Tenant Fees Bill (Second sitting)

Melanie Onn Excerpts

Committee Debate: 2nd sitting: House of Commons
Thursday 7th June 2018 Public Bill Committees

[The Chair]

Members will now ask you questions. I should point out that this is a very unusual Committee, in that the Minister gets to have some fun and ask you questions, which will probably happen towards the end.

[Melanie Onn (Great Grimsby) (Lab)]

Q 56 Welcome, and thank you for taking the time to be with us this morning. Alex, you touched on some of the challenges that trading standards currently faces within the tenant sector and with the regime. Will you expand on that a little, please?

Alex McKeown: One of the biggest issues is funding—I am sure that has been said many times, and Councillor Blackburn will say the same. There is a lack of expertise within trading standards when it comes to legislation that relates to letting agents. At the moment, not many boroughs or authorities are enforcing the legislation.

I watched Isobel Thomson and David Cox give evidence on Tuesday. Isobel did a survey last year of 42 boroughs to see who had issued financial penalties, and only 7% had done so—and I have worked for four of those. I am the person issuing them, so I know the pitfalls and issues with the current legislation. I have made the mistakes, but I have also achieved quite a lot in what I have done. My knowledge is very different because I do this every day. This is what I do 100% of the time—dealing with this legislation—whereas most trading standards authorities have more than 250 pieces of legislation that they have to deal with. So there needs to be more expertise; there needs to be more funding in order to train trading standards to enforce this legislation.

[Melanie Onn]

Q Explicitly in terms of what could be done to improve the Bill, you have mentioned funding and training. Is there anything else?

Alex McKeown: Do you want a specific on something?

[Melanie Onn]

Yes.

Alex McKeown: Something that I have picked up on is that, at the moment under the Consumer Rights Act 2015 and the redress scheme legislation, the burden of proof is on the balance of probabilities, in terms of issuing these financial penalties. What you are trying to say is that this is going to be self-funding, and at the moment with the Consumer Rights Act 2015 that has the ability to be self-funding, because all we have to do is look at a website and we can see whether it is displaying the correct information or not. It is easy—we have to prove it on the balance of probabilities, we download the website and we have the proof.

In this Bill, you are asking for a criminal burden of proof for a civil financial penalty, and that is going to scare people off; that is going to scare trading standards off. They are not going to want to prove beyond all reasonable doubt that a tenant has been charged a fee. Then, you are also relying on the complaints to trading standards. We do not get that level of complaints to trading standards in relation to tenancies. Then you have to tell the tenant, “You have to give a witness statement on the fact that you’ve been charged a fee”, and they are going to say, “But we might get thrown out of our house. We don’t want to give you a witness statement.” To have it beyond all reasonable doubt, we are going to be up against it, and it will not be self-funding.

[Melanie Onn]

Q Councillor Blackburn, in terms of the specifics in the Bill, what do you think could be strengthened or improved that would actually assist in delivering the Bill and doing what it sets out to do?

Councillor Blackburn: We need to be clear that national trading standards is responsible for appointing a lead authority in terms of enforcement, because that is very important in directing and co-ordinating action. Their current partner—their current lead agency—is a Welsh local authority in relation to housing matters and, of course, because this Bill affects only England, it will not be possible simply to ask that authority to absorb that.

However, finance is also an issue. At the moment, £500,000 is promised to assist in the up-front costs of setting these schemes up. The average local authority trading standards budget is £671,000 a year, so that £500,000 spread across 340 local authorities is unlikely to fill the gap that exists. That is extremely important.

There is also a capacity-building issue within the trading standards profession. As it is, 64% of trading standards authorities are reporting that they have difficulties in recruiting and retaining people, and that issue needs to be looked at nationally. The LGA stands ready to assist in that process and will work with the Chartered Trading Standards Institute, but there is a demographic time bomb in there as well, about the average age of trading standards officers. As councils have cut back on trading standards because of the overall financial pressures on local authorities, it is not seen as a long-term, safe career, if I can put it that way.

[The Chair]

I am going to let the Minister have a go now.

--- Later in debate ---

[Rishi Sunak]

I can wait until the end.

[Melanie Onn]

I would like to come in.

[The Chair]

In that case, shadow Minister, you may.

[Melanie Onn]

Q What you said about the fines is timely. I had just written down a note to ask about the limits of the £5,000 fine. We are concentrating quite a lot on the enforcement side, but there is also the element that it is intended to be a deterrent. You clearly do not think that £5,000 is a deterrent.

Alex McKeown: No. At the moment the rogue agents just fold their companies and re-phoenix, or they simply do not pay. There was a case in Redbridge a few years ago. A rogue letting agent was issued with a £5,000 fine by the local authority three times and they carried on trading. They said, “We are not going to pay it and there is nothing you can do.” Obviously, there are criminal sanctions under the Consumer Protection from Unfair Trading Regulations 2008, but when it comes to the fines, the agent continued to trade. They were featured on the Channel 5 programme, but they continued to trade. So the fine is not enough of a deterrent because, ultimately, they just folded their company and the directors walked away.

[Helen Hayes (Dulwich and West Norwood) (Lab)]

Q I want to revisit the issue of confidence and how protection can be given to tenants to come forward. When the Housing, Communities and Local Government Committee conducted pre-legislative scrutiny of the Bill, we had evidence of the very low expectations of tenants. The quality of accommodation in certain parts of the sector is poor. They are often very vulnerable people and they are proactively told, “This is as good as you can expect and this is what the standard is,” which is combined with the vulnerability inherent in the landlord-tenant relationship and people’s fear of losing their homes. That was reinforced when we went out with Newham Council to do enforcement visits under its selective licensing scheme, and we met tenants who were living in properties that were clearly not fit for purpose and in breach of regulations, but they were told that was fine.

The Bill mentions the need for effective communication with tenants about their rights. We know that the retaliatory eviction legislation is not working and not functioning. How do we get to a framework of protection for tenants that ensures people are sufficiently aware of their rights and also confident enough to come forward and report breaches so that the agents and landlords responsible for those breaches can be put out of business?

Alex McKeown: That is quite a difficult one. The tenants are always going to be scared of being thrown out because so many letting agents do not care about illegal evictions. Again, the housing teams are under so much pressure that they cannot take action when there is an illegal eviction and someone is locked out of their house and loses everything. I go back to having fines against directors as a deterrent and then the criminal sanctions further down the line. Money is always a deterrent to people. They prefer not to pay. They would prefer to have a company criminal record than pay out £30,000. As my colleague says, criminal prosecutions are expensive. It is down to resources, again. What we have often found with the criminal prosecutions is that even with some of the safety aspects, the fine will be £2,000, so we might as well go for the civil penalty—but it is difficult protecting those vulnerable tenants.

Councillor Blackburn: Perhaps I may briefly reflect on our experience in Blackpool of having a very high-profile scheme of selective and additional licensing, working with the local media, and using our own communications channels to get across to people exactly what the council are doing—taking journalists and other interested parties out with us, as has clearly been done in Newham, to see exactly what happens. That has had twin effects. It has raised awareness among tenants that the council is involved and is on their side rather than the side of the landlord. It has also had the effect of some of the worst landlords and letting agents deciding that it is easier for them to go and do business elsewhere. Again, on the awareness-raising side, I think there is a great deal we can do to communicate the fact that “The Government and your local council are on your side here, but you need to take us into your confidence and trust us.”

Alex McKeown: I will just add this: we have all mentioned HMO licensing, selective licensing and additional licensing. I started dealing with letting agents in Newham, so I am well versed in licensing, and I think it works very well in areas with a high percentage of rogue agents, because they will not get the licence, and there is that way forward.

The other thing I will mention is clause 12, which says that trading standards will assist tenants to get their prohibited fees back. As to the likelihood of that happening—it just is not likely. That is one of the problems. However, the Housing, Communities and Local Government Committee report refers in paragraph 99 to tenants being able to go to the first-tier tribunal. What I think would encourage tenants to complain to trading standards and give us statements would be if we could serve our penalty charge notices and, a bit like in a criminal prosecution, add the compensation order for the tenant to our case in the tribunal, rather than saying, “We are going to go to the tribunal with our penalty charges”—and then we have to start a new action in the county court.

It seems disjointed. If we can say to the tenants, “We will get your money back. We are going to deal with this. We will put it into our case, so it all goes into the same tribunal hearing,” I think that will work better. I think that will assist vulnerable tenants a lot more.

[The Chair]

I am jumping in, because I can see we are going to run out of time. I know the Minister is chomping at the bit to have some fun with you, but I am sorry, Ms McKeown, I am going to have to go to the shadow Minister.

[Melanie Onn]

Q I will be brief. I wanted to ask about holding deposits and whether you think that the phrase “reasonably entitled” is sufficient to make it possible to enforce the provision. Do you think that removing the criminal offence from the original draft Bill, following the Government’s response to the Select Committee, was the right decision? Finally, under clause 21, what will be the effect of moving the enforcement of client money protection schemes in non-unitary areas from district to county council level?

[The Chair]

As briefly as possible, please.

Alex McKeown: I did not look at the holding deposits, I admit, so I cannot answer on the holding deposit aspect and the removal of the criminal sanction on that. You asked about client money protection.

[Melanie Onn]

Yes, in terms of moving enforcement of client money protection schemes from district councils to county councils—it is probably a question for Councillor Blackburn.

Councillor Blackburn: There needs to be substantial flexibility in there. As Mr Goodwill commented before, in large counties, the number of cases that will be dealt with in one small district council could hugely outweigh all the other cases that are dealt with across the rest of the county council. There need to be options for local authorities to work together, if they so wish, or to appoint one lead authority—perhaps one district council in a county council, or the county council itself. There is not a one-size-fits-all answer to that question, because the way in which local authorities operate and the amount of expertise differ so much.

[The Chair]

I am sorry; it is very frustrating that we have such little time, but the Minister has been very patient.

--- Later in debate ---

[The Chair]

Thank you. We will shortly move to questions from Members. This is a very important part of the Committee system, because it allows Members to be better informed before going into the line-by-line examination of the Bill, which they will start this afternoon. It also gives the Minister the opportunity to put some concerns to you as well. We will start with the shadow Minister.

[Melanie Onn]

Q Thank you, Mr Bone. Could you go into a little bit more detail about your concerns over the description of default fees? What specifically concerns you about what is in the Bill?

Rhea Newman: We accept the principle that there may be certain circumstances in which a tenant should cover the cost of a default, but we want to ensure that there are sufficient protections in the Bill to ensure that, first, this is part of a fair term in a tenancy agreement, and secondly, tenants cover only the actual cost of the default. We welcome that the Government, as a result of the pre-legislative scrutiny, have already tightened the definition to limit payment in the event of a default to the landlord’s loss.

However, we think that that needs to be tightened further, so that the payment covers only the landlord’s reasonable and proportionate loss, because what could be included in loss is currently too broad. We do not think that landlords’ and agents’ business costs, which could include their time, should be factored into that, and we also think that charges for things like sending letters or making phone calls to chase late rent are unfair. Tenants chasing a landlord to fulfil their obligations cannot charge for every communication they send, so we think that there should be parity in those principles.

We think that that definition needs to be tightened further. We also think that, through regulations, the Government could set out clearly the types of things that are allowed to be charged for as a default fee, and impose a requirement on landlords and agents to produce evidence of their costs when trying to charge a default fee. That should be shown to a tenant up front, which would make it easier for them to challenge if anything looks unfair.

The Government are currently proposing to produce non-statutory guidance. We do not think that that will be strong enough, because it will not be binding on landlords and letting agents. Putting it in regulations will make it easier for tenants to challenge and strengthen the hand of trading standards when trying to enforce the Bill.

Katie Martin: I support everything that the witness from Shelter has said. The only thing I would add is that we have seen attempts to use guidance for enforcement in other sectors. For example, in the energy sector, Ofgem introduced guidance around back-billing. That was found to be ineffective, so it had to introduce rules around that. That is also true of council tax debt collection practices. There are other examples of guidance not being followed, which has then required stronger measures. We think that that should be pre-empted and that it should be written into the proposed legislation at this point.

Dan Wilson Craw: I agree with what has been said. I am particularly worried that challenging default fees that are unfair or that relate to unfair terms in a contract will be very difficult for the tenant. Because it is not clear cut, trading standards might not devote resources to investigating it, so we think something stronger than guidance is necessary.

Izzy Lenga: We need a bit more clarity on the reasonableness of charges. There is an issue for students in particular around garden maintenance. There is quite a big disparity as to whether the cost would be just for a gardener or for a whole landscape change. That difference can be a massive cost and that needs a lot more clarity. Anecdotally, I remember that when I was a student we spent two days just plucking weeds out of my garden, because we did not know what we were meant to do and what the cost could be. That clarity would help students a fair bit.

[Melanie Onn]

Q I think it was Shelter that said it welcomed the ban on up-front fees, but it is not quite the case that the Bill bans all up-front fees. There is still a requirement for a holding deposit and the cost of the deposit. On Tuesday, we heard some evidence that highlighted the issue of the dual deposit situation where, if you are in one tenancy and you have paid your deposit, and then you are seeking to move and you have to find a deposit for your next place, you are out of pocket by two deposits and you need to find a holding deposit. The Bill does not entirely deal with that, and I wonder what your view is on how much of a barrier that is for people.

Dan Wilson Craw: We think it is quite a big barrier. We have done some work and we published a report in March on tenancy deposits. The average deposit is about £1,000, and you have to find that as well as the current £400 average letting fee. The majority of tenants will get their deposit back in a number of weeks, but only after they have moved out of their current place and into their new place so, as you say, they are out of pocket. One of our proposals was to passport deposits or to enable a portion of the deposit to be passported from the first tenancy to the next one. The Residential Landlords Association is looking at that as well. This Bill is a great opportunity to explore that in further detail.

Rhea Newman: We support what Dan said about up-front costs: they are a significant barrier for tenants. In our most recent private rented survey, moving costs were about £1,400 on average, and for those who paid letting fees, the average fee was about £250. We regularly hear from our advisers across the country about what a challenge those up-front costs pose for people who are trying to secure a new tenancy, particularly lots of tenants we support who might be on lower incomes.

There is a distinction to be made between what we are referring to as up-front fees that are non-refundable and the refundable bits in the Bill, which are the holding deposit and the security deposit. We support proposals around deposit passporting and that is an area that certainly merits further attention, but it is perhaps beyond the scope of the Bill. Our priority for the Bill is to ensure that the existing provisions are clear and enforceable so it can have the maximum impact for tenants. There is further work to do on other up-front costs, as Dan highlighted.

Katie Martin: Clearly, up-front costs, whether they are refundable or not, are a big barrier for people who are moving within the private rented sector or entering it. We would like that to be tackled. If the cap on the deposit was brought down to four weeks, as we recommend, that would help in respect of dual deposits as well.

Izzy Lenga: I echo my fellow panellists. Our priority campaign this year at the NUS is “Poverty Commission”. We know that students are really struggling with money and are having to work two or three jobs to find where their next month’s rent will come from, on top of their studies and any extracurricular activities. Such things place an added burden and stress on people that in turn can have an impact on their mental health, their ability to study and so on. It affects students financially, but also academically and in their whole welfare.

[Melanie Onn]

Q I have two more questions. Can you tell me about specific challenges for students when it comes to renting and what their general experience is?

Izzy Lenga: A specific challenge is definitely affordability. That is a massive challenge that students face. As I mentioned earlier, the fact that students are too often living in poverty and do not know where their next month’s rent will come from really affects them.

Students often do not know their rights as tenants. That is something that we really try to train them up on. The NUS runs a “Ready to Rent” scheme and encourages student unions to do the same. Landlords often take advantage of the fact that a lot of students are first-time renters, so it might be their first time looking over a contract, for example. There is also the question of the effect on students who are estranged or do not have the necessary documents, such as a passport, and on working- class students who have lived in social housing their whole life and whose families have not filled in contracts and stuff like that for housing.

Those are big things. Another is that the quality of housing for students just is not up to par. People joke, “It’s student accommodation—it’s meant to be damp and in squalor.” We did a report this year about fuel poverty. Students are living in increasing fuel poverty and just cannot afford to heat their own homes, because of the price and because they do not know they can change energy supplier. Things like that are the key issues for students with renting at the moment.

[Melanie Onn]

Q My final question is, how will enforcement work in practice? I would like to get a flavour of how it currently works and what people need to be able effectively to enforce their rights, if that is possible.

Dan Wilson Craw: Do you mean in terms of the general quality of housing?

[Melanie Onn]

Under the Bill, how will people be able to enforce the rights they are being offered in the context of housing legislation as it exists at the moment?

Dan Wilson Craw: A tenant has two options apart from simply saying to the agent, “This fee is unfair.” The tenant can say, “If you don’t retract it, we’ll report you to the council,” or, “We’ll take you to the first-tier tribunal.” Those are the two options they have, in essence. The tenant can go to the council’s trading standards or to another authority and rely on officers to carry out an investigation, or take it upon themselves to make an application to the first-tier tribunal. We need that back-up process, but all a tenant can get through that process is the fee back, so we think there is merit in awarding a higher form of compensation to a tenant who goes through that process. That would create more of a deterrent for an operator who charges an illegal fee, it would potentially save the council work, and it would give the tenant something back for the effort they put in.

Rhea Newman: Enforcement starts with having a really clear ban in the first place. The clearer the ban is up front in terms of all the different provisions—for default fees and refunding holding deposits, and the ban on up-front fees—the easier it will be for landlords and agents to know what they can charge and for tenants to know what they should pay. When the Bill comes into force, there will need to be clear communication to all parties, so that it is very clear what should be charged and what should be paid.

Once the Bill comes into force, it may be quite difficult for a tenant to challenge an unfair fee charged by an agent during a tenancy. That is one of our concerns about default fees. There is concern among tenants, who do not want to raise issues with the landlord during a tenancy for fear that they might face a retaliatory rent increase or eviction. There are problems with challenging unfair fees once you are in a tenancy.

We have concerns that few tenants will use the option to go to the first-tier tribunal. Citizens Advice has done some research about how likely tenants are to take formal routes of redress, such as going to court, for disrepair issues. We know that few tenants will use that option, but it is important that it works as well as possible for those who can be supported to use it. I know you heard from local authorities this morning. I am sure they made the point about ensuring they are sufficiently resourced to enforce the ban. That will be a key part of it.

I come back to the point that the clearer the ban is in the first place, the easier it will be for all to enforce it. The evidence from Scotland really points to that. The reason the ban needed to be clarified in Scotland in 2012 was that the provisions were not clear in the first place. Even after 2012, Shelter Scotland has been running a campaign to help people to reclaim their fees. That just highlights how important it is to get it right in the first place.

Katie Martin: We think that it is really important to get enforcement right. We are concerned about the reliance on trading standards in terms of resourcing and the willingness of authorities to take action. We think the market is very much skewed in favour of landlords and agents, and that tenants actually have very weak bargaining power. As we have pointed out, tenants feel like they are intimidated and do not want to take action against their landlord for fear of retaliation.

We very much support the Government’s moves to introduce mandatory redress membership and we want that to happen as soon as possible, but we do not think that that will fix all the problems. We think that trading standards needs to be adequately resourced. We need to make sure that the requirements in the legislation are really clearly set out so that we hopefully do not get to the point where we have to resort to this kind of redress, but if that happens, it has to be adequately resourced and tenants need to be supported.

[Mr Goodwill]

Q In the opening comments from Citizens Advice, we heard that a four-week deposit was preferable to a six-week one on the grounds of affordability, but in a previous evidence session, we heard from the landlords that where there is a four-week deposit, often the departing tenant will just not pay the last month’s rent in the knowledge that the landlord will then take the deposit to cover that rent. There is then nothing left to cover any damage or any other problems, so they were very much of the view that a six-week deposit would prevent that from happening. In the experience of the panel, is that something that happens quite a lot and would a six-week deposit be preferable for that reason?

Katie Martin: We have done some research on this. Our most recent research found that currently only 2% use their security deposit as their last month’s rent, and 34% have a deposit of four weeks, so it does not stack up as an argument for us. We think the benefits of bringing it down to four weeks would far outweigh the risks.