Committee (1st Day)
Relevant document: 35th Report from the Delegated Powers Committee
My Lords, I am always required to announce that should there be a Division in the House, we will immediately adjourn for 10 minutes. It seems highly unlikely this afternoon.
Clauses 1 to 4 agreed.
Clause 5: Treatment of holding deposit
1: Clause 5, page 4, line 32, at end insert—
“(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.”
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.
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.
My Lords, as this is my first contribution to today’s proceedings, I draw the attention of the Grand Committee to my registered interest as a vice-president of the Local Government Association. I thank the noble Lord, Lord Bourne of Aberystwyth, for the letter and the draft guidance, which we received on Friday afternoon. I very much appreciated that: it was good to get the papers and look at them over the weekend.
Amendment 1, moved by the noble Baroness, Lady Grender, and to which the noble Baroness, Lady Thornhill, and I have added our names, raises an important issue for prospective tenants. It seeks to include in the Bill more certainty, and to provide greater fairness and transparency for the person or persons looking for accommodation. They would be provided with more information about how their money is to be treated. I am not against the use of holding deposits in principle, but I want to see real clarity in their operation, and the amendments in this group are a positive step forward.
I am sure the Grand Committee will be repeatedly told today that guidance is sufficient and we do not need to go down the route of regulation. But I am also clear that this is guidance; it is not statutory and, as such, has no legal effect—it is just guidance. Amendment 1 rightly places a requirement on the Secretary of State to set out in regulations the procedure to be followed by a landlord or letting agent when they take a holding deposit, and how the deposit is to be treated in a prescribed way so that it is clear what the prospective tenants should be told. The amendment would also ensure that there is a clear procedure to be followed where it is decided to withhold a deposit, and that evidence must be provided to the person who paid the deposit, setting out the ground on which it is being withheld. The regulations are to be approved using the negative procedure, which is the minimum of burdens for the Government and is the right way forward in this case.
Amendment 17, in the names of the noble Baronesses, Lady Grender and Lady Thornhill, and Amendment 22 in my name, seek to stop the practice of taking multiple deposits from people. I accept that this is referenced in the guidance, and that, as it says, a holding deposit creates a binding conditional contract between tenants and landlord. But if, as a landlord or letting agent, you accept multiple deposits, surely you must be in breach of this binding conditional contract. It can be said in those circumstances that there is no conditional contract whatever.
Amendment 18 from the noble Lord, Lord Shipley, and the noble Baroness, Lady Thornhill, addresses the same issue that I have sought to address. I very much agree with the noble Lord’s points. In principle I support the Bill. I want to make rents even fairer for tenants, as the Government and the noble Lord do. I want to protect tenants from bad landlords, but also landlords from bad tenants. There are some very good landlords around and only a minority of rogues; also, most tenants are good tenants who pay their rent and act reasonably, but there are a minority of bad tenants as well. I do not support bad landlords or bad tenants in any circumstances.
My Amendments 19 and 20 state that a holding deposit of one week is just too much, as the noble Lord, Lord Shipley, mentioned. Three days is sufficient. When the Minister responds to the debate, I should like to know why the department has gone for one week, which seems too much. The guidance says that this is an upper limit and not a recommendation. I suppose that is progress. The risk is always that these quickly become the norm and the agreed figure. We run the risk of everyone being asked to provide a week’s deposit. In many cases that is a significant amount of money.
The London Borough of Newham is not the most expensive part of London to live in, but it is a borough with a huge private rented sector. Well over 25,000 private landlords operate there. The average monthly rent is £1,400, leading to a holding deposit of £350 in the borough. That is a lot of money for people to find. These amendments would allow for a holding deposit to be paid, but capping it at three days would reduce the amount being paid in Newham to a deposit of approximately £138. I suggest that is a lot of money, but a lot less than would be charged otherwise.
Amendment 21, also in my name, would prohibit a holding deposit being requested where the person being asked for payment has not been provided with a copy of the draft tenancy agreement. This seeks to address another problem where people are not given what they are expected to sign up to. I hope everyone would agree that is not reasonable. If you are asked to pay a deposit, you should at that point at least be given the agreement you are expected to sign up to. I look forward to the Minister’s response to the points raised.
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.
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.
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.
My Lords, I declare my interests as set out in the register, in particular that with my wife I am the owner of rental property managed by letting agents. I thoroughly commended the Bill at Second Reading because it is an excellent piece of work. If we can improve it, that will be all to the good, but even if we leave it as it is I am sure it will be an extremely useful legislative measure.
Three separate issues are at stake in the amendments we have before us. Two directly concern holding deposits and one is about putting material into regulations rather than into guidance. On holding deposits, there is the question of when one would lose one’s holding deposit. I have come across circumstances in which it is quite difficult to determine exactly what is fair and reasonable. When four people are sharing a property, they will all contribute to the rather large holding deposit. If one turns out to have given misinformation about their circumstances, that will enable the agent to say quite properly that all four will be rejected as a group. Will they lose the contribution that each has made to the single large deposit that has been placed, especially if they had no idea that one of the sharers was in that circumstance? Difficult decisions will have to be taken, on which firm guidance will be needed.
The second point concerns the period that can be covered by a holding deposit being three days instead of seven. Again, a blanket figure of one week somewhat needs finessing in the guidance that will follow. A week in the north-east for a single person occupying small premises might be £50, while for four sharers in Fulham a week might be £1,000. Very different sums of money are involved in different parts of the country. The point about finessing elements of the Bill in later guidance is well made by all.
That brings me to whether guidance that ultimately is not in the Bill or in secondary legislation is strong enough. It may be that having regulations that follow through a statutory instrument would be a better way of dealing with the tricky issue of holding deposits, along with other measures that will come before us as we work our way through the Bill. I should like the Minister to explain the down sides to using regulation in the form of a statutory instrument to cover the issue rather than guidance, which, I suspect, could be open to dispute and disagreement. I fully understand that one clear disadvantage of going down the route of using regulations is that if we are to have secondary legislation, it needs to follow the enactment of the Bill before we can get going on the practicalities. That would put back the moment when the very good things in the Bill would begin, so I see that there might be a delay. However, that might be a price worth paying if the Bill is improved in this way. Could the Minister let us know what kind of delay we are talking about and whether there are other down sides to the use of secondary legislation and regulations in place of guidance, which, as I say, may be subject to a good deal of dispute?
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.
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.
My Lords, I thank noble Lords very much for participating in the debate on this part of the Bill. I should like to speak to the range of amendments that deal with the treatment of holding deposits.
As noble Lords are no doubt aware, this is the first time that we are seeking to cap the level of holding deposits—it has not been done before. I am pleased that we all agree that it is important to permit landlords and agents to charge a holding deposit. That seems to be universally accepted and I thank noble Lords for that. However, it seems that we still have some areas of disagreement and I will discuss each of them in turn.
First, Amendments 18 to 20 seek to lower the level of the cap on holding deposits from one week’s rent to three days’ rent. I am afraid I cannot accept these amendments. A cap of three days’ rent could unfairly penalise the landlord because the costs incurred in referencing a potential tenant include not only the cost of the reference check. Payment of a holding deposit means that a property should be taken off the market, and therefore costs might include lost rent for the landlord if the tenancy does not proceed. That lost rent will be higher in Fulham than it will in Newcastle.
Where a tenancy proceeds before the deadline for the agreement, the tenant will receive their holding deposit back in full. However, if the tenancy does not go ahead owing to the tenant’s default, it is not fair that the landlord or agent is penalised. We are seeking fairness here—no more, no less. We believe that tying the maximum holding deposit that can be retained to a week of rent is fair compensation for the landlord’s likely actual loss. However, our consumer guidance will encourage landlords and agents to retain only the costs they have incurred. In relation to the guidance, I will also look at the point about a draft agreement being seen before the agreement is entered into. That is reasonable. In general, I am very happy for noble Lords to engage in the guidance. We can organise a briefing on it and take on board any points that they wish to make.
However, it is important to state that the cap of one week’s rent represents an innovation and an improvement on the status quo. Currently, there is no prescribed limit. The Government’s 2017 consultation on banning letting fees asked tenants for a breakdown of the fees charged at their most recent letting. Similarly, it asked agents for a breakdown of the fees that they charged. The responses to the consultation were not necessarily a representative sample but they gave us a flavour of the level of holding deposits currently charged. Tenants said that they were charged a mean average of £370 as a holding deposit and agents said that they charged a mean average of £214. Currently, a website run by Generation Rent called lettingfees.co.uk has also compared letting fees as displayed on the websites of 1,088 agents across the United Kingdom. It found that, of 23 agents who declare that they currently charge a holding deposit, the average charged is £341. Between 1 April 2017 and 31 March 2018, the average monthly rent in England was £675, working out at £156 per week. That is what would be charged as an average. A cap of one week’s rent will help to improve affordability for tenants, while ensuring that landlords are not unfairly penalised should the tenancy not proceed for reasons within the tenant’s control.
Secondly, I will address Amendments 1 and 21, which seek to encourage greater transparency for tenants in how the holding deposit is treated. I appreciate the valuable points raised and the importance for tenants of understanding how their deposit is handled and why it may not be returned. That is entirely fair. I want to minimise the need for secondary legislation. The noble Lord, Lord Best, quite reasonably pointed out the down side of bringing forward regulations. I should say that it is not usual in this type of situation, despite what the DPRRC says. I have checked this with similar, although admittedly only parallel, legislation; of course, there is no legislation that is identical. If one looks at the Local Government and Public Involvement in Health Act 2007, the Local Government Act 2003, the Planning Act 2008 and the Small Business, Enterprise and Employment Act 2015—across a range of legislation, which I am happy to share with noble Lords—it has been usual for this to go in guidance rather than regulations. The noble Lord is absolutely right that not only would that sacrifice a degree of flexibility, it would slow this down materially—by how long it is difficult to say, given all the legislation currently going through, whatever the circumstances of deal versus no deal. Noble Lords will be aware of the considerable pressure on the legislative programme.
On the point about slowing the legislation down, the Bill will come into force. Most of the provisions will be enacted on a day to be determined by the Secretary of State through a statutory instrument. Even if the Bill goes on to the statute book, we will have to wait for a further period for many of these provisions to become law, and even then only by regulation. The Bill will not all come into force immediately. Some parts will but quite a lot, including the provisions on deposits, will come into force at a later date. It could be weeks or months after the Bill comes into force before anything actually happens. We will have to have a debate in the House on those provisions first.
The noble Lord is right up to a point. That is the case but, obviously, it would be extended if we are considering other things. It would take it into another realm if we choose to debate at length the considerable guidance, which he will have seen. I accept that, but of course it would take longer because there would be more to debate.
I think I have dealt with the point about guidance over regulations. The other point raised quite rightly by the noble Lord, Lord Best, concerned when the deposit is lost. That is set out in the guidance and we will be happy to engage with noble Lords further if there are further points they wish to make.
I pay tribute to the work of the noble Baroness, Lady Grender, in this area. She fairly outlined the point about multiple holding deposits for landlords. She will know my view, given previously, that this is not fair and I remain very much of the view that what is sauce for the goose should be sauce for the gander. We are taking legal advice on this point because I am convinced that it would be a breach of contract for a landlord to take multiple deposits. He would potentially be in breach of multiple contracts except the one. We will look at the issue further and I am happy to come back to this point on Report.
My noble friend Lady Gardner and the noble Earl, Lord Lytton, spoke about the danger of the level of the deposit being curtailed excessively. The Government are keen to reach a fair judgment on this. People should be recompensed only for their losses and we should not go beyond that. That is entirely fair. On the other hand, they should not be penalised where a loss has been brought about by the actions of the tenant. It seeks to get that level right.
Some fair points have been made. Additionally, we are seeking to introduce a guideline here, and it may become an accepted guideline in many cases, but this is not an obligatory measure. If people want the holding deposit to be lower, they can make it so. The level of the actual deposit in Scotland is set at eight weeks, but there is evidence that it is not being adopted as the norm. That is the upper limit and so would be the case here. Three days is much too low, and we think a week fairly represents the likely loss in many cases. This is a considerable step forward.
With that, I thank all noble Lords for engaging and for the welcome generally, given the point made from the Front Benches by the noble Lords, Lord Shipley and Lord Kennedy. As I say, I am happy to engage on those specific points—on the content of the guidance and on the multiple deposits—ahead of Report. With that, I ask the noble Lords to withdraw their amendments.
Could the noble Lord address guidance again? This will come up again and again as we go through the Bill. If guidance is not by regulation, what is its legal status? I suspect that it has very little; it is just guidance, which can be looked at and followed, but also ignored. My worry is that, if things are not down clearly, by regulation, they can be accepted but also ignored, and there is very little that anyone can do about it.
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.
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.
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.
My Lords, I am not sure that I do accept that. It is different in nature: some things are better in guidance, because of greater flexibility, and some things are better in regulations. So while I do not accept the general proposition, I accept that some things are better in regulations, but I do not accept that these are those things.
Amendment 1 withdrawn.
Clause 5 agreed.
2: After Clause 5, insert the following new Clause—
The Secretary of State may by regulations made by statutory instrument amend paragraph 2 of Schedule 1 to make provision which enables a relevant person, at the conclusion of a tenancy, to transfer all or part of a tenancy deposit from the landlord or agent with whom that tenancy was held to a second landlord or agent.”
My Lords, Amendment 2 seeks to enable a deposit to be transferred to another landlord or letting agent. This deposit passporting would be of great benefit to tenants and, as far as I can see, would have no detrimental effect on landlords or letting agents. The system would allow for the direct transfer of money between landlords and properties. The consumer group Which? found that 43% of renters have had to use a credit card, loan or overdraft, or borrow from family and friends to fund a deposit—that is terrible. It also found that 31% of renters had to find money for a new deposit before they had been paid back their existing deposit. In effect, this group of renters would, even if only for a short time, have paid two deposits, which is potentially a huge sum of money. That is just not fair, and the Bill does not address this at all. Renting in the private rented sector is stacked against tenants in many respects and this proposal would help tenants with the difficult issue of finding deposits.
I saw an article in the Daily Telegraph—not my usual reading, I must say—which included figures from the Tenancy Deposit Scheme. The article found that the average deposit is £1,180, as much as £3,266 in parts of central London, and around £498 in Lancashire’s Ribble Valley. These are not insignificant sums of money. The system is failing tenants and it could be improved.
Amendments 15 and 16, also in my name and those of the noble Lord, Lord Shipley, and the noble Baroness, Lady Thornhill, seek to put into effect what the Government originally announced: that there would be a four-week tenancy deposit cap. In this case, I stand with the Prime Minister and what she announced last year. It is appalling that the Government have had a change of heart here, and it would be useful if the noble Lord, Lord Bourne, could explain what has happened over the past year and why there has been a change of heart. The evidence shows that opting for this large deposit cap makes it harder for people to rent in the private rented sector, and makes it harder for them to raise money for a deposit, especially when there is no ability to passport deposits.
I am sure we will be told that there is a risk that renters will use their deposit to cover their last month’s rent without the consent or knowledge of the landlord. Citizens Advice—an organisation that we all respect—has done research that found that this happened without prior agreement with the landlord in only 2% of cases. Therefore, in 98% of cases, it did not happen. I am sure we will also be told that this higher figure of a six-week cap is needed to recover landlords’ costs, but again this just does not hold water.
The Deposit Protection Scheme did some analysis and found that over 50% of tenants get their full deposit back and the average deposit return is 75%. That illustrates that the Government were right to set the level at four weeks in the first place, and it is disappointing that they have changed their mind. The majority of renters getting most or all of their deposit back shows me that the four-week limit is the right level, which would still allow for a much higher than average deduction to cover landlords’ legitimate costs while protecting renters from excessive up-front costs. I beg to move.
My Lords, my name is attached to Amendments 15 and 16 in this group. Amendment 2 is a very reasonable suggestion and I hope the Minister will be able to respond positively to it.
In the previous group I raised how lengths of time are decided. I understand that they are often a judgment. The same issues around the length of time arise in this group. We need to protect both parties—landlord and tenant—and the question is whether six weeks’ rent is a reasonable sum to pay as a refundable deposit or whether some other length of time is more justifiable. There are two issues here. First, in Scotland, it is two months. Scotland has that figure for a reason. Have the Government looked at Scotland’s experience? Secondly, it was announced in the 2017 Queen’s Speech that in England it would be four weeks; that is, half the length of time that applies in Scotland. Differences of this kind for those on low incomes or who are short of savings can matter profoundly.
The Government have now decided that it should be six weeks. It is almost as if this is about splitting the difference between what they said it was going to be—four weeks—and the Scottish experience, which is eight weeks. It needs more rigour than that, should that be the case. Again, I refer to advice from Citizens Advice, which I think is material. The most common amount tenants pay for a refundable deposit is four weeks or one month. Setting the cap higher than four weeks might push up the cost to tenants. To put it another way, setting the cap at six weeks will help only 8% of tenants, according to Citizens Advice. However, a cap of four weeks would save money for almost half of tenants. I do not know what consideration the Government have given to that but I make the point that when it comes to the decision on whether it is four, six or eight weeks—or perhaps five weeks, which was mooted in the House of Commons—we need to be very much clearer about why six weeks has been decided on.
Citizens Advice’s research shows that only 2% of renters use their security deposit to cover their last month’s rent without the landlord’s knowledge or consent. Has the Minister considered the advice from Citizens Advice? If it is only 2% of renters, there is an issue for us to discover. Of course, the point is—and in defence of landlords’ interests—if tenants withhold the last month’s rent, that can lead to a landlord having no protection against the damage done by a tenant who is leaving if they fail to pay the last month’s rent as well. That would be a concern for me. That is one of the reasons why the House of Commons suggested that it should be five weeks, not six.
What I look for in this probing amendment is the evidence base the Government considered on how many weeks would be justifiable. They clearly changed their mind from the Queen’s Speech in 2017 when they announced that it would be four weeks. They have now come out with a figure of six weeks. I would like to understand better the Government’s reasoning for that figure.
My Lords, I am very pleased that these amendments have been tabled. They enable me to make one or two comments. On Amendment 2 on transferable deposits, moved by the noble Lord, Lord Kennedy, what he has set down might make for an awkward arrangement requiring quite a raft of safeguards so that landlord one can transfer a tenant’s deposit out of their account into the account of landlord two, which, as I see it, is what happens.
I am a practising chartered surveyor. Those involved in residential property management have to accord with all sorts of professional regulations, including rules on holding clients’ money. Tenants’ deposits would certainly come in that category. They have to be very punctilious about what they do and very transparent about the process. I know that not every agent or, for that matter, landlord holding a deposit is a member of the Royal Institution of Chartered Surveyors. It might be different if they were, but that will never be likely. I am saying that there are two parallel sets of requirements. It will be interesting to know what discussions or information had been obtained from others such as ARLA on this sort of transfer, how it would be documented and how we would ensure it was seamless.
The noble Lord, Lord Kennedy, raises a valid point. For tenants to have to wait for a deposit to come back to them and to pay another deposit at the same time—in other words, a double overhead—is awkward, but other things lurk here. The noble Lord, Lord Shipley, mentioned one, but there is the other question of whether any unpaid services and outgoings lurk there. Sometimes these do not come through for some particular period. Noble Lords will know from dealing with utility companies and this sort of thing, including some of the cut-price ones, which seem extremely difficult to deal with at times—no names mentioned here, though—that it can be quite difficult to make sure that you have closure on the amount of money for which a tenant might be responsible. There is an issue relating to the period to which the amount might apply. That might depend on the circumstances, such as whether it was a furnished or unfurnished letting, or fully equipped as well as being furnished. Obviously, the amount of damage that can be done and what might become apparent would not necessarily be known until right at the end of the lease. While I am pleased to confirm from my experience that the majority of tenants have been absolutely excellent people, the odd ones are feckless, overload electrical systems and do other damage that is not immediately apparent.
I wish there was a better way of dealing with this. I can see where the noble Lord, Lord Kennedy, is coming from. It is a valuable thing to raise because of the rigidity it creates within the tenant cohort. We should be doing things to make sure that there are not those rigidities because that, in effect, is a barrier to them renting property in the first place. However, I see a number of technical difficulties with the amendment. I hope that the Minister will comment on some of them.
I support the amendment on transferable deposits. It is an absolutely commendable concept. How can people possibly find a second fat deposit when they have not had the first one back? This proposal would be a really helpful move, and I hope the Minister will take it very seriously and look at it in some depth.
On the question of a six-week, five-week, four-week or eight-week period, I was impressed by the Citizens Advice survey, which indicated that only a very small percentage of tenants—2%, I think—did not pay their last month’s rent, the deposit being absorbed or used for that purpose. However, I asked Citizens Advice about its survey and discovered that it was exclusively of tenants. I suspect that the percentage might have been different if it had been a survey of landlords or agents. This is bad news for landlords but I am told by agents that, naughty as it is, a lot of students will not pay the last four weeks’ rent because they fear that there will be a big dispute about their deposit at the end. Especially if the student has come from overseas and is returning, they will have no trouble over the deposit because they will instead have withheld their last month’s rent. I suspect that landlords would always be very hostile to the idea of a limit of just four weeks’ rent when students behave like that.
My Lords, the question of how much deposit you can pay back immediately to a tenant is a difficult one. Very often a lot of people are required to check exactly what damage has been done, particularly in cases of very heavy damage. I have mentioned before the block where we have a right to manage. A person owing a large service charge has recently had herself certified under the Mental Health Act. Someone has now been appointed to take over and the four flats in her name are being handed over. One flat in the basement was being used illegally as a brothel and the people who vacated it smashed the whole place to pieces—the windows, the walls and pretty well everything else, as far as I understand.
The legitimate tenant is perfectly entitled to think that they should have as much of their deposit back as possible, but where someone does what they did in that flat—as yet, we have not seen the other three that have been recovered from illegal lettings—it is quite worrying if you do not have any deposit to go towards repairing the damage. Therefore, the situation is more complicated than people realise.
My Lords, I thank the noble Lords who have participated in this debate. In particular, I thank the noble Lord, Lord Shipley, for moving Amendment 9 and the noble Lord, Lord Kennedy, for speaking to his Amendment 10.
I have listened carefully to the concerns about the level of the deposit cap and I understand them. However, there is a balance that must be struck between providing tenants with greater affordability and ensuring that landlords have adequate financial security for their assets—points just touched on by my noble friend Lady Gardner. For that reason, I cannot agree that the cap should be lowered to four weeks’ rent. As we have heard, a cap at four weeks’ rent might encourage tenants to forgo their final month’s rent. Even the CAB statistics—which, as the noble Lord, Lord Best, said quite fairly was a survey of tenants—puts the number of tenants doing so at 2%. Therefore, there is still an issue there. I remind noble Lords that this is setting an upper limit; it is not setting a norm. Indeed, there is no evidence to suggest that the eight-week period in Scotland has become very much the norm; it is regarded as an upper limit. I will shortly come to reasons why the upper limit of six weeks might be needed, and I take on board the very fair points that the noble Lord, Lord Shipley, made about the need for that.
The Housing, Communities and Local Government Select Committee also recognised the risk when it looked at this issue. It is worth mentioning that final month’s deposit. Using data from the tenancy deposit protection scheme, our best estimate is that if deposits were capped at six weeks’ rent, approximately 1.4% of landlords taking deposits would see a median loss of £89 per tenancy that they would not have been subjected to otherwise. These costs would be borne by landlords—those who currently require tenants to pay more than six week’s rent in deposit—at the end of the tenancy when the deposit does not fully cover their claim.
In contrast, a cap of four weeks’ or one month’s rent would lead to a loss for 5.2% of landlords of £200 on average. That is based on deposit scheme figures. As a result, landlords may be less willing to absorb increased costs because of the number and size of deposits affected by a four-week cap. Tenants could therefore see greater increases in rent, which would decrease the overall net benefit of the legislation. Also, as I have touched on previously, lowering the deposit cap to four weeks’ rent could hurt pet owners, those who live abroad and those with a poorer financial history. These groups often pay a higher than average deposit to provide landlords with the assurance they need, so they are worth bearing in mind.
I believe that the cap of six weeks’ rent provides the additional financial security and flexibility that landlords need, which is integral to retaining investment and supply in the private rented sector and benefits tenants. Like other noble Lords, I recognise that good landlords and good tenants are in the great majority, but the cap seeks to preserve that balance. I reiterate that the cap of six weeks’ rent is an upper limit. Data from the tenancy deposit protection scheme informs us that most landlords request a deposit of around four to five weeks’ rent. That is in the great bulk of cases but, as I have indicated, in some cases it may be appropriate to go higher and not going higher may make it difficult for people with pets, for example, to get tenancies. I would put it no higher than that. I remind noble Lords that Scotland has capped tenancy deposits at no more than eight weeks’ rent and there is no evidence to suggest that deposits have risen to meet that cap. It is an upper limit, not the norm.
We will also use the guidance to encourage landlords to consider on a case-by-case basis when to take a tenancy deposit and the appropriate level of that deposit. It is also important to remember that unlike letting fees, which are non-refundable, the deposit is retained by the landlord only in instances where the tenant breaches their obligations under, or in connection with, the tenancy. The deposit is the tenant’s money and landlords must provide appropriate evidence where they believe that they are entitled to retain any of that deposit. I therefore suggest that it is the appropriate level.
More broadly, on the fair points made by the noble Lord, Lord Kennedy, particularly about passporting, I want to ensure that tenancy deposits work for both landlords and tenants. That is why we established recently a working group to look at the merits of innovative and more affordable approaches to tenancy deposits. This includes deposit passporting, where a deposit can be transferred from one tenancy to another, as proposed by Amendment 2. Members of the working group include landlord and tenant representatives and the three tenancy deposit protection schemes. So far, the group has met three times and is due to report its findings next spring. I will happily provide noble Lords with updates as things progress. That is all the information we have at the moment but if I can provide more information ahead of Report, I will do so.
Many things in relation to passporting still need to be considered. The key concern here is ensuring that landlords can still recover any damages at the end of a tenancy. A great deal of technical complexity would need to be examined, both on the percentage that is passported and on when, and how, liability for providing a tenant with the relevant prescribed information about how their deposit is protected should be passed from one landlord to another. I am sure noble Lords will agree that we need to do this properly. As I said, I am keen to ensure that we do it but the report from the relevant working group is not due until the spring. However, I will write to noble Lords to provide more information about the working group ahead of Report, in so far as we have more information. I will be happy to provide noble Lords with an update once the working group has reported its findings in the spring. In the light of those assurances, I hope that the amendments in this group will not be pressed.
My Lords, perhaps I may ask the Minister two questions on points I raised earlier. The first is that it is not clear why the Government used the figure of four weeks in the Queen’s Speech last year and what has caused them to change their own decision. Secondly, can the Minister explain the consideration that has been given to the scrutiny by the Housing, Communities and Local Government Committee? Bob Blackman MP drew attention to the committee’s recommendation that the length of deposits should be set at five weeks to avoid the risk that a tenant may refuse to pay the last month’s rent if the limit was set at four weeks. That would avoid some of the financial hardship for tenants that could result from the six-week limit. Have the Government considered in full the pre-legislative scrutiny undertaken in the other place in coming to their decision that it should remain at six weeks despite the clear advice that it should be five weeks?
On a similar point, we understand that in the Queen’s Speech the Government mentioned a period of four weeks. At one time it seems to have been a manifesto commitment. I am sure that we will be told that it was not, but I would be interested to find out. I understand that the period of four weeks was announced in the Queen’s Speech, but what has happened? The Bill says six weeks. It would help to know the Government’s thinking on that.
I thank noble Lords for those points. The consideration was around the notion of an upper limit, not a norm. As I say, there are difficult cases where a four-week limit may not be appropriate. I have outlined some of those and we have to think about the consequences for tenants. It was that which motivated the reconsideration.
On the point made by the noble Lord, Lord Shipley, about Bob Blackman in the Housing, Communities and Local Government Committee, it is true that different periods were talked about—of four, five, six and eight weeks, as we have already rehearsed—but it is important to note that this was not pressed to a vote in the other place. We have considered the element of flexibility. We are not mandating that it has to be eight weeks; that is far from the case. The evidence from Scotland is that it has not gone to eight weeks; rather it has not really budged. However, it gives flexibility, and that has influenced us. We cover in the guidance the point that we do not expect it to reflect anything other than the loss on the deposit.
My Lords, in connection with what was mentioned earlier about tenants who do not have a particularly good track record or who come from abroad, perhaps I may pick up on one point. One of the bones of contention is that the tenant pays a not insubstantial deposit and it is held by and on behalf of the landlord. Is there not an opportunity to have a third-party deposit holder who, in effect, would hold the money and provide a guarantee of the tenant’s performance so that it does not become a bone of contention for students, those from abroad and people with no track record? Could we break that particular logjam so that it is not seen as the landlord accruing a sum of money and hanging on to it as a sort of financial bludgeon? Could this be defused in some way? Perhaps the working group could look into the possibility of something along these lines.
My Lords, I am happy to pass that on to the working group, but one has to be careful what one wishes for. As we know, there are all sorts of issues around deposit protection and to disturb the existing relationship may well be dangerous. However, I will ensure that the message is passed back to the group so that it can consider it if appropriate.
I want to come back to deposits. I accept that it is not easy to sort out, but a tenant in the private sector who is seeking to move will have paid, even on the average figures, £1,200 and will need another deposit of a similar value. As I mentioned, Which? found that 43% of people were using credit cards or loans to get this extra deposit. A lot of people in the private rented sector will be on lower incomes. If they end up borrowing money on their credit card to fund the deposit because they cannot get their previous deposit back, that is not a good place for anyone to be. A credit card is an expensive way of borrowing money for a short period. We need somehow to address that issue and I wonder what the Minister can say about it.
My Lords, the noble Lord will know that I have a lot of sympathy with that point, not only in this context but for people being forced to use credit cards or loans where that is not appropriate. I could not agree more with him on that, so it is important that we get this right. That is what we are seeking to do. He will be aware, just from the discussion today, that there are different views even in the Committee about the levels. We are seeking to get this right, to reimburse the loan and to provide for passporting on a sensible basis, but we have to ensure that we are being fair to the tenants and the landlords while, at the same time, not killing the tenancy market, which is an important part of the offer to people. However, I take his general point, which is entirely fair.
My Lords, it is good to see the noble Lord being so supportive of the Queen’s Speech, on this occasion at least. I suspect a little bit of mischief in his new-found support for the Conservative Government. Nevertheless, on the particular point, as I have tried to address, we have looked at the level and, on consideration, decided that we would establish an upper limit but not a norm. That is the thinking behind the more mature reflection. I absolutely accept that this is a question of getting it right.
I thank the noble Lord for that. I will leave it there and seek to withdraw the amendment, but it is fair to say that I am likely to bring the issue back on Report, as I think that six weeks is too much—I will be looking at four or five weeks and hoping that we can persuade the Government on this. Until then, I beg leave to withdraw the amendment.
Amendment 2 withdrawn.
3: After Clause 5, insert the following new Clause—
“Duty to provide tenants and prospective tenants with information
(1) Within one month of this Act being passed the Secretary of State must—(a) prepare guidance to assist tenants and prospective tenants to understand the effect of this Act, and(b) publish the information on a website maintained on their behalf.(2) The Secretary of State must take all reasonable steps to provide a copy of the information to any bodies appearing to the Secretary of State to represent the interests of—(a) landlords and letting agents in England;(b) tenants in England;(c) local housing authorities;and other bodies the Secretary of State considers appropriate.(3) The information must, in particular, include the following—(a) the date on which the provisions in this Act come into effect in England;(b) information about prohibited payments under the Act;(c) information about permitted payments under the Act;(d) information about where tenants can access help and advice about the Act;and any other information that the Secretary of State deems would assist tenants and prospective tenants to understand the effect of this Act.(4) Every landlord and letting agent must—(a) provide all tenants and prospective tenants with information about the provisions in the Act relevant to them (which must, in particular, include the information mentioned in subsection (3)(a) and (b)),(b) publish such of the information as it considers to be relevant to its tenants and prospective tenants on its website (which must, in particular, include the information mentioned in subsection (3)(a) and (b)).(5) Subsection (4) applies from the day on which this Act comes into force.(6) In making arrangements for the purposes of providing information under subsection (4) a landlord or prospective landlord must—(a) have regard to the likely needs and characteristics, in respect of the provision of information, of persons to whom the information in question is to be provided, and(b) consider whether, having regard to those needs and characteristics, it is appropriate to provide any of the information to any of those persons otherwise than in the way in which it would normally be provided.”
My Lords, Amendment 3 seeks to shine some light on the whole process for the benefit of landlords, letting agents and tenants. It would place a duty on the Secretary of State to take all reasonable steps to ensure that the new procedures coming into force are properly communicated to everybody concerned. I am sure that we would all agree that proper communication is vital to make legislation effective and ensure that it works. It is imperative that the introduction of the ban is clearly communicated to ensure that landlords and letting agents, as well as tenants, are fully aware of the changes and that this happens immediately. We would put a requirement on the Secretary of State to advise representative bodies, affected groups, local authorities and other bodies that the Secretary of State decides are appropriate. That would include bodies such as Citizens Advice that provide advice services to people.
In the private rented sector, it can be difficult to reach the people who rent, because of the often transient nature of the sector—people probably move around more than in other sectors. There will be groups of tenants who need support. Some, of course, will be very savvy about their rights and responsibilities, but there are other groups of more vulnerable tenants. We must make sure that smaller agents and smaller landlords—some may have only one or two properties—are fully aware of the changes and how they will affect them. It is particularly important that tenants are made aware since they are the people who will alert local authorities to the identities of landlords or letting agents who are not observing the law, charging prohibitive payments or doing other things that would be banned by this legislation. To ensure compliance—I know the Government want to see compliance with their own legislation particularly—we need a clear communication strategy. The Bill will change the law and introduce new criminal offences, with relevant penalties and consequences, so it is important that people are fully aware of the changes. We do not believe it needs to be onerous, but we need something to ensure that it is properly communicated to everyone concerned. I beg to move.
My Lords, I will briefly express my support for the amendment. It seems to be extremely helpful. Perhaps there could be a discussion about how it would be implemented. I say this because it is one thing for Parliament to pass legislation, but it is another for it to be actually understood in the wider world. For tenants and landlords to understand their rights and responsibilities, it is very important that the publicity is good. A lot of it can be standard wording. It does not have to be originated by every individual. It may need to be amended by individuals, but generally it can be the same. That leads me to remind the Minister of my view that the £500,000 allocated for enforcement—perhaps we will come to that in the next group—is a welcome sum, but probably not enough. Providing the necessary resource for this to work seems to be very important. Ultimately, this should be self-financing. Ensuring that there is the right level of publicity, particularly for tenants, is particularly important.
My Lords, the first part of this amendment is, to put it bluntly, a no-brainer. It is perfectly right and proper that there should be clear and comprehensive information. If I have any reservations, one is a very small item in proposed new subsection (4)(b), which refers to a website. Given that a significant proportion of landlords are individuals with perhaps only one or two properties, they may not have a website. Perhaps a tweak of the wording might be needed there.
On proposed new subsection (6)(a) and (b), there is a duty on the landlord or prospective landlord to,
“have regard to the likely needs and characteristics, in respect of the provision of information, of persons to whom the information in question is to be provided”.
It goes on to refer to the provision of that information,
“otherwise than in the way in which it would normally be provided”.
I scratch my head a bit about this, because I was beginning to try to work out what I, as a landlord in the middle of Sussex, might need to acquaint people with. It seemed to me that one characteristic might be a physical disability and another might be linguistic—those two immediately came to mind. I would be interested if the noble Lord, Lord Kennedy, could actually spell out what he intends from those two provisions. It might be a bit of a hostage to fortune in either providing something unnecessary or having to try to second-guess what the particular characteristics and the method of delivery might need to be in any given instance. That said, in an area where people come from an Asian heritage background, I can see no objection to publishing it in languages other than English. That would be perfectly possible. However, to do it as a generality would be difficult. Therefore, putting this in guidance and providing for what the Secretary of State will do with it might be a hazardous operation.
My Lords, as the Minister knows, I am very concerned that people are letting their flats for short lets, which is strictly prohibited under the terms of their tenancy. Is there anywhere in the Bill that this matter could be rectified, perhaps by placing an obligation on the tenant to inform people that it is not a legal letting or by the new tenant themselves confirming that what they are taking on is not a legal letting? There is a big loophole in the law here.
I would like to offer a word of support for the intent behind this proposed new clause. Perhaps the best organisations to get the message out to tenants and prospective tenants are the new websites—or not so new anymore—such as Zoopla and Rightmove. So many people looking for somewhere to rent now do so online. Those agencies have the power to reach nearly everybody with the important information contained in this provision.
My Lords, I thank all noble Lords who participated in the discussion on Amendment 3. I will seek to deal with the points made. The first and entirely reasonable point raised was from the noble Lord, Lord Kennedy, and was echoed by other noble Lords. I am committed to ensuring that tenants, landlords and agents understand their rights and responsibilities under the legislation. As the noble Lord, Lord Shipley, rightly said, it is not just a question of the law being passed; it needs to be the case that people understand the rights and obligations that follow there from.
That is why my officials have been working hard with key stakeholder groups to produce comprehensive consumer guidance to support implementation. However, I do not agree that it is necessary to mandate that in the Bill, as we have discussed and as we will look at again. I have shared draft versions of the guidance for tenants, landlords and agents with noble Lords, and I hope they found them informative and detailed. Once again, I state that we are happy to engage on that if it is helpful to noble Lords. I hope noble Lords agree that the guidance provides important information on the points suggested by the amendment, including the date on which the provisions will come into force, information about what is prohibited and permitted, and information about where tenants can access help and advice.
We intend to share this guidance with tenants and tenant groups in advance of the legislation coming into force and as soon as possible after Royal Assent. We will seek to ensure that tenants, landlords and agents are aware of this guidance, including through online publication and promotion through our media channels, and by using smaller groups, as the noble Earl mentioned. I am grateful to the noble Lord, Lord Best, for mentioning Zoopla and Rightmove; Purplebricks is another one. Those and others are groups we can engage with to make sure that we get the relevant message across. We will also encourage landlords and agents to make tenants aware of the guidance, using our existing relationships with stakeholder groups to do so.
The noble Baroness, Lady Gardner of Parkes, asked about seeking to enforce the provisions of tenancies through this legislation. That is not something we are seeking to do here. It is a contractual matter and short-term tenancy agreements are, I think, beyond the scope of the Bill. However, I do know of the noble Baroness’s concern and, as she is aware, I engage with the short-term tenancy association on a frequent basis to see how we can carry things forward.
I think that deals with the points made by noble Lords and will, I hope, allay concerns ahead of Report. On that basis, I respectfully ask the noble Lord if he will withdraw the amendment.
I thank the Minister for that. I hope he can help us with a couple of points. He said earlier that in many cases there are good tenants and good landlords, all acting reasonably and responsibly. In that sense, the Bill is not for them. We are dealing with the rogue landlords or bad tenants, as well as people who are uninformed. If you are a landlord with lots of properties you will probably have systems in place to ensure that you are informed properly. I worry that the landlord of one or two properties will—intentionally or unintentionally—not notice the legislation and will seek to carry on charging their tenants prohibitive payments and generally abuse them. What are we doing to ensure that there can be no doubt that these people know their responsibilities in terms of the law? That is what my amendment was trying to do: to ensure the people are clear on that. What is going to happen when the Act becomes law so that we can be absolutely confident that people know this? We disagree on the guidance. It is not statutory; it is just guidance, and does not have the backing of the law. What are we going to do to ensure that those landlords are in no doubt? Just leaving it to the CAB and other groups to inform people is not good enough —we all know that these groups are under huge pressure, as are local authority departments. That is my worry: the small tenants and small landlords. Can the Minister help us on that?
My Lords, I am very happy to. On the point made by the noble Lord—in relation not just to responsibilities, in fairness, but to the rights of tenants and landlords—this is to get the full message across. We want to get the full impact of the law across to tenants, landlords and agents, as the noble Lord, Lord Shipley, said. To pick up the point about small agents and landlords who are in a different position, we have to act through the landlord associations, the portals and the means outlined by the noble Lord, Lord Best. As I said, I am happy to engage on the guidance ahead of Report. If noble Lords think they have other ways that we could be getting this message across, which is in everybody’s interests, I am more than happy to look at those.
Obviously, at this stage I will withdraw the amendment. I just want to address the points made by the noble Earl, Lord Lytton. I take his point about proposed new subsection (4)(b) but we are moving into more of a digital age and it is important to have that. Equally, proposed new subsection (6) may not be worded very well but it was my attempt to ensure that in certain parts of the country people get the information in a way that they are able to digest and can be fully informed of their rights. Perhaps I need to look at that when I look at this issue. I cannot say that I am happy with the Minister’s response but I will leave it there for now. We may return to this on Report. I beg leave to withdraw the amendment.
Amendment 3 withdrawn.
Clauses 6 and 7 agreed.
4: After Clause 7, insert the following new Clause—
(1) The Secretary of State shall reimburse—(a) a lead enforcement authority, where this is not the Secretary of State, for any additional costs incurred by the authority in the exercise of its duties under section 23 or section 24 of this Act, and(b) an enforcement authority for any additional costs incurred by that authority in the exercise of its duties under section 1 or section 2 of, and Schedule 2 to, this Act.(2) In this section “additional costs incurred” means costs incurred minus funding received by an enforcement authority from—(a) fines; and(b) the Secretary of State.”
My Lords, Amendments 4 and 5 in my name are concerned with enforcement in respect of the costs involved and how they are covered, and require a report to be laid before Parliament within 12 months of the Bill’s provisions coming into force. The Bill is a bit light—to say the least—on these matters, which are extremely important.
Amendment 4 would require the Secretary of State to reimburse the lead authority for any additional costs incurred in taking on these extra duties. If a local authority is designated as the lead authority and after taking account of the money received from fines or other work is still out of pocket, what local authority would want its council tax payers to subsidise everybody else? We need a clause that covers that situation.
Amendment 5 would put a new clause in the Bill that would require the Secretary of State to,
“make an assessment of the resources available to … enforcement authorities; and … the lead enforcement authority”.
Proposed new subsection (2) sets out what the report “must consider”. Finally, proposed new subsection (3) says:
“The Secretary of State must lay a report … before each House of Parliament”.
It is essential that the Government provide additional funding to local authorities for enforcing this legislation, otherwise they will be letting down the very people—the private sector tenants—they say they want to help with this legislation.
Trading standards departments in local authorities will be responsible for enforcing the ban. The noble Lord, Lord Young of Cookham, will be well aware of the evidence given to the Bill Committee considering this legislation in the other place. There have been cuts of over 50% to trading standards staff in some areas. Many areas are experiencing increasing levels of demand and legislation that they are expected to enforce. It is getting more and more difficult to do so. Indeed, trading standards departments are struggling to enforce existing regulations designed to protect renters. Analysis by Generation Rent found that, in 2017, 12% of letting agents did not list their fees on websites as required by the Consumer Rights Act 2015. They were clearly in breach of the legislation but they were still doing that.
It is important to keep in mind that local authorities have also gained additional responsibilities to enforce against rogue landlords and agents from the dreaded Housing and Planning Act 2016. While I obviously welcome the Government’s announcement of a fund of £500,000 for year one to cover the up-front costs of implementation and awareness raising, one-off seed funding is unlikely to cover the full costs and burdens placed on local authorities. That is not a new thing; we have discussed this many times in Grand Committee and in the Chamber.
The Government’s approach seems to be that any penalties will support enforcement functions. That would potentially penalise councils that have raised awareness of the ban with agents. They are less likely to benefit from collecting penalties than where people have not kept up with their obligations. That is no way to fund and deliver such an important piece of legislation. I beg to move.
My Lords, I am interested to hear the Minister’s response to this. Of the two amendments, Amendment 5 is more important because it would provide an evidence base without which it would be difficult to know whether the £500,000 that the Government are allocating will be sufficient. Amendment 4 would be difficult to implement. How does one understand or agree what a reasonable cost is? You then have to consider things such as overhead recoupment and so on. What is a reasonable sum of money for an enforcement authority to receive? I see a big problem in making a fair assessment of what the additional sums that cannot be recovered through fines or via the Secretary of State might be.
However, the broader issue that the noble Lord, Lord Kennedy, has introduced seems important: is enough money being provided up-front to enable enforcement authorities to get enforcement properly established? We have read some evidence in the press recently that, despite legislation passed in Parliament, local authorities have not always been able to provide the level of enforcement that might be deemed necessary. I am talking in particular about rogue landlords.
I hope the Minister can respond to us on this. I repeat my observation that we need Amendment 5, and I hope the Government will be willing to come back with something on Report that gives some life to it. Amendment 4 might be the consequence of having evidence under Amendment 5. However, for the moment, I hope that the Government will be able to indicate how they respond to funding enforcement overall.
My Lords, the co-pilot is in charge of this leg of the legislative journey, so there might be some turbulence.
There are two amendments that consider the resources available for the enforcement of the ban and I would like to take them together. I am grateful to the noble Lord, Lord Shipley, for his gentle dismantling of the arguments that the noble Lord, Lord Kennedy, put forward for Amendment 4. I recognise the pressure on the resources available to local authorities but we do not think that a provision that essentially provides a blank cheque to local authorities is the right approach. It would be a very unusual arrangement, and essentially one-sided, as the Secretary of State would bear all the losses and the local authority would keep all the gains.
We believe that allowing local authorities to retain money from financial penalties would be a significant funding stream for future enforcement, and the Government are providing some pump-priming funding for the initial period. There might be a role for hypo- thecated grants but I do not believe that this is one of them.
Financial penalties of up to £30,000 that can be retained by local authorities were first introduced in April 2017 under the Housing and Planning Act 2016, and I am sure that the noble Lord, Lord Kennedy, will welcome at least one measure under that Act that has found favour with him. We are aware that local authorities already benefit from the proceeds of financial penalties issued under that legislation. Liverpool, for example, has issued 42 civil penalties and has recovered the majority of them; Torbay Council has used the revenue from civil penalties to fund an extra enforcement officer for its housing team; and Newham and Camden have also issued and recovered a number of civil penalties.
However, we appreciate that this model depends on local circumstances and that it can take time to embed within existing frameworks of enforcement. That is why, as I said, we are committing £500,000 of additional funding in year one of the fee ban policy to support education and implementation of the legislation. I agree with what the noble Lord, Lord Shipley, said in the earlier debate—that ideally this measure should be self-funding. If one looks at page 19 of the Explanatory Notes, one finds the following:
“The Government estimate that local authorities will incur a new burden in respect of enforcement costs in year one of the policy only and it estimates this to be no more than £500,000. The enforcement of the provisions contained in this Bill by enforcement authorities is intended to be fiscally neutral from year two since enforcement authorities may retain the proceeds of any financial penalties for the purposes of any of its enforcement functions relating to the private rented sector under this Bill or any other legislation”.
That is basically where the Government are coming from on resources.
Further, we are introducing the lead enforcement authority, mentioned by the noble Lord, Lord Kennedy, to provide guidance and assistance to local authorities in undertaking proactive enforcement. We have committed funding of up £300,000 per annum to support the lead enforcement authority in its duties, and we have based the funding model on that of the National Trading Standards Estate Agency Team, but we will keep it under review.
Statutory guidance issued by the lead enforcement authority or the Secretary of State will cover matters to be taken into account by enforcement authorities in determining the level of the penalty in any given case. We have been engaging with local authorities to get this right, and my noble friend Lord Bourne has shared a draft version with noble Lords and has placed a copy in the Library. More generally, the lead enforcement authority will be primarily responsible for monitoring enforcement of the ban and ensuring that local authorities have the guidance and support that they need.
Turning to the proposed new clause which deals with reporting requirements, Clause 23 already requires the lead enforcement authority to report to the Secretary of State on the ban. This will include updates on any developments that might be relevant to enforcement of the Bill or to relevant letting agency legislation, including those that might seek to undermine the aim and enforcement of the legislation. It could also include resources, mentioned by the noble Lords, Lord Shipley and Lord Kennedy. The Government will work closely with the lead enforcement authority and key stakeholders representing tenant, landlord and agent groups to monitor the operation and effectiveness of the ban. Against those assurances, I hope the noble Lord will feel able to withdraw his amendment.
My Lords, although an answer was given earlier by the other Minister, why in a Written Answer to me did the Minister say that the Government are unwilling to consider allowing local authorities to license these short lets? Short lets are damaging—badly—every bit of accommodation in the housing market in London, in particular, and in the rest of the country, which can be taken over, illegally, against the contracts. Why are the Government unwilling to allow local authorities to charge a fee to register and check that they are in order? In that case, would that not be a far better answer than losing all the accommodation that we are losing now? Why is it not appropriate to bring it into the Bill under the proposed new clause?
As my noble friend the Minister said a few moments ago, the Bill covers assured shortholds and other lettings. It does not cover the sorts of lettings that concern my noble friend Lady Gardner and which are offered by Airbnb and other agencies. My noble friend has raised an issue that has been the subject of many exchanges in Questions. Our answer is that we believe that local authorities have enough powers to take action where a nuisance is caused by these activities. In many cases, it is up to the manging agents to enforce the terms of the lease.
As I have said on many occasions in the Chamber, many leases specifically preclude the letting of a property for periods of less than six months, and it is up to the managing agents of the block to ensure that the provisions of the lease are met. Again, I say to my noble friend that I have quoted from the action taken by one managing agent when they discovered that a flat in the block for which they were the managing agent was being advertised on Airbnb; that immediately stopped the letting of that flat and any other flats in that block. So the short answer—I fear it was a long one—is that we believe that powers are already available without giving local authorities the additional powers that my noble friend has asked for.
Before I withdraw my amendment, can the Minister tell me something about the amount of money provided? On the face of it, £500,000 seems a lot of money but how many councils is that actually for? I do not know off the top of my head, but I think it is for at least a few hundred of them. What sum will each council get? Will it be £2,000 or £3,000 each? When it is broken down like that, it could be quite a small sum of money in terms of an overall council budget.
About 152 trading standards offices could potentially be eligible for this. It would be wrong to assume that £500,000 would be divided among them so that they each get a small sum. There are other models for providing the initial help. For example, a team from the department could go out to help the trading standards agencies set up the necessarily skills and training to take forward the measure after year one. At the moment, we are discussing with the LGA exactly how best to spend the £500,000. Although one option would be to divide it up, that is not the only option; others are being explored. Before the Bill becomes an Act, we hope to find a way forward on how the money should be spent.
I thank the Minister for that answer. I accept that the money may not necessarily be divided up. I am just trying to understand the number of authorities and the amount of money available. Looking at things like that, it is not a huge sum of money at all.
The Government think that this will be funded by fines and other fees, so it will be self-financing in that sense. I am conscious that local government will say, “Well, they would say that, wouldn’t they?”. Local government often says that the Government do not provide enough funding for various things. How was this figure arrived at? Where did it come from? Did the Government use some formula or methodology, or was is just a case of, “Oh, we’ve got a spare half a million knocking around and we can make it available”? I do not know. I want to understand how that figure came about. Again, I am sure that local government will say that it is nowhere near enough, as it would say about other things. I am thinking particularly of the Homelessness Reduction Act, where there is the risk of a very good piece of legislation being affected by the amount of money provided by the Government.
I hope the noble Lord will accept that, unlike other occasions when new responsibilities have been imposed on local authorities, in this case we are actually offering to help them with some pump-priming finance before the revenue stream comes on board. I hope he will accept that this is a welcome step forward from other initiatives taken by Governments of all complexions, where local authorities have been asked to do things with no resources at all and no opportunity of self-funding downstream. I can only repeat what I read out a few moments ago: the Government estimate that local authorities will incur a new burden in respect of enforcement of £500,000. I will make detailed inquiries to see if we can shed more light on exactly where that sum came from and will write to the noble Lord, with copies to other Members who have shown an interest. I will do that before Report.
Will the proceeds of the financial penalties be hypothecated for more enforcement? Trading standards officers work very hard in very difficult circumstances, after all the cuts they have had to face. The danger is that the fines come in but go into the big pot of local government finance and are used—poor old local authorities have many other calls on their time and money.
Amendment 4 withdrawn.
Amendment 5 not moved.
Clause 8: Financial penalties
6: Clause 8, page 6, line 11, at end insert “, or
“(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.”
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.
If we treat tenants truly as consumers and look at other industries, can we really argue against this? Train operators can be fined by the Government, as well as having to pay compensation to passengers affected by delays and cancellations. Travel agents are fined by ABTA for breaches and required to refund holidaymakers, who can also receive compensation. The Solicitors Regulation Authority can fine a legal practice but individuals are still entitled to compensation where they have suffered a loss as the result of a civil liability. The same applies to the Bar Standards Board, which regulates barristers—goodness help it. When Dan Wilson Craw from Generation Rent gave evidence to the Public Bill Committee, he said:
“A tenant has two options apart from simply saying to the agent, ‘This fee is unfair’. The tenant can say, ‘If you don’t retract it, we’ll report you to the council’, or, ‘We’ll take you to the first-tier tribunal’”.—[Official Report, Commons, Tenant Fees Bill Committee, 7/6/18; col. 49.]
Those are the two options, in essence. The tenant can go to the council’s trading standards or to another authority and rely on officers to carry out an investigation, or take it upon themselves to make an application to the First-tier Tribunal. We need that back-up process, but all a tenant can get through it is the fee back, so we think there is merit in awarding a higher form of compensation to a tenant who goes through the process. That would create more of a deterrent for an operator who charges an illegal fee. As we have just been discussing, it would potentially save the council work and it would give tenants something back for the effort they have put in. Entitling tenants to compensation when recovering illegal fees through the courts in addition to local authority fines would strengthen the enforceability of the Bill while being completely in line with similar consumer industries, including the letting agent industry itself. I beg to move.
My Lords, Amendment 6, moved by the noble Baroness, Lady Grender, would amend Clause 8, which is concerned with financial penalties. The amendment adds paragraph (d) to subsection (4), which lists those situations where a financial penalty may not be imposed. The amendment, which I am happy to support, stops an enforcement authority imposing a fine where the relevant person has recovered funds through an application to the First-tier Tribunal. It seems to address an omission on the part of the Government and it is a sensible proposal.
Also in this group are Amendments 7 and 8, which I think would strengthen the Bill. Amendment 7 provides for the First-tier Tribunal to order the landlord or lettings agent to pay up to three times the sum of the prohibited payment that they improperly collected. There is no provision in the Bill for any form of compensation when a prohibited fee is charged and that in my opinion is a serious omission on the part of the Government. We believe that compensation will undoubtedly be appropriate in many cases given the likelihood that charging prohibited payments will cause tenants significant financial hardship.
Compensation would also act as an incentive for tenants to recover illegal fees where the enforcement authority is unable to enforce the law and would be appropriate recognition of the time and effort that it takes for an individual to enforce their rights through the courts. Compensation is an established principle in the consumer industry where one party is entrusted with another person’s money, in addition to enforcement penalties where rules or laws have been breached. This includes all sorts of bodies such as train operators, travel agents and lawyers. The idea of being paid compensation where the consumer has not been well served is well understood, and getting the money back is important, as the noble Baroness, Lady Grender, said.
My amendment is consistent with other legislation governing the private rented sector. I do not accept that compensation should be sacrificed in support of the Government’s aim that enforcement will be funded exclusively through fines. Amendment 8 seeks to add a further restriction on the termination of the tenancy. I believe this is a very important addition that brings a further element of fairness.
Section 21 notices have undoubtedly been abused in the past, to the considerable detriment of tenants. It would be a complete travesty if, having stood up for yourself and your rights, and having taken action to recover the money that was improperly taken from you, you are then punished, in effect, and served with a Section 21 notice to leave your property. This amendment seeks to ensure that that does not happen and that the victim—here the tenant—cannot be treated in that way. I do not see why we would allow rogue landlords or letting agents behave in this way. My amendment seeks to ensure that they cannot, by implementing that six-month cushion.
I wonder if my noble friend will address the point raised by the noble Baroness when she referred to the number of letting agents that did not obey the law on their websites. I have found that in many areas—including modern slavery, an issue I am particularly interested in—a number of people just do not obey the law. It seems to me that it would be odd if we left it to the local trading standards officers. What is the arrangement? If you find such a case, who in government is supposed to enforce it? This also is a piece that might be dealt with in this legislation. If it is true—I assume that it is—that 17% of letting agents do not even obey the law that they have to say what their fees are, that is outrageous.
I am grateful to all noble Lords who have taken part in this debate. The Bill proposes a number of enforcement measures that offer a strong deterrent to irresponsible agents and landlords. It also makes provisions to enable tenants and other relevant people to recover unlawfully charged fees, if other attempts have failed, by going to the First-tier Tribunal, which will order reimbursement to the tenant of money that should not have been paid. Of course, tenants should get back any unlawful payments in full, whether that is direct from the landlord or agent, via their enforcement authority or through an order of the First-tier Tribunal. However, in certain instances, we think it is also appropriate for the landlord or agent to be issued with a financial penalty, as well as ensuring that the tenant receives their money back. This is to deter future non-compliance.
Amendment 6 prevents an enforcement authority imposing a financial penalty under Section 12 if the tenant has got their money back. We think that giving a power to impose financial penalties for breaches of the legislation is an important tool for enforcement authorities. Therefore, we cannot accept Amendment 6. However, the enforcement guidance will stress that enforcement authorities should take account of the landlord’s and agent’s conduct and past behaviour when considering the level of financial penalty to charge, if any. This includes whether the landlord or agent has reimbursed the tenant quickly when asked to do so.
Turning to Amendments 7 and 8, while we think it is right that agents and landlords should be issued with a financial penalty, we do not think it is appropriate for the tenant to receive further compensation in addition to repayment of the money owed. To add compensation risks penalising agents and landlords multiple times for the same breach, which we do not believe is fair; for example, it would not be right to ask a landlord who has been fined up to £5,000 for an initial breach to also pay three times the amount of a prohibited payment to a tenant. This would in effect be two financial penalties for the same breach. The deterrent effect, mentioned by the noble Baroness in her opening remarks, would of course be secured by the fines under the Act.
It is also worth noting that Clause 17 already provides further protection to tenants by preventing landlords recovering their property via the Section 21 procedure in the Housing Act 1988 until they have repaid any unlawfully charged fees. This approach is in line with legislation that already applies; for example, where the How to Rent guide has not been provided or where a landlord has not secured the required licence for a house in multiple occupation. Further, Clause 4 ensures that any clause in the tenancy seeking to charge a prohibited fee is not binding on the tenant.
We do not consider that further provision is needed along the lines proposed by Amendment 8. For example, it is not fair if a landlord who appeals against the imposition of a financial penalty, and this appeal is upheld, is then restricted from using the no-fault eviction process for six months. Under the noble Lord’s amendment, this would be the case—though that may not be what he intended. We firmly believe that our existing approach restricting a landlord’s ability to serve a Section 21 notice strikes the right balance and offers a serious deterrent to non-compliance. I hope the noble Lord will not move his amendment.
I suspect the short answer to the questions raised by my noble friend Lord Deben is: the trading standards officer. I would like to write to my noble friend setting out in more detail what is being proposed, under both this and existing legislation, to prevent misleading information appearing on websites and tenants being misled.
My Lords, I was a little surprised at the Minister’s response on the question of compensation. We would have a situation where a tenant is illegally charged a prohibited payment—it is against the law, and they have been wronged. The Minister says that, in those cases, compensation would not be appropriate. I do not understand that. Surely, as we have highlighted in other areas, it is totally reasonable that, if somebody has done someone a wrong—they have committed an offence, overcharged somebody—that person should be able to seek some sort of redress and have compensation paid to them. I do not see how the Minister can say that would not be fair.
The noble Lord has a choice. He can have either a situation where the tenant gets the compensation and there are no financial penalties imposed under the Bill, or the situation we suggest where the tenant gets his money back, the fine is imposed and the money goes to the local authority. What the noble Lord wants is for the landlord, in effect, to be penalised twice: first by paying compensation up to three times, and secondly by paying a fine up to £5,000. The Government’s position is that you can have one or the other, but doing both is not fair.
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.
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 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.
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.
The defect in the noble Lord’s amendment is that, if the landlord won the appeal, he would still be banned. As I said, that may not have been the noble Lord’s intention, but it is what the amendment would do.
I say in response to the noble Baroness, Lady Grender, that I detect in the Committee enthusiasm for the two-track approach to penalties, for both the tenant and the local authorities recouping fines. That message has come through. Without giving any commitment, I will have another look at this, in view of the strength of feeling on the matter. I am happy to accept the noble Baroness’s offer.
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.
Amendment 6 withdrawn.
Clause 8 agreed.
Clauses 9 to 14 agreed.
Clause 15: Recovery by relevant person of amount paid
Amendment 7 not moved.
Clause 15 agreed.
Clause 16 agreed.
Clause 17: Restriction on terminating tenancy
Amendment 8 not moved.
Clause 17 agreed.
Clauses 18 to 20 agreed.
Clause 21: Enforcement of client money protection schemes for property agents
Debate on whether Clause 21 should stand part of the Bill.
My Lords, the Committee will recall that, as a result of pressure in this House and following the recommendations of a working group chaired by the noble Lord, Lord Palmer of Childs Hill, and me, the Government announced on 28 March last year that they would make it mandatory for all letting agents who handle client money to have client money protection in place.
Client money protection involves a separate, ring-fenced bank account, which, should a letting agent become insolvent, is not available to other creditors but belongs to the tenant, if it is rent paid in advance, or to the landlord, if it is rent due. Insurance is also part of client money protection. Making client money protection mandatory was widely welcomed—I remember congratulating the Minister at Question Time on the day he announced it. It safeguards both tenants and landlords, either from a business going bust or from an agent making off with the funds.
This was essential because, without this change in the law, only 60% of agents had such cover. Clients of the remaining 40%, perhaps unknown to them, were vulnerable to their money disappearing through poor business behaviour or fraud. Indeed, as the noble Lord, Lord Palmer, will recall, our working group heard heart-rending stories of tenants left without money and unable to move on to another property and of landlords losing serious money—sometimes their only source of income.
Furthermore, in business terms, there was—and still is—the lack of a level playing field because the good agents, particularly those in the professional organisations such as RICS or ARLA, which require client money protection, are at a competitive disadvantage, given the cost of coverage, in relation to the fly-by-nighters, if I might call them that. These are the letting agents which risk other people’s money by lowering costs because they do not have client money protection. We were therefore delighted with the Government’s announcement that CMP would be made compulsory.
However, the Government are making a mess of it, I am afraid. They have somehow managed to devise a scheme whereby the two major providers of CMP—the world-renowned and respected Royal Institute of Chartered Surveyors, or RICS, and Propertymark, the rebranded Association of Residential Letting Agents, or ARLA—will soon no longer be able to offer CMP to residential letting agents under their schemes, and will therefore have to withdraw from the market because the Government are insisting that their current £5 million coverage is increased to £200 million, with no cap on liability. So instead of bringing the 40% of letting agents that do not have client money protection up to the standard of the 60% that do—as we planned and hoped for and as the House supported—they are driving the schemes of the 60% out of business. You could not make it up.
The Minister knows all about this as he kindly met RICS, ARLA and me last week, but his department has failed to amend the scheme requirements to prevent this catastrophe which is about to happen. I should add that the requirements that are leading to this catastrophe were added by his department only in the last few weeks. They are not the criteria on which the impact assessment was based, they were not discussed in advance with the major players in the field, and they were not included in anything which went through your Lordships’ House.
I will start with RICS—a standard-setter for 150 years, with a proud record of driving up standards and protecting clients, and with a charter which reflects its role in promoting the public interest. Because of the ludicrous demands for recognition of a CMP scheme, it will close to residential agents a scheme which has run problem-free for over three decades and which, together with Propertymark, covers all the big residential letting agents.
RICS’s independent UK and Ireland regulatory board, chaired by Antony Townsend—who used to run the Solicitors Regulation Authority; he knows a thing or two about this—discussed this on Thursday following the meeting with the Minister, and concluded that RICS could not accept a situation in which the public interest functions of the institution, which upholds standards of almost 130,000 professionals and 11,000 regulated firms, are put at risk because it was exposed to unlimited liability. It would be inconsistent with its charter obligations. By opening itself up to potentially unlimited liabilities, no matter how rare, RICS would put its public interest duty at risk—a risk it is, understandably, not willing to take and which, I suggest, the Government should not be asking it to take.
The current RICS CMP scheme limits are £50,000 per claim and £5.3 million annual aggregate. Over the past five years, RICS has paid out residential client money loss claims totalling £49,000—less than £50,000 over a five-year period. That includes some tenant deposits because occasionally these are included. It is £50,000 in total over five years and it is now being asked to insure for £200 million. In fact, the highest single claim was under £13,000.
This is evidence that RICS more than adequately safeguards the public while ensuring that businesses are not adversely burdened by unnecessary CMP insurance costs, which of course are always finally passed on to consumers. Its scheme works for landlords and tenants because all client money held by RICS firms must be held in a separate, ring-fenced client account. Furthermore, deposits are already protected under the Housing Act 2004. Rents are covered under client money protection and deposits are protected quite separately under the 2004 Act.
However, the department is currently demanding that these deposits should be double insured by requiring them, in addition to the Housing Act requirement, to be covered by the CMP scheme. That makes absolutely no sense and I do not know whether it is actually legitimate. Certainly concerns have been raised by insurers as regards whether any such money should be double insured. Insurers have also indicated that there is not the capacity in the market to provide suitable cover for the largest agents that include tenancy deposits.
The figures I have quoted do not come just from RICS. The other professional body for letting agents, ARLA, has its own scheme which has been running since January 2008. Over the past 10 years it has paid out just over £2 million to landlords and tenants, and that includes one year with 10 agents going bust where those claims involved pay-outs of just over £1.3 million. The other nine years saw pay-outs of under £1 million in total. Under that scheme, the average number of claims a year is four. The average loss from claims over the last 10 years was less than £70,000. The last large claim of over £100,000 was in 2013, some five years ago. No major corporate agency has ever claimed on the scheme, yet we were told when we had a meeting with the Minister that the new requirements were being added to protect the really big agents. Because of the big schemes, which have never claimed, all the schemes will have to increase their cover from £5 million to £200 million. That is completely disproportionate, it is not based on evidence, and it is unrealistic. Why should ARLA’s cover, if its anticipated annual scheme loss, based on nearly two decades of experience, is around a quarter of a million pounds, be almost 100 times that? Also, why is this very last minute change being made in the department’s approach?
Until 16 October, ARLA had been given the impression that CMP schemes would not have to cover tenants’ deposits already protected in insurance-backed tenancy deposit protection schemes, which of course are themselves authorised by the Government under the 2004 Housing Act. It quite accepts that unprotected deposits are to be covered by CMP, meaning that no tenant should be left at risk. That is what was agreed with officials on 14 August and it was the basis on which ARLA submitted its application for approval on 12 September, as had been discussed ever since this was agreed last year. On 16 October the department suddenly said that it now expected CMP schemes to cover deposits that are already protected. This represents double insurance of the deposits because they are covered by both TDP and CMP, something that has certainly been questioned by ARLA’s insurer, Gallagher. I am happy to share that letter with the Minister if that would help.
In addition to the 3,000 member firms with less than £1 million in their client accounts, Propertymark has a little over 200 firms with more than that amount—the bigger ones that we were told we had to cover. Most have less than £1 million in their client accounts, so insuring for £200 million sounds a little unnecessary. The 200 firms that have more than £1 million have a combined total of £889 million in client funds, with £500 million of that coming from the top 16 businesses.
To be able to pay out “without any deduction”, Propertymark would have to increase its insurance cover from over £5 million this year to over £200 million —a 4,000% increase—and all for a change of law which was not aimed at it. The whole point of what we were trying to achieve was to bring agents not covered by CMP into a CMP scheme; it was not to break up the schemes already running. The others were always in our sights.
Irrespective of the massive cost increase that would be placed on agents if this coverage were obtained, rendering the regulatory impact assessment on the regulations null and void, there is in any case probably not enough capacity in the insurance market to achieve the cover. The impact may well be that the large businesses will simply not be able to obtain CMP cover and will be forced to cease trading, to alter their business models so that they split into much smaller agencies or to operate unlawfully. These are the ones that have not presented any problem and have already been covered, and they were never the intended subject of the amendment that we first submitted.
At the moment, the CMP regulations require an agent’s CMP scheme to cover the maximum amount in their client account and the scheme to pay out “without any deduction”. Therefore, as organisations, they would have to include the collapse of the scheme and bankruptcy of the company. This will not do. The present proposals for CMP require unlimited cover, which no other area requires, and certainly not banks. The Financial Services Compensation Scheme limits protection of deposits in bank accounts to £85,000. There is a slight exception if you are selling and buying a house, in which case it goes up to £1 million for the short period when you have more than £85,000 in the bank. Nobody is worried about this but only £85,000 in a person’s bank account is protected. However, I think that that is accepted by everyone as a proportionate amount to ensure public protection.
So the figure is £85,000 if your money is in the bank but in this case it is millions. The result would obviously be a classic moral hazard. Rather than holding rents in a bank account, of which only up to £85,000 is protected, any sensible landlord would obviously keep their funds in the letting agent’s bank account as there would be unlimited protection. That would be the effect, but it should not be possible for landlords to offload their risks in this way, putting it on to the letting agents’ CMP provider just because the Government fixed one cap at £85,000 for bank accounts but at £200 million for letting agents. Letting agents are not meant to be banks, and landlords should not use them as such. It is the landlord’s responsibility to husband their own funds.
The Government are seeking to build not a gold-plated but a platinum-plated scheme based on no evidence. As a result of this, the current providers of CMP will likely depart the scene for residential letting agents and landlords will be tempted to use agents as a very safe bank. Therefore, we need to return to the pre-14 August position, which required CMP schemes to cover everything other than protected deposits, because they are protected anyway by the TDP scheme with a limit. It simply has to be possible for CMP schemes to limit their liability at a certain level and, if necessary, with the Government guaranteeing money over and above that.
Without these changes, what started as a way of protecting tenants and landlords—those who were not already with a letting agent with protection—from letting agents going bust or running off with rents will undermine the pre-existing CMP protection, which has worked for the regulated part of the market for many a year. That is why Clause 21 should not stand part of the Bill. It makes minor amendments to do with client money protection but until we get the CMP scheme in place in a way that works, we should make no changes to the status quo.
My Lords, I pay tribute to the noble Baroness, Lady Hayter, for her imaginative use of Clause 21 in the Bill. She explained the story behind the amendment; I know that the Minister, who was so involved and helpful in getting client money protection on to the statute book, will understand it.
I will not repeat the wonderful arguments made by the noble Baroness but the principle behind this has always been that client money protection was operated voluntarily by 60% of the market. It was the 40% who did not cover themselves voluntarily that we had to deal with. Against the background of what has happened in the department in putting this situation into practice, it seems that we are covering the 40% but are in grave danger of losing the 60%, who will not want the situation outlined by the noble Baroness.
There is a problem because large firms and organisations deal with large sums of money going through their books, in their bank accounts and in their clients’ accounts. Therefore, such firms are exposed. That is how the department has come to the figure of £200 million for cover; it feels that the firms need to be insured to cover that exposure. With respect, the department has not looked at the real world, where the large firms and organisations described by the noble Baroness reduce their exposure by placing funds in custodial TDP schemes, thus reducing the amount that they hold. So, you do not need insurance to such levels because, to use an analogy, the firms will do what the betting industry does in laying off bets and what the reinsurance industry does in laying off their insurance risks on others in the industry.
Therefore, in very simple terms, without repeating anything she said, I support the noble Baroness, Lady Hayter. I hope the department will look into not having a vast £200 million cover because it is not needed. It will frighten off the 60% who already cover themselves voluntarily under client money protection. There is no need for this large sum. Everything else in the Bill is right; we have made great strides in client money protection. The noble Baroness mentioned the status quo; we should let sleeping dogs lie so that we can get CMP operating properly and not frighten off large firms. They may be unduly frightened but they can take action by putting money in custodial funds. I support the amendment.
I wonder if I can help the noble Lord. I know he always worries when I get up and say that I am going to be helpful, but on this occasion I might be. I remind the Committee that I am chairman of the organisation that represents independent financial advisers and those who deal with wealth management. Therefore, I understand a lot about the parallel circumstances referred to by the noble Baroness, Lady Hayter, when she pointed out the protection accorded to bank accounts and the different sorts of protection in the financial services industry. What I really want to say is that I hope my noble friend will think very carefully about this because we have seen the huge difficulty that people now have—even the most excellent of firms—in getting proper protection from the insurance industry.
The noble Baroness made an important point about being proportionate as to what the real risks are. I want to make a point about the dangers of not being proportionate. This is an industry of great importance and I am absolutely excited by the Bill because it does a whole lot of things that need to be done. However, we have to be very careful about importing into it those things that will result in unexpected and unwanted additional results.
I am not sure that civil servants are always as expert in these detailed aspects of insurance as those who deal with them daily. All the advice is that there really is no need to protect any more than the kind of protection that ARLA and RICS already provide. You do not really need that advice: the fact is that they have run the system very effectively up to now. I remind my noble friend that the party he represents is always very much in favour of free enterprise and people getting together to organise things on their own. Would it therefore not be a good idea for us to be very careful about not taking that advice?
We know that the 40% that do not belong to these organisations are, by nature, either not very careful or painfully close to the edge of the law. There is a real range. But I remind the Committee of the last speaker, who rightly said that we do not want to enfranchise the 40% by disfranchising the 60%. That does not seem a sensible answer. I hope my noble friend will take the advice of those who have had to deal with these things in other areas: that it is extremely dangerous if you get yourself into a position in which you lay too heavy a weight of insurance when it is not necessary. I have a long history of defending the consumer, but I do not see how consumers are better protected by excluding from the market the two organisations that have so far dominated it—if that is the right word.
The last thing I want to say is this: I have often spent time trying to encourage ARLA to become a more professional body. One of the successes of recent years has been precisely that, and we ought to be encouraged by what ARLA has done. It would therefore be a great pity if, on this occasion, we ignored its experience, which has come about through its own change from its history to today, or indeed the 150 years’ experience of RICS.
I want to offer my support to the noble Baroness, Lady Hayter, who has done so well in getting us to this point with CMP. It is so disappointing for those of us who have supported her efforts to hear of this last-minute significant hitch. The reason that a number of us were very supportive of CMP being introduced was not because of the 60% but because of the 40%. It was not just to make sure that the 40% had some insurance so that landlords’ and tenants’ money was properly protected. It was rather more sinister than that: it was to drive out that part of the 40% that just would not be able to get insurance, because when their accounts were viewed by those providing insurance, they would be told, “I’m sorry, we’re not insuring you”. This was, and I hope still will be, a way of weeding out the fly-by-night agents who set up shop and who we do not need in this business.
My Lords, first, I thank all noble Lords who participated in the debate, and the noble Baroness, Lady Hayter, and the noble Lord, Lord Palmer of Childs Hill, for all the work they have done and continue to do in this area. As they will be aware—indeed, the noble Baroness was fair and set it out—I became aware of this problem only in the middle of last week. Since then we have met and, I think, moved things forward. I repeat that we will go away and look at this and carry on our engagement with the noble Baroness, ARLA and RICS. That remains the position. I want to reassure myself that we are being fair to all tenants over the protection of deposits. If that is the case, I will be reassured, but I want to go away and make sure that it is.
To reassure the noble Lord, Lord Palmer of Childs Hill, in so far as money is held in custodial deposits, these will fall outside this cap and will not need insurance. I think I made this point when we met. We are taking this forward. In particular, we will not require the double deposits. That is entirely wrong. I can give that reassurance: we will not need cover for that.
My Lords, I am absolutely clear on that. The cap that we are talking about will not be appropriate in that regard. As I say, I have only just become aware of this. It is a significant issue. I am very happy to engage with the noble Baroness, who probably understands these things better than anyone else in your Lordships’ House, and to carry on the discussion with RICS. I hope on that basis she will withdraw her opposition to Clause 21 standing part.
I thank the Minister. I think he has said more than in our meeting. In our meeting, he said that he would look at the double insurance. Today he has gone a little further and stated that this CMP scheme will not have to cover already protected deposits. That is a large part of it, for which the organisations will be grateful. The other part—the level of coverage—is still important. I know that the Government are well aware of this. I know this is very different from the space industry but a similar discussion happened on the Space Industry Bill, recognising that unlimited issues simply cannot be insured, and the Government agreed to move on that.
For the moment, I will not divide the Committee on whether the clause should stand part of the Bill. However, a tiny word of warning: client money protection is mentioned in the Bill, which means that amendments will be in scope when it comes to Report. On that basis, I shall not oppose Clause 21 standing part of the Bill.
Clause 21 agreed.
Clause 22 agreed.
Clause 23: General duties of the lead enforcement authority
9: Clause 23, page 15, line 22, leave out subsection (2) and insert—
“(2A) If the lead enforcement authority is the Secretary of State, it is the duty of the lead enforcement authority to issue guidance, in the form of regulations made by statutory instrument, to enforcement authorities about the exercise of their functions under this Act.(2B) If subsection (2A) does not apply, it is the duty of the lead enforcement authority to draft guidance to enforcement authorities about the exercise of their functions under this Act, which the Secretary of State must lay before Parliament in the form of regulations made by statutory instrument.(2C) A statutory instrument containing regulations under this section is subject to annulment in pursuance of a resolution of either House of Parliament.”
My Lords, this grouping is extremely important. The intentions behind my Amendment 9 and the amendment in the name of the noble Lord, Lord Kennedy, are broadly similar. The Bill says, in the subsection that I seek to delete:
“It is the duty of the lead enforcement authority to issue guidance to enforcement authorities about the exercise of their functions under this Act”.
This is not sufficient. The problem is that if we have only guidance, the likely result will be that too many people will decide not to implement it. In Amendment 9, I seek to change “guidance” to,
“guidance, in the form of regulations made by statutory instrument”.
Proposed new subsection (2C) makes clear that there should be:
“A statutory instrument containing regulations under this section … subject to annulment in pursuance of a resolution of either House of Parliament”.
In other words, it gives power to Parliament to ensure that the regulations are strong enough. The noble Lord, Lord Deben, said a while ago that there are people who do not obey the law. He is right, but I would add that there are even more people who do not obey guidance. In this situation, we need to stiffen up our legislation. I fear that, if we end up passing the Bill, the Act will be difficult to implement because too many people will decide that this is enforced only by guidance that is not strong enough. I am very keen to hear from the Minister what the problem is in converting what is currently proposed guidance into formal regulation giving Parliament the power to agree, or not, with what is proposed. I look forward to hearing the Minister’s response to that question, which to me is very important. I beg to move.
If Amendment 9 is agreed, I cannot call Amendment 10 because of pre-emption.
My Lords, Amendment 9, moved by the noble Lord, Lord Shipley, as we have heard from him, seeks to put the guidance issued by the enforcement authority on a statutory footing. That is a very good idea. It gives clarity and certainty, which is missing from what is proposed by the Government at present: guidance not backed up by anything at all. It is proposed to make this guidance statutory via the negative resolution procedure, which I think is right in these circumstances.
Amendment 10 in my name proposes to do exactly the same thing in slightly different wording. As I said on a previous group, I was pleased to receive the guidance on Friday, before Committee stage. I am aware that the Government have consulted various stakeholders over the past few months. It would be good to understand, when the Minister responds to this debate, what the status of the guidance we already have is. Does he expect it to change much more when it is finally agreed, or does he think it is just about there? Is further consultation expected? I very much share the view of the Delegated Powers and Regulatory Reform Committee. Making draft guidance available is good, but that is insufficient to remove the need for guidance to be made subject to parliamentary scrutiny under the negative procedure. It is important that both Houses look at this stuff in detail and are able to discuss it and say what they believe is right and wrong. We have come back to the guidance a number of times—we will keep coming back to this—and I just do not accept that guidance not backed up by regulation is sufficient. There is always this risk that it has no legal status. It can just be ignored, as well as adhered to. I look forward to the Minister’s comments on this.
My Lords, I thank the noble Lords who have participated in the consideration of enforcement authorities and the guidance, which we have supported so far. I am very grateful for their engagement on this part of the Bill. I am also grateful to the Delegated Powers and Regulatory Reform Committee for its general scrutiny of the Bill.
I acknowledge the views expressed by the noble Lords, Lord Kennedy and Lord Shipley, on the enforcement guidance, but I maintain that it is not necessary, and indeed somewhat unusual, for such guidance to be subject to parliamentary scrutiny. I have already outlined some parallel examples where guidance has been given just as guidance on legislation under successive Governments in this century—the Local Government Act 2003, the Planning Act 2008 and the Small Business, Enterprise and Employment Act 2015, to cite just three. There are many instances in statute and I argue that this is commonplace.
However, to give the reassurance that the noble Lord, Lord Kennedy, in particular asked about, we are still engaging with key stakeholders and enforcement authorities, as we have been doing throughout. Like the noble Lord, Lord Shipley, he very fairly talked about my having shared drafts of the guidance ahead of Committee, and indeed I have offered—and offer again—to engage with noble Lords ahead of Report on the content of the guidance. We are working on it with key stakeholders, representative organisations and enforcement authorities, and, as I said, I am very willing to engage with noble Lords on it too.
I have indicated that there would be a delay if we were to seek to put this in regulations, and I think it would also sacrifice a degree of flexibility. However, on the basis of what I hope noble Lords will agree is my openness in offering not just to share the guidance, which we have done, but to share in engagement on the guidance, I hope that at this stage the noble Lord will feel able to withdraw his amendment.
The noble Lord has made that point before. I think it is a case of what is appropriate. I absolutely agree that some things are appropriately put in regulations, but others are appropriately put in guidance. We have both: we have some things in the legislation and others in guidance. I would argue that what we have in the guidance is appropriate for the way that we are proceeding.
My Lords, I have found what the Minister has said helpful but I do not feel that it is satisfactory. I am concerned by the report of the Delegated Powers and Regulatory Reform Committee. It has raised concerns about legislation which is to be supported only through guidance. Paragraph 55 of the report makes it very clear that the committee thinks that the guidance should be subject to parliamentary scrutiny—in this case with the negative procedure.
I hope that there might be an opportunity for us to talk in a little more detail on this issue. My fear is that this Parliament will pass legislation which is not implemented fully because it is not strong enough to be enforced on the ground. I do not think that guidance on its own is sufficient and I would like there to be much firmer regulation. However, I will read Hansard very carefully tomorrow and will possibly hope to meet the Minister before Report to see whether there is any way in which we can build a framework that is stronger than simply guidance. I beg leave to withdraw the amendment.
Amendment 9 withdrawn.
Amendment 10 not moved.
Clause 23 agreed.
Clause 24 agreed.
11: After Clause 24, insert the following new Clause—
“Report on operation of Tenant Fees Act
(1) The Secretary of State shall within a period of 12 months from the date of commencement of this Act and annually for the four years thereafter lay before Parliament a report on the operation of this Act, setting out—(a) the number of breaches of sections 1 and 2;(b) the number and amounts of financial penalties levied by enforcement authorities; and(c) the number of criminal prosecutions commenced and concluded in each 12-month period.(2) The report must also consider the impact of the provisions of this Act on the private rental sector including—(a) market competitiveness,(b) market transparency, and(c) vulnerable tenants, in particular in relation to how local authorities are able to discharge their duties to prevent homelessness.”
My Lords, Amendment 11 seeks to put a new clause into the Bill. If agreed, it would require the Secretary of State to report to Parliament within 12 months, then every four years after that. The report would provide valuable information on the number of breaches, financial penalties levied and criminal prosecutions in each 12-month period. It must also consider the points as listed in proposed new subsection (2), which are important when looking at the impact of the Act on the sector. I suspect that the amendment will not be greeted with great enthusiasm from the Minister, but can he tell the Committee whether any of the information referred to in the amendment would be collected by the department anyway? I may have a few more questions for the Minister after listening to his response. I beg to move.
I am grateful to the noble Lord, Lord Kennedy, for his amendment. I assure him that we plan to monitor the implementation of the Bill through continual engagement with key stakeholder groups, represented landlords, agents, tenants and those in housing need, as well as through wider intelligence from agencies such as the lead enforcement authority and trading standards, which will enforce the requirements of the Bill.
I have no difficulty with the objectives of the noble Lord’s proposed new clause. However, bits of it are impractical. We will not be able to identify all the breaches of Clauses 1 and 2 as set out in proposed new paragraph (a) because we will be encouraging tenants to challenge their landlords and agency with a view to rectifying breaches if they have been charged prohibited fees. The enforcement authorities would not be involved if the breach were resolved between the tenant and the landlord, so it would not be possible to record every time that this happens.
However, owing to the reporting requirements set out in the Bill under Clause 14, information on the number of financial penalties and criminal convictions under the ban will be captured by the lead enforcement authority. In the light of what the noble Lord suggested, we will consider how best to share this information with Parliament. Both agents and landlords that are banned from operating will be captured on the rogue landlord database; the Prime Minister made it clear that we plan to make this information public. Local housing authorities also have powers to include persons convicted of a breach of the fees ban on that database, as well as including persons who received two or more financial penalties in a year for any banning order offence committed at a time when the person was a residential landlord or a property agent.
Further, Clause 23 places a duty on the lead enforcement authority to keep under review social and commercial development relating to the letting sector and the operation of relevant letting agency legislation, as well as to advise the Secretary of State about it from time to time. I hope this reassures the noble Lord that we will track and review the effectiveness and enforcement of the ban and its impact on the private rented sector. I hope that will we achieve what his amendment wants but we do not think it necessary to prescribe further reporting requirements in the Bill. As I said, we will consider how best to make this information available in the light of the debate.
We will also, as the noble Lord may know, review the legislation within five years in line with normal practice and submit that review to the appropriate Select Committee in the other place. We do not intend to review the Bill in isolation. Recently a number of legislative changes have been made to the lettings industry with more planned related to the regulation of letting agents. These changes, along with the Bill, support and deliver on our commitment to rebalance the relationship between tenants and landlords and to make renting fairer. We will keep all of these issues under review. With those assurances, I hope that the noble Lord will feel able to withdraw his amendment.
Amendment 11 withdrawn.
Clause 25: Meaning of “letting agent” and related expressions
12: Clause 25, page 17, line 12, at end insert—
“(3A) A person is not a letting agent for the purposes of this Act if—(a) that person only accepts instructions from a landlord who occupies the housing as their only or principal home; and(b) the tenant pays no rent or occupation charge to the landlord save that the tenant pays a contribution to the utility costs of the housing; and(c) the landlord receives no rent or payment related to the letting from the letting agent or any other party; and(d) the purpose of the letting is to promote the landlord’s well-being.(3B) In subsection (3A)—(a) “only or principal home” has the same meaning as in section 1 of the Housing Act 1988;(b) “utility costs” includes the residential costs of gas, electricity, water, telecommunications and internet;(c) “well-being” has the same meaning as in section 1(2) of the Care Act 2014.”
My Lords, this amendment builds on the points raised by my noble friend Lady Jenkin in her speech at Second Reading relating to home share schemes. I am aware that in his summing up of that debate, my noble friend the Minister noted that this is an issue he is keen to resolve. I hope that this amendment will go some way to achieving that.
Clause 25 sets out the meaning of the term “letting agent”. However, as currently drafted the Bill is likely to define home share organisations as letting agencies and to ban them from charging young people who currently pay a contribution towards those organisations’ costs. Although home share is relatively small in this country it helps several hundred older and younger people. It is an approach that I believe has great potential. Indeed, before I joined your Lordships’ House, as the chief executive of SafeLives we developed a partnership with Homeshare, looking to use the scheme to support the victims and the perpetrators of domestic abuse.
My amendment seeks to ensure that home share schemes are explicitly excluded from the definition as it stands. As drafted, it seeks to capture the essence of home share arrangements and to distinguish them from those of commercial letting agents. I have tried to put in the technical aspects of the arrangement; namely, the nature of the instructions from the landlord, the absence of any rent or occupation charge from either the tenant or the home share organisation and the potential contribution by the tenant towards utility costs, as well as, crucially, the purpose of the scheme. The purpose must be quite clear: it is to promote the landlord’s well-being. The amendment also clarifies the meaning of the term “principal home” in line with Section 1 of the Housing Act 1988; “utility costs” which could also potentially include additional council tax; and “well-being” in line with Section 1(2) of the Care Act 2014.
The amendment is needed to ensure that home share can continue to grow in the UK. It helps hundreds of isolated and lonely older people. I have spoken to a number of family members whose parents are supported through home share schemes and they could not praise them enough for the support their parents receive. It also has the potential to help thousands in the future. This is clearly timely given the epidemic of loneliness that we hear so much about facing not only older people. There is increasing evidence that it is an issue for younger people as well. Indeed, without addressing the definition of a letting agent to explicitly exclude home share schemes, their sustainability will be put at risk.
In her speech, my noble friend Lady Jenkin articulated powerfully the scheme’s strengths, highlighting the human benefits to both the landlord and the home sharer, the contribution to the duties of the local authority under the Care Act 2014 and, importantly, the potential for these schemes to be financially sustainable. The quality of the relationship between the two individuals in the home share scheme is crucial to its success. It is specifically for people whose primary motivation is not commercial but who each want to contribute to the other’s life. It is vital to frame an exemption for genuine home share agencies from the prohibition on charging tenants, without creating a loophole for commercial letting agents.
To reiterate, the amendment seeks to exempt from the fees prohibition house-sharing arrangements that meet four tests. The first test is that they have been arranged by an organisation that recruits, vets, supports and, where appropriate, trains people for the purposes of providing support in a shared home environment. The second test is that the individual with the licence to occupy pays no rent. The third test is that they contribute to an agreed level of companionship, care or support. The fourth test is that it happens in the home of an individual who requires that support. To be absolutely clear, in this arrangement the homeowner receives no rent or any payment from the agency.
As I mentioned at the beginning, home share helps hundreds of young and old people in the UK, but if we look at home share as it works in Europe, we see that it has the potential to help thousands more. I hope that this amendment is a step towards making sure that that becomes reality. With that, I beg to move.
My Lords, very briefly, I spoke at Second Reading on the importance of exempting home-share schemes from the impact of the Bill. It seems to me that the amendment moved by the noble Baroness, Lady Barran, supported by the noble Lord, Lord Kennedy of Southwark, addresses the problem. I hope very much that the Minister is in a receptive mood.
My Lords, I am happy to have added my name to Amendment 12, proposed by the noble Baroness, Lady Barran. As we have heard, these issues were raised by the noble Baroness, Lady Jenkin of Kennington, at Second Reading.
In moving the amendment, the noble Baroness explained in detail that it would exempt people from being letting agents and being caught by the Bill’s provisions if they meet a number of conditions, as set out. She makes a very fair point. One thing we do not want to do, as is always a risk when passing legislation, is for it to have unintended consequences. This amendment seeks to stop that, so that the good work being done through this scheme—where no rent changes hands, and people give each other mutual support and contribute to utility bills—will not be caught by the legislation. I am happy to support the noble Baroness in finding a way forward to protect the scheme. If the Minister will not accept this amendment, I hope he will give a commitment to the Grand Committee that the Government understand this is an issue and will table their own amendment on Report.
My Lords, I thank noble Lords for this amendment, in particular my noble friend Lady Barran. I worked with her when she was involved in SafeLives and I know about the excellent work of that organisation with Homeshare on some issues. I also pay tribute to the work of my noble friend Lady Jenkin, who is currently in Myanmar or Bangladesh dealing with refugee issues.
The House came together on this issue at Second Reading—quite rightly. It is clear that we all support the valuable work done by home-share organisations in matching an older person with low-level support needs with a younger person in housing need. It is an admirable arrangement and I quite understand that the organisation does not want this to be characterised as rent. That is not the nature of the relationship. Again, the House was clear about that.
In a normal situation, the younger person will provide help with tasks, typically cleaning, shopping and gardening, and of course friendship and companionship in return for low-cost accommodation. It is a key policy challenge, which Homeshare supports for the country as a whole, helping an ageing population live in their own homes for longer and addressing issues of loneliness. In short, it is a good. At the same time, it helps a younger person in housing need find an affordable and safe home—something that is a key priority for my department and for the Government as a whole.
I am sure that the matching of two sets of needs through a single project is laudable and something that should be encouraged to grow. Home-share schemes provide ongoing support and reassurance to both householders and home sharers to ensure that the arrangement is beneficial to both. Unless we act, this would fall foul of the legislation, as has been pointed out; it is an unintended consequence. We will continue to work on that and I will undertake to come back to it on Report. I am more than happy to do that, although there is still work to be done. However, I am sure that we can take this forward.
I have listened carefully to the concerns expressed by noble Lords. As I indicated at Second Reading, I am extremely sympathetic to them and we will do something on this. We will return to the matter on Report. With those reassurances, I hope that my noble friend will feel able to withdraw her amendment.
My Lords, I hope to engage with noble Lords ahead of that to discuss the way forward, but I am keen that we should deal with this. I have indicated that it is not appropriate to deal with it by private arrangements with the organisation because I do not think that that would satisfy its legitimate desire to ensure that this is not a tenancy-type agreement.
Amendment 12 withdrawn.
Clause 25 agreed.
Clauses 26 and 27 agreed.
Clause 28: Transitional provision
13: Clause 28, page 20, line 33, leave out “one year” and insert “six months”
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.
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.
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 a 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 a 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.
I thank the noble Lord for responding to the debate. I suppose that we will not agree, which is disappointing. It is a shame that although there is a lot of good stuff in this legislation that we can support, things take such a long time, as I said in my introduction. That is a recurring theme with the noble Lord’s department, which I have raised many times in other consultations and discussions on this. It often seems like we are pulling teeth to get things moving along. So we are frustrated at the length of time these things take, and that is why we have taken a stand on this.
I also tabled Amendment 14, which seeks to bring the Act into force on the day on which it is passed. My frustration here is the fact that, even when it is passed, we then have to wait for an SI to be tabled to bring it into force. I have no certainty as to whether it will ever come into force; potentially, it could be left there and might never happen. I am sure that will not be the case, but the Committee will see that there is no certainty as to an agreed date. That is very frustrating, and I may come back to this point on Report. At this stage, however, I am happy to beg leave to withdraw the amendment.
Amendment 13 withdrawn.
Clause 28 agreed.
Clauses 29 to 31 agreed.
Clause 32: Commencement
Amendment 14 not moved.
Clause 32 agreed.
Clause 33 agreed.
Schedule 1: Permitted payments
Amendments 15 to 22 not moved.
23: Schedule 1, page 24, line 30, leave out paragraph 4
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. 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. 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 from 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 it is 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.
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.
She did referred to arbitrating over differences. I will share a concern about arbitration. Arbitration has been seized by professional arbitrators and made much more of, and much more costly, than it should be. The principle of alternative dispute resolution by other means—perhaps a single, jointly appointed adjudicator—might have been better, and much more cost-effective, than arbitration in accordance with the Arbitration Act. The apparent smallness of the cost—the noble Baroness refers to a lost key—is not necessarily an indicator of the process involved. I came across a situation where a fob for a security system was lost, could be obtained through only the company that operated the security system and cost quite a lot of money—a bit like the difference between getting an old-fashioned car key recut and getting a modern, electronic, keyless entry car fob reconfigured. Gaining possession is not an alternative to the cost of making good wanton damage through carelessness or whatever.
The noble Baroness referred to condensation. Such was the frequency with which I was asked about condensation professionally that, at one stage, I had a complete piece on my website about the causes of, and how to deal with, condensation. About two years ago, an architect asked me to look inside a property because she needed to speak to the tenant about a condensation issue. I was able to have some input, because the tenant had not been informed that the windows were fitted with trickle vents, which were all closed. The tenant had decided that the extractor fans for both the kitchen and bathroom were noisy, and had turned them off at the isolator switch. Because the tenant did not like the cost of operating the dryer part of the washer-dryer, clothing was dried on a concertina rack in the living room of this flat. Noble Lords will not be surprised when I say that this produced some extremely unhealthy conditions, of which some, but not all, might have been expected to be in the landlord’s initial briefing. I think that limiting fair condition to only two items does not go far enough, just as I think that the Bill, as drafted, is probably a little too wide. How would you define whether the obligation was reasonable and whether the discharging of a liability was a proper one to be included in the lease? There is a happy medium somewhere. I commend that thought to the Minister.
I think we are all aware that if there is the possibility of a loophole being discovered, somebody out there will discover it. The absolute, 100% intention must be to block it.
The noble Baroness, Lady Grender, suggested two alternative routes. One is for the costs that legitimately fall to the tenant, not the landlord or the agent, to be picked up in the tenancy deposit scheme so that you do not get so much back at the end. I wonder whether the tenancy deposit scheme is tightly defined enough and whether it is possible to take from the deposit sums relating to, for example, the cleaning of the common areas where No. 9 of the 10 flats has been up to no good or where someone has parked the car in wrong place and so on. I am not sure whether such things can be taken out of the deposit; that is a technical question.
The other alternative suggested by the noble Baroness is that the landlord will be so fed up that they will not renew the tenancy or will evict the tenant. That is a bit harsh. It would be better to find a way to come to an accommodation with the tenant rather than take extreme measures. I will need to hear from the Minister the series of ways in which all the possible loopholes and abuses can be blocked because that must be the Bill’s intention.
My Lords, Amendment 23, moved by the noble Baroness, Lady Grender, has my full support. It would remove default fees from the Bill. I share the concerns expressed here today that this provision could be used as a vehicle for unscrupulous landlords and letting agents to recoup lost income resulting from the ban. We cannot allow this loophole to go unchallenged. I also agree with the comments of the noble Lord, Lord Best; if something can be got around, someone will usually be smart enough to work it out and get around it. We should always be aware of that; it is very important to stop that.
In the Bill, the Government seek to limit default charges and fees to costs that are “reasonably incurred”, which must be evidenced in writing. However, this will prevent landlords and agents including unfair terms in tenancy agreements and trying to charge unreasonable amounts. Of course, we will come back to this issue of what is reasonable; we have come back to the issue of guidance many times. In responding to the debate, can the noble Lord explain how he believes that tenants will be protected from this unfair practice? How does the legislation, as it is framed now, protect people from ingenious people looking to get round almost anything? How can we be confident that the Bill is watertight?
Amendment 24, in the names of the noble Baronesses, Lady Grender and Lady Thornhill, and my Amendment 25 seek to make provision for default fees to be more transparent if they remain in the Bill and, as drafted in my amendment, to be detailed in regulations setting out what is a permitted payment in this regard. This would provide a clearer, legal definition of default fees. That would prevent abuse, protect tenants, ensure that tenants understand what they could be charged for and increase confidence in challenging illegal, prohibited fees. In contrast to guidance, regulations would act as a deterrent and give tenants a statutory basis from which to challenge prohibited fees. The late payment of rent and lost keys are the most commonly cited examples; in each scenario, the purpose of the fee would be clear to the tenant, which would limit the opportunity for exploitation.
I take on board the points made by the noble Earl, Lord Lytton. If we were all reasonable people, we would not need legislation at all; unfortunately, there are good and bad tenants and there are good and bad landlords. Often, we have to legislate for the worst excesses in all cases, and that is partly what we are trying to do here. However, I accept that the noble Earl has made some fair points—I am not suggesting that that is not the case. I look forward to hearing what the noble Lord, Lord Bourne, has to say on these matters.
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.
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.
Amendment 23 withdrawn.
Amendments 24 to 26 not moved.
Committee adjourned at 7.29 pm.