PARLIAMENTARY DEBATE
Tenant Fees Bill (First sitting) - 5 June 2018 (Commons/Public Bill Committees)

Before we begin, I have a few preliminary announcements. Please switch electronic devices to silent. Teas and coffees are not allowed during sittings as they are deemed to be hot drinks, although you can persuade me otherwise. We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication, and a motion to allow us to deliberate in private about our questions before the oral evidence session. In view of the time available, I hope that we can take those matters formally, without debate.

I call the Minister to move the programme motion standing in his name, which was discussed yesterday by the Programming Sub-Committee.

Ordered,

That—

(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 5 June) meet—

(a) at 11.30 am and 2.00 pm on Thursday 7 June;

(b) at 9.25 am, 2.00 pm and 5.00 pm on Tuesday 12 June;

(2) the Committee shall hear oral evidence in accordance with the following Table:

Table

Date	Time	Witness
Tuesday 5 June	Until no later than 10.25 am	ARLA Propertymark; National Approved Letting Scheme; OpenRent
Tuesday 5 June	Until no later than 10.55 am	National Landlords Association; Residential Landlords Association
Thursday 7 June	Until no later than 12.15 pm	Local Government Association; Chartered Trading Standards Institute
Thursday 7 June	Until no later than 1.00 pm	Shelter; Citizens Advice; Generation Rent; National Union of Students

(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 3; Schedule 1; Clauses 4 and 5; Schedule 2; Clauses 6 to 8; Schedule 3; Clauses 9 to 33; new Clauses; new Schedules; remaining proceedings on the Bill;

(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 7.00 pm on Tuesday 12 June.—(Rishi Sunak.)

The deadline for amendments to be considered at the first line-by-line sitting of the Committee was the rise of the House yesterday. The next deadline will be the rise of the House on Thursday for the Committee’s sitting a week today.

Resolved,

That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Rishi Sunak.)

Copies of written evidence that the Committee receives will be made available in the Committee Room.

Resolved,

That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Rishi Sunak.)

We resume our public sitting and will hear evidence from the Association of Residential Letting Agents, the National Approved Letting Scheme, and OpenRent.

Before I call the first Member to ask a question, I remind all hon. Members that questions should be limited to matters within the scope of the Bill and that we must stick to the timings in the programme motion that the Committee has just agreed. For this session we shall have until 10.25 am. Also, I ask whether any members of the Committee wish to declare any relevant interest in connection with the Bill.

Thank you. I call the first panel. Will the witnesses please introduce themselves for the record?

David Cox: I am David Cox, from the Association of Residential Letting Agents.

Isobel Thomson: I am Isobel Thomson, from the National Approved Letting Scheme.

Adam Hyslop: I am Adam Hyslop, from OpenRent.

Q Good morning. This is a fairly informal process to help the Committee get views as background for when they go through the Bill line by line. It might be an idea, starting with Mr Cox, to make an opening statement.

David Cox: Thank you, Mr Bone. We do not support the Bill. We do not think it will achieve its aims. The market has grown up over a period of time. It is already quite a heavily regulated market. We estimate that there are about 145 pieces of legislation and 400 sets of regulations that govern the lettings industry. When talking about greater clarity and control, one of the problems that we have had is the complete lack of enforcement in the sector.

The Select Committee on Housing, Communities and Local Government has recently carried out an inquiry looking at the private rented sector. Enforcement levels are pitifully low. The London Borough of Newham prosecutes about 250 landlords and agents a year, and that accounts for half the number of prosecutions in the sector. I am sure that Isobel will talk about some research that NALS did last year on the impact of enforcement with respect to the agent transparency regulation from 2015. If laws were being enforced—if trading standards was going out and enforcing the law—we would not have the problem that the Bill is trying to solve.

We are worried that there will be a repeat of what has happened every time before: a new law is passed; professional agents—our members—will abide by that law; and unregulated and unprofessional agents will continue operating and charging fees with absolute impunity because there will be such low levels of prosecution.

Lending fees represent legitimate costs to business. They cover three essential elements of a contract: the tenant referencing, the contract negotiation and the inventory check-in/check-out report. Those services are provided to tenants, and landlords pay for the different services.

At the moment, an agent is effectively the servant of two masters. They are the agent to both, and they have a legal duty of care to both. We are worried that, when the fee ban comes into force, the services to tenants will probably diminish because the legislation effectively states that the primary consumer of the letting agent service is the landlord. Therefore, the customer service enhancements that legislation over the past 20 years has focused on—good property condition and good management practice—will be undone.

The research we undertook through Capital Economics last year indicates that it is likely that tenants will pay about £103 per tenant per year more in rent as a result of the ban. They will make a saving if they move more regularly, but we, like everybody else in this room, want to see longer-term tenancies. According to Capital Economics, the over-under is two and a half years. Therefore, people who want well-maintained tenancies—three-year tenancies—will end up paying more as a result of the ban than they would if we left it as it is today.

Isobel Thomson: I concur with everything David just said. I am a representative of a letting agent organisation, and our aim is to raise standards in the private rented sector. We are very concerned about the impact of the ban. We think it will result in an increase in rents, which is ultimately not in the interests of the tenant. Landlords faced with additional costs may move to self-management, which would not ultimately be in the interests of the tenant either.

During the passage of this Bill, I am sure you, as consistency MPs, have visited letting agencies in your constituencies, so you know that they are good, sound businesses, and that people work hard to deliver the service to tenants. There will be an impact on those small businesses, which are the eyes and ears of the local housing community. Businesses will close, and there will be a loss of employment. It was sad to read the Government quite glibly say in their impact assessment that the impact of the ban will be about £10,000 per branch of a letting agent company, because £10,000 outside London is the cost of a part-time member of staff. A small business—perhaps a sole trader with only one member of staff—will have to get rid of that part-timer, who could easily be a tenant, so there is an impact there.

David mentioned enforcement. We carried out a survey of 42 local authorities in June last year, looking at the enforcement of the Consumer Rights Act 2015. Of those 42 local authorities, 93% had failed to issue a single financial penalty against a letting agent in the previous two years.

What are we going to be faced with with the fee ban? Enforcement really needs to come to the fore. The Government have mentioned that there will be a lead enforcement authority. We need to know who that is, how they are going to gear up and how they are going to be resourced. That is what I would like to see.

Adam Hyslop: Just to give you some context, OpenRent is the largest letting agent in the UK. We let 70,000 properties last year, and we are on track to let 100,000 properties this year. Our policy since inception six years ago has been to ban admin fees. We provide quite a compelling case study that the fee ban is not at odds with running a successful and sustainable letting business.

Further to that, I do not believe a fee ban would increase rents. The logic for that is that our rents across the country are in line with the national average. Roughly, the nationwide average is about £900 per month, and the London average is about £1,500 per month. In fact, by switching to OpenRent from a high street agent, landlords save, on average, over £1,000, and we often see those savings passed back to tenants in the form of lower rents. I am here today hopefully as a case study to show that some of the concerns the industry has raised might not be valid.

We have two specific concerns about the Bill. One is the issue of default fees. The concern is that, as the Bill is currently drafted, tenants might not have the full protection that it intends. I have further comments on that, which I will probably come to later. Secondly, there is the treatment of holding deposits relating to false and misleading information provided by tenants. The period during which a tenant is referenced is quite complex, and I feel that the current drafting does not quite provide the incentives to get the right outcomes for tenants or landlords acting in good faith. We have those two concerns about the detail of the Bill, but at a high level we are supportive.

Thank you. We will now move to questions from members of the Committee. This is a rather unusual situation because this is a time when the Minister is allowed to have some fun and to ask you questions. Let us start with the shadow Minister.

Q Mr Hyslop, do you want to add anything to that?

Adam Hyslop: To loop back to the previous point on enforcement, I would add that one of the great things that, hopefully, the Bill will bring through is the ability to self-enforce better. Currently, there is legislation that was designed to promote transparency and to make sure that tenants are aware of what fees will be charged, without seeking to limit those. That has not been totally successful, partly because it is quite difficult for a tenant to prove whether they were shown those fees and whether they were made clear to them. It is a somewhat abstract concept whether they were aware of the fees before they were asked to pay them at a later point in the process.

The good thing about a clearer and higher-level fee ban is that a tenant paying money is a far more provable event. A tenant can get to that point in the process and then simply refuse to pay the fee if it is presented to them. Even if they get past that phase and they were not aware that they were being charged a fee illegally, it is then easier to prove that they did pay a fee and to unwind that. I feel that self-enforcement is far easier with the legislation being proposed than with the current set-up.

A number of Members are trying to catch my eye, so with the Minister’s permission, I shall hold him to the end.

The trouble with these sittings is that we could go on forever, because it is so interesting and it helps the Committee enormously, but a number of Members want to ask questions, so I will move us on.

I am going to have to cut you short on that. I am conscious that I promised the Minister to allow him in before the end.

Order. I am very sorry to interrupt. You have been a very engaging and useful panel and we could have gone on much longer, but I am afraid that under the programming motion, I have to bring the session to an end. Thank you very much for attending this morning.

Examination of Witnesses

Richard Lambert and David Smith gave evidence.

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?

Richard Lambert: 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.

David Smith: 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.

Thank you. I am going to move to Richard Graham very briefly, and then I want the Minister to have some fun.

We are running short of time. Minister.

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.