Baroness Grender
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Tenant Fees Bill
Baroness Grender Excerpts(5 years, 5 months ago)
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Baroness Grender
“(2) The Secretary of State must by regulations made by statutory instrument make further provision as to the procedure to be followed by a landlord or letting agent when receiving a holding deposit, which shall include a requirement to provide notification to the relevant person in a prescribed form concerning the treatment of the holding deposit.(3) Regulations under paragraph (2) must also make provision as to the procedure to be followed by a landlord or letting agent in relation to a decision not to repay a holding deposit on one of the grounds specified in paragraphs 7 to 11 of Schedule 2, which shall include a requirement to give notice in a prescribed form within a specified period, accompanied by evidence of the relevant ground.(4) A statutory instrument containing regulations under this section is subject to annulment in pursuance of a resolution of either House of Parliament.”
Baroness Grender (LD)
In moving Amendment 1, I shall speak also to Amendment 17. First, I thank the Minister and his officials for the discussions held so far and the time spent in advance of Committee. As noble Lords know, the Bill is very welcome and the sooner it is on the statute book the better, but there are a few wrinkles to iron out first. The most substantive change I want to explore will come when we look at default fees in a later group.
Amendment 1 would allow the Secretary of State to make regulations regarding holding deposits to make the process more transparent. This is an attempt to adopt the welcome changes introduced by the Government on Report in the Commons regarding transparency, or greater transparency, on default fees, although more about that—and how we do not need default fees—later. The model, however, is still useful and applies in this respect to holding deposits. There should be a transparency requirement for landlords and agents to set out in writing to a tenant why they have not returned a holding deposit. There is ongoing confusion and a lack of clarity around the circumstances in which landlords or agents may and may not return a holding deposit. The confusion was highlighted at Third Reading in the House of Commons and Members on the government side called for greater clarity at that point.
We would like to see something that explains how landlords and agents will treat a holding deposit and, if they are not returning it, their reasons for this, including any information they believe to have been false or misleading. This will make it possible for tenants to challenge if their holding deposit is withheld unfairly. Equally, understanding exactly why a holding deposit has been withheld should help to prevent tenants applying for properties and repeatedly losing numerous holding deposits for the same reason.
The Minister is already aware of the excellent work done in this area by the noble Lord, Lord Bird, on creditworthiness, but until that change comes into force—or is adopted by the market, as I believe it will be—people with thin files on their financial viability and little evidence to offer of regular payment of rent or council tax are not included and become the most vulnerable to the less scrupulous agents or landlords in terms of holding deposits.
Generation Rent has recently spoken to four privately renting friends who each put down a £180 holding deposit on a property in Bristol with the letting agent Be Streets Ahead. During the week that the holding deposit was down, one of the tenants found that he had a brain tumour that had grown in size and had to move back to his family for hospital treatment. The remaining three tenants were unable to find another sharer to pay the deposit and rent with just a couple of days’ notice and had to withdraw from the tenancy. The letting agent has ignored repeated requests for a refund of the holding deposit on these health grounds. Such health grounds could be included in any secondary legislation, providing grounds for tenants to walk away from the tenancy without losing a holding deposit.
What I have just described is a clear case for regulating the transparency around holding deposits. If anything, this will get worse before the Bill is enacted. Generation Rent believes that letting agencies are worrying about future admin fees and being—shall we say?—more assertive in their use of current rules than previously to make up for any future losses they anticipate. When I met the Minister before the summer, I expressed concerns about the danger of the delay on one of these issues. I wondered if there was any way of offering an incentive—a carrot, perhaps—for the industry to adopt these measures before it came through Parliament. I would still ask him, at this late stage, to consider that, given the scenario I have just described to him. Generation Rent is absolutely convinced, in this case, that the concern about admin fees being lost at a later stage has led to a slightly harsher judgment.
Amendment 17 is of a different nature. It simply poses the question, which I raised with the Minister in advance, as to why tenants are prohibited, or strongly discouraged, from paying multiple deposits by the cap at one week’s rent. I am aware—and have only just managed to read most of it over the weekend, for which many thanks in advance—that there is some guidance about what needs to happen. But we believe it is very unlikely that this guidance will be pursued, unless there is more transparency on what happens with holding deposits. I have read the relevant part of the guidance, but I still think we need something with a little more bite.
I support the other amendments in this group. I would like, in particular, to advance Amendments 1 and 17. While I understand, from meetings with officials, that this is on the issue of tenants from abroad, I am still unable to see why we cannot have more of a level playing field between the tenant putting down the holding deposit and the landlord or agency holding one deposit. I would still like to explore that, and that is why I am proposing these amendments. I beg to move.
Lord Shipley (LD)
My Lords, I shall speak to Amendment 18. I remind your Lordships that I am a vice-president of the Local Government Association. I want to say at the outset that, like the Government, our aim is to make renting a home fairer and more affordable. I repeat our support for the Bill in its aim of reducing up-front costs for those seeking to rent a home. We should also remember that the Bill is about protecting tenants from bad landlords, but also about protecting good landlords from bad tenants. Our job in Committee is to assess, line by line, whether the Bill will achieve those objectives and whether it can be improved. The amendments in my name and those of colleagues seek to do that.
Amendment 18 is about whether the figure of seven days for a holding deposit is justified. There is a tendency to draft Bills with round numbers based on weeks, but such a decision requires clear justification that the amount to be paid by a tenant, and received by a landlord, be counted in weeks rather than days. There is a strong case for saying that the costs to the landlord are what should be reimbursed. There is evidence to suggest that such costs would be recouped with a three-day rent payment. I have received advice—as, I guess, other noble Lords have—from Citizens Advice, which supports the three-day period. Its justification is that 14% of tenants are currently charged a returnable holding deposit, at an average cost of £250. Some tenants, however, are paying much more than that. A cap of three days’ rent would help to prevent that.
We also need to recognise that a tenant’s circumstances or budget can change unexpectedly, and they might need to withdraw from renting a property that they originally and genuinely intended to take. This could be for reasons that prove beyond a tenant’s control. For example, there may be an unexpected failure of a credit or reference check. This can cause severe financial hardship for tenants and prevent them being able to access the private rented sector at all. Smaller holding deposits would still have the effect of deterring tenants from taking a large number of properties off the market, while avoiding hitting tenants’ finances unnecessarily. I am grateful to Citizens Advice for its briefing, from which I have quoted.
The question for the Minister is: can the Government explain why the figure of one week appears in the Bill, as opposed to a set number of days? As I said, it is very easy to talk in round numbers, but for some tenants trying to take up a tenancy, how much they will have to pay in cash is very relevant. I very much hope that, as we consider the Bill in Committee, the Minister might be able to explain the basis for one week, as opposed to three days.
The Earl of Lytton (CB)
My Lords, as I have not spoken at all on this Bill, perhaps it is right that I declare my interests. I do not in principle have an objection to quite a lot of what is in it. My interest is as a private rented sector landlord, but my involvement with the sector from when I was renting property in London as a student to the present day spans more than 50 years. For part of that, I have been involved professionally with the management and letting of residential property on behalf of others.
I share noble Lords’ views that we should make sure not only that we do not have bad landlords but that we do not encourage bad tenants. My principled objection to this Bill, if I have any, is that it does not provide that balance. It is entirely about the effects on landlords, not on controlling the activities of tenants. As with much legislation, the mechanisms chosen tend to be extremely blunt instruments. We are dealing with high levels of disparity across the country, including some acute hot spots in London. I know that that is the case there—one of my children is just finishing renting a property with others and has been renting for some time—as against, say, in the West Country, where I also have an interest. There, it is quite difficult to find a tenant in some instances. This legislation needs to cover the entire spectrum.
I will limit my comments during the debate on this part of the Bill to areas where I feel that amendments either would not have the intended effect or highlight aspects of the Bill that should be the subject of further consideration. On Amendment 1, I simply say to the noble Baroness, Lady Grender, that tenants can, and do, take things to the wire as far as landlords are concerned. By then, much of the work to check them out and make the arrangements of the tenancy has already been done, at which point they can walk. There is no contractual bond. As I understand it, the holding fee is to secure the tenancy, rather in the same way, I suppose, as asking a shopkeeper to reserve an item in their shop window. The only difficulty is that the fee given rise to by part of the activity has already been incurred.
The noble Lord, Lord Kennedy, mentioned that. It is not so much a question of whether a fee is charged but whether the fee is reasonable. The geometry of the Bill says that the fees are, in principle, unreasonable. That is how it comes across to me and, I think, to many other people. In passing, I have read briefings from Shelter and Citizens Advice but I have not received or read a briefing by ARLA or any other body representing landlords’ interests, so my views at this juncture are entirely my own, based on my experience.
The noble Baroness gave the example of where somebody, for perfectly understandable health reasons, feels that they cannot go ahead so the entire consortium of renters falls apart. I understand that because it has happened to my offspring, but I ask myself whether it is the landlord’s fault, or that of their agent, that circumstances have given rise to that situation and an inability to proceed.
Baroness Grender
In this case, it is not a question of fault. The tenants have offered to pay the cost of the reference checks but they want the remainder of the holding deposit back. I suggest that in previous instances, agencies might have been more flexible; I think they are getting slightly less so. I cannot talk about the specifics of this case, obviously, but there is less flexibility on holding deposits at the moment. There is no opposition from the amendments to the fact that a holding deposit is a good thing; the question is whether there is clarity and transparency when it is not returned. That is the issue.
The Earl of Lytton
I accept entirely what the noble Baroness said; I am glad that we are probably much more ad idem in our approaches than I had thought from her earlier comments.
There must be some process for identifying what is a reasonable cost. I am not close to open-market lettings any more—I used to be—so I do not know precisely what goes into drawing up the agreement, checking references, doing credit checks or establishing from some government department whether somebody is entitled to be in the country or to rent property, but there are probably costs beyond the simple act of picking up the phone and checking a reference.
My fear—here I address my comments to the Minister—goes back my point about legislation being a blunt instrument. Unless things are reasonably black and white, administratively you are dealing with myriad shades of grey and trying to work out which point on the spectrum is the right one. The Bill does not contain an adjudication provision. I have pointed out, in a memo to the Minister, a suggestion that I think came originally from the noble Lord, Lord Beecham, who is not here today, which had some merit. The only provision is a fine and an appeal to the First-tier Tribunal if the imposition of that fine is disagreed with. There is no other surefire, reasonably cheap and cheerful adjudication provision. Were that to be put in place by a one-liner and means could be found to fund that in the same way as some other things are dealt with, a number of these things would disappear by virtue of there being that fallback. But so long as there is not, it is more like the law of the jungle.
Turning to Amendment 18, I did a little calculation and worked out that a rent of £5,000 per calendar month would produce a holding deposit of £493 and one of £800 per calendar month would produce one of £78 under the three-day provision. That £78 is much nearer the sort of figure you might get outside the larger and more hotly contested metropolitan areas, and seems quite a slight amount of money. As I have said, tenants could take the matter to the wire and walk away knowingly having run up costs. But landlords might be unlikely to offer premises on the same basis as before the Bill came into force and might simply not undertake to retain via a holding deposit at all, in the same way as some landlords have decided that the whole business of holding rental deposits has got too difficult, and do not hold deposits but make exhaustive checks on the nature and attributes of their proposed tenants. This means that the better parts of the market—the better landlords, perhaps with better properties, looking for the better tenants—occupy one part of the space and the rest are in the same difficulties as before. The people who might be in difficulty are those who really need to get into rented accommodation because they stand no chance of getting a mortgage. This is why this sector is so important. I worry that tenants at that end of the spectrum—I will not call it the bottom end: the less well financially appointed end—will suffer more. That would be a mistake.
However, I said I was not here to cause trouble. I have just outlined some of the things associated with this group of amendments that may have long-term consequences contrary to those that the tablers suggest they ought to have. Apart from that, I shall not resist whatever the Minister may feel, in his wisdom, is appropriate here, given what I have said.
Baroness Gardner of Parkes (Con)
My Lords, I declare an interest as a landlord. I think one’s week rent is fairly good and clear as a deposit. For some years I have found that some tenants deliberately withhold their final rent so that you do not have a fair amount money at hand to cover whatever damage they have done to the property. Often, the work that has to be done takes every bit of the deposit and more, although sometimes of course it does not—some tenants keep the place beautifully, pay their rent properly and are the tenants everyone wants. However, until tenants are in occupation, you just do not know whether they are good or bad, and I do not think that this provision in the Bill should cut the period to three days. That will leave landlords in a real quandary when people do not pay their last month’s rent—they usually pay monthly rent. It would be a worry if people did not make the last payment. I agree with everything else that other people have said.
Baroness Grender
I believe that the noble Baroness is talking about the use of deposits at the end of a tenancy, whereas the focus now is on holding deposits at the beginning of the tenancy. Can I just clarify that that is what she is talking about?
Baroness Gardner of Parkes
I accept what the noble Baroness says but I think she will find that a deposit is usually paid by the tenant as a deposit for their agreement. If the landlord or agent has to make other checks as well, even a deposit of one week’s rent might not be enough to cover them. It depends on how much people charge for checking proof of identity and how much the deposit is. I hope that clarifies the matter.
Baroness Grender
May I contribute to that question by saying that it has already been done with regard to default? Can the Minister explain the difference between that and the holding deposit, in terms of being specific about transparency in regulations?
Lord Bourne of Aberystwyth
My Lords, those are two very separate points. On guidance versus regulations, the noble Lord will be aware—not least because I have just said so—that these parallel matters have been dealt with in guidance on many pieces of legislation, under successive Governments of all colours. It is a judgment, but we feel that guidance is appropriate.
The point on the default fees—although this is still being discussed—is a matter of judgment, and it is the judgment we have made. As the noble Baroness will be aware, there are points in the guidance on the default fees—it is not all in the legislation; some of it is in the legislation, some in the guidance. There is also a substantial amount about the default fees in the guidance; it is not all in the legislation.
Baroness Grender
I thank the Minister, especially for agreeing to take a look at multiple holdings. I look forward to working with him and his team on the guidance. There is some guidance, and the noble Earl, Lord Lytton, will be very relieved to hear that there is a suggestion in it that a tenant might produce a typo, but no suggestion that any landlord would do so. I am using a small example of something I have spotted already in the drafting. I very much appreciate that the guidance is a draft at the moment, and therefore I thank the noble Lord for the opportunity to sit down and work through the guidance to make sure that there is parity between tenants and landlords. There seem to be one or two disparities that I have already picked up from my brief reading of it over the weekend. That, in a way, is why I still want to pursue—and I am very happy to discuss with officials and the Minister—the possibility of getting some regulations to introduce transparency in holding deposits. I look forward to those discussions, but it may be that we will need to pursue this further on Report, depending on those discussions. With that, I beg leave to withdraw this amendment.
Lord Kennedy of Southwark
On the guidance, I accept the noble Lord’s point that it is a question of judgment and that he can point to other legislation where guidance is provided for in regulations. But does he accept that if it is guidance rather than regulations, that guidance is weaker because it does not have statutory back-up? That is the point I am making. The Bill addresses tenants’ fees, which we all agree are a problem. If the Government continue with the choice they are making at the moment, what they are offering people is weaker than if it was put in regulations. My other point is that if something does not happen on deposit fees—perhaps in regulations—this will be totally ignored.
Baroness Grender
“(d) the relevant person has made an application to the First-tier Tribunal under section 15 (recovery by relevant person of amount paid) and has recovered all or part of the amount or (as the case may be) the aggregate amount referred to in that section.”
Baroness Grender
My Lords, the purpose of Amendment 6 is to allow tenants seeking repayment of illegal fees at the First-tier Tribunal to also be entitled to compensation, thereby encouraging tenants to go to tribunals as the enforcement agencies are so stretched, as we have just been discussing. I also see it as a deterrent to bad practice. It is in response to the Government’s claim that entitling tenants to compensation would create a double penalty on the landlord. However, we are advised by the lawyers at Generation Rent that tenants could still qualify for compensation under contract law. Trading standards will be responsible for enforcing the ban but, as we have discussed, it is not well funded and is already struggling to enforce existing regulations on letting agents.
Research in 2017 by Generation Rent found that 12% of lettings agents did not list their fees on their website, as required by the Consumer Rights Act. The Chartered Trading Standards Institute put it bluntly to the Commons Public Bill Committee in written evidence:
“With a cut of more than 50% of skilled officers in just over 7 years the burden on local trading standards services is unsustainable and this additional duty will simply will not be prioritised universally across the country”.
If that is the case, we need to encourage tenants or consumers to be their own enforcers, to recover illegal fees and be compensated for doing it. I think we are all realistic about how many tenants, with their busy lives, will actually do this. But offering the incentive to tenants and knowing it is there as a threat must be the right balance of carrot and stick to ensure that this excellent Bill is properly enforced despite the cuts to trading standards.
We recognise that the Government argue that the tenant can recover the illegal fees through the First-tier Tribunal and the major stick is the fine imposed by the local authority on the landlord or agent. However, the approach that I am proposing is not uncommon and would reflect the difference between private civil recourse and public regulation enforcement; for example, deposit protection law shows that penalties are not unusual in this context. If a deposit is not protected, the tenant is entitled to compensation at three times the deposit’s value. But ARLA has the Propertymark sanctions policy, which fines members who fail to use proper client money protection in the treatment of client money, including tenancy deposits. The amendment is an attempt to create a similar system.
Lord Kennedy of Southwark
I think the Minister will find that, in other areas, people can be fined and be required to pay compensation as well, so I do not see the logic. Clearly, if it is an issue of amounts, that can be looked at. We are not going to agree on this, clearly. The principle that you can be fined and be required to pay compensation clearly is the case elsewhere. It is very unfair that the tenant—the victim, the person who has been out of pocket, ripped off and treated badly—should be thankful just to get their money back. It does not seem to be a very good place. Clearly, we are not going to agree on that at this stage.
Baroness Grender
I thank the Minister for his response, kind of. I gave four examples where, in industry, the Government do this already. It happens. I believe there is some merit in exploring it a bit further. If it is about the drafting, and one rules out the other, I am happy to look at how it is applied to the four existing examples where people are compensated and organisations are fined that I gave to the Committee. I would be very happy to look at that and work with officials before Report.
Lord Kennedy of Southwark
On my Amendment 8, if somebody has gone to a tribunal and the landlord has won then fair enough, they should be protected, but I am trying to get to an example where someone has enforced their rights. This poor tenant cannot get compensation but they get their money back, then the next day a Section 21 notice is served on them. That is the issue I want to deal with. It is really unfair for the tenants in these situations—proved right in a court of law, then given a notice to leave the next day. Without this, that could still happen.
Lord Kennedy of Southwark
Clearly, this must be a result of my poor drafting, as that was not my intention, which I hope I have explained. I am worried about the people who have been proved right in a court of law. I thank the Minister for his comments, but I hope that this can be looked at, as there is an issue. Someone who has enforced their rights should have some protection, even for a limited period—they should not be able to be evicted the next day through a notice being served. I thank the Minister for his offer.
Baroness Grender
I thank the Minister for his olive branch, which I happily and heartily accept. I look forward to at least trying to work in this area. I beg leave to withdraw the amendment.
Lord Kennedy of Southwark
In moving Amendment 13 I shall speak also to Amendment 14, which is tabled in my name. Both amendments seek to highlight what is often, unfortunately, a recurring theme: the time it can take to make progress on important issues.
Under Clause 28, it will be a whole year after the Act comes into force before landlords will be subject to the consequences of the law if they make a tenant pay a prohibited payment. To be clear, that is not a year after the Act becomes law because Section 1 will not come into force until the Secretary of State decides by regulation when it should do so. We actually have no idea when it will come into force, if ever. It will certainly be some time after the Bill is enacted, and that is totally unacceptable. That is why I tabled Amendment 14, as it would bring the Act into force on the day it becomes law. Can the Minister please tell the Grand Committee when he thinks this legislation will come into force if he is not minded to agree to my amendment?
I remind the Minister and the Committee that it will be nearly two and a half years since the Government announced their intention to ban fees. Shelter has highlighted that that means spring next year at the earliest, and perhaps later. It will have taken longer to design and implement the ban on letting agent fees than the Government have taken to negotiate the Brexit deal. We will still have to wait with bated breath to see whether we end up with the final 5%, but that puts in context how long we have been waiting for this, and we still will not get there.
The delay in implementing the ban does not come without a price. We have already seen examples of some agents hiking fees in anticipation of the ban and, as a result, many tenants are currently facing even higher up-front costs than before the ban was announced. This waiting period is causing people real problems. The average letting fee among those who have paid fees appears to have risen significantly over the past two years. A survey of private renters shows that the average letting fee is £246, which is a significant rise compared with the average of £182 just a couple of years ago. The Government must recognise the price that people who rent are paying while waiting for these policies to be put into practice, and they must ensure that the Act comes into force on the day it is passed, as my amendment seeks.
The letting industry has known for many years that this ban would be coming and it has had sufficient time to adapt its business models. This delay is very disappointing and I hope that the Minister and his department will be able to respond positively. We need a fixed date and to get this legislation implemented as soon as is reasonably possible. We have waited far too long. I beg to move.
Baroness Grender
My Lords, I support these amendments. I have already raised my considerable concern about the timings. As the noble Lord, Lord Kennedy, said, the Government announced this measure in the autumn of 2016, at the same time as my Private Member’s Bill was progressing through the House, and I was absolutely delighted at their announcement. However, it feels as though it is taking a very long time. I know that the Ministers concerned are not responsible for that—they have worked very hard to push this through.
When the Government first started consulting on this issue, they rightly changed their mind and agreed to take a look at it. The consultation showed that the poorest tenants are being ripped off time and again, and that will not stop. If anything, it will get worse in the intervening period before this legislation is introduced. I am hugely in support of the legislation being introduced as quickly as possible. Generation Rent was talking to me about this only this morning. It is receiving evidence that letting agents are becoming more assertive over their administration fees to make up for what they believe to be a shortfall.
As I said at Second Reading, other organisations are playing a significant role in this matter. OpenRent, which I will mention in later arguments, started in 2012 and is now the largest letting agent in England and Wales. It has made a profitable model on the basis of never charging fees to tenants. Therefore, it is perfectly possible for an industry to be ahead of the legislation. However, with the exceptions that I have described, this particular industry is not ahead of the legislation, although it has been warned again and again. There has been working group after working group on this issue.
I was absolutely delighted that the Government decided, very wisely, in the Autumn Budget Statement of 2016 to flex their muscles and get on with this, but we need to do it. I would find any further delay, or suggestion of it, in the Bill extremely worrying, which is why I support the amendment.
Lord Young of Cookham
I am grateful to noble Lords for taking part in the debate. They have made their impatience over the date of commencement absolutely clear. We agree that we want this legislation to come into force as soon as possible, not least to protect the tenants referred to by noble Lords.
However, we need to strike a fair balance between protecting tenants and allowing landlords and letting agents time to become compliant with the legislation. The ban is not about unfairly penalising landlords and letting agents or driving them out of business. We have said that implementation will not be before April 2019; we intend it to be as soon as possible after that. Of course, at the moment we do not know when it might get Royal Assent. I understand that but we believe that there needs to be a reasonable gap between it reaching the statute book and it being implemented.
Turning to Amendment 13, the transitional provisions in Clause 28 provide that for the period of a year, the ban will not apply to tenancies whose terms were agreed prior to commencement. Similar transitional provisions are made for agents’ agreements with tenants. The amendment moved by the noble Lord, Lord Kennedy, seeks to reduce the period in which a landlord or agent could accept a payment prohibited by Clause 1 from one year to six months. We have already sought to give tenants greater clarity and protection with respect to the commencement date. Crucially, we have revised our position from that in the draft Bill, where there was no end date by which fees could be charged in pre-commencement tenancies. There has been a considerable shift towards protecting those who have already signed their contracts.
The noble Lord, Lord Kennedy, recognised that a transition period is necessary—his amendment proposes a slightly shorter one—because although most fees are charged at the outset of a tenancy, some landlords and agents will have agreed that tenants should pay other fees, such as a check-out inventory fee, at a later stage. Tenants will have signed contracts accordingly; we need to allow time for landlords and agents to renegotiate them to ensure that the legislation does not have a significant retrospective effect.
Our view is that 12 months is fair for the transition period. Data from the English Housing Survey shows that 45% of tenants had an initial tenancy of 12 months and 36% had one of six months. Reducing the period in which a landlord or agent could accept a payment prohibited by Clause 1 would mean that more landlords and agents with pre-commencement tenancies would be at risk of not being able to renegotiate their contracts and would not receive fees that the tenant had previously agreed to pay. Again, we do not believe that this would be fair.
We recognise the importance of having a clear point where the fees ban applies to all tenancies. As drafted, the transitional provisions mean that all tenants will receive the benefits of the fees ban one year after it comes into force; as I said earlier, initially there was no such arrangement. Unlike the proposed amendment, the provisions ensure that agents and landlords will not be significantly impacted on financially and will have the opportunity to review their contracts during the transitional year. I hope that the noble Lord will feel able to withdraw his amendment against the background of that explanation.
Baroness Grender
Baroness Grender
Amendment 23 takes us to the default payments issue, which, as the Minister is aware, we have discussed in considerable detail. And I am sure we are about to discuss it in considerable detail again. In summary, Amendment 23 removes the provision that would allow default payments, and in Amendment 24 we explore the option that prohibited default payments should be included in the Bill.
We welcome the greater transparency as a result of proceedings in the Commons, but still argue that this is unnecessary and that current legislation will cover all worst-case scenarios. We have had quite a debate about whether or not there could be anything other than a lost key or security device, or the late payment of interest. I have gone to great lengths to consider as many scenarios as possible to get us beyond a lost key or security device or the late payment of interest.
Imagine the following scenario: a decent landlord or a decent, fully accredited lettings agency running a block of 10 flats. Nine of the households are good, law-abiding tenants but one tenant is a problem. They park their car in front of the fire escape, and the lettings agency has to move it, and they leave rubbish and old food to mould on the carpets in common parts, incurring a cost to the lettings agency. Here, I am trying to imagine as much as possible beyond what seems to me to be a very small cost—such as a lost key—which could be borne by the landlord, but I will come on to that.
If we remove default fees from the Bill then the following will happen. First, if an agent incurs costs for these actions, they would be able to recharge these to the landlord immediately. The landlord could then recover the costs via the deposit, provided they could show evidence that the tenant had caused the damage, and evidence of the additional cost and the reasonable costs incurred. Secondly, if a landlord incurs these costs, the landlord would incur the cost initially and then recover this via the deposit at the end of the tenancy. Again, they would need to be able to provide evidence to the Deposit Protection Scheme that the tenant had caused the damage and of the reasonable costs incurred as a result. If this results in the landlord or agent incurring vast costs as a result of the tenant’s actions—although we have very little evidence to that effect so far, and the Minister would agree that we do not yet know about this—the landlord could use a Section 8 notice to evict the tenant for breaching the terms of their tenancy agreement for damage to the property or even potentially for being involved in antisocial behaviour. I fully recognise that landlords have concerns about the court system and that there are frustrations over the current Section 8 process, but that is not something that this Bill is expected to fix. We welcome the fact that the housing call for evidence announced by James Brokenshire is taking place.
It is important to remember that in the current draft of the Bill, default fees must be written into the tenancy agreement in advance if they are to be permitted. It is quite unlikely that the potential breaches I have described—or have tried to imagine on behalf of noble Lords—would be written into the tenancy agreement with an associated fee for breaching them. Therefore there is no guarantee that a landlord or an agent would be able to charge a default fee for these offences anyway. This scenario is about compensation, damages and losses caused to the landlord or the agency by the tenant’s misbehaviour. A no fees clause could fairly cover that situation as the amount of the loss has to be assessed according to the facts of each case.
There might be a way for these defaults to be written into a tenancy agreement, but that is likely to be part of a broad catch-all term such as, “You will be charged the reasonable cost to the landlord or letting agent for failing to act in a tenant-like manner in relation to common parts of the building”. But including default fees in this way is unfair because it is difficult for a tenant to assess what is expected of them. It would be better for these sorts of charges to come from the deposit where there is independent arbitration. Such a catch-all clause would also be an unfair contract term under the Consumer Rights Act 2015 because it purports to give the landlord a power to charge costs for damages without any control or adjudication by a court or an alternative dispute resolution scheme.
Overall, even if default fees were allowed, they would never be a remedy for these scenarios anyway. These examples are about damages claims and, if serious enough, they will become the basis for possession claims as well as money claims. If we remove default fees and rely on deposits, does that become an unbearable cost to the agency or landlord with too long a gap because a deposit can be recouped only when there is a change of tenancy? It could be argued that there is some tension between putting all defaults through the deposit system on the one hand while on the other hand encouraging longer tenancies than the usual six or 12-month assured shorthold tenancies. We think that there are a couple of strong arguments against this.
First, the aim of the Bill is not to encourage longer tenancies, but about ensuring fairness in the lettings market and making sure that tenants are protected from unfair charges. Ensuring that landlords can charge tenants for additional costs they incur during the tenancy, as opposed to waiting until the end of the tenancy to recover such costs from the deposit, is not an effective way of giving renters more security. If the Government genuinely want to ensure that renters are given more security, they need to change the law to give them longer tenancies. I am delighted that they are looking into that.
Secondly, most of these costs, such as replacing a key or the interest due on late rent, are small ones that a landlord should be able to cover for the duration of the time the tenant lives in the property. If the costs are so high that a landlord feels the need to end the tenancy so that they can recover them from the deposit, it is likely that this will stray into the territory where the landlord will have a ground for possession of the property. In those circumstances, the landlord is likely to want the tenancy to end as soon as possible. I go back to my scenario of the 10 flats. Even if landlords charge for these defaults during the tenancy, they will probably be keen for the tenancy to end as soon as possible if the tenant is causing them to incur such high costs. It seems unlikely that they would renew the tenancy when the initial fixed term comes to an end or continue with the statutory periodic tenancy.
With smaller costs, we see it as appropriate that a landlord should absorb them or a letting agent should charge them to the landlord as a business cost. This is particularly relevant to my example of 10 flats as the landlord will have nine other reliable streams of income which should allow for some short-term absorption of costs before recovering them from the deposit. This brings me back to the point already raised: why is this section necessary when Section 213 of the Housing Act 2004 and possession under Section 8 of the Housing Act 1988 already exist? In Scotland there is no default fee. On Shelter Scotland’s website it says:
“Legislation explicitly prohibits charging a tenant for drawing up a lease or requiring a ‘premium’ for the granting or renewal of an assured or short assured tenancy. See section 82 of the Rent (Scotland) Act 1984—applied to assured tenancies by section 27 of the Housing (Scotland) Act 1988. Section 90 of the 1984 Act defines a ‘premium’ as ‘any fine, sum or pecuniary consideration, other than the rent, and includes any service or administration fee or charge’”.
The more I look at this, the more I am tempted to believe that this is merely a compensation device for an industry that has had fair warning for years and has simply failed to be ahead of the legislation—with significant exceptions. I have already mentioned OpenRent, which started in 2012 and is now the largest lettings agency in England and Wales. It says:
“We’re against any back-door tactics or loopholes that agents/landlord could use to continue charging tenants huge fees when letting properties. Tying any payable default fees to specific costs that the agent/landlord incurs, and also requiring evidence (e.g. receipts) was a crucial move and we are glad the Government made this provision last month. We’d like this to be as strong as possible, i.e. to be statutory instead of merely being guidance. Charging more than the true cost of a default is clearly a fee and against the spirit of ‘banning tenant fees’. Our Assured Shorthold Tenancy is used in thousands of tenancies in England and Wales and it doesn’t include any default fees, including late payment fees”.
So it is possible to provide a good, responsible service, make a profit, and not charge any default fees at all.
I applaud the Government for changing their mind and banning letting fees but this Bill is here and now. This is the moment to end the loopholes that have always been exploited—to the cost of the family on a low income, the young person saving to one day own their own home or the older person who rents. Default clauses will end up being something like, “Maintain the garden”, with no clear indication of who judges that, or, “Take your shoes off in the property”, violating a tenant’s right to peaceful enjoyment and to wear whatever they like on their feet. In a worst-case scenario, it might be requiring a tenant in a poorly insulated, damp building to prevent mould through heating and keeping the windows open or to pay £100 per room to repaint mouldy rooms. It then becomes a moral question, not to mention a paternalistic one, about letting agents presuming that tenants are unable to keep a home in good condition without the threat of penalties.
All these issues can be judged fairly through the current tenancy deposit route, which has independent arbitration outside the courts. Tenants are much more able to challenge and get a fair ruling on deposit deductions than they would be on contractual default fees, which they may not understand or know how to challenge. Default is too much of a loophole. It will become a judgment call, and those who can be exploited the most will be protected the least. I thank noble Lords for bearing with me on all these arguments. I beg to move.
The Earl of Lytton
My Lords, I am grateful to the noble Baroness, Lady Grender, for raising this. I wondered slightly about the procedure of deletion and adding in, but I will leave that to others. I will touch on one or two things.
We must start from the standpoint that under the terms of a lease, a tenant is provided with exclusive possession of and control over the property of their landlord within the terms of the lease. It is perfectly possible for tenants to do a lot of damage in a short period of time. Mercifully, very few of them do, but the occasional one does, because they are ignorant, because they have strange lifestyles, or for whatever reason. I thought, when I looked at this part of Schedule 1, that the default, defined as performing an obligation or discharge of a liability, was probably too wide. It did not surprise me that the noble Baroness has picked up on that. To that extent, she has a point. First, the landlord absolutely must substantiate the amount in question. The noble Baroness would introduce the concept of fair condition, then limit fair condition to two items. She has explained that, but I can think of eight or 10 others that I could add to the mix, all of which could objectively be seen as fair conditions of properly occupying and generally looking after the premises by a tenant.
Lord Bourne of Aberystwyth
My Lords, I thank all noble Lords who participated in the debate on this important section of the Bill. To echo the point made by the noble Lord, Lord Kennedy, this is about dealing with the small minority of tenants and landlords. I accept that the vast majority will not need the encouragement we are giving. That said, there is a difficult issue involved, as outlined quite fairly by the noble Baroness, Lady Grender. However, I take a slightly different view on it, so let me outline where I am. I am of course happy to carry on discussing this ahead of Report, so that we can get to a sensible position on it.
There are situations where it is quite reasonable that a landlord should be able to claim from the tenant for doing something that is perhaps the tenant’s obligation but which the landlord has taken up. We have heard some examples and there will be others that we have not thought of—I do not suppose anybody except the noble Earl had thought about condensation until today, but we are now aware that that situation perhaps needs to be covered. We are not necessarily going to be able to think of an exhaustive list, but the list we are looking at does not relate to damage.
It is not appropriate that a replacement key should come out of the deposit; the deposit is there to counteract damage that is done. That would be true of a locksmith coming in as well. How will that be shown to be a reasonable cost? It has to be evidenced in writing: for example, with the receipt from Timpson. I do not think anybody could reasonably object to that. It is entirely right. There is a whole jurisprudence on reasonableness, and I can happily supply it all to the noble Lord, Lord Kennedy—it runs to volumes and volumes in the law of negligence and elsewhere, as the noble Lord, Lord Beecham, will certainly be aware. This is an area in which there is substantial jurisprudence. We can give some examples but giving an exhaustive definition will take some time.
I share the view of the noble Lord, Lord Best, that it would not be appropriate to evict a tenant or to say that that has to happen in this type of situation. I think that a landlord would be very happy to renew a tenancy if he was able to claim in relation to lost keys and a locksmith being called out, and there is no reason why he should not be able to do that.
I am very keen to look at this issue ahead of Report to see how we can perhaps tighten it up, as I accept that there might be a need to do that. However, there are legitimate situations where it is not unreasonable for the landlord, during the currency of the lease—not at the end of the lease, when the deposit will kick in—to be able to claim for the cost of work that has been done. It is no more and no less than that. I recognise that we want to stop any potential abuse by the small minority of landlords whom we all have in our sights, but I hope that the noble Baroness will accept that there are legitimate situations that we can look at ahead of Report while trying to isolate the cases where there is abuse. With that assurance, I respectfully ask her to withdraw the amendment.
Baroness Grender
I thank the Minister very much for that reply. I would of course welcome the opportunity to work with him and officials to try to tighten up this provision. This area goes to the very heart of where we all started out, so I see getting this right as absolutely fundamental. I am more than happy to work with the Minister on this and, with that prospect in mind, I beg leave to withdraw my amendment.