English Housing Survey shows that 45% of tenants had an initial tenancy of 12 months and 36% had one of six months. Reducing the period in which a landlord or agent could accept a payment prohibited by Clause 1 would mean that more landlords and agents with pre-commencement tenancies would be at risk of not being able to renegotiate their contracts and would not receive fees that the tenant had previously agreed to pay. Again, we do not believe that this would be fair.

We recognise the importance of having a clear point where the fees ban applies to all tenancies. As drafted, the transitional provisions mean that all tenants will receive the benefits of the fees ban one year after it comes into force; as I said earlier, initially there was no such arrangement. Unlike the proposed amendment, the provisions ensure that agents and landlords will not be significantly impacted on financially and will have the opportunity to review their contracts during the transitional year. I hope that the noble Lord will feel able to withdraw his amendment against the background of that explanation.

[Lord Kennedy of Southwark]

I thank the noble Lord for responding to the debate. I suppose that we will not agree, which is disappointing. It is a shame that although there is a lot of good stuff in this legislation that we can support, things take such a long time, as I said in my introduction. That is a recurring theme with the noble Lord’s department, which I have raised many times in other consultations and discussions on this. It often seems like we are pulling teeth to get things moving along. So we are frustrated at the length of time these things take, and that is why we have taken a stand on this.

I also tabled Amendment 14, which seeks to bring the Act into force on the day on which it is passed. My frustration here is the fact that, even when it is passed, we then have to wait for an SI to be tabled to bring it into force. I have no certainty as to whether it will ever come into force; potentially, it could be left there and might never happen. I am sure that will not be the case, but the Committee will see that there is no certainty as to an agreed date. That is very frustrating, and I may come back to this point on Report. At this stage, however, I am happy to beg leave to withdraw the amendment.

--- Later in debate ---

Amendments 24 to 26 not moved.

[Lord Young of Cookham]

My Lords, the Committee has been sitting for nearly four hours, so I think that this might be a convenient point at which to adjourn.

Committee adjourned at 7.29 pm.