Q We will now hear oral evidence from the National Landlords Association and the Residential Landlords Association. We only have until 10.55 for this session. Gentlemen, would you introduce yourselves and, to speed things up, perhaps make an opening statement at the same time?
I am Richard Lambert, chief executive officer of the National Landlords Association. Briefly, we are aware of the growth of these charges to tenants by agents over the past 10 to 15 years. We are aware that that has been exploited to some extent, so we see a wide variation. Some of those fees have, frankly, reached egregious levels. We are also increasingly aware that agents double-charge landlords and tenants possibly for the same services. We agree that the Bill goes a long way to dealing with the issues that have emerged.
We think it is important for the Committee to remember that you are legislating to deal with the activities, in the end, of a small minority, but that the legislation will impact the entire industry; and that you are also legislating without having had a chance to evaluate some of the measures that have been brought in over the past couple of years, to see the full extent of the impact that they might have on the industry as things go through.
In terms of the impact on landlords, as David Cox has explained clearly, the client relationship in the future will be unambiguous: the agent will owe a duty to the landlord through the contract.
We have no doubt that the costs to landlords will increase. Agents will certainly try and pass on part of the fee that they have charged to tenants to landlords. We do not believe it is going to be possible for them to move all those charges from the tenant to the landlord, but landlords will certainly have to absorb some of those and, like any other business, they will attempt to respond to an increase in costs by maintaining their profit margins by increasing the price. So, there will be some increase in rents, but how much that happens will depend very much on the market, and that will depend very much indeed on the locality and the situation there.
I think both landlords and agents will have to absorb some degree of that cost. As a result of agents charging landlords more, we expect that there will be more competition. That competition could be in terms of the quality of service, as agents try to retain and increase their client list by providing better value for money; but we could also see that competition emerge in terms of fees, in that agents will try and attract landlords by charging lower and lower fees. We are already advising our members to keep a firm eye on the level of service they are being offered and to make sure that the level of service they are being offered is what is delivered and that it relates to some of their other needs. For example, the number of inspections they are being offered each year by their agent should correspond to that which is required under their insurance contracts.
Undoubtedly, there will be more self-management. Landlords will look at the fees they are being charged and consider whether they should be managing themselves. We have some evidence from some of our surveys that people are increasingly thinking in that direction. Ultimately, as was also made clear in the previous session, the key is enforcement. There are many issues across the private rented sector where we have the legislation in place but there just are not the resources to enforce it, so we need to ensure the surety and certainty of enforcement to make sure that what is in this legislation—and, indeed, in all other legislation across the sector—actually sticks.
I am David Smith, the policy director for the Residential Landlords Association. We also have some concerns about the Bill. Clearly, there has been a situation where some agents charge egregious fees, but as Richard rightly said, they are the minority, not the majority. We do not think the Government have done enough with the Consumer Rights Act 2015; there were powers to make regulations under the Act to increase transparency around fees, which were not taken up.
We are very concerned about enforcement. Enforcement under the Consumer Rights Act has been what I would generously call patchy—I have used other terms in other places—and we do not think that enforcement is going to be sufficient. In fact, enforcement provisions in the Bill are a bit of a mess, and we think that is likely to lead to poor enforcement and make the Bill ineffective. I think there is a very high risk that the Bill in fact will not achieve any effect at all, because there will be insufficient enforcement against the bad agents who are already charging the excessive fees and will carry on doing so, and in some cases people will find ways to work around the Bill, as they already have in Scotland to some extent.
We are also concerned that there is a missed opportunity here. Our view is that the biggest cost for tenants is not the fee they have to pay when they move, but the fact that they have to have two tenancy deposits—one for the outgoing property and one for the incoming property. We have advocated on a number of occasions for legislation to be passed to change that dynamic and to rethink the way we use tenancy deposits—to find some way of making tenancy deposits cross over from tenancy to tenancy, to avoid a scenario where tenants are actually having to pay two deposits.
There are no circumstances in which a fee is ever going to be as high as six weeks’ rent. Therefore, the tenancy deposit is always the actual controlling factor in terms of how much tenants have to pay.
Q Do you think that it is about enforcement, or is it about deterrence? Fines are set at around £5,000. Do you think that is enough of a deterrent? Do you think that if those fines were sufficiently high to worry the small number of rogue landlords, we would not have to worry so much about the enforcement side?
The Consumer Rights Act has a £5,000 deterrent penalty, which clearly—presumably—has not worked, because otherwise, we would not be having this discussion at all. I endorse the National Approved Letting Scheme’s study from last year that shows that very, very few penalties have been levied. What is particularly interesting, which Isobel did not mention, is that even fewer of those penalties have actually been collected. Not only are people not levying very many penalties, but in many cases when they levy them, they are never in fact paid anyway. So, I do not see much deterrence there. Local authority officers have told me anecdotally of situations where they have levied penalties and people have said, “Yeah, fine. Send me a £5,000 penalty and I’ll pay it. It doesn’t make any difference to me.”
The structure is also a bit nonsensical. There is a certain situation where the Bill states that it is an offence to charge a prohibited fee, but it is only an offence if I have already sent you a £5,000 penalty notice and then catch you at it again. From a practical point of view—a trading standards officer point of view—they will have to do the whole thing twice to get a prosecution. The Bill also creates a system whereby we can ban agents under the new banning order provisions in the Housing and Planning Act 2016, but the reality is that banning is very unlikely to occur on a first offence, so you are going to have to get two prosecutions, which means you are going to have to catch somebody four times and prove a case against them before you can move to banning them. If prohibited tenant fees are an offence, then they should be an offence and they should be treated as an offence; they should not be an offence with some codicil on the front that says, “You can pay a little bit of money for it not to be an offence.” That does not make sense.
Absolutely. I think the level of penalty is a deterrent to the law-abiding because it ensures that they will not slide into error, but for the people who are breaking the law and who factor it in as part of the cost of business, it will not matter at all, because the lack of enforcement means that they will assume that most of the time they can get away with it, and on the occasions that they cannot, it is simply a cost of doing business.
There is a significant level of ignorance, as well. We should not ignore the fact that not all agents are bad in the sense of being evil; many of them are bad in the sense of just being fairly incompetent. While there is a significant percentage of highly professional and highly skilled agents, there is a minority of agents who I would not apply those words to.
Q In relation to tenant fees, given that is what we are here to discuss. I am not allowed to go outside the scope of that.
I appreciate that there is a great attraction in comparing Scotland with England, but the markets are enormously different. Outside the main cities in Scotland, the vast majority of letting and estate agents are co-located with solicitors, so the economics of the business is totally different. Inside the cities, it is a bit more like it is in England and Wales, but the size of the market is tiny by comparison and I am not convinced that it is a particularly good comparator. You might do better by comparing with the Irish Republic, which is of a similar size and has much more similar economic structures in some way. I see your point, and I do not think you are necessarily wrong, but I do not think it is as simple as a direct comparison between the two—sorry.
On the issue of enforcement, I have been working closely with my local citizens advice bureau in Lewes, which has done a huge Q amount of work on this. The current system does not work because it is up to local authorities to enforce it, and tenants often do not realise that there are fees that have to be paid, and that on the same high street those fees could vary from hundreds to, in some cases in my constituency, thousands of pounds, and that letting agents are supposed to publish those fees.
So, currently, the enforcement system is not working. Is it not right that if fees are banned, tenants will be able to self-enforce, because they will be aware that no fees should be charged? Do you not recognise that this would give more power to tenants in the process, given that currently they are not able to make those decisions?
Q But do you not recognise that that gives power back to the tenants? They can then question letting agents as to why fees are being charged. Currently they do not have the information to be able to do that.
There is a level of lack of understanding amongst many tenants, in that often they will find themselves handing over money that they discover is for fees when they thought it was for a deposit. The agent will give them an explanation as to why they are being asked to pay something over, and will then change the story later on.
If an agent is exploiting the opportunity, inevitably tenants will fall into that. We do still find that many people who go looking for rented property simply are not aware of the legislation and the protections that they already have. We, as an organisation, have actively gone to local authorities and said, “We have walked down the high street and counted up the number of agents who are not displaying their fees. We think that you could probably collect enough fines over a space of two hours to fund your activity enforcing this regulation for the rest of the year.” The reluctance is to do it in the first place, because the response is always, “We don’t have the resources to do that in the first place.”
Every time I go and see a local authority councillor I always bring them at least one example of an agent in their area who is illegally charging fees or breaking the law in some way. I do it consistently.
Q Do you not welcome the Bill, then, in that it will make it very clear to tenants that there should not be fees being charged in the first place? They can then make that decision for themselves.
But there are scenarios in which the Bill allows the charging of fees. It allows the charging of fees provided they are optional, for example. It is not an outright ban on fees; it is a partial ban on fees. There are circumstances where fees are chargeable, where they are optional. And you are relying on tenants actually finding out about their rights. Unfortunately, at the moment most tenants are grossly unaware of their rights, and will remain so.
The Bill will make the situation clear for the majority but, again, there will be a minority of tenants who will not be fully aware of their rights, and there will be a minority of agents who will continue to try to exploit the situation. The only way to deal with that is with effective enforcement. In the first instance, effective enforcement needs to be properly resourced. Once you have that kick-start, the fines generated and the authorities’ ability to attain the proceeds from those fines will mean that they can continue to resource it. You have to have the initial resource to make that enforcement effective, otherwise you are simply passing the legislation, and it is not being policed.
Q I just have a quick question on default fees. Will you set out your views on default fees, and why they are necessary? I recognise that there are tenants who often leave properties in a state in which they did not find them. How often, in your experience, are default fees payable? What percentage of tenants would this apply to?
We don’t have data. The continuing use of the phrase “default fees” misrepresents what is going on here. David Cox gave one of the best examples: that of a tenant who loses their keys and expects the agent to go over at midnight. “Default fees” is shorthand for a mechanism that exists in almost every commercial contract.
At the moment, quite a lot of agents put default fees into their agreements, but they are very rarely charged. In practice, they are mostly taken out of the tenant’s deposit. In many cases there is no deposit left to take. Most agents do not bother.
I think for self-managing landlords, it depends whether you have just one incidence of this. Let’s stay with the example of somebody locking themselves out, forgetting their keys and coming home from a night out at 2 am and being unable to get in. They ring the landlord and ask them to bring a key round. The landlord will usually complain and possibly do it once. If they find that it is happening two or three times then they will start to say, “Well actually, I am going to charge for my time involved in getting up in the middle of the night, coming over and letting you in.” If there is more of an issue and the landlord has to engage a locksmith, that could involve a charge of £150 or £200 in London. They will want to try and recover that kind of fee. With self-managing landlords where the relationship is directly with the tenant, there is a level of give and take initially, but then if it is a continuing problem or if there are several incidents then, yes, they will do something.
Landlords are always entitled to recover their costs from a tenant’s breach of contract. A default fee is actually where the parties pre-agree what the level of that fee should be, creating a degree of certainty between them so that tenants are going to know that they will have to pay this amount and this amount only, whatever the actual cost of, say, a locksmith. There is a benefit to having a fixed tariff of fees for particular contractual breaches. It is a commonly used mechanism across a wide range of contracts.
May I just ask for information? Obviously we accept that the majority of landlords are good landlords and do the right thing. You talk about exploitation, variation and some egregious levels of charging, and some exploitation of people. Would you describe what evidence there is as to the numbers of good agents versus bad agents, and good landlords versus bad landlords? We talk about the bogus ones who are charging people but is there evidence of the number, or of where they tend to be? Do they tend to be the bigger ones or smaller ones? Are they in cities or in rural areas? What do we know?Q
It is almost impossible to identify that. Those kinds of landlords and agents do not self-identify, by definition. Somebody once said to me, “The worst tenants tend to gravitate towards the worst landlords.” Often, those kinds of landlords will be housing people with chaotic and vulnerable lives who find it difficult to go anywhere else, or people who may be on the verges of criminality. Quite often, you find that the actual accommodation provision is a sideline of a wider organised criminal activity, and it is a part of something that will involve people trafficking, prostitution, drugs, money laundering and so on. The letting of the property is simply a factor: they need somewhere to house the people.
The only way to clarify that would be to look at the number of landlords prosecuted as a percentage of the overall number of landlords. However, the problem with that as a measure is that enforcement is so poor.
Q Yes. On the agent side, you said you could walk down a street and point the local authority to all the agents who are not displaying their fees at the right level. Do you have any sense of where and who those agents are? Are there any numbers to any of these assertions?
Again, you have to distinguish between walking down the street and finding technical breaches of the Consumer Rights Act 2015, for which you could probably find 15-odd per cent of agents, depending on where you are, and agents who wilfully go out to break the law across a wide sweep of things. There are aspects on which some agents are just not very good at keeping up with what is, at the moment, a pretty fast-moving legislative picture.
The closest I can get is to flip the question around. We have regularly done tenant surveys over the past five years, and one question we ask is whether they have ever dealt with a rogue landlord, by which we mean someone who engages in criminal activity. The answer pretty consistently comes back as somewhere between 12% and 16% of tenants having at any time during their renting lives dealt with someone who they thought was acting in a criminal manner.
We always ask after that what the landlord was doing that made the tenants think that. Some of the stories we have heard shocked us, and we are used to hearing some real horror stories about landlords. For others it is low level management problems, such as not repainting a ceiling after a leak or taking three days to get a plumber when the boiler packed up. What people actually understand as criminal activity on the part of a landlord—
Q I have two other quick questions, if that is okay, Mr Bone. We have talked a lot about enforcement. Can you describe your ideal enforcement regime that would enable the Bill to be implemented?
I would prefer a two-track option with a direct mechanism for tenants to enforce rights themselves, with local authority back-up. I am aware that Ms Onn has tabled an amendment that would allow tenants to enforce in a similar way to tenancy deposit protection. I am not sure I necessarily agree with the three-times-amount penalty, but there is certainly a logic in allowing tenants to have direct enforcement of their rights. That clearly makes sense and would certainly help in potential situations where a local authority is not adequately resourced or is unwilling to carry out enforcement activity itself.
Q In terms of local authorities, what kind of enforcement do we need there? We talked earlier about needing more resources. What else do we need?
It is not just about more resources. The RLA has consistently asked not just for resources, but for a fixed, clear, repeatable sum of money, year on year, that allows a genuine enforcement structure to be built. That is not just little bits of money left over at the end of the year in the budget of the Department for Communities and Local Government, as it was, but an actual fixed sum of money, so that—to flip it around—local authorities can have a clear and understandable plan to execute enforcement, but they need repeatable money that goes on for five years.
We would like the Ministry to make it clear to local authorities that enforcement is a priority and should be considered a priority within their budget-setting, and to argue to the Treasury that the resources for enforcement should be enabled through the support grant that goes to local authorities and that local authorities should have the wherewithal that they need. If this is as important as the debate seems to suggest it is—we would say that it is—they need the resources to actually make that happen.
A great deal of enforcement interest is targeted towards things that appear to be important because they make the press. They are important issues, but bad housing wrecks lives again and again, every day, because tenants go home to it every day. I do not think it gets the interest and support it needs in that regard.
Q I completely agree. On the six-week cap on deposits, people have suggested that the majority of landlords charge four weeks’ rent, and that if this piece of legislation goes through as it is, they would automatically put it up to six weeks. What is your view on that?
I would say that we are ambivalent. It is true that if you impose a cap, there is always a tendency within the market to move toward the maximum of the cap. Having said that, certainly for the last five, six or seven years the advice that our advice line gives landlords has been, “If you are going to charge a deposit, charge six weeks, because what you want to do is to detach the sense that the deposit is equivalent to a month’s rent, so that the tenant does not get into the mindset that, ‘I can leave the tenancy early; the landlord’s got the last month’s rent in the deposit,’ so the tenancy does not end correctly.” Even so, the vast majority of people still charge one month’s rent, with some flexibility where they need to add some compensation for a tenant’s additional risk, as was described by my predecessors.
We find that a lot of our members are charging six weeks for very much the same reasons that Richard has laid out, and that would be our advice to our members. We are concerned that by putting on a six-week cap, you will find that a lot of tenants with pets simply will not get property.
That is possible, but I do not think a lot of landlords will, because why bother? Why go through the effort? Our bigger concern is that we surveyed some of our landlords towards the end of last year and around 50% of them said that they simply would not rent to tenants with pets if the deposit was capped in a way that they did not feel would allow them to recover the potential cost of that.
Q We all totally understand that there is a huge risk of unscrupulous agents or unscrupulous landlords continuing to exploit the most vulnerable, but a number of you, in this session and earlier, have said rather airily that you could just walk down the high street and find the—I think you used this figure—15% of agents with wrong information and so on. If you have that sort of information, why do you not share it with both local authorities and the MPs involved?
Q I can absolutely assure you I have never had a letter, from your organisation or anyone else, telling me anything about any agent in the city of Gloucester who is doing it wrong. I would be delighted to have it and I would follow up on it, and I think you would find that a lot of MPs would share the same view.
Q Thank you both for coming today, and thank you for your engagement with the Department on formulating the Bill, which we very much appreciate. I have one quick question about holding deposits. The Bill permits a holding deposit to be taken by a landlord while references and things are being conducted, and allows part of that to be withheld if misleading or false information is provided. Do you agree with that provision? Do you think it provides an appropriate protection for landlords?
We believe that the tenant has to have some kind of financial stake in securing the tenancy, so that they do not game the system by putting in offers on a number of properties and then only taking one, whereas the individual landlords will remove the property from the market once they have a firm offer. We would have preferred the situation where the landlord could have charged directly for the reference fee, because we think that is clearer and more transparent. The holding fee is acceptable as far as we are concerned, but we would have preferred something that was much clearer and more transparent to both the landlord and the tenant.
The market has tended to move away from holding deposits in the last few years and has simply charged a fixed fee, which ideally should have been linked to referencing, but has occasionally become linked to a random figure made up by the agent. I suspect that what will actually happen is that quite a lot of landlords and agents will not charge holding deposits, particularly in London, and they will simply run it tournament-style: whichever tenant gets there the fastest, with the mostest, will get it.
Q Just to clear up something you said before, you talked about ambivalence regarding the deposit—that is, the number of weeks of deposit. To be crystal clear, are you ambivalent about the number of weeks at which the deposit should be capped, or do you agree that six weeks is the right level, or too low, or too high?
We would prefer not to have a cap at all. If the Government are determined to bring one in, six weeks is something that we think we can work with. What I was ambivalent about was whether it would mean that people who currently take four weeks as a deposit would automatically move to six. I think that very much depends on the individual, but there is evidence elsewhere in the economy that if you set a limit on what can be charged, the market tends to gravitate towards that limit.
We will accept six weeks and will work with it if they put on a cap, but we would prefer to have some scope within the Bill. We have proposed an amendment to the Bill that would allow a slightly higher deposit where there is a particular set of risk factors such as a pet, or someone who is coming from overseas, or someone who can provide no evidence of their income. Otherwise, we feel that landlords just will not rent to those people.
Thank you very much for coming today. It has been a most interesting session. We could have continued for longer, but I am afraid that the programme order requires me to stop the evidence session now. That brings us to the end of your evidence session today. The Committee will continue to take oral evidence in our next sitting on Thursday at 11.30 am, ahead of beginning the line-by-line consideration of the Bill at 2 pm.
TFB01 Riley Marshall
TFB02 Tracey Glenn, Lettings Director at John German
TFB03 Steve Harris, Managing Director at Abode
TFB04 Simon Hardy, Director, Harvey Scott Cheshire Ltd
TFB05 Maria Morgan, Managing Director, Platinum Properties Ely
TFB06 Andrew GM Hepburn, Proprietor, Mead Property Management
TFB07 Sue & John Warburton, Proprietors of Belvoir – Leamington Spa
TFB08 Phil Watson, Managing Director, Martin&Co
TFB09 Sonny Sabharwal, Lettings Director, Hampton-Heath
TFB10 David Votta, Senior Lettings Manager, Haart
TFB11 Deanna Musgrave, BEP Relocation
TFB12 Dennis H Dowen, Dowen Surveyors and Estate Agents
TFB13 Stan Heeks and others
TFB14 Grant Nicholls, Woodholls, Director
TFB15 Urban Patchwork
TFB16 Michael and Elizabeth Fenton
TFB17 Steve Ballam, Director, Martin&Co Poole
TFB18 Louise Griffiths, Managing Director, Martin&Co
TFB19 Susan Rowlands, Peach Lettings
TFB20 Roy Pabari, Hilton & Fox Ltd
TFB21 Simon Bland, Director, sbliving Limited
TFB22 Jonathan Morgan, Managing Director, Morgans City Living
TFB23 Adam Gregory, AGT Property Management & Lettings Ltd
TFB24 Luke Gidney, Managing Director, Let Leeds
TFB25 Daniel Dow, Director, KT Residential Ltd
TFB26 Bill Cooper
TFB27 David Westgate, Chief Executive, Andrews Property Group
TFB28 Nathan Anderson Dixon, Managing Director, Abode Midlands
TFB29 James Whittaker, Norwich Accommodation Agency
TFB31 Jenny Robinson
TFB32 Mr Kameron Singh
TFB33 Sarah Hope, Saxon Kings
TFB34 Jeremy Traynor, Traynor and Co Surveyors
TFB35 Lucinda Watts, Sulgrave Estates Limited
TFB36 Citizens Advice
TFB37 ARLA Propertymark
TFB38 Refugee Council
TFB40 Mervyn Terrett, A-Top Management Services Ltd
TFB41 Residential Landlords Association