Tenant Fees Bill - Second Reading

Part of the debate – in the House of Lords at 4:57 pm on 10th October 2018.

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Photo of Lord Strasburger Lord Strasburger Liberal Democrat 4:57 pm, 10th October 2018

My Lords, returning to the Bill, I start by drawing the House’s attention to my declaration of interests in the register, specifically to the fact that I own 11 investment properties, either solely or jointly with my wife, and have done for something like the last 20 years. I also have a shareholding in a small letting agent in Bath. I am therefore in a position perhaps to bring a slightly different perspective to proceedings.

Speaking for myself and for the letting agency, I strive hard to be a caring and ethical landlord, and I have tenants who have been in place for 10 years or more. I insist on the same standards from the agency, Reside Bath. We do not charge landlords and tenants for the same service, and we are positioned very much at the top of the scale for quality of service and integrity. That is the raison d’être of the business. Our mantra is that a happy tenant is a good tenant; it is very much in the interests of the landlord that the tenant is happy and will look after the property. Almost every single unsolicited review of the agency on Google by tenants—there are many—has five stars. I wanted to set the standards a little. I will therefore put the perspective of a reputable part of the letting industry to the House today.

Landlords and letting agencies are relentlessly pilloried in the press and by politicians. They are convenient scapegoats for a broken housing market, caused by there being too few properties, particularly properties for social rent, and big barriers to entry for first-time buyers. The lack of social housing means that a lot of less well-off tenants have been forced into the private sector, where they should not be. They should be properly cared for, with good housing at rents they can afford.

Most agents do a decent job and most landlords are sensible and fair. The private rental market meets an important need for those who do not qualify for social housing, or cannot get it, and those who cannot buy their own homes. I fully accept that there is a minority of rogue landlords and rogue agents. A member of my close family was a victim of such a rogue agency in London not long ago, which indulged in the most appalling and illegal behaviour. I do not stand here defending rogue agents in any way. I favour strong accreditation rules to stamp the rogues out—which this Bill will not do. But it is fair to say that this is a two-way street; there are some awful tenants too, and I have had my share of them.

I would like to defend the six-week deposit. Some tenants who pay monthly are in the habit of not paying their last month’s rent. They assume it will be taken out of the deposit. If the deposit was only four weeks, it would not cover the rent; if five weeks, it would cover the rent, but with virtually nothing left to give the landlord any defence against genuine—I stress genuine—dilapidations to the property, for which the tenant is responsible. Six weeks is a balanced number that is fair to both tenant and landlord.

From the industry side of the fence, the Bill seems to imply that all tenant fees are unfair and exploitative. While the Minister referred to unfair fees, the Bill bans all fees, whether fair or unfair. Most tenant fees recover real costs that agencies incur. I accept that some agents abuse tenants’ fees and charge for completely imaginary services and costs. That practice would be better covered by a cap on tenant fees rather than an outright ban.

What will be the consequence of a total ban on fees? The rental marketplace is very mature and efficient; every action leads to a reaction. Things vary in different parts of the country, but landlords mostly pay for the ongoing management of the property and tenant during the tenancy. The tenant fees usually cover the costs incurred at the beginning and end of the tenancy—for example, marketing costs, company viewings, creating the tenancy agreement and end of tenancy negotiations about dilapidations. All this really does cost money, which agents cannot absorb. The agency market is highly competitive and margins are very tight. Agents cannot absorb the loss of revenue caused by a ban on tenant fees, so the costs will be passed on to landlords. I have talked to a lot of agents and they are all planning to do that. Landlords will then try to recover this new cost through higher rents. I accept the argument that rents are to a large extent set by the market, but evidence from the Scottish example is not clear. Depending on who you believe, rents increased by between 0% and 5%, but I accept that it is an art, not a science.

Also, in trying to recover these extra costs, some landlords will try to trim their maintenance costs, and that will have obvious consequences for the quality of accommodation. It is very hard to quantify this but there will definitely be upward pressure on rents and downward pressure on standards. It is worth noting that this is the latest of many assaults on the viability of landlords’ business models. Gone are the days when buy to let was a lucrative alternative to saving for your pension. A few years ago, George Osborne mounted a double tax raid on landlords, the last part of which is only just coming into effect. He increased stamp duty on property purchases for landlords and others, and he scrapped—in a phased way; it is just finishing now—the tax relief on interest. That means that landlords pay tax based on revenue, not profit, unlike every other business, and so can end up paying tax even if they make a loss.

Noble Lords could not expect me to stand here and make a speech without mentioning Brexit, which is a factor in this. In the unlikely event that the Government can cobble together some sort of deal that they can get through the House of Commons, there is a risk to the housing market and to the price of houses. The Governor of the Bank of England forecast to the Cabinet that property prices could fall by 30% to 35% after Brexit, and that could mean negative equity and large-scale bankruptcies for landlords. For some landlords, taking over the costs currently covered by tenant fees might be the last of a large number of straws. Some will choose to sell, some will go out of business and new entrants will be deterred. I cannot put a figure on this but there are likely to be fewer landlords, and fewer landlords means few properties to rent, which means higher rents and less choice for tenants.

In summary, the law of unintended consequences applies here and I believe that the Bill misses the real target. Tenants will get a short-term gain but they might incur the long-term pain, currently unquantifiable, of higher rents, less availability and possibly lower property standards. I would have preferred a strict cap on tenant fees and compulsory accreditation of all letting agents at a very high standard.

Having said that, I will go along with the Bill and any Bill that improves the standards of the rental market. I and my letting agency business will make the best of it for all concerned, especially our tenants, and will try to mitigate the downsides.