Letting Agent Fees and Deposits: Private Rented Sector

Marcus Jones Excerpts

Tuesday 3rd May 2016 Commons Chamber

[The Parliamentary Under-Secretary of State for Communities and Local Government (Mr Marcus Jones)]

I am grateful to my hon. Friend the Member for Lewes (Maria Caulfield) for securing this debate and giving the House an opportunity to discuss letting agent fees and tenants’ deposits in the private rented sector. The Government are committed to promoting a strong and thriving professional rented sector where good landlords can prosper and hard-working tenants can enjoy decent standards and receive a service that represents value for money for their rent. The vast majority of landlords provide a good service and rent out good-quality, well-managed properties. We know from the English housing survey that 84% of tenants are satisfied with their accommodation and that, on average, tenants stay in a property for four years.

The private rented sector is expanding and is now a major part of the country’s housing stock, providing homes for over 4 million households. We want to see professional buy-to-let and institutional landlords and high-quality and professional letting agents who provide value for money for tenants. We have therefore introduced a range of measures to help drive up standards and improve the quality and management of privately rented housing.

Since 2014, all letting agents and property managers have been required to belong to one of three Government-approved redress schemes, with a penalty of up to £5,000 for those who fail to comply. Where standards do not meet expectations, both tenants and landlords now have an effective and transparent means of raising their concerns. This offers a clear route for both landlords and tenants to pursue complaints by weeding out the cowboys who give agents a bad name, and at the same time we hope to drive up standards for tenants.

Since 2015, letting agents and property managers have also been required to display a full tariff of their fees prominently in their offices and on their websites, and to make clear whether or not they belong to a client money protection scheme, with a fine of up to £5,000 if they fail to comply.

We have introduced legislation, through the Deregulation Act 2015, that prevents landlords and letting agents from evicting a tenant simply for making a legitimate complaint about the condition of the property. They have also been prevented from serving open-ended eviction notices at the start of a tenancy, helping to improve tenant security, which I hope my hon. Friend will agree is an extremely important move. We have also made £12 million available to a number of local authorities to help them crack down on rogue landlords and drive them out of the sector. Results have been impressive, with over 40,000 properties inspected and legal action taken against more than 3,000 landlords to date.

And we are going further. Through the Housing and Planning Bill, we are introducing a package of measures that will enable local authorities to do more to improve standards in the sector and ensure that rogue landlords either are forced to improve or leave the sector. Civil penalties of up to £30,000, which the local authority can retain and use for housing and enforcement purposes, will be levied in the most difficult cases, while a database of rogue landlords and letting agents will allow councils across the country to keep landlords and letting agents convicted of criminal offences firmly on their radar and a target for enforcement action.

My hon. Friend will know that the Government, through the Bill, are introducing banning orders for the most serious and prolific offenders. The measures will also require the repayment of rent where a landlord has illegally evicted a tenant, failed to rectify a potentially serious health or safety hazard or breached a banning order. There will also be a tougher “fit and proper person” test to help ensure that rogue landlords and letting agents are properly vetted before they can manage licensed properties.

The Government are committed to ensuring that where a tenant pays a deposit to their landlord, it will be returned at the end of the tenancy, provided the tenant has complied with the terms of the tenancy agreement. Where a deposit is paid in conjunction with an assured shorthold tenancy, it must be protected by the landlord or agent in one of the Government-approved schemes, and certain information must be sent to the tenant within 30 days of the deposit being received. If a landlord fails to do so, the tenant can initiate legal action and the landlord may have to pay the tenant up to three times the amount of the deposit paid. Tenancy deposit schemes in England have protected over 11.5 million deposits since their launch in 2007 and helped to raise standards in the private rented sector and ensure that tenants are treated fairly at the end of a tenancy.

I am clear that the vast majority of letting agents provide a good service to tenants and landlords and that most fees charged reflect genuine business costs. I do not believe, therefore, that a blanket ban or cap on letting agent fees is the answer to tackling the small minority of rogue letting agents who exploit their customers by imposing inflated fees for their services. Banning or capping letting agent fees would not make renting any cheaper for tenants—tenants would still end up paying but through higher rents—which is why the Government believe that ensuring full transparency is the best approach. This can be done by requiring letting agents to publicise a full tariff of their fees, giving consumers the information they want and supporting the majority of reputable letting agents. Such transparency will help to deter double charging by letting agents and enable both tenants and landlords to shop around, encouraging agents to offer competitive fees.

The evidence from Scotland, where letting agent fees have been banned, strongly suggests a direct relationship between a ban and higher rents. The Association of Residential Letting Agents commented that

“there was strong evidence of a negative fallout in Scotland...agents have gone out of business, some have raised landlords’ fees, some have put up rents”.

In the first quarter after the introduction of the ban, rents in Edinburgh increased by more than 5% and in Aberdeen by over 6%. While a direct link between the abolition of fees and higher rents cannot be proved, these rises are significantly higher than inflation. By comparison, over the same period, the average rent increase across England was just 1%.

Moving on to deal with my hon. Friend’s specific questions, I have probably covered those she asked about the cap. Although we do not believe that a cap on letting agent fees is the right answer, when the requirement on letting agents to publicise their fees was introduced in October 2015, we said that we would review how well the scheme was working after 12 months. I think that is a sensible approach, allowing the new system time to bed in and to demonstrate that it is delivering the expected benefits.

I cannot pre-judge the review or its recommendations, but I am clear that we are not ruling anything out. If we find that the approach is not, in fact, working well, we will consider whether more needs to be done, including looking at the case for taking action on fees. The review will be carried out later this year. In the meantime, the Government’s position is that a ban or cap on letting agent fees would be disproportionate, probably pushing up rents without benefiting either landlords or tenants.

My hon. Friend made a request about having statutory tenancies longer than the usual six or 12-month ones. As I said at the outset, the average tenancy is sustained for a period of four years, and the Government are not currently looking to change that. My hon. Friend will know, I am sure, that the model tenancies brought forward by the Government over the past few years have been extremely successful and have been adopted by many letting agents.

My hon. Friend mentioned tougher penalties. When we look at the review, I am sure that that issue will be considered, too. My hon. Friend knows—she served on the Housing and Planning Bill Committee—that there are significant penalties for rogue landlords and rogue letting agents. Civil penalties of up to £30,000 exist as a deterrent to them, and as my hon. Friend mentioned, that sum can be kept by local authorities to assist them with further enforcement.

I am grateful to my hon. Friend for raising this important issue, and I hope that my response this evening has reassured her that the Government take extremely seriously the issues she has set out for us. Following a review later this year, we will consider whether more needs to be done.

Question put and agreed to.