Letting Agents

Lucy Powell Excerpts

Wednesday 27th February 2013 Westminster Hall

[Sarah Champion]

My hon. Friend makes a good point, and I completely agree.

Across the industry, there is a problem with rip-off and opaque fees charged by letting and management agencies. A national survey of letting agents found that 94% impose additional charges on tenants on top of the tenancy bond, rent or rent in advance. The citizens advice bureau in Dorset reported a client who was considering renting a three-bedroom property. He was shocked to find hidden in the tenancy agreement a requirement for him to pay £94 every six months for “search fees.”

The national survey also found huge variations in the size of such charges. Charges for checking references ranged from £10 to £275, and charges for renewing a tenancy ranged from £12 to £220. In some cases, additional charges for a tenancy amounted to more than £600, which is a vast amount of additional money for anyone to find. The fact the fees vary so much shows that those charging the premium are clearly making a huge profit.

[Lucy Powell (Manchester Central) (Lab/Co-op)]

Does my hon. Friend agree that letting agents’ charges to landlords are also absolutely extortionate? It is not just tenants who face charges; many landlords, when tenancies are renewed, must pay 10% a year in ongoing charges. I get many complaints in my constituency, as I am sure she does, from landlords who feel that the market needs regulation.

[Sarah Champion]

My hon. Friend makes a good point. It is both tenants and landlords who suffer from unscrupulous letting agents, and we must do more to protect them. This cannot continue.

Up-front fees present a significant barrier to low-income people looking to rent, in some cases with serious consequences. The charity Crisis contacted me about Danny, a 34-year-old man who became homeless after a family break-up. Danny was given a list of letting agents who were happy to take housing benefit tenants. He called them daily for several weeks, looking for a property. He was eventually offered a flat and told that he could move in after six weeks.

Danny secured a crisis loan to help him pay rent in advance. The agent asked him for a £250 administration fee, refusing to confirm in writing what the fee was for or to provide a signed tenancy agreement. The agent then told Danny that others were interested in the property and asked for an additional £800 holding fee to keep the flat off the market. He knew Danny’s situation but refused to reduce the fees. Although he tried to scrape together the money, Danny could not take up the tenancy. Having forgone his place in a winter shelter, he slept rough before going to Crisis. He is now living in a hostel and looking to move into private rented accommodation again. I would love to say that Danny’s story is unique, but it is not.

--- Later in debate ---

[Damian Collins (Folkestone and Hythe) (Con)]

It is a pleasure to serve under your chairmanship, Mrs Brooke. I congratulate the hon. Member for Rotherham (Sarah Champion) on securing this debate and on her speech. She raised an incredibly important point. For me, one of the interesting things about this debate is why our private market is failing when there are many different agents who charge different fees and many properties available. One might expect that people would shop around in that situation and go to better landlords and agents that charge lower fees, but that does not seem to be happening. My speech will focus on why I think the market is failing and what we can do about it.

The point is well made about the disparity in fees, what they are for and why they are charged. I got someone in my office to conduct a mystery shopper exercise in Folkestone, in my constituency, and was interested in the results. I will not pretend that every agent was asked, but I was amazed by the range of fees charged by different agents.

To give an example, an inquiry was made regarding a standard joint tenancy for two adults in work in a flat in Folkestone. The rent for such a flat might typically be between £500 and £600 a month. One agent, when asked, said that their fee structure included a £220 administration fee, a £50 if there was a guarantor and a £120 additional charge on contract completion, totalling £390. There was then a month’s deposit up front, which is standard for most properties, plus £100. Someone paying all the fees could easily pay nearly £500 in charges apart from the deposit, or more than £1,000 just to move in. That is before they have walked through the door. Many people would find it impossible to raise the kind of money to move into such a property, and there are moving costs on top, so someone could easily be paying more than £1,500 just to move into a property. Someone on a low income would not be able to raise such money.

In that example, the fees for the property were quoted by a company called Evolution Property Lettings, which operates in Ashford and Folkestone. I was interested to see whether its fees were typical: it was charging £390 in fees, plus an additional £100 on the deposit, so £490. Another agent, Fell Reynolds in Folkestone, was charging £60 per person in fees—no other administration charges or renewal fees—and only a month’s deposit, without the additional £100.

Someone would save several hundred pounds in fees simply by using a different agent. I am sure such companies have reasons for their fee structure. Jenny, one of my constituents who is thinking of renting a property through Evolution Property Lettings, asked it why it charges those fees, what they are for and why they are different from other agents’ charges, because there is clearly a massive disparity in fees charged for a similar amount of work.

The challenge is why people do not have the information or the confidence to ask around. Does more guidance need to be given to people to suggest what fee structure different agents charge, that they should shop around and ask, that they should go to a reputable agent and that they should challenge agents on the fees that they charge? We should certainly be suggesting that as elected politicians and local authorities should do the same; with citizens advice bureaux, therefore, we are all people who can give advice and, I hope, shame some organisations into being more transparent about their fees and, where possible, into reducing them.

The culture of fees being charged—as I said, the fact that it might cost someone £1,000 to move into a property—blocks up the private rented sector, and that leads to such market failure. The hon. Lady gave an example of tenants who live in a property in a poor state of repair, and I am sure that Members of Parliament throughout the country could all give plenty of other examples from our constituency casework. People live in run-down properties—perhaps containing a category 1 or 2 hazard, as defined by the Housing Act 2004, which would give the local authority the power to intervene—but why do they not move?

One of the reasons why people do not move out of such properties is that they cannot afford to. The managing agents know that, and they will therefore happily sit there and do little to intervene. By the time the local authority inspects the property and requests that the agent or landlord carries out work, many months will have passed. The landlord might then propose to carry out the work but not do it, and so it would not be atypical for more than a year to go by before any definitive action is taken. We have to look at how to clamp down on that element.

How can we make people do the work that they are supposed to do? How can we empower tenants to exercise their rights? There are two elements to that. First, we should all be concerned that most of the worst cases are paid for by the taxpayer, because most of the people pay their rent out of housing benefit, even though they rent in the private sector. Why are we paying housing benefit through poor letting agents to slum landlords? Why do we allow things to continue for a long period before anything is done?

I sympathise greatly with the case made by the hon. Lady, but we may diverge because I think that registers might not be enough. Registers have to be enforced; people have to inspect the properties. The problem that we face is that the inspection work has not been done. Local authorities have the power to inspect properties to force change, but why is that not being done?

When the subject was debated in the main Chamber last month, it was pointed out that it is sometimes difficult to identify who the landlord is to get them to take action. The one thing that we control, however, is the money supply. If we can turn off the money, we would find that the landlords will act pretty quickly, because most landlords want high occupancy in their properties. If they were told that they will not get their money for a month or two and that the work only costs up to £1,000 or so, they would pretty quickly carry out the work. If the agent did not receive the rent on behalf of the landlord, we can be pretty sure that the landlord would soon want to know what was going on. The best way to police rogue letting agents might be to make landlords more challenging about the way that their money is spent in the fees they pay.

I am asking the Minister whether, in the reforms proposed, we are looking to empower tenants to take control of the housing benefit paid out in their name. Should we consider what additional protection we can give to a tenant who tells a landlord or letting agent, “You are not maintaining this property correctly. It is a hazard to me and my health. I believe you are in breach of our contract. Therefore, I am going to withhold the rent I pay to you—the housing benefit you would receive through me”? I believe that many people would be fearful of taking that course of action—fearful of eviction or legal action taken against them—so should we consider how to empower and protect tenants in that situation, so they can withhold their rent or housing benefit?

[Lucy Powell]

The hon. Gentleman makes an excellent point about housing benefit recipients and their relationship with landlords. Does he agree that, under universal credit, with the money going to the tenant rather than directly to the landlord, the onus on the tenant to take action against unscrupulous landlords will be even more challenging than in the current climate? Therefore, will he support Opposition amendments to universal credit, so that we keep the system of paying rent direct to the landlord?

[Damian Collins]

I understand the hon. Lady’s point. The mechanism of making direct payments to landlords could be seen as an incentive to landlords to meet their obligations, because it is massively in their interest to have direct payment of housing benefit: they have sitting tenants; there is massive demand for property; and they are given a guaranteed income, which effectively comes from the Government, one way or another, rather than from a tenant. I can understand how that works in the existing system. With the reforms, however, we can tell tenants, “You will receive the benefit. You can make that decision, but perhaps you need more understanding of your rights and what protection in law you have.”

I do not want to use this opportunity to make up Government policy on the hoof, not that I am in a position to do so anyway, but I have a suggestion. If extra protection is needed, should there be a rent order or something that a local authority can issue to say, “We do not believe that any more rent should be paid on this property by the tenant until the work is completed”? It could also state, “We believe that the tenant in this case is protected in law and cannot be evicted. No legal action can be taken against them until the work is completed. We will inspect it.”

Given that we are paying out of our taxes for failure in the private rented sector and that we are paying slum landlords through housing benefits, how can we use the mechanism of the money that we control to encourage them to invest in their properties more promptly? If they do not, they might otherwise risk losing the benefits. If housing benefit was not paid out, I would prefer tenants to be able to use the money instead for a deposit on a new property that they might wish to rent and to pay for some moving costs. They would then be empowered in the market, so that they could pick up and go elsewhere. At the moment, they are restricted from doing that; they cannot afford to move out of their rented property because of the charges.

My question to the Minister is, how can we work with the proposed housing benefit and universal credit Government reforms to empower tenants, so that the private rented sector works as a proper market and so that tenants are in a position genuinely to pick up and move and go somewhere else—to a different property or agent—if they feel that they are being ripped off or being made to live in slum conditions that are not tolerated and that are in breach of the 2004 Act? That could be a more empowering mechanism for the tenant, and much easier to deliver, rather than having an army of local authority inspectors running around after and chasing up letting agents and landlords.

With the best will in the world, that regime was enabled by the Housing Act introduced by the previous Government, but it has not solved the problems, because the scale of enforcement is so great. However, if we can empower tenants to take action and protect them as they take that action, by taking their business elsewhere, that could be a ready solution to the problem. That is the thought that I suggest. We control the money supply, so perhaps we can use that to stand up for tenants in dire straits, in poor housing and on low incomes. We can protect their interests by standing up for them against the landlords who exploit them.

Before I finish, I apologise to the House. I should have referred to my entry in the Register of Members’ Financial Interests before I made my speech. I hope that you will accept my apology, Mrs Brooke, and my reference to the register at this point.

[Paul Blomfield (Sheffield Central) (Lab)]

I congratulate my hon. Friend the Member for Rotherham (Sarah Champion) on securing the debate and making such a comprehensive and convincing case for regulation. I am also pleased to follow the hon. Member for Folkestone and Hythe (Damian Collins), because there seems to be a cross-party consensus on the need for action and the depth of the problem, although we might not be at quite the same point in some of our conclusions.

My hon. Friend made an important point about the growing importance of the private rented sector in a housing market in crisis. She said that 3.6 million households are in the private rented sector, and by the end of the decade about 20% of households will be in that sector.

Crisis, the charity for single homeless people, has said that for many households, including those on low incomes, the private rented sector is not fit for purpose—a devastating criticism. It highlights the conduct of letting agents as a major issue among a range of problems. They charge extortionate fees—typically for reference checks on tenants, contract preparation, deposit handling and tenancy renewal—that are often disproportionate and lack clarity because they may not be charged until after the tenant has signed the contract or paid a deposit, a practice known as “drip pricing”.

Holding deposits are often required from tenants who have decided to rent a property, but it is not always clear in what circumstances and how much of the deposit will not be refunded if the tenant decides not to proceed with the tenancy. In some cases, letting agents have taken holding deposits from two or more tenants for the same property.

Crisis raises a number of other points, which make clear the depth of malpractice by letting agents. That does not apply to all letting agents, but to a significant enough number for Citizens Advice research to come up with the conclusion that 73% of tenants were dissatisfied with the service they were providing. That is a devastating figure.

My city centre constituency has many houses in multiple occupation and faces many of those problems. I am sure that many hon. Members will make points about different sectors of the community that face difficulties; I want to highlight students because I have about 32,000 of them living in my constituency.

Student accommodation has a certain image, perhaps embedded in our memories from the classic images of Neil, Rick, Vyvyan and Mike in “The Young Ones”. However, in reality, students want and deserve a decent standard of accommodation. Some students in Sheffield are fortunate if they have accommodation provided by our two universities. Students voted the Sheffield university accommodation the best in the United Kingdom—

[Lucy Powell]

Beating Manchester.

[Paul Blomfield]

Sheffield beats Manchester in many ways—[Interruption.] Not at football at the moment, but I dream on.

Most students spend some time in the private rented sector, particularly after their first year. Good quality accommodation is available in the private sector, but there are numerous cases of quality not being good enough. The student advice centre at Sheffield Hallam university student union has raised several issues of concern that students are reporting.

First, students are encouraged to sign up for tenancies early and are misled by letting agents into believing that there is a shortage of accommodation and that it is a landlords’ market, when it is not. They are encouraged to sign up for tenancies in October or November in the year prior to the start of the tenancy, which for first-year students is just after they have started their course. They are asked to make choices nine months or so before occupying the accommodation, which leads to a range of issues with disrepair because letting agents, on behalf of landlords, make promises of improvement work to secure the tenancy, but then simply do not carry out the work or, if repairs are done, they may not be done by the time the new tenants move in.

Letting agents encourage students to sign up to tenancies early because students worry about not being able to find somewhere else to live, and that often forces them into joint tenancies with people who may be first-week friends and between whom there is no lasting bond. That can cause real difficulties when people try to get out of contracts but are unable to do so. Some students sign up too early to take account of how their course is going. They may not proceed with the course, or they may transfer to another university or take a year out, but they are still locked into their contract if they sign it within a few weeks to going to university.

Some letting agents and landlords take advantage of students’ transient tenancies. They are usually in a property for only a year and action for remedy may take a long time, so there is often no incentive for students to take action if they will be moving out within a relatively short period. Letting agents and landlords are aware of that and often do only minimal repairs because they think they can get away with it.

Only last Thursday, a group of four women students from Sheffield Hallam university came to see me to share their experience. They had faced a catalogue of problems last July when they collected the keys for their new home, which was unfit to move into. Among a range of issues, the house was filthy and full of rubbish, mattresses had blood and faeces stains, there was no carbon monoxide detector, taps and toilet seats did not fit correctly, blinds were broken and the extractor fan was broken.

When challenged, the letting agent simply said that there had been a busy change-over period with 400 students moving out on 30 June and 400 moving in on 1 July. However, the agent knew that that would be the case; it is like the staff of the refreshment kiosk at Bramall lane complaining that they cannot serve customers at half time because everyone comes in a 15-minute period. Letting agents know when the student change-over will happen, and there is no need for them to organise contracts in that way.

Most contracts for university-provided accommodation are for 42 weeks. Agents know that most students do not want 52-week contracts. The only benefit of a 52-week contract is that landlords get the rent, and that is the wrong driver. There is no reason why tenancy start dates cannot be staggered to allow for inspections and appropriate cleaning and repairs. The house that the young women were expected to move into was uninhabitable for two weeks until they forced basic action to be taken. Not unreasonably, they asked for their rent to be waived for that period, but they were told no, because they had signed their contract and had chosen not to live there.

The problems did not stop there. Sensibly, as young women they wanted individual locks on their room doors, which showed the marks of having had fitted locks previously, but they were told that under the contract they were not allowed to fit locks themselves and that the letting agent would arrange that at a charge of £80 a door. Such scams are unacceptable.

The student advice centre told me about wider problems with tenancy agreements from letting agents. They often do not contain the necessary legal information such as the landlord’s name and address so the students may not know who their landlord is. When they ask the agent, they are often told that they are not allowed to know.

Some agreements contain unfair terms that would not be enforceable in a court of law—for example, that tenants may not have friends or family staying at the property. There is a significant problem with letting agents on behalf of landlords failing to give students 24 hours’ notice that they will be doing repairs or showing prospective tenants round, and they may let themselves in with keys, sometimes without knocking.

The best letting agencies share the aspiration to stamp out bad practice, and the Association of Residential Letting Agents, the largest representative body, has called for statutory regulation. That is the nub of the problem. The absence of legislation governing letting agents is extraordinary.

Agents may voluntarily join a regulation scheme, but it is estimated that only 60% do so. Those who choose to join a scheme are likely to be the better and more responsible agents, but there is little that can be done to restrict the actions of the unscrupulous. It is an extraordinary omission that letting agents are not covered by the same requirement to be part of an approved redress scheme as estate agents under the Estate Agents Act 1979. Professional bodies for letting agents provide complaints procedures, but those agents who are not members are often the ones for whom tenants most need the procedures.

The problem is getting worse. The property ombudsman saw a 26% increase in complaints about letting agents between 2010 and 2011—a 26% increase in one year. There is a real need for a process by which all complaints and concerns can be addressed. An amendment to bring letting agents within the scope of the 1979 Act was tabled to the Enterprise and Regulatory Reform Bill in the House of Lords, and it would have been a positive step if the Government had accepted it.

The point we are all reaching is that greater regulation is needed. There is a consensus across the UK. Scotland has already banned the charging of fees by letting agents. In its upcoming housing Bill, the Welsh Assembly is seeking to require them to register and become accredited. As my hon. Friend the Member for Rotherham said, the OFT and Which? have called for action to be taken to tackle bad letting practice. Regulation would benefit tenants, landlords and decent letting agents.