Tenant Fees Bill

Jo Stevens Excerpts

2nd reading: House of Commons
Monday 21st May 2018 Commons Chamber

[James Brokenshire]

The Bill seeks to address the application of unfair fees by, in essence, banning all of them unless they are then reapplied back by the terms of the Bill itself. This is an important step to provide reassurance and to deal with the rogue practices that the hon. Gentleman highlights. In that context it is important to stress some of the other steps that have already been taken in relation to rogue landlords and the abuses in the sector that need to be tackled. This is a further measure to address them.

Turning to the key provisions of the Bill, which apply to assured shorthold tenancies, tenancies of student accommodation, and licences to occupy, these will ban landlords and their agents from requiring tenants and licensees of privately rented housing in England, and persons acting on their behalf or guaranteeing their rent, to make any payments in connection with a tenancy, with some key exceptions: the rent; a refundable tenancy deposit capped at six weeks’ rent; a refundable holding deposit to reserve a property, capped at one week’s rent; a capped payment for changing a tenancy agreement when requested by the tenant; payments associated with early termination of the tenancy, when requested by the tenant; payments in respect of utilities and council tax; and payments in the event of a default by the tenant, such as replacing a lost key or late rent payment fine, capped at the level of the landlord’s loss.

In the Bill, the term “in connection” with a tenancy refers to any payments required by the landlord or agent throughout a tenancy. This is an important point, as we want to ensure that landlords and agents do not just transfer their fees to another stage of the tenancy, such as exit. The proposed legislation will also prevent tenants from being required to contract the services of a third party.

[Jo Stevens (Cardiff Central) (Lab)]

There are a lot of references in the Bill to upper limits and caps. Does the Secretary of State recognise that the temptation, and I suspect the practice, will be that agents and landlords will put deposits at the top end of the cap? They will not put them further down—they will be right at the top end.

[James Brokenshire]

We intend to provide guidance on those issues. I do not accept that that would automatically be the situation. It is why we have taken the steps that we have in considering what the right action should be in setting a number of these issues. It is important to recognise that the Bill proposes a number of enforcement measures that offer a strong deterrent to irresponsible agents and landlords, and in doing so protects tenants.

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[Melanie Onn]

My hon. Friend makes a very important point and I will come on to trading standards shortly.

There is no definition of what a landlord can include as a loss. If this includes the use of agents and agents opt to charge for their time—to replace a key or make some phone calls—charges may amount to far more than Government ever intended them to. This is one of the issues that we have seen with the scandal around excessive charges to private leaseholders: without a specified cap, there is scope for the unscrupulous to run riot.

[Jo Stevens]

The Bill is obviously necessary because of the bad behaviour of some landlords and letting agents. Without the measures that my hon. Friend set out, bad behaviour by rogue landlords and letting agents will not be prevented. They will carry on doing it because there is no sanction and no enforcement to stop them.

[Melanie Onn]

My hon. Friend makes a really important point. There is absolutely no point in this House taking through legislation, as good as it is, if it cannot be enforced because it holds no weight in law.

The inclusion of a one-week refundable holding deposit, on top of a month’s rent and six weeks’ tenant’s deposit, is allegedly designed to minimise instances of tenants securing multiples of properties at the same time before finally settling on their preferred property. There has been very little, if any, evidence that this is a regular practice. Additionally, the Government say that there are a number of exceptions to that deposit having to be refunded, including when the tenant provides false or misleading information. Again, although on the face of it, that is a sensible measure, there are no additional protections for tenants if the incorrect information is not their fault. For example, a reference that does not exactly match a tenant’s claims should not immediately mean that they lose that holding deposit. There is scope to develop a mechanism to test inaccuracy and establish the reasons behind it before immediately assuming information has been deliberately misleading.

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[Jo Stevens (Cardiff Central) (Lab)]

It is a pleasure to follow the hon. Member for Harrow East (Bob Blackman). Some Members may be wondering why I, a Welsh Member, am speaking in this debate, because housing is devolved to the National Assembly for Wales, and the Welsh Government will be bringing their own Bill before the Assembly this year to ban letting fees in the private rented sector. The Welsh Government consulted widely and the consultation’s findings have added to the ample evidence, a lot of which we have heard this evening, that action is needed to address the fees currently charged to tenants.

To highlight a few of the consultation’s findings, 56% of all respondents agreed with an outright ban on unnecessary fees, 62% of tenants said that fees had affected their ability to move into a rented property, 86% said that fees had affected their decision to use a letting agency and, astonishingly, 61% of landlords did not know what their tenants were being charged by their letting agent. I doubt that the experiences of tenants in Wales differ greatly from those in England, so I welcome the Welsh Bill and am pleased that introductory fees will be banned—hopefully throughout the UK.

My constituency has the fifth-highest proportion of privately rented accommodation of any constituency. That is largely, although not exclusively, because it has the third-highest proportion of full-time students of any constituency. Nearly 37% of my constituents live in private rented homes, and much of that number is made up of families. Like many Members, I see constituents in my advice surgery every single week who are living in expensive, cramped accommodation and for whom fees are a constant worry. Such fees are yet another worry to add to insecure employment, low pay, cuts to social security and housing benefits, a publicly funded legal advice desert—when rent arrears get to the point where eviction is imminent, no help is available—and, obviously, eye-watering levels of student debt. Banning letting agency and landlord fees is very welcome. It is a cash cow that has gone on for too long. Some agents are using it as a scam, and it needs to stop.

Other Members with university constituencies will no doubt recognise the picture I am about to paint. Some of the larger streets in my constituency are almost entirely made up of family homes that have been converted into student lets—streets of about 200 properties, each with eight or more students living in it. When I go down those streets and knock on doors to speak to constituents, I add up in my head the total paid every single year in letting agency fees by those residents. On one street in the Cathays ward of my constituency each resident will pay, on average, £200 in letting agency fees. Between them, on that one street, letting agencies are making a minimum of £320,000 every single year. Never mind Ponzi schemes or payment protection insurance scandals, this is a scandal that has lined the pockets of letting agents, some of whom are parasitic, greedy and unscrupulous, and it has gone on for far too long.

As we have heard, these fees, like so many other things, are based on an imbalance of power. Student tenants and low-income families have no power in this relationship. This is what one constituent wrote to me, having had a dreadful experience with a Cardiff letting agency:

“They are LEECHING people for all that they can, and there is nothing to stop them. They are brazen. They know they’re screwing you over, and they know that you know that they’re screwing you over, and THEY DON’T CARE. Because there are no consequences and they hold all the power.”

My experience of representing constituents living in the private rented sector is that the fees charged are almost always completely arbitrary and unjustifiable.

Here is another view from a constituent:

“Students and low earners are bled dry by these lizards, to the tune of hundreds of pounds a year all to live in rotting accommodation which can be dangerous to live in.”

As another example, one student said to me:

“In the small print of our contract it said the letting agency will take 65 pounds from each of us in our student house for ‘professional cleaning…regardless of the condition the house is left in.’ So I was then quite annoyed to find they hadn’t bothered with this ‘professional cleaning’ for us when we moved in. The kitchen was leaking and rotting. A ceiling collapsed within a week due to an upstairs leak. The bathrooms reeked and were mouldy. A microwave nearly caught fire and…exploded but we were told”

by the letting agency that

“it wasn’t their problem.”

The truth is that many of these fees are completely arbitrary. They mean nothing. At most, they constitute a few minutes of basic administration using tenancy agreement templates and the ability to cut and paste, yet at the moment agencies and landlords can just name their price, so I welcome the Bill.

This racket needs to end, all of it, and fast.

Tenant Fees Bill (Third sitting)

Jo Stevens Excerpts

Committee Debate: 3rd sitting: House of Commons
Thursday 7th June 2018 Public Bill Committees

[Rishi Sunak]

As I am sure Committee members know, it is common for there to be hassle, time and cost involved in changing providers between people. I have personal experience of doing so for a satellite service and of adding my wife’s name to something. Those things can sometimes take time, and it is easier for all parties if they stay in the name of the landlord, with an agreement between parties that the tenant pays for the services as they are incurred. Indeed, it is common, generally accepted practice for the tenant to be obliged to pay for their use of such utilities as electricity or gas, as measured by inspection of the gas meters. That is what is allowed for under the clause.

[Jo Stevens (Cardiff Central) (Lab)]

May I ask the Minister about a situation in which a tenant wants to change supplier? If the contract is in the landlord’s name, how would the tenant be able to enforce a change of gas or electricity provider?

[Rishi Sunak]

That is a separate question between a landlord and tenant in any rental contract. The clause deals with the question of payment. It is important, if the Government are attempting to ban payments being charged to tenants, to note that there are certain exceptions. The clause captures the fact that, on occasion, tenants will continue to pay for the utilities they consume, and that that should not be captured by a ban on fees. It would obviously not be right for tenants to use electricity and gas without the landlord being able to make an appropriate charge for them, if that was how things were arranged.

In the Bill, the phrase

“in connection with a tenancy”

is defined deliberately widely. Requirements in consideration of the

“grant, renewal, continuance, variation, assignment, novation or termination”

of a tenancy that are included in the terms of the tenancy are all covered. That is to ensure that fees cannot be charged at any point during the tenancy, including upon exit. That addresses the concerns raised during pre-legislative scrutiny that the previous drafting, banning fees that were a condition of a grant in renewing or continuing a tenancy, might still allow fees to be charged at the end of a tenancy. That would have been contrary to the policy intention.

Landlords also cannot require outgoing tenants to pay for a reference, in the same way as employers do not charge their employees for a reference today. The clause also applies to a person acting on behalf of a tenant, and a person guaranteeing a tenant’s rent. Tenants and such persons are referred to as “relevant persons”. The clause is one of the principal clauses in the Bill, and as such I beg to move that it stands part of the Bill.

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[Rishi Sunak]

I am confident that with the awareness that will be spread as a result of this Bill—we have heard a lot about the simplicity of this Bill, which will make it more effective for potential tenants to enforce and know about their rights—the circumstances in which that happens will be reduced. In case letting agents themselves are putting on the pressure, as the hon. Lady will know from being on the Select Committee, the Government are currently consulting on enforcing standards for the letting agency industry, a code of practice and potential licencing of that particular industry. Those are the kinds of tactics and behaviour that that consultation will look at.

[Jo Stevens]

The Minister just said that he is very confident that what my hon. Friend suggested will not be the case. On what evidence is his confidence based? I do not share it.

[Rishi Sunak]

As we heard in evidence, because of this Bill’s simplicity around banning fees, which is a simple and easy to understand message, and the awareness that will come around that and the fact that it will come into force on a particular day, together with the income provided to local authorities to raise awareness of these issues, I am confident that tenants will be in a much better place to know that their rights have been dramatically improved as a result of the Bill, and will be in a position to know those rights, ensure that they avail themselves of them and ask the questions hon. Members are saying that they should ask. I am particularly confident because new guidance will be published and widely publicised, which will make these rights, and questions tenants should ask, explicit and clear to them. I therefore remain confident.

As I said, there is separate Government work going on, looking particularly at the conduct of letting agents. Plans have been mooted for codes of practice and conduct, and for licensing of that industry. Some of the behaviours that have been mentioned are exactly the kinds of things that will be captured in that forthcoming piece of work.

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[Melanie Onn]

I recognise that for the most part the clause mirrors the prohibitions applying to landlords. It is important that letting agents, which are often the professional guide to the amateur landlord and often operate on behalf of the landlord, developing close relationships over many years while in the pay of the landlord, have the propriety of their conduct considered closely.

The same principle applies to letting agents as to landlords, in that there are some excellent agents and some that fall far short, often seeming to set unreasonable charges without much comeback. Letting agents also lack the personable relationship with tenants that often develops between landlords and tenants. Landlords often develop levels of understanding with tenants that give tenants a bit of leeway, meaning that they could charge under the permitted fees under the Bill, and under a tenancy agreement through default fees.

Good landlords will often be empathetic about genuine and honest mistakes or problems that tenants make or face, and look for practical and easy solutions for both parties. For example, they may let tenants sort out replacing a lost key by themselves, and at a lesser cost, if it is a first offence. They may take some of the loss if a tenant has to move out in the event of a job loss, or a family emergency, or a genuine struggle to pay rent or exit fees. While there are some excellent letting agents that go the extra mile to keep tenants happy and in their property, too often letting agents take an extremely hands-off approach to tenants and only see them as a way to make money and collect fees, which are currently far too high, whenever they contractually can.

Currently, letting agents often charge fees that would be prohibited under the Bill during the move-in period and make a significant amount of money out of a new tenant. As a result of the Bill, letting agents will be far more driven by the desire to keep properties full for as long as possible, as they will see far fewer benefits from a property that rapidly changes tenancy than when they could charge those often high fees. That will help the drive towards achieving the aim of everybody in this room to see longer tenancies in the private rented sector, and increase the value of good-quality service from letting agents that keeps tenants happy and in place.

It will also move the balance of power in the letting market far more towards the tenant. Letting agents often make money through introductory charges to tenants and a percentage commission of the rent. Where once letting agents may have been happy to charge high fees and wait until someone comes along who is able and willing to pay them, the Bill will mean that letting agents will want a property to be filled as soon as possible, so they can earn commission on the rent. That will mean that letting agents have more reason to provide a good service to tenants and act to promote properties to get them filled as quickly as possible.

Tenants have no choice of letting agent if they want to move into a specific property. Who to choose as an agent for a property is currently at the behest of the landlord and therefore letting agents do not focus on offering a good deal to tenants, but on offering the best deal to landlords. Letting agents levy as much of the charge as possible on a tenant to avoid charging above the market rate to a landlord, as there is no point in trying to offer a good deal to tenants if no landlords use the agency to let their property. The result is that tenants are often charged well above reasonable amounts in set-up costs alone. They can often be expected to find hundreds of pounds for things such as credit checks, referencing and set-up paperwork, on top of a holding deposit, security deposit and the first month’s rent. Even for a modest property, that often runs into hundreds of pounds, perhaps even thousands.

We know that people on low and average wages often find it impossible to find the deposit to buy a property, but at the moment many would struggle to find the money to move into a rented property. That is grossly unfair, given that at the very least the landlords are the owners of a property that has increased often significantly in value over the past few years, and are often also rich in their own right. Yet they receive all the advantages in the letting agent market at the expense of our growing population of private renters, who are often young and increasingly likely never to own a home.

That is especially true in areas with high levels of student accommodation. For example, Leamington Spa has an extremely high level of student accommodation for a town of its size, due to a nearby university. Almost all that rental market is operated through agents and is used by students who have little knowledge of their rental rights and what is a fair rate for the charges that letting agents levy. It is a fast-moving market. There is pressure on students to secure a place that they like quite rapidly, often for a fixed-size group, six or seven months before moving in, and the pressure often leads to students paying £300 or £400, sometimes unexpectedly, if the pace of the property uptake surprises them, on top of their current rent and living costs while they are at university.

[Jo Stevens]

I represent a typical university constituency. It is in Wales and is not affected by this Bill, but by way of example, I mentioned on Second Reading a street in one of the wards in my constituency. I added up every single person living in student accommodation in that street of 200 houses, and letting agents are making in excess of £320,000 every single year in just that one street. Does my hon. Friend agree that that is something we need to prevent?

[Melanie Onn]

The important thing for students is that they understand the system that they are going to be entering, as for many of them it will be the first time they have moved away from home. They also should understand whether they are subject to unfair fees that are excessive for young people who are most likely to be reliant on student finance and part-time work if they do not have help from their family. We should also ensure they are fully aware of all their rights in those circumstances. The idea that they are having to make such decisions many months in advance when they are feeling the pressure leaves them wide open to exploitation. Their situation will hopefully be aided by the Bill.

Picking up what I was saying—it is a little haphazard, sorry—these costs represent a lot of money for a full-time worker, but for many students, they represent their whole living costs for a month. The balance needs to change dramatically. The extension of schedule 1 to letting agents will mean that they can no longer absorb the cost of a low landlord commission rate by passing the cost on to tenants.

We support the clause, but a few points of concern arise. As it is nearly identical to clause 1 in wording, I will not labour the points I raised in our consideration of that, but I want to seek some clarity on some particular differences between the clauses and draw the Minister’s attention to subsections (4), (5) and (6). Will he outline again the purpose of the loan and confirm that it is included as a preventive measure to avoid landlords seeking any alternative finance mechanism by which to re-route a payment? I would be grateful if he did. It would ensure that I have understood what he said.

The main point I wish to make about clause 2 relates to subsection (3), which states that a letting agent cannot require a tenant to enter into a contract for provision of a service or a contract of insurance. While the rest of the clause reflects clause 1, subsection (3) does not go on to specifically exclude utilities or communications. Why is that the case?

The Minister will know that letting agents can earn a commission for placing clients’ properties with particular utility companies. Switches of energy provider must be done with the bill payer’s consent, and that is likely to be the landlord during a period of the property being void, but it allows for a default situation to arise for tenants when they move in and start receiving bills that are not the most economical for them, requiring them to pay higher rates on generic tariffs. They are then free to change supplier, but they have already been paying at a higher rate and they then have to go through the process of moving supplier. I know that process is supposed to be easy and straightforward, but it is still a chore and an off-putting task for anyone trying to find the right and best deal.

Are letting agents to be permitted to continue to be incentivised to sign up unwitting renters to these rip-off rate utility companies? Will the Government commit to taking steps within the Bill, rather than waiting for guidance? If we are to deal with tenants’ fees and making things fairer for renters, why not do it all now? We should say that such inducements should not be available to letting agents. Renters should be notified in advance who the utility and any other established providers are and given the opportunity to make arrangements that better suit their budget. I hope the Minister can provide answers to those questions.

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Inevitably, where money is involved, dispute will follow. Organisations such as Citizens Advice and Shelter deal with such disputes day in, day out. However, they will be expected to work without appropriate regulations that would support individuals and give them something concrete to challenge; such regulations would be preferable to the idea of guidance that does not go anywhere. The Government are missing a trick.

[Jo Stevens]

We know from previous Acts and codes of practice that guidance codes of practice have little weight in dealing with the rogue organisations that we are concerned with. If the Government are serious about their intentions—and I believe they are—they should simply put what they want in the Bill. If it is in the Bill, it can be enforced.

[Melanie Onn]

My hon. Friend is right. On Second Reading I was clear about wanting to make the Bill the best it can be and not leave gaping gaps through which tenants’ rights can fall, to be blatantly ignored. If there is an opportunity to improve it, I hope that the Minister will not be too precious, and that he will take those things on board and seek to make improvements so that the aims are achieved. I believe that the aims are genuinely held, so why not do accordingly? I would follow up on what my hon. Friend said by commenting that when such structures are left to mere guidance they are too soft and they will not prevent unscrupulous landlords and letting agents from doing all they can to skim off money and maximise their profit margins.

Guidance is not good enough if we are to transform a system that is stacked against tenants. That point extends across more than the provisions on holding deposits; it is a foundational problem with the approach taken in the Bill. Clarity is important not only in relation to landlords and those who might want to act unfairly. If it is not clear when the withholding of holding deposits is not legal, that is a serious problem. Informed tenants are empowered tenants; so if the Government are serious about transforming letting and the process around lettings, they will do all they can to inform all relevant stakeholders as clearly as can be.

Shelter said in their response to the Bill:

“Evidence from Scotland suggests there is lingering confusion around the ban on letting fees which has affected compliance”.

We do not, and I am sure that the Minister does not, want to be in the situation that Scotland was in, after many years during which legislation was in force that did not work all that well, of having to do it all again or put forward amendments. If there is an opportunity to get things right and learn lessons from our nearest neighbours, let us do so and make sure the Bill does all it sets out to do.

The Shelter response said that independent research had highlighted the fact that,

“even after the ban was clarified, less than one-third of renters clearly understood there was a law banning fees.”

That emphasises the importance of a simple ban. The Government must always prioritise clarity and good communication, as this morning’s sitting with a representative from the Local Government Association made clear.

The issue of holding deposits also adds to the broader financial burden facing tenants. To secure a property under the Bill would cost, according to Shelter’s estimates, £3,750 for a property in London and £2,290 outside the capital. Those figures include a six-week deposit—as the proposed cap, which is really quite high, allows—a month’s rent and a week’s holding deposit. The six-week deposit could leave a tenant out of pocket twice. If they leave one property and are seeking a new property, there is a period when they are doubly out of pocket. Although the deposits are refundable, tenants receive an average of only 77% of their deposit back, so the idea of passporting deposits must be given greater consideration.