Financial Penalties Etc

Tenant Fees Bill – in a Public Bill Committee at 10:00 am on 12th June 2018.

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Question proposed, That the schedule be the Third schedule to the Bill.

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

It is important that there is consistency in the way in which local authorities impose financial penalties and that the process is fair. This schedule sets out the procedure to be followed.

Enforcement authorities must give the landlord or agent notice of their intention to service a financial penalty within six months of the breach occurring. This notice must contain relevant information about the reasons for imposing the penalty, the amount and the right to make representations. The landlord or agent then has 28 days to respond. If the enforcement authority decides to impose a penalty, it must provide a final notice setting out the amount of penalty, how much to pay, the rights of appeal and the consequences of failing to comply. An enforcement authority may at any time withdraw or amend a notice of intent or final notice. The landlord or agent must be notified of this in writing.

Landlords and agents have a right to appeal to the first-tier tribunal against a final notice. This appeal must be brought within 28 days of the final notice and is to be a re-hearing of the enforcement authority’s decision, but the tribunal may admit evidence that was not heard before the enforcement authority, if relevant. The final notice is suspended until the appeal is determined or withdrawn. The first-tier tribunal may confirm, vary or quash the final notice. It may impose a penalty up to the same maximum penalty as the enforcement authority could have imposed. If the landlord or agent fails to pay all or part of this financial penalty, the authority can seek repayment on the order of the county court. Similarly, if the authority requires the landlord or agent to repay the tenant any prohibited fees and they fail to do so, this can be recovered under an order of the county court.

I am aware that concerns have been raised about the resources of local authorities. I trust that the Committee welcomes the schedule, as it enables an enforcement authority to retain the proceeds of any financial penalty, as we have discussed, for future housing enforcement.

Photo of Sarah Jones Sarah Jones Shadow Minister (Housing, Communities and Local Government) (Housing)

It is a pleasure to serve under your chairmanship, Mr Sharma, for our second day in Committee. As the Minister has set out, schedule 3 provides some clarity over financial penalties, including notices of intent, recovery of penalties and proceeds of those penalties. The Opposition support the schedule as drafted. We are seeking clarity, however, from the Minister on certain aspects, before we give our support for its inclusion in the Bill. I would like to focus on paragraphs 6 and 7, which deal with the specifics of appeals and the recovery of penalties.

As with any piece of legislation such as this, the right to appeal is extremely important. It is correct that this is reflected in the Bill. It is also vital that the conditions of any appeal are presented with the utmost clarity to prevent abuse or a miscarriage of justice. Pre-legislative scrutiny by the Select Committee rightly raised concerns about how the Bill defined grounds for appeal, arguing that a first-tier tribunal should decide appeals as complete rehearings, which should take into account all matters, whether known to the local authority at the time of its decision or not. We are glad that the Government took that into account and amended the Bill accordingly. However, a number of questions about appeals remain, and I hope that the Minister can offer some clarity in his response.

Paragraph 6(5) of schedule 3 confirms the following:

“On an appeal under this paragraph the First-tier Tribunal may quash, confirm or vary the final notice.”

That is an important requirement where the first-tier tribunal finds in favour of the landlord or agent. I think it is clear to us all that where the first-tier tribunal finds fully in favour of the landlord or agent—that is, it finds that the decision to impose the penalty was incorrect—it is quite a simple process; the final notice will be quashed.

However, where the tribunal finds in favour of a landlord or agent who has challenged the amount of the penalty rather than the decision itself, things become more complicated. I hope that the Minister can offer us some detail on the type of situations in which there may be a challenge to the amount of the penalty and in which the tribunal might be expected to find in favour and therefore vary that amount. Before it was amended, the Bill mentioned the amount of the penalty being “unreasonable”—a very vague term. That term has been removed from the Bill, but the current version still offers little clarity on that point. I hope that the Minister can give us assurances that more clarity will be provided on what constitutes genuine grounds for appeal on the amount of penalty. It is not hard to imagine a situation in which lack of clarity opens the door to an unprecedented number of appeals on the grounds that the cost is unreasonable.

What is more, there is confusion about the level of financial penalty that authorities will be able to charge. That was discussed in the Select Committee report, which raised concerns about how the Bill seemed to suggest that authorities could set the level of fee dependent on the cost of enforcement—something that we will come on to in more detail. That has the potential to place a significant burden on first-tier tribunals, and I wonder whether the Minister has considered the implications of this part of the Bill. Should we not have more clarity on what does and does not represent a reasonable or unreasonable cost?

Another aspect of the appeals system could benefit from closer Government attention. Any appeals system such as this is essentially a safety net for bad decision making at the first stage. That means that if a significant number of decisions are overturned at the appeal stage, something is going wrong at the enforcement or judicial level. We all know from dealing with casework in other areas—particularly disability benefit—how easy it is for that to happen. Sadly, in the case of disability benefits and first-tier tribunals, the Government are not doing enough to look at why so many decisions initially go against the claimant and are then overturned at tribunal.

If this Bill is wrongly enforced, it has the potential to impact negatively on a large number of businesses and landlords across the country. The time and effort needed to fight an incorrect decision would be significant; the legal fees and time investment needed could be extremely detrimental to businesses. It is therefore very important that some form of review date be put in place to guarantee a detailed look at how many appeals are being submitted, what percentage are successful and for what reason. That will give the Government the ability to identify consistently occurring issues and resolve them. I hope that the Minister will consider that and give us his thoughts on whether the Government would introduce a review of that type—for example, six months after the Bill takes effect. I know that such a measure would be supported by landlords, agents and enforcement authorities.

Paragraph 7 provides important clarity on the recovery of financial penalties. Like paragraph 6, this paragraph has been amended following feedback from the Select Committee. We agree with the Government’s decision to amend the Bill to that effect. However, there are still question marks over how this aspect of the Bill will be enforced, and I hope that the Minister will be able to offer us assurances. One issue would be the recovering of fines from non-UK residents. We are all aware of the issues about foreign ownership in the property market. Characterised by a lack of transparency, London in particular is regularly cited as a haven for dirty money. That creates clear issues about enforcing good standards in the property market. Recently, that has been seen most acutely in the issues about the recladding of private tower blocks, which we discussed in the Chamber yesterday.

To give just a small example, I had to write to a well-known Hong Kong billionaire playboy called Stephen Hung, whom my office, after a long search, had identified as the ultimate owner of an unsafe tower block in my constituency. The water supply had been turned off for a whole week, and it was the third time that that had happened. Only through lots of interrogation did we find out who he actually was and put the situation right. There are therefore questions about how the Government expect local enforcement authorities to be able to enforce effectively the fines under the Bill when those responsible for the offences live in other countries.

The second issue is companies that are deliberately folded to avoid payment. Linked to my previous point about foreign ownership, the situation in the private rented sector is such that ultimate ownership of property can be obscured by multiple shell companies or other opaque ownership structures. It is not impossible to imagine a situation in which rogue landlords and agents are able to game the system—for example, ownership structures for property that might allow owners to avoid a fine by folding one company while keeping others going. That would also allow rogue landlords or agents to continue trading on the rest of their assets, thereby avoiding any potential ban. Overall, the Opposition support the inclusion of the schedule in the Bill, but I hope that the Minister will look at the points I have raised and will offer reassurance that they will be considered carefully.

Photo of Rishi Sunak Rishi Sunak Parliamentary Under-Secretary (Housing, Communities and Local Government) 10:15 am, 12th June 2018

It is a pleasure to respond to the hon. Lady. I am cautious, as I wish to stay on point, with your direction, Mr Sharma. The hon. Lady raised some review periods, which we will no doubt discuss more specifically towards the end of this sitting when debating the new clauses tabled by Opposition Members, and with regard to phoenix companies, which are specifically covered by clause 13. I will leave discussion on those matters to the debates on the relevant clauses.

On the hon. Lady’s broad point about the level of fines, I thank her for recognising that the Government took on board the advice of the Housing, Communities and Local Government Committee’s on drafting these clauses, and we amended the draft legislation. I hope that she appreciates that. As I said, we took on board the Committee’s specific recommendations about the first-tier tribunal and the process that will be followed.

More specifically, on the hon. Lady’s point about the level of fines that can be varied, as with all judicial matters that will be a matter for the tribunal or the judicial processes of the county court—whichever avenue the enforcement mechanism finds itself in. Guidance will be published on the appropriate level of penalty, dependent on a broad range of situations, which will serve as a framework for how local authorities will enforce that penalty. The first-tier tribunal will subsequently have regard to that. It will not be for the Minister or the Government to direct in every circumstance what the level of fine should be.

As the hon. Lady rightly recognised, it is appropriate, as it is across our judicial system, that the courts have the flexibility to determine things on a case-by-case basis. I hope she welcomes that flexibility, which was added to the Bill at the request of the Select Committee. I look forward to debating phoenix companies and other such matters with her when we debate subsequent clauses.

Question put and agreed to.

Schedule 3 accordingly agreed to.

Clause 9