Tenant Fees Bill (First sitting)

Melanie Onn Excerpts

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

[The Chair]

Thank you. We will now move to questions from members of the Committee. This is a rather unusual situation because this is a time when the Minister is allowed to have some fun and to ask you questions. Let us start with the shadow Minister.

[Melanie Onn (Great Grimsby) (Lab)]

Q Thank you, Mr Bone. I wonder if I could get your views on the ban on tenant fees in Scotland. Obviously, there was a revision to the 1984 ban on tenant fees in 2012, and I would like your views on what that did to the sector.

David Cox: As you pointed out, tenant fees were technically banned in Scotland in 1984, but the legislation was not well drafted and it therefore required revision in 2012. It meant that tenant fees in Scotland between 1984 and 2012 were generally lower than they are in England, at around the £50 or £60 mark.

Various organisations have done research into this, and I would point to the Scottish Government’s own statistics, which suggest that in the 12 months after the ban came into force, rents in Scotland went up by 4.2%. Against that, the English housing survey suggests that rents in England went down by 0.7%. There was, therefore, a 5% difference—well, 4.9% to be specific—between rents in England and Scotland during that period. That is not based on our statistics; that is based on official statistics from the Westminster and Scottish Governments.

I do not suggest that the whole 5% is attributed to tenant fees, but a good proportion of it will be. That is a good example based on official Government statistics that show what is likely to happen. That is why in the impact assessment the Government have accepted that rents are likely to go up, and when this measure was announced in the autumn statement, the Office for Budget Responsibility said that rents will go up as a result. I am fairly sure that everybody who gave evidence to the Select Committee in the pre-legislative phase said that rents will go up as a result.

[Melanie Onn]

Q What did that mean in cash terms, and what do you make of Shelter’s 2014 report that said that the market had improved, and that that was one of the reasons why?

David Cox: I am afraid I only have percentages; I do not have that figure in actual cash terms. On Shelter’s report, I draw your attention to the then Communities and Local Government Committee’s eighth report of the 2014-15 Session. It noted that the Committee had concerns about the methodological approaches adopted, and the sample used in that report equates to 29 letting agent managers surveyed. Its conclusion was that the information was inconclusive based on the small sample size. I would probably agree with that determination, and that is why I prefer to use the Scottish Government’s statistics, which come from a much broader sample base.

[Melanie Onn]

Q Do the other panel members agree with that assessment? Is there anything different that you want to add to that?

Isobel Thomson: No, I do not have any details other than what David has already said.

[Melanie Onn]

Q Mr Cox and Ms Thomson, you both mentioned enforcement. Why do you think financial penalties have not been issued on the scale that you referenced in your opening statements?

Isobel Thomson: I think there is a lack of resources—I think the will is there to do it, but there is a lack of resources. Because of that, as an organisation, we produce an enforcement toolkit for trading standards officers to use to assist them in their work. Although, of course, we were, and are, happy to do that work, we think that they should have the resources themselves to produce such documentation.

David Cox: I agree with everything Isobel just said. If I may, I will add two quick anecdotes. First, not long after the fee transparency rules came into force, I was on BBC Radio 4’s “You and Yours” programme with the head of the Chartered Trading Standards Institute, discussing their enforcement. The gentleman said on air, “Our budgets have been slashed, and we are reducing trading standards offices around the country. Would you prefer us to enforce against children’s toys that are dangerous and choking children, or to check whether tenant fees are being correctly displayed?” With the best will in the world, live on air, I could not say tenant fees.

The other example is of agents up and down the country coming to me and ARLA on a regular basis to tell us about agents that are not displaying their fees correctly. We notify the local trading standards departments, and we get nothing back. As an example, just before Christmas, I notified a trading standards department in the north-west of the country of 13 agents in its area. We provided the evidence that it needed. We got a “Thank you. We will reply within 30 days” email and then nothing. That was five months ago. We are doing the most we can.

That is why we are very supportive of the lead enforcement authority, because ARLA’s sister organisation on the sales side, the National Association of Estate Agents, has the national trading standards estate agency team, so we can feed all the intelligence across the country into one body, which can disseminate it more effectively and forcefully than we can to the local trading standards and environmental health department. We hope that the lead enforcement authority under the Tenant Fees Bill will have a similar impact on the letting side.

[Melanie Onn]

Q The intention of the Bill is that it will be cost-neutral and that fines will cover the cost of any enforcement activity. Do you think that fines set at the level indicated in the Bill will manage to do that, given that fines for non-display are £5,000 at the moment?

Isobel Thomson: They may do ultimately, but there will need to be an accumulated number of fines applied to meet the cost of running the service. They need a pot of money to kick-start the lead enforcement authority, and they need it quickly, because in the Bill there is great reliance on the guidance that they will give to consumers. They need to scale up and be ready, but we have not had any indication yet of when that will happen.

David Cox: I agree entirely. Possibly, in years two or three and beyond, they will, once they have the teams up and running, going out and doing the enforcement. But if they do not have any of the seed funding across board and even in the trading standards department to resource the team in the first place to start going out and doing the enforcement, they will never get to that point where they can start to self-fund. It needs that initial seed funding. There is money set aside for seed funding, but I do not think it will be enough at this point in time.

[Melanie Onn]

Q One final point and then I will be quiet. You said that between 1984 and 2012 tenant fees were lower in Scotland. Why do you think the industry in England did not follow the lead of Scotland and reduce tenant fees during that period?

David Cox: Scotland and England are different markets. Rents and house prices are much lower across the board in Scotland. Rents follow house prices. The costs incurred are different, based on employment costs, office costs and the general nature of the business. Our research suggests that tenant fees in London are more expensive than they are outside London, to take into account the increased costs of running businesses in the capital, compared with the costs of running businesses outside the capital. Scotland is cheaper than England.

[The Chair]

Q Mr Hyslop, do you want to add anything to that?

Adam Hyslop: To loop back to the previous point on enforcement, I would add that one of the great things that, hopefully, the Bill will bring through is the ability to self-enforce better. Currently, there is legislation that was designed to promote transparency and to make sure that tenants are aware of what fees will be charged, without seeking to limit those. That has not been totally successful, partly because it is quite difficult for a tenant to prove whether they were shown those fees and whether they were made clear to them. It is a somewhat abstract concept whether they were aware of the fees before they were asked to pay them at a later point in the process.

The good thing about a clearer and higher-level fee ban is that a tenant paying money is a far more provable event. A tenant can get to that point in the process and then simply refuse to pay the fee if it is presented to them. Even if they get past that phase and they were not aware that they were being charged a fee illegally, it is then easier to prove that they did pay a fee and to unwind that. I feel that self-enforcement is far easier with the legislation being proposed than with the current set-up.

--- Later in debate ---

[The Chair]

Q We will now hear oral evidence from the National Landlords Association and the Residential Landlords Association. We only have until 10.55 for this session. Gentlemen, would you introduce yourselves and, to speed things up, perhaps make an opening statement at the same time?

Richard Lambert: I am Richard Lambert, chief executive officer of the National Landlords Association. Briefly, we are aware of the growth of these charges to tenants by agents over the past 10 to 15 years. We are aware that that has been exploited to some extent, so we see a wide variation. Some of those fees have, frankly, reached egregious levels. We are also increasingly aware that agents double-charge landlords and tenants possibly for the same services. We agree that the Bill goes a long way to dealing with the issues that have emerged.

We think it is important for the Committee to remember that you are legislating to deal with the activities, in the end, of a small minority, but that the legislation will impact the entire industry; and that you are also legislating without having had a chance to evaluate some of the measures that have been brought in over the past couple of years, to see the full extent of the impact that they might have on the industry as things go through.

In terms of the impact on landlords, as David Cox has explained clearly, the client relationship in the future will be unambiguous: the agent will owe a duty to the landlord through the contract.

We have no doubt that the costs to landlords will increase. Agents will certainly try and pass on part of the fee that they have charged to tenants to landlords. We do not believe it is going to be possible for them to move all those charges from the tenant to the landlord, but landlords will certainly have to absorb some of those and, like any other business, they will attempt to respond to an increase in costs by maintaining their profit margins by increasing the price. So, there will be some increase in rents, but how much that happens will depend very much on the market, and that will depend very much indeed on the locality and the situation there.

I think both landlords and agents will have to absorb some degree of that cost. As a result of agents charging landlords more, we expect that there will be more competition. That competition could be in terms of the quality of service, as agents try to retain and increase their client list by providing better value for money; but we could also see that competition emerge in terms of fees, in that agents will try and attract landlords by charging lower and lower fees. We are already advising our members to keep a firm eye on the level of service they are being offered and to make sure that the level of service they are being offered is what is delivered and that it relates to some of their other needs. For example, the number of inspections they are being offered each year by their agent should correspond to that which is required under their insurance contracts.

Undoubtedly, there will be more self-management. Landlords will look at the fees they are being charged and consider whether they should be managing themselves. We have some evidence from some of our surveys that people are increasingly thinking in that direction. Ultimately, as was also made clear in the previous session, the key is enforcement. There are many issues across the private rented sector where we have the legislation in place but there just are not the resources to enforce it, so we need to ensure the surety and certainty of enforcement to make sure that what is in this legislation—and, indeed, in all other legislation across the sector—actually sticks.

David Smith: I am David Smith, the policy director for the Residential Landlords Association. We also have some concerns about the Bill. Clearly, there has been a situation where some agents charge egregious fees, but as Richard rightly said, they are the minority, not the majority. We do not think the Government have done enough with the Consumer Rights Act 2015; there were powers to make regulations under the Act to increase transparency around fees, which were not taken up.

We are very concerned about enforcement. Enforcement under the Consumer Rights Act has been what I would generously call patchy—I have used other terms in other places—and we do not think that enforcement is going to be sufficient. In fact, enforcement provisions in the Bill are a bit of a mess, and we think that is likely to lead to poor enforcement and make the Bill ineffective. I think there is a very high risk that the Bill in fact will not achieve any effect at all, because there will be insufficient enforcement against the bad agents who are already charging the excessive fees and will carry on doing so, and in some cases people will find ways to work around the Bill, as they already have in Scotland to some extent.

We are also concerned that there is a missed opportunity here. Our view is that the biggest cost for tenants is not the fee they have to pay when they move, but the fact that they have to have two tenancy deposits—one for the outgoing property and one for the incoming property. We have advocated on a number of occasions for legislation to be passed to change that dynamic and to rethink the way we use tenancy deposits—to find some way of making tenancy deposits cross over from tenancy to tenancy, to avoid a scenario where tenants are actually having to pay two deposits.

There are no circumstances in which a fee is ever going to be as high as six weeks’ rent. Therefore, the tenancy deposit is always the actual controlling factor in terms of how much tenants have to pay.

[Melanie Onn]

Q Do you think that it is about enforcement, or is it about deterrence? Fines are set at around £5,000. Do you think that is enough of a deterrent? Do you think that if those fines were sufficiently high to worry the small number of rogue landlords, we would not have to worry so much about the enforcement side?

David Smith: The Consumer Rights Act has a £5,000 deterrent penalty, which clearly—presumably—has not worked, because otherwise, we would not be having this discussion at all. I endorse the National Approved Letting Scheme’s study from last year that shows that very, very few penalties have been levied. What is particularly interesting, which Isobel did not mention, is that even fewer of those penalties have actually been collected. Not only are people not levying very many penalties, but in many cases when they levy them, they are never in fact paid anyway. So, I do not see much deterrence there. Local authority officers have told me anecdotally of situations where they have levied penalties and people have said, “Yeah, fine. Send me a £5,000 penalty and I’ll pay it. It doesn’t make any difference to me.”

The structure is also a bit nonsensical. There is a certain situation where the Bill states that it is an offence to charge a prohibited fee, but it is only an offence if I have already sent you a £5,000 penalty notice and then catch you at it again. From a practical point of view—a trading standards officer point of view—they will have to do the whole thing twice to get a prosecution. The Bill also creates a system whereby we can ban agents under the new banning order provisions in the Housing and Planning Act 2016, but the reality is that banning is very unlikely to occur on a first offence, so you are going to have to get two prosecutions, which means you are going to have to catch somebody four times and prove a case against them before you can move to banning them. If prohibited tenant fees are an offence, then they should be an offence and they should be treated as an offence; they should not be an offence with some codicil on the front that says, “You can pay a little bit of money for it not to be an offence.” That does not make sense.

[Melanie Onn]

Q Mr Lambert, would you agree with that?

Richard Lambert: Absolutely. I think the level of penalty is a deterrent to the law-abiding because it ensures that they will not slide into error, but for the people who are breaking the law and who factor it in as part of the cost of business, it will not matter at all, because the lack of enforcement means that they will assume that most of the time they can get away with it, and on the occasions that they cannot, it is simply a cost of doing business.

David Smith: There is a significant level of ignorance, as well. We should not ignore the fact that not all agents are bad in the sense of being evil; many of them are bad in the sense of just being fairly incompetent. While there is a significant percentage of highly professional and highly skilled agents, there is a minority of agents who I would not apply those words to.

[Melanie Onn]

Q Do you think it is right that tenants in England should pay more than tenants in Scotland?

David Smith: It depends what you mean by “pay more”. Do you mean pay more for rent or for fees?

[Melanie Onn]

Q In relation to tenant fees, given that is what we are here to discuss. I am not allowed to go outside the scope of that.

Richard Lambert: Housing is a devolved issue, and therefore it is for the individual countries of the UK to decide their situations.

David Smith: I appreciate that there is a great attraction in comparing Scotland with England, but the markets are enormously different. Outside the main cities in Scotland, the vast majority of letting and estate agents are co-located with solicitors, so the economics of the business is totally different. Inside the cities, it is a bit more like it is in England and Wales, but the size of the market is tiny by comparison and I am not convinced that it is a particularly good comparator. You might do better by comparing with the Irish Republic, which is of a similar size and has much more similar economic structures in some way. I see your point, and I do not think you are necessarily wrong, but I do not think it is as simple as a direct comparison between the two—sorry.

[Maria Caulfield (Lewes) (Con)]

Q On the issue of enforcement, I have been working closely with my local citizens advice bureau in Lewes, which has done a huge amount of work on this. The current system does not work because it is up to local authorities to enforce it, and tenants often do not realise that there are fees that have to be paid, and that on the same high street those fees could vary from hundreds to, in some cases in my constituency, thousands of pounds, and that letting agents are supposed to publish those fees.

So, currently, the enforcement system is not working. Is it not right that if fees are banned, tenants will be able to self-enforce, because they will be aware that no fees should be charged? Do you not recognise that this would give more power to tenants in the process, given that currently they are not able to make those decisions?

David Smith: But why? There is no mechanism within this Bill for tenants to self-enforce.