Tenant Fees Bill (First sitting)

Richard Graham Excerpts

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

[James Frith (Bury North) (Lab)]

I draw attention to my entry in the Register of Members’ Financial Interests. I have one property of which I am a landlord.

[Richard Graham (Gloucester) (Con)]

I draw attention to my declaration in the Register of Members’ Financial Interests. My wife and I have recently become landlords of a property.

[Dr Paul Williams (Stockton South) (Lab)]

May I draw attention to my entry in the Register of Members’ Financial Interests? My partner and I rent out two properties, and we are also tenants.

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[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.

[Richard Graham]

Q May I explore some of the comments that you all made? David Cox, you said effectively two things. First, you said that you do not support the Bill, and then you criticised it for the lack of an adequate enforcement mechanism. The two are totally different things, aren’t they? If you do not support the Bill, the fact that it has not got an adequate enforcement mechanism is neither here nor there. If you are not supporting the Bill because it has not got an enforcement mechanism, the focus is on your offering some suggestions as to how that could be helped. The shadow Minister’s comment about whether the price of the fines is going to be adequate to help finance good trading standards teams is pretty relevant to that. Why do you think that the Bill is not going to achieve its aims, when Adam Hyslop of OpenRent has clearly said that it will?

David Cox: We do not support the concept of the Bill; we do not think it will achieve its aims. I will return to that in a moment.

[Richard Graham]

Q Why?

David Cox: In terms of why we made comments about enforcement, we have to take a practical consideration, and the likelihood is that the Bill will go through and become law. Therefore, we want to ensure that what comes out the other end from this Committee and the parliamentary process is a Bill that will affect the whole of the market, not just those professional agents who are our members and who will do this, as we have seen with so many previous pieces of legislation.

[Richard Graham]

Q Okay, but let us focus on the first bit first. Adam Hyslop has said clearly that the Bill will achieve its aims. He had a couple of queries that we can come back to. You have said that it will not, but you have heard his experience. How can you defend your position against that?

David Cox: There are different types of agencies in the market. Adam’s business is very different from a traditional letting agent’s. The traditional high street letting agent that you walk into, or the one you are considering as a letting agent, is not offering the same service as Adam and OpenRent provides. As I understand it, they are very much more geared towards a listing service for landlords who want to self-manage. I do not think they have an option where they manage the properties on the landlord’s behalf—Adam will be able to answer that. Traditional agents do an awful lot more than the basic listing service, which is a service that they charge the landlord for. They charge the landlord for going out and doing the viewings, for example.

The tenant aspect is much more around issues as they arise, such as issues at the beginning of the tenancy, to ensure that agents are providing the best tenant and to ensure that the tenant is not getting into any financial difficulty as a result of taking properties that they cannot necessarily afford. In particular areas of the country, such as the north-east, a lot of letting agents will go that extra mile for the tenant, to help them apply for benefits and with their benefits paperwork. They do it because applying for the local housing allowance—or now universal credit—is an incredibly complicated process. Therefore, they sit there with the tenant and go through the application processes.

[Richard Graham]

Q Those are all important aspects of what letting agents can do. I argued, when we last debated this, that there is a critical role for letting agents in compliance—keeping landlords and letting agents within the law—ensuring tenants know where the fire escape is, and all the rest of it. Given the importance of those issues, why do both you and Isobel Thomson believe that, suddenly, letting agents are going to close down and there are going to be lots of job losses? Is that not so important that it is the key thing to market to both landlords and tenants?

David Cox: I would argue it is a cost issue. Capital Economics estimated last year that letting fees account for approximately 20% of the sector’s turnover, or approximately £700 million a year. In its most plausible scenario, it expects agents’ turnovers to reduce by about £200 million, landlords’ costs to increase by about £300 million a year—

[Richard Graham]

Q It sounds a little like what the betting association predicted when we changed the rules on the maximum amounts you could bet. Do you not think this is possibly exaggerated?

David Cox: These are the figures from an independent market research agency that has been used by all sides of the argument. Shelter uses the agency on a regular basis, as well to do independent analysis, and those are the results that it has come back with. There are about 55,000 letting agents in the country, and it estimates that about 4,000 jobs will be lost as a result of this.

[Richard Graham]

Q If I may ask one more question, Adam Hyslop, you were hinting that there could be a problem in terms of tenants having full protection on default fees. Do you mind expanding that a bit?

Adam Hyslop: Sure. This is probably the lower of the two points I would like to make today. The common practice at the moment is not only to charge admin fees up front but to have fees listed within the tenancy agreement—things such as cleaning and an inventory check-out report at the end of the tenancy. I believe the Bill’s intention is to ban those as well—they are not permitted payments. So, the intention is to prohibit them, but my concern is that, in practice, some of those will be left in and you will have tenants feeling obliged to pay them towards the end of tenancy agreements, even though they might be outlawed payments.

I do not know how this will be addressed in practice, but a lot of the—let us call them—disputes are where you have got a landlord asking a tenant to pay, say, £150 to clean the property at the end, when actually what is reasonable is for the tenant to restore the property to the level of cleanliness when they moved in, which could be by using their own cleaning company or doing their own housework, as it were.

A lot of these disputes end up with the deposit protection services. I do not know whether they will be briefed that these fees would be immediately thrown out if they were ever disputed. But, actually, before you get to that stage, it is a very low single-digit percentage of deposits that ever go to formal arbitration in these schemes, so there is a big piece to do, whether in the wording of the Bill or in guidance, to ensure that tenants know that these are also explicitly prohibited and that they should not accept any agent or landlord saying, “No, it is in your tenancy agreement. You signed up to it with free will at the start.”

[Richard Graham]

Q Perhaps the Minister will address that. The other side was the false declaration by tenants, and that did sound quite serious. What is your concern there?

Adam Hyslop: The current drafting is basically that a holding deposit is placed, and if a tenant passes referencing, everything obviously proceeds, and it would usually go to contract signing. If the tenant fails referencing, the current intention is that the holding deposit, with no deduction, is refunded back to the tenant. That is fair, and that is in line with how my own business operates at the moment.

What is more complicated is where there is a sense that a tenant provided what in the current drafting is “false or misleading information” to the landlord—information that could be exaggerating their own financial situation. So the landlord accepts the holding deposit, takes the property off the market, incurs the cost of referencing and then is left in a difficult situation when it turns out the tenant is not really who they say they are.

My concern around that—this may be stating the obvious—is that the point where a holding deposit is placed and referencing is under way is by far the most stressful part of a tenancy application process on both sides. You have got a landlord who is basically saying, “I really hope this tenant is who they say they are—I just want to get them signed up so that I have the certainty of them moving into the property at a future date,” and you have got a tenant going, “I really hope I get this property so that I do not have to reset my search back to square one,” with all the stress that comes with that.

Referencing is quite a complex process. Actually, what the tenant said to the landlord up front is not a particularly clear area. First, there is significant variation in the kind of application forms that a landlord or agent might put in front of a tenant. Second to that, the actual process of referencing itself is quite complex. A reference usually involves a credit check, an employment check and a previous landlord reference, but I believe that the overarching wording of “Did the tenant provide false or misleading information?” would in practice be quite problematic. Sometimes a referencing company will literally capture the tenant’s address history, where they work and how much they earn. I believe that the drafting of the Bill was done with the perception that referencing is a lot simpler than it is.

You can imagine some really simple cases. If I say that I earn twice what I earn, and referencing then finds me out—my employer says that I earn x—that is a clear case of false and misleading information. Actually, we find that when references fail, only 25% fail due to income and affordability. The other case in which you might provide false or misleading information is neglecting to mention that you have a former bankruptcy, a CCJ or something like that. Those are simple ones that the current Bill is completely fit for purpose for—if a tenant withholds or distorts that information, that tenant absolutely should lose their holding deposit, because they placed it under false pretences by making claims to the landlord that were not substantiated.

The majority of cases, however, will not be as clearcut as that. There will be things like whether a tenant was aware that they had a good credit score or a bad credit score which resulted in them failing the reference. There may be previous landlord references or elements of the employer reference that are not as simple as, “This person earns this amount of money”—it might be length of contract and things like that. Unless you have a completely exhaustive, fully transparent application form—a theoretical one—that the tenant fills in and where they declare everything about themselves, which can later be demonstrated to be false or misleading, then, in practice, there will be lots and lots of cases where it is unclear and some kind of arbitration is needed, or at least some kind of dispute arises.

What that means in practice, I believe, is that where it is the majority case—that is, the tenant may or may not have provided misleading information, and there is now a dispute about it—either you will have landlords who lose their holding deposit, despite the tenant applying in bad faith, because they are unable to prove that the tenant provided false and misleading information, or you will have tenants who lose their holding deposit because the agent or landlord asserts that they applied in bad faith. What that means is that the Bill will not actually protect the landlord or the tenant in that case.

I therefore conclude that the fairest way to put this into practice is to permit a cost of referencing—to have referencing as a permitted payment within the Bill. I would recommend that that is capped, because I do not want it to be an unlimited fee that becomes an admin fee of £300. We charge £20 for a reference per applicant, which is basically the market cost. The reason we do that is precisely this: referencing is very messy and will very quickly turn into disputes around whether it is false or misleading, or what people’s intentions were, unless there is a really clear way of saying, “You’re rejected because your referencing failed, but we don’t need to go through a full arbitration of whether it is false or misleading.” You cover the cost of your referencing, which aligns the incentives, so that the tenant covers the cost of referencing and will basically lose that amount if they invalidate it in the first instance.

[The Chair]

A number of Members are trying to catch my eye, so with the Minister’s permission, I shall hold him to the end.

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[The Chair]

Thank you. I am going to move to Richard Graham very briefly, and then I want the Minister to have some fun.

[Richard Graham]

Q We all totally understand that there is a huge risk of unscrupulous agents or unscrupulous landlords continuing to exploit the most vulnerable, but a number of you, in this session and earlier, have said rather airily that you could just walk down the high street and find the—I think you used this figure—15% of agents with wrong information and so on. If you have that sort of information, why do you not share it with both local authorities and the MPs involved?

David Smith: But we do. We do tell local authorities.

[Richard Graham]

Q I can absolutely assure you I have never had a letter, from your organisation or anyone else, telling me anything about any agent in the city of Gloucester who is doing it wrong. I would be delighted to have it and I would follow up on it, and I think you would find that a lot of MPs would share the same view.

David Smith: It is not our habit to share it with MPs because you are not the direct enforcers, but we would be very happy to tell you about it if that were to happen.

[Richard Graham]

Q May I suggest that you change your habit if you think there is a real problem, and then we can help you to resolve it?

David Smith: Happy to.