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House of Lords Hansard
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11 December 2018
Volume 794

Report

Clause 1: Prohibitions applying to landlords

Amendment 1

Moved by

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1: Clause 1, page 2, line 10, leave out “the person” and insert “a relevant person”

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My Lords, I will first speak briefly on Amendments 1, 2, 5 to 12, 16 to 19, 33, 35 to 41, 60 and 66, which are minor and technical and are intended to bring consistency and ensure the Bill best delivers on its policy intent.

First, while unlikely, as the Bill is drafted a letting agent could conceivably require a tenant to enter into a contract for services with themselves for additional services related to letting, such as providing an inventory. Amendment 5 clarifies that letting agents are prohibited from requiring a tenant or other relevant person to enter into a contract with themselves.

Secondly, it is possible that a relevant person other than a tenant might be a party to a tenancy agreement or an agreement with a letting agent. We have made amendments to Clauses 1 and 2 to be clear that, where a person is acting on behalf of a tenant or guaranteeing a payment of rent, that person cannot be charged a default fee unless otherwise permitted by the Bill.

In the same vein, Amendments 9 to 12 to Clause 4 provide that a term of agreement which breaches Clause 1 or Clause 2 does not bind a relevant person. Similarly, Amendments 33 and 35 to 41 replace the references to “tenant” in Clause 28 as it applies to pre-commencement tenancy agreements and agreements with letting agents with references to “relevant person”.

Finally, we want to ensure that we use consistent language and terminology throughout the Bill. Amendment 66 changes a reference to “incorrect and misleading information” to “false and misleading information” to align with other references in Schedule 2. Amendments 16 to 19 ensure that the language on day and date in Clause 11 is consistent, and Amendment 60 makes it clear that the definition of a television licence in paragraph 9 of Schedule 1 applies to the entire Act.

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My Lords, since we have begun Report I should declare my vice-presidency of the Local Government Association. I simply say that these are helpful and relevant amendments that have our support.

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My Lords, as this is the first time that I have spoken on Report, I draw the House’s attention to my relevant interest as a vice-president of the Local Government Association, as the noble Lord, Lord Shipley, did. I thank the noble Lord, Lord Bourne of Aberystwyth, and his officials for a number of the amendments we will discuss, in this group and others. Generally they are very helpful and improve the Bill. That is good news for tenants, and I am genuinely very grateful for that. That is not to say that I agree with everything in the Bill, but I am pleased to say we are making progress. I am very happy to support these amendments and I concur with the noble Lord’s comments.

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My Lords, I am very grateful for the noble Lords’ support. I beg to move.

Amendment 1 agreed.

Amendment 2

Moved by

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2: Clause 1, page 2, line 19, leave out “the person” and insert “a relevant person”

Amendment 2 agreed.

Amendment 3

Moved by

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3: Clause 1, page 2, line 38, at beginning insert “subject to subsection (10),”

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My Lords, we are all clear that the purpose of the Bill is to ban agents and landlords from charging unfair letting fees to tenants. However, in achieving this objective it is crucial that the legislation does not have an adverse impact elsewhere. Amendments 3, 4 and 29 to 31, in my name, ensure that the Bill does not prevent vital work supporting tenants more broadly.

First, Amendments 3 and 4 exclude local housing authorities or organisations acting on behalf of a local housing authority from the definition of “relevant person” under the Bill. I am most grateful to the noble Lords, Lord Shipley and Lord Beecham, for raising this issue during Second Reading. Local authorities have a duty, as housing authorities, to help the homeless to find accommodation. This is set out in the Housing Act 1996, the recent Homelessness Reduction Act and the homelessness code of guidance. We recognise that as part of this, councils might need to provide support to applicants—financial or otherwise—to access private rented accommodation. This is vital work, and Amendments 3 and 4 ensure that it can continue. These amendments will ensure that local housing authorities can make payments in connection with a tenancy when acting on behalf of a tenant or guaranteeing their rent.

Secondly, Amendments 29 to 31 ensure that the important work of Homeshare schemes, and its parent network in the UK, Shared Lives, can continue. I have said on multiple occasions that the Government strongly support the work of organisations such as Homeshare in matching a licensee, usually a young person in housing need, with a licensor, usually an elderly householder in need of companionship, sometimes combined with some low-level care or assistance. I know that support is shared throughout the House.

The Bill would have unintentionally prevented Homeshare organisations operating by banning payments made by the licensor in respect of the advice and support received from Shared Lives. I reiterate that the intention of the Bill is not, and never was, to undermine or prevent this important and innovative work continuing. I thank in particular my noble friends Lady Jenkin and Lady Barran for taking up this issue and bringing it to the House’s attention.

The Government recognise that we must take this opportunity to amend the Bill to ensure that such work is not adversely affected. To do this, our amendments provide for changes to Clause 26 to exclude from the Bill such licences as those granted under a Homeshare scheme. We have specified that an excluded licence will be one granted to the licensee by a licensor who resides in the housing, where particular conditions surrounding the grant, renewal and continuation of that licence are met. These conditions include a requirement for a charity or a community interest company to give advice to the licensee or licensor in connection with the grant, renewal or continuation of the licence and where the licensee provides companionship or companionship and low-level care or assistance, together with one or more payments in respect of council tax or utilities, for example. Such arrangements are indicative of Homeshare organisations.

The amendments will therefore ensure that excluded licences that meet the conditions I have just set out are exempt from the tenant fee ban. I hope that my noble friend Lady Barran will agree that these amendments address the concerns she raised in Committee and that this achieves our shared ambition—one we can all surely support—which is that organisations such as Homeshare can continue doing their fantastic work well into the future.

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My Lords, the Minister referred to what I said at Second Reading and he is entirely right. I welcome Amendments 3 and 4. They are hugely helpful because they give local housing authorities the flexibility they need to do their job properly, and for that reason they have our support.

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My Lords, I join the noble Lord, Lord Shipley, in supporting these Government amendments. It certainly is an important function for local authorities. I have to confess—and I refer to my interest as a sitting local councillor—that I am not entirely sure where the funding for this comes from. Do the Government support this financially, or is it left entirely to local authorities? In the latter event, will he look into the extent to which authorities are financing this important element of support for tenants? We certainly support both amendments.

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My Lords, I thank the noble Lords, Lord Beecham and Lord Shipley, for their support. I will write to the noble Lord, Lord Beecham, but I suspect that this money comes from local authorities—although of course, it finds its way from successive Governments. I suspect that this is part of their functions, but I will certainly cover that in a letter, if I may. The noble Lord never misses an opportunity to focus on an issue such as this, and I will be very pleased to respond to him.

Amendment 3 agreed.

Amendment 4

Moved by

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4: Clause 1, page 2, line 39, at end insert—

“(10) The reference in subsection (9)(b) to a person does not include—(a) a local housing authority within the meaning of the Housing Act 1985 (see section 1 of that Act),(b) the Greater London Authority, or(c) a person acting on behalf of an authority within paragraph (a) or the Greater London Authority.”

Amendment 4 agreed.

Clause 2: Prohibitions applying to letting agents

Amendments 5 to 12

Moved by

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5: Clause 2, page 2, line 46, at end insert “the agent or”

6: Clause 2, page 3, line 14, leave out “the person” and insert “a relevant person”

7: Clause 2, page 3, line 20, leave out “the person” and insert “a relevant person”

8: Clause 2, page 3, line 23, leave out “person’s”

9: Clause 4, page 4, line 21, leave out “the tenant” and insert “a relevant person”

10: Clause 4, page 4, line 23, leave out “tenant” and insert “relevant person”

11: Clause 4, page 4, line 24, leave out “the tenant” and insert “a relevant person”

12: Clause 4, page 4, line 25, leave out “tenant” and insert “relevant person”

Amendments 5 to 12 agreed.

Amendment 13 not moved.

Clause 8: Financial penalties

Amendment 14

Moved by

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14: Clause 8, page 6, line 13, after “of” insert “paragraph 3 of”

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My Lords, Amendments 14, 15, 45 to 48, 61 to 65 and 67 to 70 in my name relate to the treatment of holding deposits. I have been sympathetic to some of the arguments put forward by noble Lords on holding deposits, and I agree that more action is needed to address these issues. I propose to do that in the Bill, rather than in guidance or regulations, to improve transparency and enforcement.

The Bill already sets out clear requirements for holding deposits, including the circumstances in which a landlord or agent may or may not retain a holding deposit. Where a holding deposit is withheld, landlords and agents should be up front with tenants about the reason for this. Amendment 65 introduces a formal requirement for landlords and agents to give written notice to the tenant, setting out why they are retaining the deposit. This notice must be provided within seven days of the landlord or agent deciding not to enter into a tenancy agreement or where the landlord and agent fail to enter into a tenancy agreement within seven days of the deadline for the agreement passing. Introducing a proactive requirement for landlords or agents to demonstrate that they have legitimate grounds to retain the deposit will make it easier for tenants to challenge decisions which they believe to be unfair. Where landlords and agents do not provide reasons for retaining the holding deposit, they will be required to repay the holding deposit to the tenant.

Further, Amendment 61 places an absolute requirement on landlords and agents to refund the holding deposit where they enter into a tenancy agreement for the housing in relation to which the holding deposit is given. At present, if an exception to refund the holding deposit applies but the landlord and tenant subsequently enter into the tenancy agreement, there is no requirement to return the holding deposit. This is not the policy intention. I hope we can all agree that a landlord or agent should forgo their right to retain the holding deposit if they decide to enter into the tenancy agreement, as they have ultimately determined that a tenant is suitable to let the property.

Amendment 48, which is also in the name of the noble Baroness, Lady Thornhill, relates to the receipt of a holding deposit. The purpose of a holding deposit is to enable both the landlord and the tenant to demonstrate their commitment to entering into a tenancy agreement while reference checks are undertaken. I fully agree with the noble Lord, Lord Kennedy, and the noble Baronesses, Lady Grender and Lady Thornhill, that it is not right that landlords and agents accept multiple holding deposits for the same property. A holding deposit creates a binding conditional contract between landlord and tenant where both parties agree to enter into the tenancy, subject to the satisfactory fulfilment of all pre-tenancy checks. Amendment 48 therefore ensures that a landlord or agent can be in receipt of only one holding deposit at any one time for the same housing and must return any holding deposit already held in respect of a property before accepting another, unless permitted to retain it. To summarise, if a landlord or agent is already in possession of a holding deposit for a particular housing, any other holding deposit paid for that property will be a prohibited payment.

Amendments 14, 15, 45 to 47, 62 to 64 and 67 to 69 are consequential amendments to those I have just described. We have also subsequently realised that a consequential amendment is needed to Clause 11(3)(c) to reflect the changes being made by Amendment 65 to Schedule 2. The consequential amendment is needed to specify the day on which interest is to be payable where reasons have not been provided within the required period and the holding deposit needs to be repaid. It will specify that this date is to be the day after the end of the relevant period within the meaning of Amendment 65. This is a minor and technical amendment and will be tabled as a point of clarification at Third Reading.

Finally, I have given thorough consideration to Amendment 49, tabled by the noble Lord, Lord Kennedy, which proposes that landlords and agents should provide a draft copy of the tenancy agreement before a holding deposit is paid. This issue was also raised in Grand Committee by the noble Baronesses, Lady Thornhill and Lady Grender. I completely agree that landlords and agents should give tenants sufficient time to understand the terms of any agreement before asking them to pay a holding deposit. We have made this clear in our guidance. However, I do not agree that an amendment such as that proposed by the noble Lord, Lord Kennedy, is warranted in this space. As with any contract or agreement, tenants should not pay money if they are not sure what they are signing up to.

Further, this could be difficult for local authorities to enforce. We would need to decide at what point the draft tenancy agreement should be provided before any holding deposit can be taken, and some tenants may choose to enter into agreements quickly and may want to do so. We will use our guidance to reiterate that tenants should be comfortable with the proposed tenancy agreement before they sign it. By paying the holding deposit, the tenant is agreeing to enter into the contract subject to meeting the conditions set out by the landlord. Similarly, the landlord is agreeing to rent to the tenant subject to all checks being completed. As I have mentioned, we have brought forward amendments to require that only one holding deposit per property can be paid, to ensure that landlords and agents are sincere in this.

I know noble Lords are concerned about a situation in which a landlord or agent might refuse to share a tenancy agreement in advance, thus forcing the tenant to pay a holding deposit and the tenant potentially being subject to unfair contract terms. I would say that a tenant should be wary of any landlord or agent who acts in such a manner and might be advised to steer clear of their property. However, I wish to reassure noble Lords that the Bill already offers protections in the event that the tenant pays a holding deposit and subsequently discovers an unfair contract term.

First, if the deadline for agreement has not yet passed and the tenant is willing to enter into the tenancy agreement subject to the removal of an unfair contract term which the landlord refuses, a landlord would not be taking all reasonable steps to enter the tenancy. The tenant would therefore be entitled to the repayment of their holding deposit. Amendment 70 clarifies that the holding deposit must be refunded if the landlord or agent imposes a requirement that breaches the ban, or behaves in an unreasonable manner such that it would be unreasonable to expect the tenant or relevant person to enter the tenancy. Secondly, if the tenant enters a tenancy agreement, Clause 4 ensures that any clause that requires the tenant to make a prohibited payment is not binding on the tenant. Thirdly, existing applicable consumer rights legislation ensures that any unfair contractual terms are not binding on the tenant.

I know that noble Lords were anxious for tenants to have early sight of the tenancy agreement, to understand any possible default clauses. As will be discussed, we have brought forward amendments to list default fees on the face of the Bill. There will be clear and prescribed circumstances where a default fee can be charged. This mitigates the risk of tenants inadvertently and unknowingly signing up to multiple different default fees. Under existing transparency requirements in the Consumer Rights Act 2015, agents are required to display their fees to tenants on their website and in their offices. Tenants will be able to see if their agent intends to charge a default fee in the event of a lost key, or other security device, or a late rent payment.

We will use consumer guidance to encourage agents and landlords to share a copy of the tenancy agreement at the earliest opportunity before accepting any holding deposit. Similarly, we will remind tenants of the need to be clear as to what they are signing up to before making any payments. We firmly believe that the amendments we have brought forward—to improve the transparency around the treatment of holding deposits, to ensure that landlords and agents can only take one holding deposit at any one time and to prescribe default fees on the face of the Bill—will address the key concerns raised by noble Lords. I hope that the noble Lord, Lord Kennedy, agrees that this is a reasonable compromise.

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My Lords, I declare my interest as one of the happy band of vice-presidents of the Local Government Association. I agree with much of what the Minister has said, but with specific reference to Amendment 48 I thank the Government for listening and accepting our amendment, moved in Committee, regarding letting agents and landlords receiving multiple holding fees from several people for one property. The arguments for this were well made in previous stages of the passage of this Bill. It has been recognised by pressure groups, by the industry itself—interestingly enough —and now by the Government that taking financial advantage of prospective tenants is totally unacceptable and bad practice. This simple but significant amendment corrects an injustice and will help many for whom navigating the private rental market is already a stressful and expensive business. We look forward to a speedy implementation, which I believe will be in May 2019.

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My Lords, I declare my interests as a vice-president of the LGA but also as a practising chartered surveyor and private rented sector landlord. Mercifully, I have managed to steer clear in a personal capacity of managing agents—at least for the last many years.

I have one query on the way in which the holding deposit arrangements are intended to function. I quite understand the geometry that sits behind this and the reason for it, so I will not go over it again. But let us suppose that a prospective tenant, having been provided with all the relevant information, pays a holding deposit then, through some reason of default which would allow the agent to retain part or all of that deposit, there develops an argument as to what proportion—perhaps the whole—should be retained or not. That could take some while to resolve. Meanwhile, the agent is debarred from taking a holding deposit from anybody else, even though it may be clear beyond peradventure that the original deal with, and intention of, the tenant, whose holding deposit is still being hung on to, will not go ahead.

I can see that this could put an undesirable element of drag into the situation. I can also see that it might be the godmother of unforeseen consequences, in that the agent may feel that it is becoming a problem—a rather metropolitan problem, if I may say so; I think of zones 2, 3 and 4 of central London as the areas where a lot of this goes on, although I know it is not unique to there. The corollary to that is that the agent may say, “I’m not going to take a holding deposit at all. It is on a first-come, first-served basis. I have various people interested and the first who comes through my door with the relevant boxes ticked gets it”. That does not seem at all helpful either. That does not happen in my part of leafy Sussex, because we do not deal with things in that way and do not have that sort of high-pressure tenant demand. But I can certainly see it happening in zones 2 and 3 and I wonder what the Minister has to say about how he sees that working in practice, without having some perverse effects on the market.

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My Lords, I thank the noble Baroness, Lady Thornhill, and the noble Earl, Lord Lytton, for their contributions to the debate on this part of the Bill. I thank the noble Baroness very much for her comments and support.

I thank the noble Earl very much for his support and for raising the issue relating to holding deposits. First, as he will be aware, there is no obligation upon an agent or a landlord to operate a holding deposit system if they do not want to do so. It is optional. But where it applies and there is a dispute, if the two parties agree that there is no chance of pursuing the tenancy, it would obviously be open at that stage for the landlord or agent to take another holding deposit in relation to the land in question, as it were, where that matter is truly settled. If it is not settled, a lot will turn on the particular circumstances of the case. If the noble Earl feels that he would like to discuss this further, I will ensure that officials are available to discuss possible scenarios with him. It may be that he wishes to discuss a particular scenario, but in the meantime I commend these amendments to the House.

Amendment 14 agreed.

Clause 10: Recovery by enforcement authority of amount paid

Amendment 15

Moved by

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15: Clause 10, page 7, line 33, after “breaching” insert “paragraph 3 of”

Amendment 15 agreed.

Clause 11: Interest on payments under section 10

Amendments 16 to 19

Moved by

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16: Clause 11, page 8, line 13, leave out “date” and insert “day”

17: Clause 11, page 8, line 14, leave out “date” and insert “day”

18: Clause 11, page 8, line 17, leave out “date” and insert “day”

19: Clause 11, page 8, line 18, leave out “date” and insert “day”

Amendments 16 to 19 agreed.

Clause 17: Restriction on terminating tenancy

Amendment 20 not moved.

Clause 21: Enforcement of client money protection schemes for property agents

Amendment 21

Moved by

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21: Clause 21, page 14, line 24, leave out from beginning to “subsection” in line 26 and insert—

“The Housing and Planning Act 2016 is amended as follows.( ) In section 134 (client money protection schemes: approval or designation), after subsection (2) insert—“(3) Regulations under this section may confer a discretion on the Secretary of State in connection with—(a) the approval or designation of a client money protection scheme,(b) conditions which must be complied with by the administrator of such a scheme,(c) the amendment of such a scheme, or(d) the withdrawal of approval or revocation of designation of such a scheme.”( ) In section 135 (enforcement of client money protection scheme regulations)—(a) in”

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My Lords, I shall speak also to Amendments 22, 27, 32 and 71 in my name which relate to client money protection legislation as set out in Part 5 of the Housing and Planning Act 2016, the Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) Regulations 2018 and the Client Money Protection Schemes for Property Agents (Requirement to belong to a Scheme etc.) Regulations, which are due to come into force on 1 April 2019.

Client money protection schemes ensure that landlords and tenants are reimbursed in the event of a letting or managing agent going into administration, or where the agent misappropriates their money while in their control. This client money can include rent paid by tenants as well as money passed on by landlords for the purpose of making repairs to a property. Client money protection is designed to be the last resort once a tenant or landlord has already pursued the agent directly or exhausted recovery via the property agent’s insurance. I take this opportunity to thank the noble Baroness, Lady Hayter, for all the hard work she has done in this area alongside the noble Lord, Lord Palmer, on this important legislation that will give tenants and landlords the financial protection that they deserve.

The client money approval regulations set out the conditions that scheme providers must meet in order to be an approved provider. My officials have been working with scheme providers since the summer to support them in making an application. The requirement regulations require property agents who handle client money to belong to an approved scheme. They are due to be implemented on 1 April 2019.

During our extensive engagement with schemes it has become apparent that certain elements of the regulations do not work as originally intended. I thank noble Lords for their discussion of these points in Committee, which I have considered carefully. I am keen to ensure that the client money protection legislation delivers on our commitment to give landlords and tenants financial security but not in such a way as to impose disproportionate and unnecessary burdens on industry, which could have the adverse and perverse effect of increasing costs for tenants and landlords. The amendments in my name ensure that the rules strike a balance while giving tenants and landlords robust protection. This is so that the amount of cover that schemes are required to provide is proportionate, taking into account the availability of insurance and the level of risk posed by members. We are committed to maintaining our published timetable so that mandatory client money protection can come into force on 1 April 2019. Our intention is that, once we have approved sufficient schemes, we will make the requirement regulations and of course they will be made before the relevant provisions in this Bill amending these regulations are commenced.

Turning to Amendments 21, 22 and 17, first, we have clarified that money that has already been protected through a government-approved tenancy deposit scheme is not required to be doubly protected by a client money protection scheme. This was never our policy intent. Secondly, we will not require schemes to pay out where certain risks are excluded by insurers. These policy exclusions typically refer to events such as war, terrorism or confiscation by the state. It was never the policy intent for such unlikely events to be covered. We believe it would be unreasonable to require schemes to pay out where they may be unable to underwrite their risk with insurance because such insurance cover is commercially unavailable.

Thirdly, we are providing that the level of insurance held by schemes is proportionate to the risk of client money loss rather than requiring scheme providers to ensure they can provide cover for every penny held in an agent’s client account. We will in guidance ask schemes to determine the appropriate level of insurance cover necessary to cover a worst-case scenario—their maximum probable loss. This allows schemes to consider controls that their members have in place as well as the amount of client money that is at risk. We will challenge schemes’ calculations through our assessment of their applications for approval to ensure that they are robust.

Fourthly, we are specifying that client money protection schemes can allow limits per individual claimant and scheme aggregate limits that are at least equivalent to the scheme’s maximum probable loss. Allowing schemes to set a limit per individual claimant ensures that they are not required to pay out without limit. It will ensure that more sophisticated large corporate landlords take responsibility for the control of client money held on their behalf. The Financial Services Compensation Scheme has similar individual claim limits, and we are seeking to replicate this accepted practice. It is, of course, vital that consumers are aware of any such limits and we are requiring schemes and their members to be transparent with clients about the limits of protection. The limit would be designed to be more than sufficient to cover likely claims, but if it became apparent that that was no longer the case, the limit would need to be changed.

We expect schemes to act reasonably and to apply to amend the scheme rules if it becomes apparent that their level of cover is no longer sufficient. Any scheme that cannot demonstrate that it has obtained sufficient cover to pay out on all likely claims will not be approved. Allowing both individual and aggregate limits ensures that tenants and landlords have sufficient financial protection, which is the purpose of client money protection, but not in such a way that would have a disproportionate impact on the industry.

Further, for a transitional period of 12 months taking us to 1 April 2020, we are permitting agents to join a scheme if they are making all efforts to apply for a client account but have not yet obtained one. We fully expect all agents to hold their client money in a separate account to ensure that client money is suitably protected. As the Government work with the banking industry, we do not wish to impose unrealistic barriers around a client account that agents are unable to meet by 1 April 2019.

Finally, the duty to enforce the requirement for letting agents to belong to a client money protection scheme is set out in Regulation 5 of the client money protection schemes for property agents regulations. We have therefore clarified in Amendment 32 that the lead enforcement authority set up under the Bill can also enforce the regulations. Amendment 71 is a consequential amendment to the title of the Bill.

Without Amendments 21, 22, 27, 32 and 71, there is a risk that certain scheme providers will be unable to comply with the regulations and therefore leave the market, or that the costs of cover will increase substantially for agents, which could have knock-on consequences for landlords and tenants.

I am proposing these amendments to this Bill to ensure that implementation of mandatory client money protection is not delayed and can be delivered as promised from 1 April 2019. I thank the noble Lady, Baroness Hayter, for giving attention to these matters and raising her concerns.

I also address Amendments 23 to 26, which the noble Baroness tabled. I understand her concern that if notice is served on a scheme without any reasons requiring the scheme to amend its rules within 30 days, the scheme may be unable to comply and feel that it has no other option but to wind up its operation. Clearly such a situation would be in neither the Government’s nor the scheme’s interest.

However, I do not believe that the amendments tabled are necessary and as such do not propose to accept them. Specifically in relation to the timeframe and the giving of reasons, the Government are bound by general public law obligations which include acting transparently and fairly and supplying reasons for decisions. I am happy to reaffirm that. We could not seek arbitrarily to serve notice without having discussed our concerns and options with the scheme. The notice is likely to be the final step in the process, having explored with the scheme what amendments would be required. The 30-day notice period is subject to a different period being set out in the notice and therefore we do not believe that Amendment 26, which amends the timeframe, is necessary.

Nevertheless, as noble Lords will appreciate, the Secretary of State needs to be able to serve a notice to compel schemes to make changes where, for example, there has been a significant change in the size for a scheme. With an increase in the membership base, it might be necessary to increase the cover. It is on that basis that I hope that the noble Baroness will understand that I cannot accept her proposal but, with the reassurances that I have given, I hope that she will not press the matter.

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My Lords, first, I thank the Minister for his sympathetic and speedy response to the issues that I, along with the noble Lord, Lord Palmer of Childs Hill, with the support of the noble Lord, Lord Best, who is in his place, and the noble Lord, Lord Deben, who is not in his place at the moment, raised in Committee about how the department was implementing these otherwise very welcome plans to introduce mandatory client money protection for letting agents. It was because the noble Lord, Lord Palmer, and I had worked very well with the Minister on that initiative that we were concerned that the whole thing was going a bit pear-shaped because of the introduction of unrealistic requirements on the main providers of CMP protection. But, thanks to the Minister—I have to thank him for that—the department moved very rapidly, as it is well able to, and responded to make the significant changes that the Minister has now introduced. We both thank and congratulate the people who drafted those changes. They will, of course, help ensure that both RICS and ARLA can continue to protect both landlords and tenants through their schemes.

There was just one area on which I sought clarification, which is indicated in the amendments to which the Minister has already responded. I know that these have been discussed with RICS, ARLA and officials. I am getting nods from the Box. The government amendments introduce a power, as has been said, for the Secretary of State to serve notice on scheme administrators, requiring them to amend their scheme rules in respect of the cover they may hold. We consider this a sensible addition because it ensures that appropriate cover will be in place and, importantly, it will prevent arbitrage between the different schemes. That is something that we had not thought of but we are very grateful that officials did so.

As has been noted, our concern is with the current wording, which we did not feel gave sufficient clarity on how such a scheme, where it proved necessary, could close in an orderly manner where the Secretary of State’s justified requirements proved unworkable. The amendments I tabled were therefore to clarify that schemes may alternatively close in an orderly manner in such a scenario, rather than leaving administrators open to a lot of uncertainty. I know that the Minister appreciates those points, as we have heard. It was a backstop—if I may say that—that we were looking for: something we hoped would never be needed but should be there in case. I think the Minister has given the reassurance needed about flexibility and the use of normal other legislation to ensure that such reasons are given, and in the right way. I am getting nods from other people on that point.

Although I tabled the amendments, they were clearly only a bit of final tidying up. We are very pleased and grateful that, as a result of what we raised in Committee, it has been possible to bring this forward in such a timely manner that we can go ahead on 1 April not just, unfortunately, to leave the European Union, but, perhaps a little more importantly, to have client money protection in place.

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My Lords, I refer to my interest as a modest landlord, as declared in the register. The new rules to protect rent paid by tenants to agents do not protect landlords fully. Letting agents will have to join the new government-approved client money protection insurance scheme, but changes proposed by the Government as to the level of insurance held by these schemes will not cover the full value of rental money held by agents. I cannot see the point of that. Is it not in the interests of all parties for the insurance effectively to cover all potential liabilities? The scheme will not pay out in some circumstances; it will be able to cap the amount it pays out. Surely it would be more sensible for the scheme to provide for full protection.

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My Lords, first, I thank the Minister for his incredible help and support in getting this legislation through, and the noble Baroness, Lady Hayter, who has done a lot to make this Bill work.

I want to pick up on a point made by the noble Lord, Lord Flight, because it is one of the questions that arises from these amendments. Perhaps I may tackle it by dealing with the level of insurance required, which is what the noble Lord, Lord Flight, was talking about. The best way of looking at it is perhaps to think about what the Residential Landlords Association —the RLA—has recently said. It advises, consequent to the changes to the legislation, that to help reduce the risk, landlords should spread their properties across a number of agents so that they reduce the need to go over whatever insurance limits were agreed with each one. The RLA summed this up by saying:

“Otherwise we will encourage landlords to ensure that they do not put all their eggs in one basket and spread the risk”.

Are the Government aware of landlords spreading their risk rather than keeping it with one agent, and what will the Government’s attitude be? I believe that is the point raised by the noble Lord, Lord Flight. This is a great improvement to the legislation but I would like the Minister to respond to my question.

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My Lords, I thank noble Lords who have participated in the debate on this part of the legislation and turn to the various contributions. I thank the noble Baroness, Lady Hayter, very much for her support, for bringing this forward and for the characteristic grace with which she has dealt with the matter today. Our calculations have been made on the best assessment of the highest probable loss; that should be the basis for deciding cover. We have also taken heed of the fact that, for example, for bank deposits there is a maximum amount currently protected; it would be somewhat perverse if this were a higher amount. Such matters have influenced what we seek to do. It is not the maximum loss; we have taken heed of the highest probable loss, as is the customary arrangement. We also have to take account of what the industry can bear and what is in the interests of all tenants and landlords; that is what has guided us.

On landlords seeking more than one form of cover, I will write to the noble Lords, Lord Flight and Lord Palmer of Childs Hill, so that they get the full picture. With that, I commend the government amendments in this group and reject the others.

Amendment 21 agreed.

Amendment 22

Moved by

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22: After Clause 21, insert the following new Clause—

“Client money protection schemes: approval and designation

(1) The Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) Regulations 2018 (S.I. 2018/751) are amended as follows. (2) In regulation 2 (interpretation), in the definition of “client money”—(a) in paragraph (a), for “agency”, in the second place it occurs, substitute “management”, and(b) at the end of paragraph (b) insert “,but does not include money held in accordance with an authorised tenancy deposit scheme within the meaning of Chapter 4 of Part 6 of the Housing Act 2004 (see section 212 of that Act);”.(3) In regulation 4 (amendments to an approved scheme), after paragraph (3), insert—“(4) This regulation does not apply to an amendment made in accordance with a notice served under regulation 8(1D)(b).”(4) In regulation 5 (conditions which must be satisfied before approval may be given)—(a) in paragraph (1)(a)(iii), for “and without any deduction” substitute “, subject to paragraph (1A)”,(b) in paragraph (1)(c)(i), for “administration of the scheme” substitute “failure of scheme members to account for client money to persons entitled to that money”,(c) after paragraph (1) insert—“(1A) The Secretary of State may determine that the condition in paragraph (1)(a)(iii) is satisfied where the rules of the scheme have the effect that the scheme administrator is required to make good M’s liability—(a) only up to such amount as the Secretary of State considers appropriate,(b) only if or to the extent that M’s liability can be made good without exceeding such aggregate limit on the liability of the scheme as a whole as the Secretary of State considers appropriate, or(c) only if M’s liability arises in relation to a risk that the Secretary of State considers it is appropriate for the scheme to insure against.”, and(d) after paragraph (2) insert—“(2A) The rules of the scheme are to be treated as complying with paragraph (2)(f) if they provide that, until 1 April 2020, they have effect as if they required scheme members to make all reasonable efforts to hold client money in a client money account with a bank or building society authorised by the Financial Conduct Authority.”(5) In regulation 8 (conditions with which scheme administrators must comply)—(a) in paragraph (1), after “practicable” insert “—(a) after that member joins the scheme, and(b) after the scheme rules are amended under paragraph (1D)(a) or in accordance with a notice served under paragraph (1D)(b).”,(b) after paragraph (1) insert—“(1A) Paragraphs (1B) to (1E) apply if the rules of the scheme have the effect of requiring the scheme administrator to make good the liability of a scheme member—(a) only up to a certain amount, (b) only within an aggregate limit on the liability of the scheme as a whole, or(c) only in relation to certain risks.(1B) The certificate provided under paragraph (1) must include—(a) information about the amount referred to in paragraph (1A)(a), (b) information about the limit referred to in paragraph (1A)(b), or(c) details of where to find information about the risks referred to in paragraph (1A)(c),as the case may be.(1C) Paragraphs (1D) and (1E) apply if the Secretary of State considers that—(a) the amount referred to in paragraph (1A)(a) is no longer appropriate,(b) the limit referred to in paragraph (1A)(b) is no longer appropriate,(c) it is no longer appropriate for the rules of the scheme to exclude liability in relation to one or more of the risks referred to in paragraph (1A)(c), or(d) it is appropriate for the rules of the scheme to exclude liability in relation to one or more risks that are not among the risks referred to in paragraph (1A)(c).(1D) The Secretary of State may—(a) where the Secretary of State is the scheme administrator, amend the scheme rules with the effect that the amount, the limit or the risks are replaced with such different amount, limit or risks (as the case may be) as the Secretary of State considers appropriate;(b) in any other case, serve a notice on the scheme administrator requiring that person to amend the scheme rules with the effect that the amount, the limit or the risks are replaced with such different amount, limit or risks (as the case may be) as the Secretary of State considers appropriate.(1E) The scheme administrator must comply with a notice served under paragraph (1D)(b)—(a) within the period of 30 days beginning with the day on which the notice is served, or(b) within such longer period beginning with that day as the Secretary of State may specify in the notice.”,(c) after paragraph (3) insert—“(3A) The scheme administrator must maintain insurance that—(a) covers any foreseeable liability which may arise in connection with the failure of scheme members to account for client money to persons entitled to that money, and(b) is appropriate with regard to the size and number of scheme members and the amount of client money held by scheme members.(3B) Before renewing the scheme’s insurance, the scheme administrator must obtain the approval of the Secretary of State to the type and amount of insurance.(3C) The Secretary of State may approve the renewal of the scheme’s insurance only if the Secretary of State is satisfied that, if the insurance is renewed as proposed, the scheme administrator will continue to comply with paragraph (3A).”,(d) in paragraph (5), at the end of sub-paragraph (a) for “; and” substitute “,(aa) where paragraph (1B) applies— (i) information about the amount referred to in paragraph (1A)(a),(ii) information about the limit referred to in paragraph (1A)(b), or(iii) information about the risks referred to in paragraph (1A)(c),as the case may be, and”, and(e) after paragraph (6) insert— “(7) In this regulation, references to renewing a scheme’s insurance (however expressed) include obtaining new insurance.(8) Paragraphs (2), (3B), (3C) and (4) do not apply where the Secretary of State is the scheme administrator.”(6) The amendments made by this section are without prejudice to any power to make an order or regulations amending or revoking the regulations mentioned in subsection (1).”

Amendments 23 to 26 (to Amendment 22) not moved.

Amendment 22 agreed.

Amendment 27

Moved by

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27: After Clause 21, insert the following new Clause—

“Client money protection schemes: requirement to belong to a scheme etc

(1) The Client Money Protection Schemes for Property Agents (Requirement to Belong to a Scheme etc.) Regulations 2019 are amended as follows.(2) In regulation 2 (interpretation)—(a) in the definition of “client money”—(i) in paragraph (a), for “agency”, in the second place it occurs, substitute “management”, and(ii) at the end of paragraph (b), for “; and” substitute “,but does not include money held in accordance with an authorised tenancy deposit scheme within the meaning of Chapter 4 of Part 6 of the Housing Act 2004 (see section 212 of that Act);”, and(b) at the end of the definition of “regulated property agent”, insert “;“scheme administrator” has the same meaning as in the scheme approval regulations (see regulation 2 of those regulations); and“scheme approval regulations” means the Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) Regulations 2018.”(3) In regulation 3 (requirement to belong to a client money protection scheme), omit paragraph (2).(4) In regulation 4 (transparency requirements)—(a) before paragraph (1) insert—“(A1) Paragraph (1) applies if the scheme administrator of an approved or designated client money protection scheme provides a certificate under regulation 8(1) of the scheme approval regulations to a regulated property agent.”, and(b) in paragraph (1)—(i) in the words before sub-paragraph (a), for “A” substitute “The”, and(ii) omit sub-paragraph (a).(5) The amendments made by this section are without prejudice to any power to make an order or regulations amending or revoking the regulations mentioned in subsection (1).”

Amendment 27 agreed.

Clause 23: General duties of the lead enforcement authority

Amendment 28 not moved.

Clause 26: Interpretation

Amendments 29 to 31

Moved by

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29: Clause 26, page 17, line 27, at end insert—

““excluded licence” means a licence which is granted to a licensee by a licensor who resides in the housing where—(a) a charity or community interest company gives advice or assistance to the licensee or the licensor in connection with the grant, renewal or continuation of the licence, and(b) the only consideration for the grant, renewal or continuation of the licence is—(i) the provision by the licensee of companionship to the licensor, or such provision together with the provision by the licensee of care or assistance (other than financial assistance) to the licensor, or(ii) provision of the kind referred to in sub-paragraph (i) together with one or more payments in respect of council tax, a utility, a communication service or a television licence;”

30: Clause 26, page 17, line 42, at end insert “unless it is an excluded licence”

31: Clause 26, page 18, line 18, at end insert—

““television licence” has the meaning given by paragraph 9(2) of Schedule 1;”

Amendments 29 to 31 agreed.

Clause 27: Consequential amendments

Amendment 32

Moved by

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32: Clause 27, page 20, line 6, at end insert—

“(6) In regulation 5 of the Client Money Protection Schemes for Property Agents (Requirement to Belong to a Scheme etc.) Regulations 2019 (enforcement)—(a) in paragraph (1) omit “, subject to regulation 8(3)”,(b) after that paragraph insert—“(1A) Paragraph (1) is subject to—(a) regulation 8(3), and(b) section 24 of the Tenant Fees Act 2018.”, and(c) in paragraph (3), after “the Secretary of State” insert “or the lead enforcement authority (if not the Secretary of State)”.(7) The amendments made by subsection (6) are without prejudice to any power to make an order or regulations amending or revoking the regulations mentioned in that subsection.”

Amendment 32 agreed.

Clause 28: Transitional provision

Amendment 33

Moved by

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33: Clause 28, page 20, line 30, after “tenant” insert “or a relevant person in relation to the tenant”

Amendment 33 agreed.

Amendment 34 not moved.

Amendments 35 to 41

Moved by

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35: Clause 28, page 20, line 35, leave out “the tenant” and insert “a relevant person”

36: Clause 28, page 20, line 41, leave out “tenant” and insert “relevant person”

37: Clause 28, page 21, line 2, leave out “tenant” and insert “relevant person”

38: Clause 28, page 21, line 5, leave out “tenant” and insert “relevant person”

39: Clause 28, page 21, line 10, leave out “tenant” and insert “relevant person”

40: Clause 28, page 21, line 15, leave out “tenant” and insert “relevant person”

41: Clause 28, page 21, line 20, leave out “tenant” and insert “relevant person”

Amendments 35 to 41 agreed.

Schedule 1: Permitted payments

Amendment 42

Moved by

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42: Schedule 1, page 24, line 12, leave out “the amount of six weeks’ rent,” and insert “—

(a) the amount of five weeks’ rent, where the annual rent in respect of the tenancy immediately after its grant, renewal or continuance is less than £50,000, or(b) the amount of six weeks’ rent, where the annual rent in respect of the tenancy immediately after its grant, renewal or continuance is £50,000 or more,”

Amendment 42 agreed.

Amendment 43 not moved.

Amendments 44 to 48

Moved by

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44: Schedule 1, page 24, line 14, at end insert—

“( ) “five weeks’ rent” means five times one week’s rent,”

45: Schedule 1, page 24, line 20, leave out “A” and insert “Subject to sub-paragraphs (3) to (6), a”

46: Schedule 1, page 24, line 25, leave out “But if” and insert “If”

47: Schedule 1, page 24, line 27, leave out “this paragraph” and insert “sub-paragraph (3)”

48: Schedule 1, page 24, line 29, at end insert—

“(5) A payment of a holding deposit is not a permitted payment if—(a) the landlord or letting agent to whom the deposit was paid has previously received a holding deposit (“the earlier deposit”) in relation to the same housing, (b) the landlord or letting agent has not repaid all or part of the earlier deposit, and(c) none of paragraphs 5 to 11 of Schedule 2 have applied so as to permit the landlord or letting agent not to repay the earlier deposit or the part that has not been repaid. (6) The reference in sub-paragraph (5)(a) to a landlord or letting agent receiving a holding deposit does not include the landlord or letting agent doing so before the coming into force of Schedule 2 .”

Amendments 44 to 48 agreed.

Amendment 49 not moved.

Amendment 50

Moved by

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50: Schedule 1, page 24, line 31, leave out “A” and insert “Subject to sub-paragraphs (3) to (8), a”

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My Lords, I shall speak also to Amendments 51 and 53 to 57 in my name, and to Amendment 54, which is in my name and that of the noble Baroness, Lady Grender. These relate to payments made in the event of a default under Schedule 1 to the Bill.

As noble Lords will be aware, the Bill permits landlords and agents to charge default fees where a tenant fails to perform an obligation or discharge a liability arising under or in connection with the tenancy. This provision has been subject to much debate and discussion, and I have welcomed noble Lords’ valuable contributions on it—in particular, those from the noble Baroness, Lady Grender, and the noble Lord, Lord Kennedy.

I maintain that we should not seek to remove default fees provision from the Bill entirely and that landlords and agents should be able to recover certain costs sustained during the tenancy where the tenant is at fault. However, I have listened carefully to the representations that have been made and I appreciate the concern that landlords and agents might seek to use the default fees provision as a backdoor to charging tenant fees. This is certainly not something that we want to see happen and, although the Government have already taken considerable steps to minimise abuse, I agree that more can be done.

I believe that there are two main instances where tenants may be required to pay a default fee: if they lose their key or other security device giving access to the housing or if they fail to pay their rent on time. With that in mind, our amendments specify that these are the only circumstances under which a landlord or agent can charge a default fee. Amendment 54 will ensure that landlords and agents cannot write arbitrary default fees into tenancy agreements and makes very clear to tenants, landlords and agents where a default fee can be charged.

Landlords or agents will be able to require a default fee for the late payment of rent where the payment has been outstanding for 14 days or more. Amendment 56 sets out that landlords or agents will be able to charge interest at no more than an annual parentage rate of 3% above the Bank of England’s base rate for each day that the payment is outstanding. Any amount above this will not be permitted; it will be a prohibited payment.

With respect to the charging of a default fee to cover the costs associated with replacing a lost key or other security device, any such charge must not exceed the landlord’s or agent’s reasonable costs incurred and must be evidenced in writing to the person who is liable for the payment. The amount of any payment which exceeds the reasonable costs to the landlord or agent in respect of the default will be a prohibited payment. I believe that the risk of such a list being incomplete is mitigated by the provision in Clause 3 to bring forward amendments to the list of permitted payments through affirmative regulations, should this prove necessary.

I take this opportunity to speak to Amendment 52, tabled by the noble Lord, Lord Kennedy. This amendment seeks to provide that if one tenant loses their key or pays their rent late then other tenants in a joint tenancy cannot be held accountable. I am afraid that I cannot agree to such an amendment. Joint tenants are jointly and severally liable for the rent and for maintaining the property. That is the essence of a joint tenancy. If one joint tenant does not pay the rent, the landlord can seek repayment from all the other tenants. This is what tenants agree when they sign a joint tenancy and Amendment 52 would introduce a significant change as to how joint tenancies work in that regard. It would risk unfairly penalising landlords and unsettling the law in an established area.

With regard to a lost key, tenants will, again, be jointly responsible for the keys in the same way as they are all responsible for any damage to the property. Of course, tenants can make their own arrangements, and I am sure that the person who loses the key will generally be the one who makes any associated payment, but the tenants are all responsible to the landlord for the keys. It would be a significant change to alter this position and one that could be quite hard to enforce if there were disagreements between the tenants about who lost the key.

Finally, it has never been the intention that the Bill should affect a landlord’s or agent’s right to recover damages for breach of contract. Amendment 57 clarifies this position and ensures that such payments will not be outlawed under the ban. I am aware that there has been some concern about this provision and would like to provide reassurances now, as well as explaining why I cannot accept Amendment 58. Given that we are now listing default fees in the Bill, it is important that we include the provision permitting charging for damages. Otherwise it could be interpreted that we are prohibiting contractual damages. This would not be fair and would be a significant and substantial change to existing law.

Amendment 58 has no substantive effect. I believe that the intent of the noble Lord is to ensure that any damages payments are reasonable and evidenced in writing. It is not necessary to provide an amendment to this effect. In general, damages are meant to put the innocent party back in the position they would have been in had the contract not been breached—nothing further. No reasonableness test is therefore needed, nor appropriate. Similarly, to enforce a damages claim landlords or agents are required to go to court or to seek to recover them from the tenancy deposit. In both cases, they need to provide evidence to substantiate any claim. There is already a large amount of case law dealing with what is appropriate in a contractual damages case. I assure noble Lords that the inclusion of the damages provision is not a back door to default charges, as was suggested by the recent Citizens Advice briefing. Its analysis of this situation is inaccurate.

Regardless of whether an amount is specified, Clauses 1(6)(b) and 2(5)(b) prohibit an agent or landlord attempting to insert a clause requiring a payment—for example, saying that if you do X, you must make a payment—except in so far as this is permitted by paragraph 4 of Schedule 1, as amended. Both the examples of types of damages given in the Citizens Advice briefing do this and would therefore be banned under the Tenant Fees Bill. I appreciate the concerns raised by the noble Lord and seek to reassure him about this. I believe we had sought to agree that I could give reassurance on this at Third Reading, but I understand that we have not been able to come to any agreement about not voting. Perhaps the noble Lord will be able to give that reassurance shortly, or am I getting inaccurate information?

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Absolutely inaccurate.

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Right. Perhaps the noble Lord will be able to cover that.

As I have said, long-standing case law supports the courts not enforcing clauses that have no relation to the loss actually sustained, which in most cases would constitute an unfair contract term under applicable consumer law. The amendment proposed by Citizens Advice in its briefing would have no substantive effect. It is already the case in the Bill as drafted that the relevant person may recover the amount, or part, of damages where a claim for damages has been determined by the court or settled by agreement between the parties.

I believe the amendments in my name will help protect tenants from spurious charges by making it very clear when a default fee can be charged. I also remind noble Lords that we have made a number of significant amendments to respond to all the key concerns raised to date. I believe the amendments proposed in my name provide a fair compromise. I hope noble Lords agree with this, and I know it is in our interests to proceed with this vital legislation. I beg to move.

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I apologise to the House; I would have spoken earlier, but it did not seem that Amendment 42 was actually moved. Even now, I think it is appropriate to mention my concern about that. Why cut back to five instead of six weeks? I declare my interest, which is in the register. Many landlords find that, towards the end of a tenancy, the tenant pays nothing and they are well out of pocket—even if they have six weeks’ rent—if the property is damaged, which happens more frequently than one would hope. I cannot see that it is worth making the major differentiation between five and six weeks. I was perfectly happy with six weeks, and I thought it was fair that everyone should be in the same position.

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My Lords, I similarly would like to speak to Amendments 42, 43 and 44, on tenancy deposits. The objective for everyone is to have a fair balance that works. I note that, at Second Reading in the Commons, the Secretary of State referred to the then proposal of six weeks as,

“a balance of greater protection to tenants while giving landlords the flexibility to accept higher-risk tenants”.—[Official Report, Commons, 21/5/18; col. 642.]

I also note that Scotland has an eight-week as opposed to a six-week arrangement.

I urge the Government to think again on this issue. Reducing the security deposit to five weeks’ rent rather than six leaves scope for unfairness to landlords. There is always the risk that, at the end of a long tenancy, the tenant will leave the property in a poor state or will have had pets. Cutting the deposit to five weeks’ rent will quite likely leave the landlord out of pocket. In turn, that will make landlords more cautious about the tenants they take on, at a time when the need for more rented accommodation is acute. This is not a huge issue, but the Government’s previous proposition of six weeks was the sensible and fair balance. I do not understand why they have moved to five weeks, and nor does the industry—having not been consulted or advised about this, it feels somewhat mistreated by the Government.

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My Lords, if I might, I will intervene at this stage to speak to Amendment 43, which is what we are currently talking about. In the flurry of amendments not being moved, no debate took place, but the issue has now been raised by two noble Lords.

My name is attached to the amendment that refers to five weeks, and I think it is the right conclusion. I want to thank the Government for having agreed a change from six weeks to five. At Second Reading and in Committee, we went through every option: from the Scottish model of eight weeks to my probing amendment proposal of four weeks. As I recall, the Government at that stage said the figure would be between the four weeks we requested and the eight weeks that apply in Scotland.

There is a lot of money at stake here for tenants. Having heard from the perspective of landlords, I would like to speak on behalf of tenants. For a large number of poorer people, a change from five to six weeks could make finding that level of deposit a strain. Anything that can be done to minimise that strain is a good thing. The figure was described as being “up to” six weeks, but the fact that it is now five weeks will be of benefit to a large number of tenants. Because it covers the difficulty that, in some months, four weeks may not be a month and many people operate tenancy agreements on a monthly not weekly basis, it is legitimate for the Government to propose that we go to five weeks. I want to express our support for the Government’s decision.

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My Lords, I beg to differ slightly from the conclusions of the noble Lord, Lord Shipley, although I well understand that this involves a cash-flow issue for tenants. I pay tribute to the noble Baroness, Lady Gardner, for bringing us back to this set of amendments. The Minister himself defended the Government’s long-standing line that a six-week deposit was fair. However, as the noble Lord, Lord Flight, said, we seem to have moved away from that without apparent pause for breath.

I declare a non-interest here, as I do not charge deposits for tenants and have not done for a number of years due to special personal circumstances. The industry standard has been six weeks for a considerable time. In my part of Sussex, six weeks’ rent represents a figure between £1,200 and £1,800 in general terms. That does not go a long way if, in addition to non-payment of rent—bear in mind that defaults tend to have many heads—the tenant also leaves the property in a damaged condition, including damage to carpeting, kitchen units and electrical wiring.

Given that situation, can the Minister explain why it is now five weeks? If you strip out non-payment of the last month’s rent, under this proposal you are left with a single week’s rent to cover any other form of loss. Does that represent a fair balance? I am not sure that it does.

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Perhaps I may ask for clarification: are we now talking about five weeks, or about default?

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My Lords, it might be helpful to the House if I deal with the rental issue first. If anyone wants to speak on that, I suggest they do so now. I apologise that we glossed over it earlier.

If there are no other points on the rental, I shall deal with the issues raised by my noble friends Lady Gardner of Parkes and Lord Flight, the noble Lord, Lord Shipley, and the noble Earl, Lord Lytton.

On the point that we have moved significantly from six weeks to five weeks, yes, it is a movement, but it is scarcely, as the noble Lord suggests, a fundamental shift. It is not as if we are moving from 10 weeks to one week. Perhaps I may provide some reassurance. All the evidence is that most people currently take deposits of between four or five weeks. It is not therefore massively inconsistent with current practice.

At the top end of the market we are retaining the six-week limit for the most expensive properties where the fittings and fixtures may be more costly. It will remain at six weeks where the annual rental is more than £50,000. I hope that provides some reassurance to those noble Lords who have raised the concern.

These are not issues of principle so much as matters of judgment. It is the judgment of Solomon and there will always be some people who disagree with where we are. However, as I say, we have looked at current practice, listened to what outside organisations have said and on that basis we have fixed it at five weeks for most people, but at the top end of the market we have retained the six weeks. On that basis, I beg to move.

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My Lords, we have jumped around these groups of amendments today. There appears to be an issue with the printing of the Whip’s sheet.

I wish to address my remarks largely to Amendments 50 to 58. Generally, I am happy with what I have heard from the Government today on most amendments, particularly those in this group. The exception is Amendment 57, to which I will address most of my remarks.

Members of this House discuss amendments to Bills all the time, but most are never voted on: they are probing and have been tabled to get answers from the Government. We go backwards and forwards as we seek to improve the legislation. My Amendment 58 is very much in that vein. The Government have put down Amendment 57, which I fully accept deals with damages and makes it clear that if there are any issues, the terms can be clarified in the future. Somehow, damages are being turned into prohibited payments, and I do not want to do that either, so I am with the Government on this issue.

However, on looking at Amendment 57, we were concerned about the heading, “Payment of damages”. We went to the Public Bill Office and talked to colleagues. We are concerned that, as written, it could be deduced—obviously, it is open to argument—that the reasonableness and fairness of such a payment cannot be questioned. It is not so much about going to court, but what happens when people are drawing up agreements and so on. We should remember that we are dealing with tenants and landlords, and the relationship between the two is not always one of equals.

For that reason, I have proposed, as an amendment to Amendment 57, my Amendment 58, which would simply remove the three words of the heading: “Payment of damages”. The provision would be retained but the heading would go. Removing the heading would, in effect, add the provision to the previous group, where a protection is provided: actions have to be reasonable, and reference is made to “evidence”. That is all my amendment is intended to do. I do not know if this is the right way to do it, but it has certainly enabled us to have this discussion today.

I tried to get an assurance from the Government that they would come back at Third Reading and discuss this issue further. It may be that people cleverer than me can come back with a better amendment. All I am trying to do is ensure that tenants are treated fairly and properly. I was happy to come back to this issue at Third Reading, and gave an assurance that we would not vote on it. I have the text message to prove it on my phone; I do not know what else I can say. To then be told that I did not give such an assurance—that is just not the case. I am really upset about this.

All I want to do is get this right. I do not want the Bill to become law and in a year’s time, we find the Government saying, “Oh, we made a mistake. We will change it when parliamentary time allows. We should have this on the rogue landlords’ database. We did not listen to you last time, Lord Kennedy, but of course you are right. When parliamentary time allows, of course we will put it right”. My intention is to get this right today. I have given that commitment and I have the text message, so I cannot see what the problem is in coming back at Third Reading in a few weeks’ time and getting it right. We are not going to vote on it, but I think the position should be clarified.

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My Lords, I will come on to damages in a moment, but first perhaps I may take us back to the celebratory moment on this group of amendments: the fact that there has been a significant change on default. This has been welcomed loudly and clearly by those who lobby most for tenants. This is an extremely significant change which this House has introduced through a government amendment to which I have added my name. It specifies what a default fee is: it is now going to be for a key or a security device or for late payment on interest for rent.

I know that we are trying to sort out the damages issue, but I want to thank the Minister and in particular his Bill team. I am sure that they will read this tomorrow in the Official Report. I also thank Rhea Newman and Poppy Terry at Shelter, Hannah Slater and Dan Wilson Craw at Generation Rent and Caroline Aliwell at Citizens Advice. We have all been working extremely hard behind the scenes with many meetings, for which I thank the Minister and the Bill team, to get to a very good place with regard to default. Our original intention was to get it out of the Bill altogether, but the fact that the wording has been greatly tightened and is now so specific is a very big leap forward. It goes back to the original intention that many of us had when we wanted to propose this Bill in the first place.

Before we go back to the controversial issue of whether a loophole has now been introduced as regards damages, I would like to take a moment to remind us of what has now gone and was going to be charged by landlords, some of whose tenants are on an extremely low income or even no income. One of my favourites is £45 for the procurement of a dustpan and brush. Another is £500 for a reference and credit check, £200 to remove a new set of saucepans that had been left for the next tenant—a lovely example—and £100 for cobweb removal. Those are some examples of things that will no longer be a threat as a result of a loophole, thanks to the extremely welcome change of default.

As noble Lords who were not in Committee may have gathered, we must now move on to whether there is now an unintended consequence as a result of introducing the issue of damage. We have received conflicting information, including conflicting legal advice, on this. As the Minister will be aware, I asked on several occasions in meetings whether there was confusion between damage and default. My own view is that default is now so clarified that the issue is less of a threat than it was originally.

However, Citizens Advice lawyers are saying that this has created a loophole. As the Minister explained, damages are a standard common-law remedy for breach of contract. They can be determined by a court arbitrator as adequate compensation for a loss once a breach has occurred, unless parties have agreed the meaning in advance via a tenancy agreement. We must ask ourselves whether a landlord or agent could exploit the dual meaning of damages and get around the Act by putting in a clause, for example asking for damages of £25 for every letter or phone call informing a tenant that they are in arrears and saying that this is a permitted payment because it is liquidated damages. We think that this argument is unlikely to work because paragraph 4 of Schedule 1 allows default payments only where there is now a relevant default. As we know, the wording has been tightened a great deal; it is now limited to replacement keys, a security device and interest on rent.

By the way, I am utterly convinced that there is no intention here to create a damages loophole that further exploits tenants. The Bill team and the Minister have been working to ensure that the wording is tightened and that there is no loophole. With that in mind, we need an assurance from the Minister by Third Reading about how we will get from here to there, in order to ensure that there is no suggestion that damages can become the new loophole now that default has been tightened up. Our request is simple and straightforward: to have this clarified by Third Reading.

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My Lords, it may be convenient for me to say that I regret any misunderstanding. I too thought that we had an agreement on this matter. Perhaps I may say two things. First, I propose to accept the amendment in the name of the noble Lord, Lord Kennedy. Secondly, I will be very happy to engage in discussions on this issue ahead of Third Reading. As the noble Baroness, Lady Grender, suggested, I am convinced that there is no reason for the noble Lord to be concerned—but I know that he is and so I will be happy to engage in discussion ahead of Third Reading. I hope that that is helpful.

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I am absolutely delighted. I thank noble Lords for that. There was obviously some confusion, but I am sure that we can get this sorted out by Third Reading. I thank the Minister very much.

Amendment 50 agreed.

Amendment 51

Moved by

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51: Schedule 1, page 24, line 31, after second “a” insert “relevant”

Amendment 51 agreed.

Amendment 52 not moved.

Amendments 53 to 56

Moved by

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53: Schedule 1, page 24, line 33, after “paragraph” insert ““relevant”

54: Schedule 1, page 24, line 33, leave out from “means” to end of line 36 and insert “—

(a) the loss of a key to, or other security device giving access to, the housing to which the tenancy relates, or(b) a failure to make a payment of rent in full before the end of the period of 14 days beginning with the date (“the due date”) on which the payment is required to be made in accordance with the tenancy agreement.”

55: Schedule 1, page 24, line 37, leave out “But if” and insert “If, in the case of a payment required to be made to a landlord or letting agent in respect of a relevant default within sub-paragraph (2)(a),”

56: Schedule 1, page 25, line 1, at end insert—

“(4) If, in the case of a payment required to be made to a landlord or a letting agent in respect of a relevant default within sub-paragraph (2)(b), the amount of the payment exceeds the amount determined in accordance with sub-paragraph (5), the amount of the excess is a prohibited payment.(5) The amount referred to in sub-paragraph (4) is the aggregate of the amounts found by applying, in relation to each day after the due date for which the rent remains unpaid, an annual percentage rate of 3% above the Bank of England base rate to the amount of rent that remains unpaid at the end of that day.(6) In sub-paragraph (5) “Bank of England base rate” means—(a) the percentage rate announced from time to time by the Monetary Policy Committee of the Bank of England as the official dealing rate, being the rate at which the Bank is willing to enter into transactions for providing short term liquidity in the money markets, or(b) where an order under section 19 of the Bank of England Act 1998 is in force, any equivalent percentage rate determined by the Treasury under that section.(7) If—(a) a landlord requires a relevant person to make a payment to the landlord in respect of a relevant default within sub-paragraph (2)(b), and(b) a letting agent subsequently requires a payment to be made to the letting agent in respect of the same default,the payment referred to in paragraph (b) is a prohibited payment.(8) If—(a) a letting agent requires a relevant person to make a payment to the letting agent in respect of a relevant default within sub-paragraph (2)(b), and(b) a landlord subsequently requires a payment to be made to the landlord in respect of the same default,the payment referred to in paragraph (b) is a prohibited payment.”

Amendments 53 to 56 agreed.

Amendment 58 (to Amendment 57)

Moved by

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58: Schedule 1, in the heading, leave out “Payment of damages”

Amendment 58 (to Amendment 57) agreed.

Amendment 57

Moved by

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57: Schedule 1, page 25, line 1, at end insert—

“Payment of damages

_ A payment of damages for breach of a tenancy agreement or an agreement between a letting agent and a relevant person is a permitted payment.”

Amendment 57, as amended, agreed.

Amendment 59

Moved by

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59: Schedule 1, page 25, line 13, at end insert—

“( ) If, in relation to a change of tenant in a shared tenancy, the current tenant or tenants find a suitable replacement tenant, then a payment under this paragraph in excess of £50 is a prohibited payment.”

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My Lords, there is an expression about having your cake and eating it, and this is my attempt to get a little extra icing on the top. It is a modest amendment which would ensure a £50 cap when there is a change of tenancy and the sharers recruit the new tenant. I wrote to the Minister yesterday to explain my rationale for this. In Committee, we attempted to change a bit more with regard to this cap, which is a floor rather than a ceiling at the moment; we would like it to be a ceiling rather than a floor. But I have now pared it down to have one single purpose.

In a home of multiple occupation—HMO—where people are sharing, when one of the tenants drops out and a new person comes in, they will be charged a sum. Let me give you an example from Generation Rent:

“Each tenant swap included a massive fee for a new tenant of £250”.

To us that may sound modest, but when young people are sharing and counting the pennies, it is a heck of a lot. The case study continues,

“hence making it difficult for us to find people to move in. We had to do everything, advertise and do 9 interviews”.

Students were not accepted,

“as they did not fulfil agent’s criteria to move in unless they have a UK based guarantor”.

The fee of £250,

“did not even include a reference check of £90”,

or £180 with a guarantor. The case study concludes the fees were,

“£430 in total for a new sharer”.

The sharers do the vast majority of the work—people do not want to share with someone they know nothing about, without checking them out, and checking they can pay the rent—and then have to pay for the pleasure of it. This is a tiny, modest amendment, but it recognises that when people share a place and they do the donkey work, there should be a £50 cap on the charge for the change in sharer.

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My Lords, the noble Baroness, Lady Grender, may be pleasantly surprised by the fact that I agree with the vast majority of what she says. She does not need to express too much surprise. However, she will need to define the term “suitable” further. To give her a clue, in commercial landlord and tenant agreements, there is very often an assignment, or something similar, and there is usually a formula of words about an incoming tenant or the assignee being of no lesser standing legally than the outgoing tenant. There will need to be some formula of words there.

The noble Baroness is absolutely right about this issue. I support her on the principle of this because I have children who have rented accommodation in London and I know exactly what goes on, so I can relate to it. But we need a formula that can be defined in law and determined in some way. It should be determined pretty promptly; it is no good if this goes into some sort of arbitration situation for weeks on end. These things need to be sorted out quickly in the interests of everybody.

That is the only reservation I have: the term “suitable” needs better clarification and definition. The question of suitability to whom and in whose eyes needs to be capable of some sort of resolution.

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My Lords, the co-pilot is in charge of this last amendment, which relates to the charges that can be imposed for variation, assignment or novation of a tenancy. I am grateful to the noble Baroness, Lady Grender, for focusing the amendment, which we discussed in Committee, on capping fees on a narrower range of circumstances than originally proposed, namely where the outgoing tenant finds a replacement. I agree that this should reduce the costs for the landlord and therefore the amount he can charge, because, as the noble Baroness said, the tenant would have done all the donkey work.

However, we have previously agreed that it is not fair to ask landlords and agents to pay fees arising from the action or request of a tenant that varies the original contract they both signed. The Bill provides that a landlord or agent can charge a tenant for a change of sharer, but such fees are capped at £50 or reasonably incurred costs if higher. We do not want to impose a hard cap on the amount.

Landlords and agents should feel able to agree reasonable requests to vary a tenancy. While we do not expect this charge to exceed £50, it is only fair that where it does so landlords and agents can recover their reasonably incurred costs. Further, we do not want to create a situation—I am sure the noble Baroness does not either—where landlords are reluctant to agree to a change of sharer because they think that they will not be able to recover their reasonable costs. This would not help the tenants, who would be required to break their contract if they wanted to leave.

I understand and support the principle of the noble Baroness’s amendment, but I do not think it is necessary. Landlords and agents will need to be able to demonstrate when challenged that their costs are reasonable—for example, if they have incurred a loss in rent from agreeing to a change of sharer. If, therefore, a tenant found a suitable replacement who took over the tenancy and the landlord or agent suffered no loss it would not be reasonable to charge for this and any amount charged in those circumstances would be prohibited by the Bill. A landlord or agent could not double-charge rent.

However, to focus specifically on the noble Baroness’s amendment, there could be circumstances where, even though the tenant found a suitable replacement—I take the point from the noble Earl, Lord Lytton, that it is suitable for the tenant but not necessarily for the landlord—the costs incurred by the landlord or agent could exceed £50. This could occur, for example, if more significant referencing were needed with the replacement tenant or there were disagreements respecting the return of the tenancy deposit that required additional time and renegotiation. Although we envisage such a scenario to be rare, it would not be fair to penalise the agent or landlord in those circumstances. We also would not want the landlord to refuse the replacement tenant found on the basis that referencing and other pre-tenancy checks were likely to be more complicated.

The landlord or agent is not permitted to charge more than is reasonable, so would have to be able to evidence any such additional costs. Our guidance makes the position under the Bill and existing law clear to tenants, landlords and agents. With these assurances, although I understand the disappointment clearly etched on her face, I hope the noble Baroness feels able to withdraw her amendment against the assurances I have given.

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I thank the Minister for his reassurances. I will stick there, since I have the noble Earl, Lord Lytton, backing something I have suggested. With all the amendments we now have in the Bill, which are extremely welcome, we need it to go through as quickly as possible. With that in mind, I beg leave to withdraw the amendment.

Amendment 59 withdrawn.

Amendment 60

Moved by

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60: Schedule 1, page 26, line 14, leave out “paragraph” and insert “Act”

Amendment 60 agreed.

Schedule 2: Treatment of holding deposit

Amendments 61 to 70

Moved by

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61: Schedule 2, page 27, line 7, leave out “before the deadline for agreement” and insert “relating to the housing”

62: Schedule 2, page 27, line 10, after “agreement” insert “relating to the housing”

63: Schedule 2, page 27, line 11, at end insert “relating to the housing”

64: Schedule 2, page 27, line 13, leave out “The” and insert “If paragraph 3 applies, the”

65: Schedule 2, page 27, line 17, at end insert—

“_(1) The person who received the holding deposit must repay it if—(a) that person believes that any of paragraphs 7 to 11 applies in relation to the deposit, but(b) that person does not give the person who paid the deposit a notice in writing within the relevant period explaining why the person who received it intends not to repay it.(2) In sub-paragraph (1),“the relevant period” means—(a) where the landlord decides not to enter into a tenancy agreement before the deadline for agreement, the period of 7 days beginning with the date on which the landlord decides not to do so;(b) where the landlord and tenant fail to enter into a tenancy agreement before the deadline for agreement, the period of 7 days beginning with the deadline for agreement.”

66: Schedule 2, page 27, line 44, leave out “incorrect” and insert “false”

67: Schedule 2, page 28, line 1, at beginning insert “Subject to paragraph 12,”

68: Schedule 2, page 28, line 4, at beginning insert “Subject to paragraph 12,”

69: Schedule 2, page 28, line 12, at beginning insert “Subject to paragraph 12,”

70: Schedule 2, page 28, line 19, at end insert—

“12_ Paragraph 9, 10 or 11 does not apply (so that paragraph 3(c) does apply) if, before the deadline for agreement—(a) the landlord or a letting agent instructed by the landlord in relation to the proposed tenancy breaches section 1 or 2 by imposing a requirement under that section on the tenant or a person who is a relevant person in relation to the tenant, or(b) the landlord or a letting agent instructed by the landlord in relation to the proposed tenancy behaves towards the tenant, or a person who is a relevant person in relation to the tenant, in such a way that it would be unreasonable to expect the tenant to enter into a tenancy agreement with the landlord.”

Amendments 61 to 70 agreed.

In the Title

Amendment 71

Moved by

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71: In the Title, line 6, leave out from “agents” to end of line 6 and insert “; to make provision”

Amendment 71 agreed.