Prohibitions applying to letting agents

Tenant Fees Bill – in a Public Bill Committee at 2:30 pm on 7 June 2018.

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Question proposed, That the clause stand part of the Bill.

Photo of Rishi Sunak Rishi Sunak Parliamentary Under-Secretary (Housing, Communities and Local Government)

The clause bans letting agents from requiring a tenant or other relevant person to make a payment or loan, or secure insurance or services from a third party in connection with a tenancy. The clause works with clause 1 to ensure that the legislation applies equally to all tenants, no matter whether they let through a letting agent, as captured in this clause, or directly with a landlord, as captured in clause 1.

The provisions in the clause essentially mirror those in clause 1, so I will not repeat myself, but it may be helpful if I highlight briefly where the two clauses differ. The key differences are in the definition of “in connection with” a tenancy agreement, because the letting agent makes arrangements on behalf of the landlord and is not itself party to a tenancy agreement. There is also no exception allowing letting agents to require a tenant to procure utilities or communication services. That exception is relevant only to landlords, but clause 2 essentially has the same effect as clause 1, which is to ban letting fees.

Photo of Melanie Onn Melanie Onn Shadow Minister (Housing, Communities and Local Government) (Housing)

I recognise that for the most part the clause mirrors the prohibitions applying to landlords. It is important that letting agents, which are often the professional guide to the amateur landlord and often operate on behalf of the landlord, developing close relationships over many years while in the pay of the landlord, have the propriety of their conduct considered closely.

The same principle applies to letting agents as to landlords, in that there are some excellent agents and some that fall far short, often seeming to set unreasonable charges without much comeback. Letting agents also lack the personable relationship with tenants that often develops between landlords and tenants. Landlords often develop levels of understanding with tenants that give tenants a bit of leeway, meaning that they could charge under the permitted fees under the Bill, and under a tenancy agreement through default fees.

Good landlords will often be empathetic about genuine and honest mistakes or problems that tenants make or face, and look for practical and easy solutions for both parties. For example, they may let tenants sort out replacing a lost key by themselves, and at a lesser cost, if it is a first offence. They may take some of the loss if a tenant has to move out in the event of a job loss, or a family emergency, or a genuine struggle to pay rent or exit fees. While there are some excellent letting agents that go the extra mile to keep tenants happy and in their property, too often letting agents take an extremely hands-off approach to tenants and only see them as a way to make money and collect fees, which are currently far too high, whenever they contractually can.

Currently, letting agents often charge fees that would be prohibited under the Bill during the move-in period and make a significant amount of money out of a new tenant. As a result of the Bill, letting agents will be far more driven by the desire to keep properties full for as long as possible, as they will see far fewer benefits from a property that rapidly changes tenancy than when they could charge those often high fees. That will help the drive towards achieving the aim of everybody in this room to see longer tenancies in the private rented sector, and increase the value of good-quality service from letting agents that keeps tenants happy and in place.

It will also move the balance of power in the letting market far more towards the tenant. Letting agents often make money through introductory charges to tenants and a percentage commission of the rent. Where once letting agents may have been happy to charge high fees and wait until someone comes along who is able and willing to pay them, the Bill will mean that letting agents will want a property to be filled as soon as possible, so they can earn commission on the rent. That will mean that letting agents have more reason to provide a good service to tenants and act to promote properties to get them filled as quickly as possible.

Tenants have no choice of letting agent if they want to move into a specific property. Who to choose as an agent for a property is currently at the behest of the landlord and therefore letting agents do not focus on offering a good deal to tenants, but on offering the best deal to landlords. Letting agents levy as much of the charge as possible on a tenant to avoid charging above the market rate to a landlord, as there is no point in trying to offer a good deal to tenants if no landlords use the agency to let their property. The result is that tenants are often charged well above reasonable amounts in set-up costs alone. They can often be expected to find hundreds of pounds for things such as credit checks, referencing and set-up paperwork, on top of a holding deposit, security deposit and the first month’s rent. Even for a modest property, that often runs into hundreds of pounds, perhaps even thousands.

We know that people on low and average wages often find it impossible to find the deposit to buy a property, but at the moment many would struggle to find the money to move into a rented property. That is grossly unfair, given that at the very least the landlords are the owners of a property that has increased often significantly in value over the past few years, and are often also rich in their own right. Yet they receive all the advantages in the letting agent market at the expense of our growing population of private renters, who are often young and increasingly likely never to own a home.

That is especially true in areas with high levels of student accommodation. For example, Leamington Spa has an extremely high level of student accommodation for a town of its size, due to a nearby university. Almost all that rental market is operated through agents and is used by students who have little knowledge of their rental rights and what is a fair rate for the charges that letting agents levy. It is a fast-moving market. There is pressure on students to secure a place that they like quite rapidly, often for a fixed-size group, six or seven months before moving in, and the pressure often leads to students paying £300 or £400, sometimes unexpectedly, if the pace of the property uptake surprises them, on top of their current rent and living costs while they are at university.

Photo of Jo Stevens Jo Stevens Labour, Cardiff Central

I represent a typical university constituency. It is in Wales and is not affected by this Bill, but by way of example, I mentioned on Second Reading a street in one of the wards in my constituency. I added up every single person living in student accommodation in that street of 200 houses, and letting agents are making in excess of £320,000 every single year in just that one street. Does my hon. Friend agree that that is something we need to prevent?

Photo of Melanie Onn Melanie Onn Shadow Minister (Housing, Communities and Local Government) (Housing)

The important thing for students is that they understand the system that they are going to be entering, as for many of them it will be the first time they have moved away from home. They also should understand whether they are subject to unfair fees that are excessive for young people who are most likely to be reliant on student finance and part-time work if they do not have help from their family. We should also ensure they are fully aware of all their rights in those circumstances. The idea that they are having to make such decisions many months in advance when they are feeling the pressure leaves them wide open to exploitation. Their situation will hopefully be aided by the Bill.

Picking up what I was saying—it is a little haphazard, sorry—these costs represent a lot of money for a full-time worker, but for many students, they represent their whole living costs for a month. The balance needs to change dramatically. The extension of schedule 1 to letting agents will mean that they can no longer absorb the cost of a low landlord commission rate by passing the cost on to tenants.

We support the clause, but a few points of concern arise. As it is nearly identical to clause 1 in wording, I will not labour the points I raised in our consideration of that, but I want to seek some clarity on some particular differences between the clauses and draw the Minister’s attention to subsections (4), (5) and (6). Will he outline again the purpose of the loan and confirm that it is included as a preventive measure to avoid landlords seeking any alternative finance mechanism by which to re-route a payment? I would be grateful if he did. It would ensure that I have understood what he said.

The main point I wish to make about clause 2 relates to subsection (3), which states that a letting agent cannot require a tenant to enter into a contract for provision of a service or a contract of insurance. While the rest of the clause reflects clause 1, subsection (3) does not go on to specifically exclude utilities or communications. Why is that the case?

The Minister will know that letting agents can earn a commission for placing clients’ properties with particular utility companies. Switches of energy provider must be done with the bill payer’s consent, and that is likely to be the landlord during a period of the property being void, but it allows for a default situation to arise for tenants when they move in and start receiving bills that are not the most economical for them, requiring them to pay higher rates on generic tariffs. They are then free to change supplier, but they have already been paying at a higher rate and they then have to go through the process of moving supplier. I know that process is supposed to be easy and straightforward, but it is still a chore and an off-putting task for anyone trying to find the right and best deal.

Are letting agents to be permitted to continue to be incentivised to sign up unwitting renters to these rip-off rate utility companies? Will the Government commit to taking steps within the Bill, rather than waiting for guidance? If we are to deal with tenants’ fees and making things fairer for renters, why not do it all now? We should say that such inducements should not be available to letting agents. Renters should be notified in advance who the utility and any other established providers are and given the opportunity to make arrangements that better suit their budget. I hope the Minister can provide answers to those questions.

Photo of Rishi Sunak Rishi Sunak Parliamentary Under-Secretary (Housing, Communities and Local Government)

To respond directly to the two specific points that the hon. Lady raised, I can give her the same assurance that I gave on clause 1: the exception for insurance can specifically not be a means to require a payment that otherwise would be prohibited by the legislation. The same assurance stands here, and I hope that gives her the reassurance she needs. Secondly, to focus specifically on the clause we are debating, it does not allow letting agents to charge for utilities or communications services, but clause 1 does. The specific reason for that is that the contract would typically be in the name of the landlord and would be a function of the landlord-tenant relationship. That should not be permitted for the letting agent. I assume that she does not think they should be included.

Photo of Melanie Onn Melanie Onn Shadow Minister (Housing, Communities and Local Government) (Housing)

My concern is that letting agents are able, upon the agreement of the landlord, to set these things up in their own name. That does happen. Does the Minister think that that is okay, particularly given that they receive inducements for it?

Photo of Rishi Sunak Rishi Sunak Parliamentary Under-Secretary (Housing, Communities and Local Government) 2:45, 7 June 2018

After the legislation passes, that would be a particularly silly thing for letting agents to do, because they would not, under the legislation and this particular clause, be able to charge the tenant for those utility arrangements. The clause specifically prohibits letting agents from charging those payments to tenants. The hon. Lady should feel reassured about that.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3