I beg to move, That the Bill be now read a Second time.
This Bill takes forward essential measures to promote fairness in the private lettings market by banning unfair fees charged to tenants, as promised in the Government’s manifesto. It is a Bill that we should all welcome. The Bill will make the market more transparent, yes, but it also has the potential to save tenants—especially young people and families—hundreds of pounds. It caps tenancy deposits, further protecting tenants from high up-front costs when renting a home. It also introduces a lead enforcement authority for the lettings sector to support local authorities in their enforcement activities.
These measures have been informed by consultation with the sector and by the scrutiny of the Housing, Communities and Local Government Committee. I am grateful to the members of the Committee for the constructive and positive way in which they have contributed to the Bill. We have accepted the majority of the recommendations, which have helped to improve the final Bill.
The Secretary of State is talking about the benefits of the Bill, and it certainly has some, but it would have an awful lot more if he had listened to the complaints about the setting of the deposit at six weeks rather than four. Can he explain why he has gone for a figure that means that only about 8% of renters will benefit and that many others will see their rents go up as a result?
The hon. Lady has intervened early, and that is a point that I will come on to. I would say that that is a maximum level, but I will deal with the specific issue in my remarks.
I am pleased that the Tenant Fees Bill was introduced to Parliament soon after my appointment. It is the latest step in our work to create a housing market that is fit for the future. I have been greatly encouraged by the broad support for banning unfair fees—something that has come through very clearly in our consultation. We have listened and we are taking action. This Government are making sure that everyone, whether they rent or own their home, has a safe, secure and affordable place to call their own.
I am confident that the Government’s ambitious house-building programme will transform the sector in the years to come, but it is also important that we help people now. The Tenant Fees Bill will enable us do this. It will ensure that tenants will no longer be stung by hidden costs. In the first year alone, we believe this could collectively save tenants as much as £240 million a year.
I congratulate the Secretary of State on his appointment. Will he explain why the impact assessment did not assess the pass-through effects on tenants? With the reduction in fees and so on, how can we guarantee that the costs will not be passed through into rents for tenants?
If the hon. Lady looks at the impact assessment, she will see that it has been calculated as a straight transfer through. I know that there will be a lot to discuss in Committee. It covers that pass through—the costs do not represent increased expenditure by letting agents and landlords, but the value of time spent reading guidance and reconsidering business models is also reflected in the net present value in the impact assessment. The hon. Lady will no doubt want to scrutinise this in further detail as the Bill proceeds through Committee.
The costs include unfair letting fees, with tenants facing bills for hundreds of pounds for simple things, such as reference checks, which on the market are often free, or £30 at most. Our consultation has found that tenants have to pay an average of £137 for a reference check. Then they are hit by fees for drawing up a tenancy agreement, for inventory checks and even for just picking up keys for their property. This, I should underline, is all alongside their deposit and the first month’s rent up front. That is just at the start. There are fees on renewal, and fees when they leave the property. Often people are not just paying the fees once; they are put through the same process every single time they have to move home. These are often young people who would rather put that money towards a home of their own, but they have no control over that. Tenants have no power to negotiate, as agents are appointed by landlords. Some use tenant fees to compensate for artificially low rates for landlords. This is simply not fair and we must now move to protect consumers.
The Bill is greatly welcome, but will the Secretary of State do more to bolster the consumer rights of tenants so that they are able to challenge both the landlord and, in some cases, the estate agent, and to make sure that their rights are secured in law?
I am grateful to the hon. Gentleman for highlighting that point. He will know that clauses 18 to 20 contain amendments to the Consumer Rights Act 2015, so changes have been put in place in a number of different ways.
The Bill protects tenants from paying unreasonably high deposits. Coming on to the point made by Caroline Lucas, we are capping deposits at six weeks’ rent. I stress that this is an upper limit and not a recommendation. We expect landlords to find an appropriate level on a case-by-case basis and we will provide guidance to that effect. In Scotland, tenancy deposits are capped at eight weeks’ rent. A cap of six weeks’ rent, in our judgment, offers a balance of greater protection to tenants while giving landlords the flexibility to accept higher-risk tenants. It will also give landlords adequate financial security, and we believe that is necessary to maintain investment and supply in the sector.
The Secretary of State is capping deposits at six weeks’ rent. Does he not agree with me and many of the voluntary organisations that have provided evidence and information that it would be right to consider reducing the cap to four weeks?
The issue was considered by the Select Committee, and we have considered it carefully. We believe that six weeks’ rent as an upper limit strikes the right balance between providing tenants with greater affordability while ensuring that landlords have adequate financial security for their assets.
I welcome the Bill. It is crucial that we have a vibrant tenant sector and that we aid it in every way possible, but the Bill must not deter landlords or agents who are acting well, assiduously and industriously. We must ensure that the Bill increases transparency and the competitiveness of the market, while still having a viable and vibrant market.
My hon. Friend makes an important point. Let me be clear: the Bill is not an attack on good agents and landlords. We value the important services that they provide, but it will ensure a fair playing field for reputable agents by making it harder for rogues to operate. Letting agents and landlords who represent good value for money will continue to thrive, while those who rely on charging unfair and unjustifiable fees will have to reconsider their business models. We have also committed to regulation to prevent reputable agents from being undercut or undermined by rogues.
My hon. Friend makes her point very sincerely. The interesting point about some of the experience in Scotland is that the number of letting agents in Scotland, according to Companies House, has increased since 2012, when the ban on tenant fees was clarified there. That demonstrates that innovative and good agents can continue to thrive.
I welcome some of the measures that the Secretary of State is taking. Nobody wants to attack good landlords. We still have bad landlords and that is who the Bill is directed at. There is a problem with commitments that landlords make, then break. I have had cases where they have refused to carry out repairs or said, “Take me to court” and that sort of thing. The Secretary of State and I know that ordinary individuals, mainly young people in rented accommodation, cannot always afford to do that. How does the Bill deal with those sorts of issues?
The Bill seeks to address the application of unfair fees by, in essence, banning all of them unless they are then reapplied back by the terms of the Bill itself. This is an important step to provide reassurance and to deal with the rogue practices that the hon. Gentleman highlights. In that context it is important to stress some of the other steps that have already been taken in relation to rogue landlords and the abuses in the sector that need to be tackled. This is a further measure to address them.
Turning to the key provisions of the Bill, which apply to assured shorthold tenancies, tenancies of student accommodation, and licences to occupy, these will ban landlords and their agents from requiring tenants and licensees of privately rented housing in England, and persons acting on their behalf or guaranteeing their rent, to make any payments in connection with a tenancy, with some key exceptions: the rent; a refundable tenancy deposit capped at six weeks’ rent; a refundable holding deposit to reserve a property, capped at one week’s rent; a capped payment for changing a tenancy agreement when requested by the tenant; payments associated with early termination of the tenancy, when requested by the tenant; payments in respect of utilities and council tax; and payments in the event of a default by the tenant, such as replacing a lost key or late rent payment fine, capped at the level of the landlord’s loss.
In the Bill, the term “in connection” with a tenancy refers to any payments required by the landlord or agent throughout a tenancy. This is an important point, as we want to ensure that landlords and agents do not just transfer their fees to another stage of the tenancy, such as exit. The proposed legislation will also prevent tenants from being required to contract the services of a third party.
There are a lot of references in the Bill to upper limits and caps. Does the Secretary of State recognise that the temptation, and I suspect the practice, will be that agents and landlords will put deposits at the top end of the cap? They will not put them further down—they will be right at the top end.
We intend to provide guidance on those issues. I do not accept that that would automatically be the situation. It is why we have taken the steps that we have in considering what the right action should be in setting a number of these issues. It is important to recognise that the Bill proposes a number of enforcement measures that offer a strong deterrent to irresponsible agents and landlords, and in doing so protects tenants.
Does the Secretary of State agree that this is very much a geographical issue? In London and the south-east, tenants have really suffered at the hands of lettings agents and their fees. Tenants can pay anything from £175 to £900 just in fees alone. My local citizens advice bureau in Lewes found that on average tenants are paying, for eight weeks’ deposit, nearly £4,000 in advance. This is a real problem for London and the south-east.
My hon. Friend highlights the issues that go to the heart of the Bill—that is why I hope that it will command broad support across the House.
The Bill places a duty on trading standards authorities to enforce the measures it contains. It also makes provision to enable tenants and other relevant people to recover unlawfully charged fees. It prevents landlords from recovering their property, via the section 21 of the Housing Act 1988 procedure, until they have repaid any unlawfully charged fees. A breach of the fees ban will usually be a civil offence, with a financial penalty of £5,000. However, if a further breach is committed within five years this will amount to a criminal offence. In such a case, local authorities will have discretion about whether to prosecute or impose a financial penalty. Guidance on that will be issued. They may impose a financial penalty of up to £30,000 as an alternative to prosecution. Local authorities will be able to retain funds raised through financial penalties, with the money reserved for future local housing enforcement.
Finally, the Bill makes provision for a lead enforcement authority to provide oversight, guidance and support, with the enforcement of requirements on letting agents. This includes the ban on letting fees and related provisions.
I understand. In many ways, that lies at the heart of the Bill—the way in which, effectively, there can be charges in two different directions. That underlines why these measures are important and why, to take my hon. Friend’s point, they are intended to promote fairness.
The Government will always stand on the side of people who are being ripped off and exploited and support them. We are taking this action to address inequalities in the lettings market and to create a market that is fair for consumers. By banning fees for tenants and capping deposits, we are delivering on our commitment to make renting fairer and more affordable. The Bill will make a real and meaningful difference to millions of tenants right across the country, especially for young people and families, and I commend it to the House.
I congratulate the Secretary of State on his appointment and welcome my hon. Friend Sarah Jones to our housing team. This tenant fees legislation is very welcome. We know that the majority of landlords are good landlords, or strive to be, and understand the expectations upon them before they embark on becoming a landlord. However, a number of rogue landlords and letting agents give the sector a bad name, undermine the good work of quality agents and landlords, and they have squeezed tenants for cash in unfair ways, with disproportionate charges for unjustifiable reasons. It is right that the Government are acting to change this unfair system and Labour welcomes that, but it would be remiss of me to fail to remind the House that we first suggested a move to ban letting fees back in 2013. After five years, it is good that the Government are finally acting on this issue. If we get the Bill right, it will have a positive impact on people’s lives on a day-to-day basis.
The overriding purpose of the legislation is to help to shift the balance of power from unscrupulous agents and landlords towards decent tenants—to make renting fairer, more affordable and more transparent and to give tenants greater clarity and control over what they pay. We will all have heard horror stories of agents or landlords charging people excessive fees to secure properties, or throughout tenancies, imposing additional charges with excessively high administration fees. With fewer social properties available, this places great difficulties on those with low incomes, or those who are renting alone or simply cannot thousands of pounds in up-front fees. In an increasingly competitive market, that has led to the UK’s nearly 5 million private renters sometimes feeling that they are an easy target from which to extract unnecessarily large sums of money. That is on top of the £50 billion a year paid in private rents.
As the number of private renters is predicted to rise to 5.6 million people by 2021, we should be aiming for a gold standard of contract of understanding between renters and landlords, or their agents. As it stands, there is an inherent tension between landlords who view their property as an asset or investment and a tenant who sees it as their home. We have to take steps to bring those two positions closer together.
Increasingly there are larger, more professional companies recognising the importance of peoples’ home life and striving to provide properties in high-demand areas. They do not use agents, seek to develop a sense of community and aim to retain tenants for as long as possible and keep rents affordable in line with local incomes—in places such as Argo Apartments—and stand in stark contrast to the enormous billboard I saw from Wentworth Estates, boasting that it could guarantee rents for between one and five years for landlords, would provide three months’ rent in advance and could offer “free evictions”.
Does the hon. Lady agree that another way the Government could follow both Labour and Green party policy would be to tackle extortionate rents? The elephant in the room is the need for some kind of rent controls, including rent caps, because although what is in the Bill is a welcome step forward, until we tackle the size of rent increases, we will not be able to provide the homes for the people who need them.
Labour absolutely recognises the—[Interruption.] Before the Under-Secretary of State for Housing, Communities and Local Government, Jake Berry leaps on me—before I am able to make myself clear—Labour absolutely recognises the issue of the amount that people are paying in rent and recognises that there could be restrictions on the percentage of increases in rent, not a rent cap.
The pressure in the housing market is rapidly producing new forms of exploitation. For example, an alternative letting agency-cum-landlord service called Lifestyle Club London markets itself as a membership club. Tenants or members pay an annual fee instead of rent. Club staff are entitled to inspect rooms unannounced at any time and fines can be given for anything even as minor as dirty dishes. This is a fast-moving area. We can see that there are wildly differing practices in the world of private rental and that tenants have had difficulty in getting the treatment that they deserve, which is why groups such as Generation Rent and Marks Out of Tenancy have emerged to give a collective voice to private renters on matters of not only policy but practice.
Although the Bill is satisfactory in many respects, it still provides the opportunity for the continuation of an exploitative approach. For example, clauses 1 and 2 detail the prohibitions on landlords and agents applying fees in many circumstances. The cap of £50 for any of those charges is very welcome, but the explanatory notes go on to say
“or reasonable costs incurred if higher”.
That is a clear opportunity for a coach and horses to be driven through this otherwise very good Bill. We know that some letting agencies and landlords will push these grey areas, and without directly spelling out what charges are permissible and what “reasonable costs” are, there is undeniably room for incorrect interpretation.
The Government have so far given an indication that they will provide guidance on these and other issues, but how can that be enforced? If I speak to Shelter about how a renter can take a case against a banned fee being levied against them, the question then becomes a test of reasonableness. Whether or not such charges are reasonable, I know that it will say that if the Government want to genuinely give tenants additional powers, regulation is required to ensure that they are enforceable and meaningful.
The same goes for default fees, which are to be capped at the level of the landlord’s loss. At first glance, this seems eminently reasonable. A landlord should not be required to pay for a banking or other fine due to a tenant making a payment late or the replacement of a lost key or entry fob. However, the Minister must be aware of the scope for this to become a nice little earner for agents or landlords who would seek to unfairly penalise their tenants for minor errors.
I agree with my hon. Friend that there should be some form of adjudication or regulator, whichever way we want to put that argument. The weakness in the Bill, which is a good Bill by the way, is on enforcement, because as most people know, trading standards departments up and down the country in local authorities are totally underfunded.
My hon. Friend makes a very important point and I will come on to trading standards shortly.
There is no definition of what a landlord can include as a loss. If this includes the use of agents and agents opt to charge for their time—to replace a key or make some phone calls—charges may amount to far more than Government ever intended them to. This is one of the issues that we have seen with the scandal around excessive charges to private leaseholders: without a specified cap, there is scope for the unscrupulous to run riot.
The Bill is obviously necessary because of the bad behaviour of some landlords and letting agents. Without the measures that my hon. Friend set out, bad behaviour by rogue landlords and letting agents will not be prevented. They will carry on doing it because there is no sanction and no enforcement to stop them.
My hon. Friend makes a really important point. There is absolutely no point in this House taking through legislation, as good as it is, if it cannot be enforced because it holds no weight in law.
The inclusion of a one-week refundable holding deposit, on top of a month’s rent and six weeks’ tenant’s deposit, is allegedly designed to minimise instances of tenants securing multiples of properties at the same time before finally settling on their preferred property. There has been very little, if any, evidence that this is a regular practice. Additionally, the Government say that there are a number of exceptions to that deposit having to be refunded, including when the tenant provides false or misleading information. Again, although on the face of it, that is a sensible measure, there are no additional protections for tenants if the incorrect information is not their fault. For example, a reference that does not exactly match a tenant’s claims should not immediately mean that they lose that holding deposit. There is scope to develop a mechanism to test inaccuracy and establish the reasons behind it before immediately assuming information has been deliberately misleading.
I draw the House’s attention to my entry in the Register of Members’ Financial Interests. Despite the fact that I have been involved in this sector for most of my life, and am still involved, I am very supportive of the Bill and the drive to ban tenant fees. That said, on the hon. Lady’s point about holding deposits and the reference fees that tenants pay to the agent or landlord, does she not think it a reasonable concern that if we do not allow a letting agent or landlord to hold back a reasonable amount for referencing, they might be more likely to pick a better-off tenant than some of the lower-income tenants she is seeking, quite rightly, to protect? There are concerns about the commercial behaviour that could result if what she describes was to happen.
The point is that poorer tenants struggle the most. That is why we are trying to make the Bill as good as it can be. It comes back to reasonableness and whether there is sufficient rigour in the proposals to ensure that people are properly protected, and that goes for landlords as well.
The Government must bring back evidence during the remaining stages to convince us that this is a legitimate charge to make, rather than a simple amelioration of losses to agents and landlords. It is notable that the Government have opted to cap deposits at six weeks. The Minister should know that in practice this means all deposits will be six weeks, despite most rents being payable on a monthly basis. Shelter estimates that a six-week cap still means that London renters have to find on average a £1,800 deposit and that outside of London the figure is £1,100. Add to that one month’s rent and a week’s holding deposit, and people are looking at needing £3,750 just to secure a property in London and £2,290 elsewhere. That is a huge amount to save.
Wages are not keeping pace with rents and many people struggle to afford a decent place to live. Most low-paid workers are women. Will they be more disadvantaged by these measures than men, and what about those with disabilities, from black and minority ethnic communities or the lesbian, gay, bisexual and transgender community? The Government have not undertaken a formal equalities assessment of the Bill. Will the Minister explain why and commit to ensuring that an assessment of the proposals is undertaken before the Committee stage? There has been an informal but not a formal process on this matter.
As I said earlier, none of the measures in the Bill will matter without their ability to be enforced. There is direction in the Bill for responsibility to lie with local authorities and their trading standards teams. The Minister will be aware that trading standards teams are currently responsible for checking on age-restricted products, agriculture, animal health and welfare, fair trading, food and hygiene standards, counterfeiting, product safety and weights and measures, and they do this despite having endured a drop in funding from £213 million in 2010 to £124 million in 2016 and a halving of their staffing capability—more in some areas.
The Chartered Trading Standards Institute has previously expressed its concern that the public are being let down in respect of its current areas of responsibility, let alone additional responsibilities—particularly ones that will not pay for themselves through the imposition of fines, which are limited to a maximum of £30,000, whose rules are not enforceable because the drafting provides too much scope for interpretation and for which the Government only plan to provide guidance rather than issue regulation to support tenants and those seeking to enforce the measures in the Bill.
Those in the private rental sector are in desperate need of clear and positive action from the Government to protect their rights. I hope we will see a strengthening of resolve from the Government as the Bill goes forward. They must not miss the opportunity to make a good Bill a great Bill, and I urge them to take this chance to make real changes that could improve this sector of our country’s housing market.
Order. As colleagues can see, a number of colleagues want to get in. I would rather not impose a time limit, but if Members could stick to about six minutes, we should get everybody in.
I will make just a short contribution, Madam Deputy Speaker. I first draw the House’s attention to my entry in the Register of Members’ Financial Interests. I am a solicitor at a legal practice that owns an estate agents.
As we know, Second Reading debates are about the general principles of a Bill, and that is where I want to concentrate my speech. My instinct is to be very careful about legislation of this nature, or at least to be suspicious of it—in a healthy way, I would like to think. I believe in free markets. They generally produce better services through competition, higher standards and better value for money for the consumer. The important thing about free markets is that there are lower barriers to entry, which helps to create that competitive environment, and with fewer statutory requirements, it is much easier for individuals to set up businesses and create more choice for the consumer.
Introducing regulation does, therefore, have drawbacks. As we all know, it can distort markets, increase rents and have other unintended consequences. It can reduce competition and therefore increase prices and impose barriers to entry, and it often leads to more interference and yet more regulation. A good example is the legal services market—there is far too much regulation in the provision of legal services. When I served on the Communities and Local Government Select Committee several years ago, we looked at this very issue and concluded that it was not the time for regulation, although the Committee was open-minded about the possibility and thought it something the Government should consider later.
The question, then, is whether the time is right now. Quite clearly, the Government think it is. I, too, recognise that markets are not perfect, and it is right and proper that the Government interfere and regulate where appropriate to help markets, particularly where a section of society is being adversely affected, but the goal must always be to improve matters for the consumer. We should take a bit of a history lesson. When assured shorthold tenancies were first introduced, in the 1980s, they changed the housing market dramatically. We must remember, however, that it was a much smaller market back then, with fewer landlords and fewer tenants seeking private rented accommodation. Interestingly, the legislation was introduced because there had been too much regulation and interference in the private housing market. It was an opportunity to free up the market, encourage landlords into the rented market and improve tenant choice.
I fully accept that the letting market has changed fundamentally and radically since the 1980s. Some 20% of our housing market is now in the private rented sector. In many respects, that was accelerated from about 2008 onwards. It is a very different environment. We now have accidental landlords up and down the country—people who unexpectedly have become landlords —and many more letting agencies. It is a thriving industry in a way it was not in the 1980s, and there is a host of tenants with very different needs looking for comfort in the knowledge that when they deal with letting agents they will be dealt with in properly and fairly.
We have to recognise that some letting agencies have been exploiting the deficiencies in the housing market. As everyone does, I acknowledge that the property market has changed significantly. In many respects, the whole issue of property ownership is in need of review, right across the spectrum, including the relationship between social housing and the private rented sector. Interestingly, back in 2015, when Carlisle was hit by floods, the people who were flooded did not turn to the social housing market for accommodation, even though it was available; they turned to the private sector. We should recognise, then, that the private sector has a huge contribution to make to the housing market.
It is generally accepted, however, that the time is also coming to look at the nature of assured shorthold tenancies. They were introduced in the 1980s in a different time. Perhaps that is something that in time the Government will look at. Estate agents are often letting agents as well, and it seems strange that someone could into an office were one side is regulated but the other is not.
The housing market is hugely significant at so many levels in our country. We have to recognise the importance of property as a source of taxation and that many people aspire to own their own house and get on the housing ladder and that it is also a source of capital for business investment but that the lack of housing in the various markets also affects individuals and families, as we all know.
I have concluded that we now live in such a different market that I will support the Bill. On balance, it is clearly in the interests of tenants, but it is also in the interests of good landlords and letting agents that act with integrity. I encourage the Government to ensure that the Bill preserves a competitive environment for letting agents—that is vital—and that it be enforced in a pragmatic and sensible way to the benefit of tenants and the market. I plead with the Government to ensure that we end up not with too much regulation but with effective regulation.
I believe that the Bill is the start of a sensible review of our housing market at all its various levels and with all its various requirements. I encourage the Government to look at all aspects of the property ownership markets and the taxation of property, because I think we are in danger of ending up with piecemeal legislation. The ultimate goal must be a working market that benefits everyone.
I am delighted to speak in the debate. Let me say at the outset that I welcome any moves by the Government to put money back into renters’ pockets. I recognise that the Bill is not wholly relevant to Scotland, but I feel that some comparisons can be made with actions that we have taken there.
As someone who was on a low wage and who rented in the private sector for a number of years, I understand the difficulties faced by people in those circumstances. While the demand for social housing outstrips supply, the need for privately rented accommodation will only increase, and, as we have heard repeatedly this evening, when the demand for private rented accommodation is high, those looking at the market can be put at a financial disadvantage. We need to get to the root of the problem. There are a number of ways in which we could seek to solve it. For instance, we could increase the social housing supply, end the sale of council homes under the right to buy, and give renters the protection that they require. Those are just a few of the ways in which we have been able to mitigate some of the worst impacts in Scotland.
Over the last parliamentary term, the SNP Government invested more than £1.7 billion in affordable housing. We exceeded our target of building 30,000 affordable homes, and by the end of the parliamentary term we had delivered more than 33,000. Only six council homes were completed during Labour’s last term of office in Scotland. We have also taken steps to safeguard social housing for the future by abolishing the right to buy, thus protecting 15,500 homes in the social rented sector. In the current Parliament, we have set the target of building at least 50,000 new affordable homes.
Tenant fees were abolished in Scotland in 2011, and the evidence suggests that those renting property have more money as a result. Renters themselves were no more likely to report a rent increase than those in other parts of the UK. However, protecting renters’ rights extends beyond scrapping tenant fees. If the Government are to make real progress on protecting tenants in their homes, they must go further than the Bill suggests.
The Bill contains a number of loopholes, which I hope the Government will try to address. They have amended the definition of a default fee, providing that it should not exceed the loss suffered by the landlord, and have said that they plan to issue guidance on the type and reasonableness of fees. However, more protections are needed to limit what can be charged for and ensure that any loss is reasonable, and there must be a definition of “reasonable”. Agents have already admitted in evidence to the Select Committee that they will try to charge disproportionate default fees to make up for lost revenue.
There is currently a lack of clarity about the circumstances in which landlords or agents can or cannot retain a holding deposit. A holding deposit can be retained if a tenant has provided false or misleading information that materially affects his or her ability to rent a property, but it is unclear what will be considered false or misleading information, and the rule is therefore open to abuse.
I welcome the Government’s intention, but more must be done in the Bill to protect renters, and more must be done generally to protect those in the private rented sector.
It is a great pleasure to speak in the debate. Like my hon. Friends the Members for Carlisle (John Stevenson) and for Harrow East (Bob Blackman), I am reminded of the work that we did in the Select Committee under the able chairmanship of Mr Betts. It is also a great pleasure to see him in the Chamber this evening.
In its 2013 report, our Committee recognised and expressed concern about the imbalance between tenants and landlords and their agents. I support the Bill because it goes some way towards creating a balance between the parties involved in the taking up of a residential property tenancy. Back in 2013, we drew attention to the sharp practice and abuses perpetrated by some letting agents, and recommended that agents be subject to the same controls as their counterparts in the sales sector. Most residential property agents are involved in both sales and lettings, and in each instance the property involved will be someone’s home. It makes no sense for only one of those tenures to be covered by regulation. The Bill does not provide for the regulation of letting agents, and I am happy for that to come later, but it takes a step towards it in requiring them to behave in a more professional manner.
According to evidence given to the Committee, letting agents often failed to give renters up-front information about fees. I was therefore happy with our recommendation for a code of practice requiring agents to publish a full breakdown of their fees, which was introduced in the Consumer Rights Act 2015. The Bill goes further by banning nearly all up-front fees for tenants. That is welcome, and was a manifesto commitment from my party in the 2017 general election. It strikes me as wrong in principle for an agent to attempt to take a fee from, or make a charge to, both parties in a transaction. When it comes to the relationship between landlord and tenant, the letting agent is clearly acting on behalf of the landlord, with the landlord’s interests paramount. If up-front fees are banned, there can be no danger that unscrupulous agents will charge both parties.
A letting agent in my constituency has contacted me, arguing that through the national approved letting scheme the sector has reformed itself and the Bill is unnecessary, but it also suggests that there should be
“proper comprehensive regulation of all lettings and management agents”, and states that agents currently provide services for both landlords and tenants, which I rather dispute. According to this agent, those services include offering tenants a choice of viewings at the convenience of existing and incoming tenants, referencing checks on tenants and their guarantors, and even explaining tenancy agreements.
I accept that some of that work supports tenants, but I see no reason why the tenants should pay for it. I believe that when a letting agents engages in those activities, he does so on behalf of the landlord, who—rightly and appropriately—pays him a fee for doing so. The agent is then remunerated for that work, and, in most instances, goes on to earn a regular income through the management charges involved in the collection of rent.
The national approved letting scheme suggests that agency-trained staff are trained to have the right level of knowledge to ensure that neither the landlord nor the tenant is disadvantaged. It fears that the abolition of fees will cause letting agencies to reduce staff levels and training budgets. I am not at all convinced by that. Before coming to the House, I employed a team of salespeople serving the catering trade, but I never expected the customers of my business to pay for the training of my staff. The NALS also suggests that rents may rise. I think that that neglects the principal feature of any market, which is that the prices set are based on supply and demand.
We know that the private rented sector has increased massively. In 2008 it made up 10% of all households. By the time we produced our 2013 report, it made up 18% of households, with 4 million households renting. Today, 21% of the market consists of the private rented sector, with 4.7 million households renting. That is the highest level for 30 years. More and more people are affected, and it is entirely right that the Government are taking action to protect them.
First, I refer to my declaration in the Register of Members’ Financial Interests: I own one property which I let out.
The Select Committee carried out pre-legislative scrutiny, and we unanimously warmly welcomed the principle behind this Bill. The principle we accepted was that the contract is between a landlord and a letting agent, and therefore it is up to the landlord to pay the cost of that contract; that seems a very simple principle to adopt. Evidence was given to the Select Committee that considerable savings to tenants could materialise from this; there was talk about average fees charged to tenants of £100 or £200, but Shelter gave evidence that they could be as high as £300 or £400 in some cases, so there are significant savings for tenants here.
There could in some circumstances be an increase in rents to compensate, and that would be legitimate if done properly from the beginning, but again there was evidence that if tenants were asked to pay a bit more each month, rather than a lump sum fee, that would help them in most cases. Organisations representing tenants generally accepted that point.
The Select Committee looked at the Bill and recognised that the good letting agents would accept it and willingly comply. The Bill tries to deal with those letting agents that would try to find loopholes to get around the provisions. We concentrated to a degree on default fees and how letting agents might seek to recover money they can no longer charge through charging extra for things that happen during a tenancy such as a lost key. It is reasonable that a lost key should be charged for, but it ought to be a reasonable charge. Letting agents might also charge more if they could in the first month of a tenancy to disguise an upfront fee, or indeed try to recover money in that way at the end of a tenancy. These were the sorts of matters we considered and made recommendations on.
I will not go into all the areas where the Government accepted our recommendations, because there is quite a long list of them, but I think the Minister will accept that the Bill is better for the consideration of the Select Committee and its suggestions. For example, section 21 notices cannot be used where the letting agent has kept outstanding prohibitive fees; that was a Committee suggestion. I am however disappointed that the Government did not accept our suggestion that we should have a clause about retaliatory evictions not being allowed as a result of this legislation. Indeed, the Committee looked at the issue of retaliatory evictions in our recent report on the private rented sector in general, and I think the Government must now review the legislation on retaliatory evictions and the Deregulation Act 2015, as it is not working at present. The Government are going to come back with some more information on how many cases there have been where a retaliatory eviction has been stopped because of the current legislation. This point might also apply to the private Member’s Bill of my hon. Friend Ms Buck; I can see retaliatory evictions coming into that as well. Therefore, we must extend the scope not just in terms of this legislation, but in terms of other Bills as well.
We did a lot of work on default fees. We need some specific figures on this, and my understanding is that the Government have generally accepted that default fees should only be related to the cost incurred by the landlord, and that more information will be provided in the guidance the Government issue. The problem is that the guidance will not be available to this House as the Select Committee suggested; it will not be available until consideration in the House of Lords. We are therefore taking the Government’s word that they are going to toughen the default fees powers without seeing that in practice.
Another important issue is enforcement. The Government have accepted the principle of the Select Committee suggestion that a tenant charged prohibitive fees should be able to recover them from the first-tier tribunal. That is the best place to go because it is fairly user-friendly for tenants, although they will often still need some help from advice services or local authorities. The problem is that if a letting agent does not agree to the first-tier tribunal decision the tenant has to go to the county court for enforcement, and that is not a user-friendly place, which might deter tenants from going. We have suggested that the first-tier tribunal might be given powers of enforcement or at least might have to take the case on behalf of the tenant to the county court if its decision is not being complied with. Will the Government look at that? It would also be nice to have a bit more information about their idea of a housing court reform and generally having one place where tenants can go for a whole range of housing issues. That is a good suggestion, but we have not seen any details so far; it would be good if the Government were to come back with some.
On local authority enforcement, we suggested that paying the costs the local authority will incur through civil penalties was not sufficient and that local authorities need extra funding from Government. They have accepted that in principle, but have committed only to doing that for the first year that the scheme is in effect and have not given any idea of the amount of money. We will need to look at that in more detail.
Finally, we talked about the size of security deposits. We heard conflicting evidence: organisations representing tenants wanted deposits equivalent to four weeks’ rent; landlords and letting agents wanted six weeks. Both made compelling cases, so the Committee suggested five weeks. We also heard some interesting ideas about alternatives to security deposits. We were not convinced that any had been sufficiently thought through to recommend them, but we felt that many of them needed further thought. Will Ministers therefore commit to carrying out a review of the various alternatives to security deposits and report back to the House in due course?
It is a pleasure to follow the Chairman of the Select Committee, Mr Betts. For part of his absence, I had to chair the Committee as we carried out some of the pre-legislative scrutiny of the Bill and agreed the final report that the Committee published. I am pleased that the Government have seen fit to adopt many of our recommendations, which were agreed on a unanimous all-party basis. This is one of the areas that the Government should learn from, across the Departments. Submitting draft Bills to Select Committees and asking them to carry out pre-legislative scrutiny improves the legislation before it comes before the House, and many other Departments could learn from this and use the same method to improve their legislation. I should also like to draw the House’s attention to my entry in the Register of Members’ Financial Interests, in that I am a vice-president of the Local Government Association and I have a small portfolio of properties that are rented out.
A key area is the need to strike a balance between landlords and tenants and the agents that they utilise between them. I agree with other Members that it cannot be right for an agent to work for both the landlord and the tenant, and for fees to be charged in both directions. The principle has to be that the letting agent acts on behalf of the landlord and that the landlord therefore pays the costs of the agent. Tenants should not be charged for the purposes of identifying a tenancy. As we in this country increase our dependency on the private rented sector, this is becoming an ever greater problem and it needs to be addressed.
I warmly welcome the Government’s decision to bring forward this legislation, and I am delighted that they have accepted so many of the Committee’s recommendations. However, I want to deal with some of the recommendations that they did not accept, as they are the ones that form the nub of the debate. First, I should like to be just a bit critical about the process of deciding whether there should be an assessment of impact or an impact assessment. The Committee thought that the Government should have carried out a proper impact assessment on publication of the draft Bill before it came to us for pre-legislative scrutiny. They chose not to do that, and instead decided to carry out an assessment of impact and subsequently do an impact assessment. I will not go into all the technicalities involved, but this was one of our key concerns.
We also considered in some detail the question of whether a deposit should be based on four, five or six weeks’ rent. Clearly, landlords would like as large a deposit as possible and tenants would like to pay as little as possible. Our concern over limiting the deposit to four weeks’ rent was that most tenancies involve paying rent monthly and that at the end of a tenancy, the tenant might simply skip without paying the last month’s rent. At that point, the landlord would have to enforce and retain the deposit. Similarly, we felt that six weeks would be too long, and that it would be a barrier to many tenants seeking to rent. We therefore struck a balance and recommended five weeks, on the basis that both parties would have something to lose if the deposit had to be relied upon. That is why we arrived at that compromise arrangement, and I am disappointed that the Government did not accept our strong arguments in favour of that compromise. I believe that once a maximum figure is set, it is almost inevitable that all landlords and letting agents will go straight to that maximum level. That has a severe impact and would be an unfair charge for people on relatively low incomes.
The Government have partly accepted the Select Committee’s position on whether fees such as holding deposits can be considered reasonable. If someone goes into a letting agency wanting a tenancy, appropriate fees for reference checks, which are of the order of £20 to £50, are reasonable costs for them to incur, but it is unreasonable for the landlord to pay if someone fails a reference check. The Committee also recommended that if a prospective tenant gives deliberately misleading information, they should lose the holding deposit, which should be retained by the landlord. That suggestion has not been in accepted in full by the Government, and it needs to be considered in detail again.
Another of the Committee’s concerns was that if the first month’s rent is artificially high and then the rent decreases over time, that hidden fee is unfair on the tenant. However, we want it recognised that rents can go down as well as up. The Bill essentially presumes that the cost of a tenancy will always increase and that the rent will increase when a tenancy is renewed. However, the market could determine that rents will come down, so there should be a provision that allows for rents to fall, particularly over the course of a longer tenancy.
I completely agree with what the Chair of the Select Committee had to say about retaliatory evictions, and we must review the whole process in law. We cannot necessarily do all that in this legislation, but the position could be corrected through provisions in this Bill. Tenants must feel able to complain to trading standards, the housing court or whatever organisation we choose, without running the risk of being evicted. Such evictions cannot be right, and we must draw a firm line under them.
In conclusion, I agree with the current draft of the Bill, but there are some changes that would improve the legislation for all concerned and strike a much better balance between tenants and landlords.
It is a pleasure to follow Bob Blackman. Some Members may be wondering why I, a Welsh Member, am speaking in this debate, because housing is devolved to the National Assembly for Wales, and the Welsh Government will be bringing their own Bill before the Assembly this year to ban letting fees in the private rented sector. The Welsh Government consulted widely and the consultation’s findings have added to the ample evidence, a lot of which we have heard this evening, that action is needed to address the fees currently charged to tenants.
To highlight a few of the consultation’s findings, 56% of all respondents agreed with an outright ban on unnecessary fees, 62% of tenants said that fees had affected their ability to move into a rented property, 86% said that fees had affected their decision to use a letting agency and, astonishingly, 61% of landlords did not know what their tenants were being charged by their letting agent. I doubt that the experiences of tenants in Wales differ greatly from those in England, so I welcome the Welsh Bill and am pleased that introductory fees will be banned—hopefully throughout the UK.
My constituency has the fifth-highest proportion of privately rented accommodation of any constituency. That is largely, although not exclusively, because it has the third-highest proportion of full-time students of any constituency. Nearly 37% of my constituents live in private rented homes, and much of that number is made up of families. Like many Members, I see constituents in my advice surgery every single week who are living in expensive, cramped accommodation and for whom fees are a constant worry. Such fees are yet another worry to add to insecure employment, low pay, cuts to social security and housing benefits, a publicly funded legal advice desert—when rent arrears get to the point where eviction is imminent, no help is available—and, obviously, eye-watering levels of student debt. Banning letting agency and landlord fees is very welcome. It is a cash cow that has gone on for too long. Some agents are using it as a scam, and it needs to stop.
Other Members with university constituencies will no doubt recognise the picture I am about to paint. Some of the larger streets in my constituency are almost entirely made up of family homes that have been converted into student lets—streets of about 200 properties, each with eight or more students living in it. When I go down those streets and knock on doors to speak to constituents, I add up in my head the total paid every single year in letting agency fees by those residents. On one street in the Cathays ward of my constituency each resident will pay, on average, £200 in letting agency fees. Between them, on that one street, letting agencies are making a minimum of £320,000 every single year. Never mind Ponzi schemes or payment protection insurance scandals, this is a scandal that has lined the pockets of letting agents, some of whom are parasitic, greedy and unscrupulous, and it has gone on for far too long.
As we have heard, these fees, like so many other things, are based on an imbalance of power. Student tenants and low-income families have no power in this relationship. This is what one constituent wrote to me, having had a dreadful experience with a Cardiff letting agency:
“They are LEECHING people for all that they can, and there is nothing to stop them. They are brazen. They know they’re screwing you over, and they know that you know that they’re screwing you over, and THEY DON’T CARE. Because there are no consequences and they hold all the power.”
My experience of representing constituents living in the private rented sector is that the fees charged are almost always completely arbitrary and unjustifiable.
Here is another view from a constituent:
“Students and low earners are bled dry by these lizards, to the tune of hundreds of pounds a year all to live in rotting accommodation which can be dangerous to live in.”
As another example, one student said to me:
“In the small print of our contract it said the letting agency will take 65 pounds from each of us in our student house for ‘professional cleaning…regardless of the condition the house is left in.’ So I was then quite annoyed to find they hadn’t bothered with this ‘professional cleaning’ for us when we moved in. The kitchen was leaking and rotting. A ceiling collapsed within a week due to an upstairs leak. The bathrooms reeked and were mouldy. A microwave nearly caught fire and…exploded but we were told” by the letting agency that
“it wasn’t their problem.”
The truth is that many of these fees are completely arbitrary. They mean nothing. At most, they constitute a few minutes of basic administration using tenancy agreement templates and the ability to cut and paste, yet at the moment agencies and landlords can just name their price, so I welcome the Bill.
This racket needs to end, all of it, and fast.
I refer the House to my entry in the Register of Members’ Financial Interests, as I am an “accidental landlord”, to use that excellent term. I think 123 MPs are also landlords, so there should be a wealth of knowledge in the Chamber.
I wanted to speak in this debate because I am mindful of the Prime Minister’s speech on
From my perspective, it is therefore incredibly important that this Government do everything they can to protect people who are required to rent because they are not in a position to buy. Clearly, this Government’s aspiration would be for all those people who want to buy to have the opportunity to do so, but we heard the figures earlier and that is not the current reality of this country. We have an ever-increasing rental market. People are forced into a situation where they have to rent because their family is growing or they need to leave home, so it is incredibly important that they are protected.
This is not the good thing about this Bill ; it is not just that this is a Conservative party policy. We have others and it is great that we have done things such as increasing the minimum wage and increasing the level above which people need to pay tax. People looking in from the outside this evening will be seeing Parliament say this is the right thing to do. One of the greatest things for me, having been an MP for less than a year, is to come to this Chamber and hear people on both sides say positive things about a particular idea around which we can all coalesce. It was excellent to hear from Mr Betts and there has been great involvement from the Select Committee; there has been deliberation from people who are very knowledgeable on these topics and the Government have responded accordingly. I also appreciate, from my hon. Friend Bob Blackman, that perhaps in some ways the Bill has not gone quite as far as some would like. It is a work in progress, but from my point of view the comment made by my hon. Friend Mark Pawsey sums up what my constituents would be thinking: is it fair that the fee for sourcing a property is paid by both the landlord and the tenant? I do not think so and I do not think the people in this Chamber think so either.
It is a pleasure to follow Eddie Hughes. Like him, I refer the House to my entry in the Register of Members’ Financial Interests, as my partner and I rent out properties, although we are also private sector tenants.
I wish to congratulate the Government on introducing this Bill. I was proud to be elected last year on a manifesto to increase rights for tenants, although any Bill should protect the role of good and ethical landlords too. Unfortunately, rogue letting agents have for too many years been allowed to profit from insecure tenancies, with some charging renewal fees every six months. Nearly all charge administration and referencing fees, and huge deposits, which are completely out of reach for low-income families.
I support the broad aims of this Bill, but I would like to draw the Government’s attention to one aspect that continues to leave tenants vulnerable to unfair fees. I have particular concern with schedule 1(4), which reserves the right for landlords and letting agents to charge tenants who are forced to default on their tenancy agreements. I believe people who rent through the private sector could be better supported by this part of the Bill. I understand that some agents and landlords currently charge a full month’s rent for tenants to be granted an early release, then every month’s rent and utilities while a new tenant is found. There are genuine instances where tenants are forced to end tenancy agreements, which they entered into in good faith, through absolutely no fault of their own: for someone living in the private rented sector who is made redundant from their job, benefits might not cover the rent, and any delays in receiving benefits will leave them in rent arrears. Someone might have had a family bereavement and might need to move to another part of the country or of the world. Someone might have a mental health crisis and need to be admitted to hospital. Someone might be off work with a serious injury and not receive sick pay, or they might need to flee domestic violence. Many letting agents and landlords are unforgiving in such circumstances and trap tenants in situations that they need to escape.
The hon. Gentleman is outlining extreme circumstances for tenants who rent properties. Does he agree that those people probably need legal advice, but do not have access to it when they need it most? Does he feel that the Government should look into legal advice for people who rent accommodation, then find themselves in difficulty?
I would certainly like the Government to look at what advice and support is offered to people who find themselves in extremis.
Landlords’ loss of earnings do not compare to the trauma faced by tenants in a situation in which they just cannot pay the rent. Some such situations call for compassion. Let us remember that landlords have the right to increase their tenants’ rents as much as they want and can evict a tenant with two months’ notice without loss of earnings, but a tenant cannot leave a tenancy early in extremis. Why should landlords have the flexibility when the tenants do not? Surely, the Government must think more about the protection for tenants in such situations.
Many more children now live in the private rented sector than 10 or 20 years ago. With growing child poverty, any potential for charging households fees beyond the monthly rent and security deposit can be an absolutely debilitating blow to families on the breadline. I urge the Government to look at the Mind report, “Brick by brick: A review of mental health and housing”, which makes for particularly concerning reading. Published in November last year, it finds that the instability of the private rented sector is bad for children’s social, emotional and mental health. As a GP, I see the effect of that instability every week. Some 28% of all children in the north-east live in poverty, and more than two thirds of them are from working households in which one or two parents work full time. Nearly half of working-age people in poverty spend more than one third of their income on housing costs.
There is a strong case for the Government to strengthen the Bill further. Unaffordable housing affects a family’s ability to pay for essentials. From school uniforms to energy bills, to healthy and nutritious meals, families should not have to sacrifice the basics to keep a roof over their head. A healthy and stable home can support healthier children too. I urge the Minister to go away and look closely at schedule 1(4) and to protect people who have to default on tenancy agreements through no fault of their own. Let us think of someone who has lost their job, had a family bereavement or mental health crisis, is off work without sick pay or is fleeing domestic violence; the Bill should grant to tenants in such circumstances more financial protection from any charges from letting agents or landlords. I urge the Government to look into these issues more carefully.
This issue particularly affects London and the south-east. In my constituency, rent for an average property is close to £2,000 a month. I have worked closely with the citizens advice bureau in Lewes, and it has done a lot of work on this issue. It highlighted how letting agents fees in one of the four towns in my constituency can range from £175 to £922. Coupled with an eight-week deposit, which is standard in Lewes, that can leave tenants paying anything from £3,332 to £3,779. It is just not affordable for someone on the average wage. I was therefore pleased to see in schedule 1 that the deposit is going to be limited to six weeks.
I have two key concerns. The first is about the variety of fees listed in schedule 1. Although the Bill covers holding payments and deposits, several fees that letting agents have introduced will get around the legislation. Citizens advice in Lewes found that people can be charged around £450 to add a second tenant to a property. A reference check can cost £100, as can general admin. An “express move”—to move within 10 days—can cost around £200, and it can cost another £200 to keep a pet in a property. If a tenant moves out and someone takes over the lease, that costs £300 on average. Some Members have already mentioned the six-month tenancy. Tenants often want a longer lease, to which they are legally entitled, but are not allowed to contact the landlord to negotiate one, because it is in the letting agents’ interest to keep tenants on a rolling six-month tenancy, paying around £150 to £350 every time they renew their lease.
My other concern is enforcement and schedule 3. It is a legal requirement for letting agents to advertise their fees, but it just does not happen and is not enforced. Citizens advice looked at 25 letting agents in Lewes and Seaford. Only one currently advertises its fees. We have legislation and it is not being enforced. I am not clear from schedule 3 who is responsible for the enforcement of the legislation and what happens if they do not do it. I welcome the Bill, but I have those two concerns—the variety of fees not covered, and enforcement to ensure that the Bill works properly for tenants.
I welcome the Bill, which has long been delayed—the issue was raised by Labour in 2013 and adopted in our 2015 manifesto. Rising house prices in my constituency mean that the rental market is growing rapidly. Since 2009, median house prices in Reading East have risen spectacularly by 175%, from £197,000 to £344,000. Increasing numbers of young families as well as single people are entering the rental market.
Some renters are satisfied with their properties, but in my experience far too many find themselves footing bills for housing that is in poor condition, or for tenancies without any long-term certainty. Nationally, 1.6 million families with children are renting privately, with their long-term plans depending on the reliability of landlords who can evict them with one month’s notice. Meanwhile, letting fees, burgeoning rents, and high deposits present an affordability challenge for tenants. It is therefore in the vital interests of all my constituents that the rental market be maintained as affordable, transparent and accessible. I welcome the Bill as a first step towards establishing that fair and reliable rental market.
The Bill will have a positive impact in abolishing up-front fees to enhance clarity and control for tenants. Letting-agency fees restrict the mobility of renters, thereby removing one of the prime incentives of renting a property. On average, tenants pay £272 per person in fees with each move, on top of rent in advance and deposits. Alarmingly, one in seven tenants are charged more than £500 to enter rented accommodation. Over the past five years, renters have racked up a staggering bill of £678 million in agency fees.
Moreover, there is a lack of consistency in setting those costs. Research by Shelter has found broad variations across letting agents—reference-check fees range from £30 to £220, and tenancy renewals cost between £35 and £150. I welcome the premise of the Bill—the measure was initially promised in the 2015 Labour manifesto—but I note that both the Prime Minister and the Chancellor of the Exchequer have previously voted against a motion abolishing letting fees. I am delighted that the Government have decided to change their mind.
Default fees are chargeable if an agent or landlord incurs costs due to a tenant’s actions. They have been described by agents as a back-door route to reclaiming lost income. Agents have admitted openly to the Housing, Communities and Local Government Committee that they will charge disproportionate default fees to make up for loss of revenue, which is an extraordinary admission from the industry about its intentions to exploit loopholes in the Bill. I am concerned that there will be cases of a brush coming with an associated charge of £45, or of £130 being charged for a missing TV remote. These default fees are set at the discretion of the agent or landlord, and there is no cap in the Bill on the cost to tenants. There is an urgent need to strengthen this legislation to provide limits on what can be charged for and to ensure that any charge made is reasonable. If relevant additions are made to the Bill to resolve this flaw, the legislation’s good intentions will be preserved.
The second aspect of the Bill that I would like to discuss concerns tenancy deposits. Although I am glad that the Government have decided to issue a cap on tenancy deposits, I am disappointed that the Select Committee’s recommendation to cap deposits at five weeks’ rent has been rejected, as Bob Blackman mentioned. The Government have opted for a six-week cap, which means that renters in the south-east of England will still have to find an average of £1,800 to place a deposit. This is at a time when the majority of landlords already take deposits for six weeks or less. As such, the Bill will not change the realities of access to housing for renters, particularly in an area such as mine.
Thirdly, I voice my support for robust enforcement. I am glad that tenants will be given access to a first-tier tribunal to enforce the regulation, and I am pleased to see penalties being put in place for breaches of the rules. However, sufficient funding must be released to allow for the enforcement of the ban on letting agent fees. Without proper resourcing, the measures in the Bill are likely to fall short.
In general, the Bill has the potential to make significant savings for tenants in—and enhance the transparency of—the private rental sector. I am pleased that the Government have listened to calls to make private renting fairer and more affordable. In fact, as I mentioned, the Labour party has been campaigning for these measures for a long time. Indeed, my right hon. Friend John Healey first recommended them in the Letting Agents (Competition, Choice and Standards) Bill in 2013. The Bill requires further scrutiny in several important areas—most obviously, the provisions on default fees. I ask the Government to provide further protections against the exploitation of tenants in this regard.
With proper amendments, the Bill can present a good first step towards balancing the rental market. I urge the Government to listen to these points.
Although it is true that some renters pay many hundreds of pounds in fees to letting agents, I want to point out that the solution proposed by the Government may merely shift the cost of the burden, not to landlords and lettings agents, but back to tenants in a different way. Banning letting agency fees means that the money will have to come from somewhere else, at least as far as legitimate services from respectable letting agents are concerned. Landlords may well be forced to, or at least will, increase rents across the tenancy to cover the costs anyway.
Does my hon. Friend agree that however appropriate this legislation is—and it is appropriate—it is at least in part because of the unscrupulous actions of some letting agents, and not all letting agents should be tarred with the same brush? CGT Lettings and Morgan Associates in my constituency do a good job by their tenants and can be expected to continue to do so.
I entirely agree.
These new rules are quite complex and there will be a bureaucratic cost to councils, letting agents, landlords and therefore tenants. The rules trigger the new burdens doctrine, and I hope that this will be accounted for in the legislation. I still think that a simple rule allowing letting agents to impose a maximum fee of 100% or 150% of monthly rent might have solved this more straightforwardly, as long as there were additional safeguards for those receiving housing-related benefits and others.
As I said last week on housing and, before that, on the energy price cap, I am a critical friend and a supporter, rather than a member, of this Conservative Government. Although I accept the need to intervene at times to ensure that fairness is maintained in the market, we also have a strong commitment to providing more houses and making people’s lives easier. The focus needs to be the key objective of having new homes in which the private rented sector will have a role, rather than just the “ban and regulate” type of legislation. As my hon. Friend Alex Chalk has just said, let us remember that there are hard-working people in the sector. We should not draft legislation purely to punish those who behave unscrupulously at the expense of the far more numerous examples in the former category.
I would like to acknowledge the work of the Housing, Communities and Local Government Committee, on which I sit. Over the past few months, it has held evidence sessions with stakeholders and done significant work to improve this Bill so as to avoid more costly and inefficient enforcement. Indeed, that work has been sufficient, notwithstanding my reservations, to secure my support in the Lobby, because there is a problem to be tackled, even if this proposal has some Jim Hacker in it as well as some King Solomon.
I draw Members’ attention to my entry in the Register of Members’ Financial Interests.
The Liberal Democrats have long fought for renters’ rights. The Bill is in many ways the result of the hard work of my colleagues in the other place, who have campaigned tirelessly for a ban on letting fees and for private rented sector reform. I am therefore pleased that the Government have listened and will make the sector fairer for my constituents in Bath and people across the country. However, the Government could be much more ambitious. The Bill introduces a ban on letting fees, but currently does not include provision for local government to enforce fines if the ban is breached. What is proposed is a self-financing system, and that often does not work in practice. Equally, we must ensure that the Bill covers all fees. We cannot permit letting agencies to attempt to bring in fees under an alias or to exploit the default fees loophole, as a couple of Members have already pointed out. We need more information from Government to understand how this issue is being addressed.
Many landlords are not badly intentioned, but we must do more to stop those who abuse the system. There must be compulsory registration for landlords. There must also be public access to the Government’s database of rogue landlords, and those landlords should not be able to obtain a licence for houses in multiple occupation. There should be support for longer tenancies; I completely agree with Maria Caulfield. We should have Government-backed loans to help people to afford a tenancy deposit. By tackling rogue landlords and supporting those struggling to afford a deposit, we would be reducing the key factor behind the rise in homelessness.
The housing crisis is denying young and vulnerable people in my constituency access to a place to call their own. The Bill is a step in the right direction. I am pleased that a practice that was a nice earner for some but an injustice to the young and most vulnerable people will now end. However, I urge the Government to be far more ambitious if we are truly going to make a difference to renters.
It is a great pleasure to join this happy debate with a lot of consensus on both sides of the House. It is also a pleasure to follow Wera Hobhouse, who reminded us that success has many parents and that that is a happier position to be in than the orphan without any parents.
Much has already been said, so I just want to add two or three thoughts. Last year, I became, with my wife, an amateur landlord. As this Bill took shape, I spoke to constituents who were tenants, agents and landlords, and I looked it in the light of our own experience. I quickly came to the conclusion that the market was not acting as effectively as it should, fundamentally because tenants are not equal partners in the negotiations and lots of family landlords inevitably devolve decision making to agents. As both the current and previous Secretaries of State have said, and as the shadow Minister, Melanie Onn, said today, a small—I repeat, small—number of rogue agents have spoiled the situation. As the supply-and-demand equation has altered, so, in turn, tenants have become more squeezed.
Fundamentally, the role of agents in this process has changed. They are evolving quite radically from being an intermediary in an analogue age to a landlords’ compliance department in a digital age. Today, their fundamental role, which is very important, is to keep landlords and themselves out of trouble—indeed, even out of jail. The reason for this is not least the complexity of the law. Regulations need to be enforced. Most amateur landlords need high-quality agents to ensure, for example, that smoke detectors and fire exits work, that boilers are checked and that insurance is adequate. There is much more besides all the important environmental health provisions that councils are responsible for ensuring do not get breached. I believe that the role of agents therefore is to focus on keeping landlords within the law and providing a good service to tenants. A commission agent is fundamentally different from a compliance department.
I welcome the Bill and everything that Ministers have announced. I note one or two caveats from colleagues. I think that the fundamental goal of saving some £240 million a year in unnecessary fees will be welcomed across the country. The compromise on capping security deposits at six weeks’ rent—it is eight weeks in Scotland—seems sensible, but no doubt there will be further debate on whether it should be five or six weeks.
The Bill will not solve all the problems—the supply of housing is still too small and the prices are still too high for many tenants—but it is a chance for agents to adapt their business model in the way I have suggested, for landlords to get their properties in order and for tenants to help keep landlords straight. Because rents have risen, there is a risk of poor and even dangerous homes being rented by landlords who are cutting corners to tenants who are trying to cut costs. I urge Ministers to look at how they can work with local authorities to ensure that that risk is not increased and that local authorities seize the opportunity to levy fines where they are needed and to provide the resources for their housing departments to keep housing of the quality that we, and above all tenants, deserve.
I presented a petition to the House on behalf of my constituents back in June 2016, calling on the Government to take action to curb letting agent fees. In responding to the petition, the Government gave no indication that they were considering any action on fees other than requiring letting agents to publish a full tariff of their fees. That response was very disappointing.
The publication of tariffs in my constituency has simply confirmed what private renters have always known: that fees are enormously variable and that in many cases a combination of fees, holding deposit and tenancy deposit can run into hundreds and sometimes thousands of pounds each time a tenant moves. Letting agent fees are no small matter financially, whether someone is trying to save for a deposit to buy their own home or simply trying to keep their head above water and make ends meet. The instability that many private renters face means that they are not only paying high fees, but can be forced to pay them every six to 12 months, so they face the utterly dispiriting experience of seeing what little savings they manage to accumulate being wiped out again and again each time a tenancy comes to an end.
Fees, combined with spiralling rents, are one of the reasons why many renters cannot afford to buy. They are also one of the reasons why many of my constituents who are in the greatest housing need and on long waiting lists for genuinely affordable social housing increasingly fear the private rented sector, if they are able to access it at all. So I welcome the Government’s change of heart on letting agent fees. I welcome the adoption of a Labour policy, and I welcome the Bill.
The Bill seeks to iron out a significant confusion in the letting agency market, which is the question of who the client is. Since landlords procure the services of letting agents and have a choice about which letting agent to choose, and letting agents provide a service to landlords in finding them tenants, the landlord is the client. Tenants do not have a choice about which letting agent to go to in order to access the type of home they require. They cannot decide that they like a particular property but would prefer to rent it via a different agent. As such, they are not the client. Any services the letting agent provides that involve the tenant, such as obtaining references and credit checks, are simply part of the process of securing that tenant for the landlord who is their client. It is therefore not fair or reasonable for two different parties in a letting transaction to be charged for the provision of services. No other part of the estate agency industry operates in that way, and there is no justification for it to continue.
While I welcome the Bill, there are some important ways in which it can and must be improved. The first and most significant relates to default fees. The Bill allows for default fees to be charged by landlords and agents of tenants but does not specify any parameters for that. Great concern has been expressed by many witnesses to the Housing, Communities and Local Government Committee’s pre-legislative scrutiny inquiry on the Bill and others that the provisions relating to default fees are simply a loophole that will allow arbitrary sums to be claimed from tenants by the back door.
Although default fees have to be specified in the tenancy agreement, there is in practice no way for a tenant to identify and challenge unfair fees at the point at which a new tenancy begins—and by the time they are being charged, it is too late. Letting agents’ representatives admitted in evidence to the Select Committee that they would try to charge disproportionate default fees to make up for a reduction in other fees. This would be completely unacceptable, and while I welcome the Government’s intention to provide further clarification, it is vital that this is absolutely watertight if the Bill is to succeed in its main objective of reducing cost to tenants.
Secondly, I am concerned that the Bill is insufficiently clear on the circumstances in which an agent can retain a holding deposit. In circumstances where a tenant has wilfully provided false information, it may be acceptable for an agent to retain the costs of undertaking checks, but we know that there are many circumstances in which incorrect information can be provided where this is not the fault of the tenant. For example, the tenant may be unaware that their credit rating has dipped, or an employer may hold out-of-date salary information, and there are many other such circumstances. The Bill must ensure that tenants are protected against incorrect information being provided by someone else. The failure to do so could result in tenants who have lost a proportion of their savings being prevented from accessing another home, with dire consequences. I urge the Government to ensure that the Bill is sufficiently robust on this matter.
Finally, I must emphasise that although the Bill is a welcome step, there is still much more to do to reform the private rented sector and to redress the imbalance of power that exists between landlords and tenants. The Government have shown a willingness to adopt Labour policy with regard to banning letting agents’ fees. May I urge the Minister to go further and legislate for longer and more secure tenancies, intervene to address the spiralling rents that cause hardship for so many of my constituents and act to stop revenge evictions because the current legislation simply is not working? We need comprehensive reform of the private rented sector to give security and stability to the increasing numbers of my constituents who are reliant on it, and in particular for the growing numbers of children living in private rented accommodation on whom the need to move frequently can have a particularly harmful impact. While I welcome the Bill, there is much more to do, and I urge the Government to go further.
I congratulate the Conservative party on delivering yet another 2015 Labour election manifesto pledge. Page 62 of our 2015 election manifesto, which I stood on, pledged to ban unfair letting agent fees. I have some news for the Conservative Members, however, because we had a new manifesto in 2017, which was even more popular than our 2015 manifesto: it led to their losing seats and to our gaining them. The 2017 manifesto went even further:
“Labour will make new three-year tenancies the norm, with an inflation cap on rent rises... We will legislate to ban”— all—
“letting agency fees for tenants. We will also empower tenants to call time on bad landlords by giving renters new consumer rights.”
It was a little bit disappointing that this Bill did not go quite so far. However, if the Government wish to continue their work in implementing Labour manifesto pledges, I am sure that they will meet no resistance from Labour Members and that it will be met with a great deal of praise from those who are suffering in the private rented sector.
The scandal of letting agent fees has gone on for far too long, and an audit of the private rented sector in Brighton and Hove shows exactly how out of control the fees are. In Brighton, agents’ fees start at £500 just for a holding fee, which is of course, as we have heard, non-refundable. If someone decides not to go for the property, they will lose the money. In the house buying world, someone can put in a bid for a property, agree an offer and get very far through the negotiations, but they can drop out with no financial charge. That seems manifestly unfair: for the rich, or for homeowners, there is one rule; and for renters, there is another whereby, if someone decides to change their view at the last moment, for whatever reason, they are charged. Ending that is a great opportunity that has been missed in the Bill.
In Brighton, admin fees are also common, at £250 on average per tenant, tenant substitution fees are as high as £420, and guarantor fees are £190. All in all, it costs more than £1,000 and we have not got started on the deposit. We have heard the same story from many constituencies throughout the country, particularly those in the south-east. We also have check-in and check-out fees, which are as high as £270 per check-in or check-out.
How has it got this bad? There is, of course, a fundamental power imbalance in the landlord-renter market. Often, young and insecure workers have no choice but to take what they are given, pay the fees and, sometimes, to do it with a smile because otherwise they would be rejected by the landlord. That is, of course, why it has been necessary in Brighton to establish renters’ unions. There are renters’ unions in my constituency such as Acorn, and I applaud the work it has done to fight for renters who are being abused by agents. We have heard a lot of talk about this being about only a few agents, but I am afraid that in my city it is, I think, a large number of agents. I would even go so far as to say that the majority of agents use these dirty tactics. That is why the Bill is needed; it is not about a few rotten apples but a systemic failure in the market.
The Minister will have received the same advice as I and many others have about some of the things that need to change, particularly the loophole in paragraph 4 of schedule 1, which has been mentioned, regarding tenants who have to pay a default fee. Again, that takes me to the point about the equality of the sides in this argument. While we still have no-fault evictions, where a landlord can decide to evict a person with notice and there is no charge or fee against the agent or landlord and no reimbursement for the person losing their house a few months early, it seems to be totally unfair to have any default fee on the other side without the situation being equally balanced. If the Bill were to introduce an equal default fee for no-fault evictions, this would be a measure that I could probably come to support.
Of course, the Bill also fails to provide a comprehensive definition of default fees and creates the ability for fees to be reintroduced by any other means. Of course, we know that in a capitalist world capitalism will use those loopholes to its best advantage. It seems that the Government never learn that if they do not close down loopholes, the people who will be abused are our constituents. I guess that it will take a Labour Government to implement Labour manifesto policies properly, but I support this measure, even if it does not quite yet go far enough.
This has been an important debate, which has seen excellent contributions from across the House. I want to highlight in particular those made by my hon. Friend Mr Betts as Chair of the Select Committee and my hon. Friend Jo Stevens, who painted such a powerful picture of a student city and the arbitrary and unjustifiable fees to which those students are subjected.
As has already been said, it is always flattering for the Opposition when a Government steal our good ideas, but the serious point that all of us on the Opposition Benches want to make tonight is that we welcome the Bill, we welcome its intent and we want to work with the Government to get it right. Introducing an outright ban on up-front letting fees is absolutely right and, as John Stevenson said, it is right and proper that the Government should intervene.
As we know, the Bill has been some time coming. The Government voted down a private Member’s Bill on this topic in 2013. As my hon. Friend Matt Rodda said, the proposals to ban letting fees were put to the House in 2014 and the Conservative party, including the prime Minister, voted them down. In 2016, my constituency predecessor and then Housing Minister dismissed this policy as a bad idea, just eight weeks before his Government briefed the policy as part of their autumn statement. That is all in the past, however, and we are delighted we won the argument in the end.
We welcome the Bill, but we think it could go further and give private renters the rights they need. The Government have backtracked on their original plans to cap deposits at rates tenants want. They have put a major loophole in the Bill for a minority of unscrupulous landlords to exploit, they have kept costs for holding deposits at an unreasonable level and they have passed potentially high fees beyond year one for enforcing the Bill on to local councils.
It is right that we challenge the Government to go further, while welcoming the Bill’s overall aims. As Mark Pawsey said, 21% of the market is now privately rented. It is no longer just young single people and students: England’s private rented sector is home to 1.6 million families with children. Average rents are now almost £1,500 a year higher than they were in 2010. As my hon. Friend Dr Williams said, there is a link between paying more than a third of income on rent and one’s mental health. As my hon. Friend Helen Hayes said, in her constituency people are increasingly fearful of the private rented sector, if they are able to access it at all. Wera Hobhouse and my hon. Friend Lloyd Russell-Moyle painted a picture of the wider reforms that are needed if we are to really tackle the private rented sector. There is certainly much more to be done, but we welcome the Bill.
I want to press the Minister on a few small points. Security deposits are a barrier to entry for many people trying to access the private rented sector. The proposal to cap deposits is welcome and a long overdue admission by the Government that the current market price is just too high. The Department’s own consultation found that more than nine out of 10 tenants want to see a cap, but we do not believe that the proposals in their current form are fit for purpose, because the cap is above what the market has already settled on and will not make any difference to the majority of tenants. Shelter’s most recent private landlord survey found that 55% of landlords ask for four weeks’ rent as a deposit, while only 6% ask for more than six weeks.
Citizens Advice also found that the most common amount is four weeks. It argues that a six-week cap will just help 8% of private renters. The Government’s own consultation on the policy found that two thirds of tenants wanted a cap of four weeks or less. Instead of listening to tenants and experts, the Government have risked making a deposit of six weeks’ rent the norm, rather than the maximum. This is a particular concern in high-cost areas such as London, where a six weeks’ rent deposit will see tenants paying £2,000 based on medium rents.
The Mayor of London is calling for a three-week cap. Experts such as Shelter and Citizens Advice are saying it should be no higher than four weeks. As set out by Bob Blackman, the Housing, Communities and Local Government Committee is calling for a five-week cap. Clearly, there are some different views. It is a shame that the Government have bowed to pressure from trade associations and backtracked on their original plans to cap deposits at four weeks’ rent. I really hope the Minister will be open to discussing this in more detail in Committee. We on the Labour Benches will thank the Government for that if they do so.
On default fees, although the majority of landlords and many agencies operate fairly and responsibly, excessive fees imposed on tenants for minuscule breaches are still far too common. Some examples highlighted by Shelter include: a £40 administration fee for every phone call or letter to chase overdue rent; a £40 charge for a late rent payment; and mystery shopper evidence that appears to show agents making up fees for things on the spot. The Government have allowed a potentially serious loophole in the Bill by not banning default fees.
There are several issues that we do not have time to go into tonight, but there are big question marks over the effectiveness of statutory guidance in such areas. In the energy sector, the continued use of back-billing by companies in defiance of Ofgem’s guidance meant a licence requirement was eventually needed.
It is important that we get this right and do not leave a loophole for unscrupulous landlords and letting agents at the heart of the Bill. As Angela Crawley said, the lettings industry admitted in evidence to the Housing, Communities and Local Government Committee that some agents may seek to charge disproportionate default fees in order to recoup revenue that is lost as a result of the legislation.
Turning to the enforcement duties in clauses 6 to 8, as with any legislation of this sort, effective enforcement is key to its success. As we have heard today, the suggestion that the Bill should be completely funded through civil penalties jeopardises its chances of working effectively. Serious concerns have been raised about the ability of trading standards to enforce the measures properly, as no extra funding is earmarked beyond year one for enforcement—of course, we very much welcome the announcement of £500,000 in Government support in year one. Trading standards are under-resourced and overstretched to an unprecedented degree, and therefore, this proposal seems misguided. I hope that the Minister can offer us something during the Bill Committee to deal with that issue.
In conclusion, unlike other sectors in which consumers can expect certain standards with clear redress, repair and replace provisions, in practice they have fewer consumer rights in renting a family home than they do in buying a fridge-freezer. Today’s Bill is a step in the right direction, but it is not yet perfect. Although it will give comfort to renters, it will not tackle their wider problems. The Conservatives have so far turned a blind eye to the pressures that England’s rapidly growing number of private renters are facing. We hope that the new Secretary of State will continue on his course of coming in and changing things that are not right and will work with us to make the Bill work. My hon. Friend Melanie Onn called for a gold standard for renters and landlords and for us to take the Bill from good to great. I am sure that that is something the Government would support.
It is a pleasure to wind up the debate and I thank Sarah Jones for her constructive support for the principles of the Bill. I very much look forward to discussing the details with her in Committee.
At the outset, I pay tribute to the Under-Secretary of State for Housing, Communities and Local Government, my hon. Friend Mrs Wheeler, who could not be with us tonight. She deserves enormous praise for the way she has brought the Bill to the stage in which we are discussing it tonight, through her tireless engagement not only with colleagues across the House, but the sector at large, and extensively with the Housing, Communities and Local Government Committee. I thank her for all her work. She is the reason that we are talking about a Bill over which there is so much agreement.
I start by agreeing with my hon. Friend John Stevenson. Like him, I am a committed believer in the power of free markets and competition. I approach cases of caps and bans with some scepticism as well, so I am pleased to tell him that after careful consideration of the Bill’s provisions, I came to the same conclusion as my hon. Friend Richard Graham: what this Bill does is address a failure of competition and a failure of the free market, which Government Members believe so passionately in. There is an inherent unfairness in a situation where a potential tenant is faced with a monopoly provider of a letting agent, and it does not strike any of us as being right. That unfairness was highlighted by my hon. Friends the Members for Rugby (Mark Pawsey) and for Walsall North (Eddie Hughes) and is most clearly evidenced in the charging of double fees, where letting fees are charging fees on both sides of the transaction. This is evidence of the broader imbalance in the market that my hon. Friend Bob Blackman highlighted, and the Bill seeks to redress the balance between landlords and tenants.
We have heard many helpful contributions from members of the Housing, Communities and Local Government Committee on both sides of the House. I pay tribute to its work and in particular, to Mr Betts and my hon. Friends the Members for Harrow East and for Northampton South (Andrew Lewer), as well as their colleagues. They did an excellent job. It is worth pointing out that I counted 19 separate recommendations of the Select Committee’s report and the Government were pleased to accept 15 of those. I hope that that speaks to the value that we place on pre-legislative scrutiny—[Interruption.] We should not dwell too much on the differences that separate us.
My hon. Friend the Member for Harrow East, the hon. Member for Sheffield South East and many other hon. Members asked about retaliatory evictions, and I am pleased to say that the Government are considering the Committee recommendations arising from its wider inquiry into the private rental sector, including on retaliatory evictions, and will reply in due course.
My hon. Friend the Member for Northampton South raised the issue of new burdens funding. I can tell him with my other hat on—as a local government Minister—that there is probably no more passionate defender of new burdens funding than me, so I will ensure that the funding is there for our local authorities to enforce the Bill properly.
That brings me to the comments by my hon. Friend Maria Caulfield. She asked about enforcement and about the fees that would be charged and gave examples of exorbitant £200 or £300 fees charged when tenants want to add a second tenant to their contract or request permission for a pet. I am pleased to tell her that the Bill seeks to end that practice. Such fees will be capped at £50 or reasonable costs, which I hope gives her some comfort.
Enforcement is, of course, incredibly important. I am pleased to tell my hon. Friend and others that there are multiple avenues by which tenants can seek enforcement of their rights: first and foremost, through redress schemes, which the Government made mandatory for letting agents some years ago and are consulting on making mandatory for landlords today; secondly, through trading standards authorities and district councils where they are not the trading standards authorities; thirdly, on the advice of the Select Committee, through the first-tier tribunal; and, if none of that works, subsequently through the county court. The fines, starting at £5,000 and scaling up to potentially unlimited fines, are significant and will act as a deterrent to errant landlords.
On enforcement, does the Minister accept that going to a county court is quite an experience for a tenant and would probably put them off, and does he therefore accept that the first-tier tribunal itself should take the matter of enforcement to the county court on behalf of tenants who have already won their case?
We do not fully agree with the hon. Gentleman on that particular point, but I hope he takes comfort from our having accepted his recommendation that in the first instance the first-tier tribunal be available for tenants to take cases to and that this will serve as a benefit to them.
On fines, in criminal cases parties will be liable to potentially unlimited fines and banning orders. I think that the combination of all those things will serve as sufficient deterrent to errant landlords.
In conclusion, the Bill will save millions of tenants hundreds of millions of pounds and will deliver fairness. It is one of the many measures the Government are taking to fix the broken housing market, and I commend it to the House.
Question put and agreed to.
Bill accordingly read a Second time.