Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Written Evidence

Memorandum by Citizens Advice (DHB 04)

  Citizens Advice welcomes the opportunity to submit evidence to the ODPM Select Committee on the draft Housing Bill.

  Housing is one of the main areas on which CABx provide advice. In 2001-2 CABx dealt with over half a million housing problems across all tenures. Many relate to clients living in the private rented sector and we therefore welcome the Minister's statement that the purpose of the Bill is to take action against unacceptably low housing standards in the private rented sector to ensure that people in the private sector, as much as in the social sector, have the opportunity of a decent home.


  The major concern of the Citizens Advice service in relation to the draft Housing Bill is to ensure that the opportunity is taken to legislate on the holding of, and resolution of disputes about, rent deposits. Citizens Advice believes that both the content and the timing of this Bill make it highly appropriate for taking forward this issue.

  In relation to content, the Bill's focus on improving management standards in the private rented sector makes it an appropriate vehicle for such provision. Poor management practices by landlords and agents over taking, holding and returning rent deposits are a very common source of complaint to CABx.

    A CAB in the West Midlands reported a client who paid a deposit of £900 on a house in London. When he left, the landlord said he would be retaining the whole amount to put the garden in order. This was despite the fact that there had been no mention of garden maintenance in the tenancy contract and the tenant was only in the house during the six winter months.

    A CAB in Gloucestershire reported a couple that paid a deposit of £380 in 1997. When they vacated the flat five years later, the landlady refused to return the deposit, saying that the carpet was stained. The clients had in fact replaced the carpet in 2000 because the previous one had become threadbare and uncleanable. No inventory had ever been taken.

    A CAB in Hertfordshire reported a client who had paid a deposit of £1,100 15 months previously. On vacating, the agent inspected and stated in writing that the property was left in excellent condition. However the landlady refused to return the deposit until she returned to the UK two months later.

    A CAB in North London reported a tenant who had been told that £50 of her deposit would be withheld to replace a damaged lampshade. When she asked for the balance, the landlord then alleged that there was further damage, which she denied.

    A CAB in Surrey reported a client who paid a deposit of £350 for a flat in Swindon. She cleaned the flat thoroughly on vacating but the deposit has not been returned. On contacting the landlord she was told that the sink had been left dirty and that if she did not return to Swindon to clean it, he would deduct the cleaning cost. He also said that he had no cheque book with which to pay her.

  The reason why these problems are so common is not difficult to understand. Large sums of money—typically four weeks rent—are changing hands without any regulation over:

    —  how landlords should hold and account for the money;

    —  how quickly deposits should be returned at the end of the tenancy; and

    —  who should benefit from the interest on the money held.

    —  There is no requirement for an inventory or for a written statement specifying what the deposit is held against.

    —  The remedy is inadequate: if the landlord fails to return the deposit, the onus is on the ex-tenants to take action through the county court, where barriers include fees, long waits and no guarantee that, even if judgment is found in their favour, they will be successful in getting the money back.

  Indeed the 2001-02 Survey of English Housing estimates that some 20% of tenants considered that the landlord/agent from their most recent tenancy had retained too much of the deposit. It also estimates that some £790 million is held in rent deposits.

  The timing of the Bill is also appropriate, as the ODPM has recently completed its consultation on the case for introducing a statutory scheme[1] If Ministers decide to proceed with legislation, it will be important to do so as quickly as possible, not only to deal with a very pressing problem for private tenants but also in order that a statutory scheme can be built on the progress made by the ODPM-funded pilot Tenancy Deposit Scheme.

  The pilot Tenancy Deposit Scheme, administered by the Independent Housing Ombudsman was launched in March 2000, following publication of the Citizens Advice report Unsafe Deposit in 1998. Our report documented the case evidence and findings of a survey of CAB clients, which together gave an indication of the scale and nature of the problem. The report also examined alternative approaches developed in other countries and concluded that the best option was to establish a national custodial scheme to safeguard deposits, linked to a dispute resolution remedy to which relevant cases would be automatically referred. Such a scheme would be self-financing on the basis of the interest on the sums held on deposit in the single pot.

  We were therefore very pleased that the Government responded to our report by acknowledging that there was a need for reform. However the then Housing Minister, Hilary Armstrong, announced that before embarking on a statutory scheme, she wanted to see whether similar results could be achieved through voluntary measures. She therefore announced funding and support for a pilot Tenancy Deposit Scheme (TDS) to be established. This has enabled representatives of landlords, agents and tenants to take part in the development of a scheme administered by the Independent Housing Ombudsman, which ensures deposits are safeguarded during the life of the tenancy and provides a speedy, independent dispute resolution service at no cost to the tenant. Already the TDS has resolved some 250 disputes, over 90% of them within 10 working days. The scheme, along with the lessons learned from the pilot, provides a good base from which to develop a statutory scheme which meets the legitimate needs of the industry.

  However because of its voluntary nature, take-up of the scheme by landlords has been limited, and it now seems clear that a voluntary scheme could not be self-financing. Nor will it make much impact on addressing the problems faced by many tenants, as landlords and agents who are taking advantage of the current lack of regulation will not be inclined to join a voluntary scheme. Certainly CABx have continued to report a significant volume of problems over the two years of the pilot, even in the specific geographic areas on which the pilot was focused. What we have drawn from this is that, unsurprisingly, if the scheme is voluntary only those landlords who want to treat their tenants fairly will join it. Those who do not, stay outside the scheme.

  For example Brighton and Hove CAB which is in one of the pilot areas, recorded 12 cases of withheld deposits during a four-week period in January/February 2003. In six cases it was possible to contact the letting agents to ask whether they would be interested in joining the Tenancy Deposit Scheme. None of those contacted was interested in doing so, despite the fact that they had had a dispute with their tenants over the issue.

  We fear that Ministers will be reluctant to continue funding the pilot any longer than necessary given this limited take-up. However the continued functioning of the Tenancy Deposit Scheme, working as a shadow body, could help achieve a smooth and cost effective transition to a statutory scheme, avoiding the need to start from scratch with designing and setting up systems. It would also be very helpful in terms of developing a familiarity and acceptance of the basic concepts by the industry, thus reducing the level of non-compliance once a statutory scheme comes into force. It therefore makes sense to take the opportunity afforded by this Bill to establish a statutory scheme as quickly as possible.

  To achieve this, a clause could be drafted to make it illegal for a landlord to charge a deposit for a tenancy unless that deposit was held in a scheme approved by the Secretary of State. The precise nature of the scheme could be left to secondary legislation. Citizens Advice would recommend that the scheme be built on the two options developed by the pilot Tenancy Deposit Scheme. During the period of the tenancy, deposits should be held in a single custodial scheme, and the interest from the moneys held would fund the administration and dispute resolution function. The only exception would be for landlords and agents who are members of professional self-regulating bodies which have insurance or bonding arrangements in place to protect clients' money. For this group an alternative insured option, as piloted under the Tenancy Deposit Scheme, could be made available. All disputes over the return of rental deposits should be subject to independent adjudication.

  It would be important to have adequate enforcement measures in place although evidence from abroad indicates that a high level of compliance may be expected. Local authorities would have a key role to play and remedies could be linked, where appropriate, to their powers in relation to the granting and revoking of licences. We would also propose that where tenants discover during the tenancy that the landlord/agent has failed to lodge the deposit money as required by the legislation, they should have the right to withhold one month's rent and instead pay the sum directly into the custodial scheme themselves.

  Citizens Advice believes that a statutory scheme for the regulation of rent deposits fits well with the Government's wider agenda to improve standards in the private rented sector and ensure that it can provide accommodation of choice for increasing numbers of people. It is also consistent with the broad objectives of the Lord Chancellor's Department to develop non-court based mechanisms for dispute resolution.

  There is widespread support for such reform; an Early Day Motion calling for the inclusion within the draft Housing Bill of provision for a statutory scheme for holding and resolving disputes on rent deposits, has received over 100 signatories, with cross party support.

  We would therefore urge the Select Committee to recommend that provision be made within the Draft Housing Bill to introduce a statutory scheme for the protection of rent deposits.


  In general we welcome the proposals to introduce a mandatory licensing scheme for houses in multiple occupation and to give local authorities powers to licence all landlords in areas of low housing demand or where there is evidence of poor management of the private rented sector. It is very clear from CAB evidence that many private sector tenants suffer from having to live in property which is in serious disrepair and where landlords have an irresponsible approach to their management responsibilities.

  We believe that licensing has a key role to play in improving standards in the private rented sector and ensuring that private tenants can live in decent well-managed accommodation.

  We are pleased that the proposals for selective licensing have been amended following consultation so that it will be possible for local authorities to develop licensing schemes with provisions which are more similar to those required for houses in multiple occupation. We are also pleased that these may relate both to the management of the property and to the conditions, contents and amenities it provides. We believe that to have two licensing systems running side by side in the same area but with different criteria would be confusing for tenants and landlords.

  One particular requirement which gives us concern, is the compulsory requirement with regard to selective licensing, for references from prospective tenants. Such a requirement may disadvantage socially excluded people with high housing needs and no settled employment or housing history—for example women fleeing violence, young homeless people, ex-prisoners—who may have particular difficulties in obtaining references. On the other hand the requirement is unlikely to be effective in preventing anti-social tenants obtaining tenancies by producing false references.

  In relation to both types of licensing, the Bill provides that no rent or licence fee is payable for the period during which the property is not licensed (Clauses 67 (2) and 88(2)). Housing benefit will therefore not be payable to "tenants" residing in such property. There is clearly a danger that "tenants" may face repercussions from irresponsible landlords in such circumstances. It will be vital that local authorities make appropriate provision for the increased advice and support needs of tenants which will result from the introduction of selective licensing in an area. We would welcome the inclusion of a clause to require such an advice needs assessment and provision to be undertaken as part of the process for establishing a selective licensing scheme.


  We believe that measures to increase the professionalism of the private rented sector could be strengthened by a greater involvement of the Independent Housing Ombudsman in resolving disputes in the private rented sector. The experience of the Tenancy Deposit Scheme has demonstrated the role which the IHO can play in resolving one common form of dispute. It has provided a speedy, independent and affordable service which has been valued by both landlords and tenants involved.

  We would like to see this role extended so that landlords and tenants can refer a wide range of disputes to the Ombudsman.

  In other areas of consumer services (for example the Ombudsman for Estate Agents) membership of an Ombudsman service is seen as a key element of self-regulation, consistent with the OFT's criteria for consumer codes of practice on complaints handling. It is also seen as a mark of a professional service. However, although the 1996 Housing Act extended the IHO's remit to deal with disputes in the private rented sector, to date only around 50 private landlords have joined.

  Ideally we believe there is a case for making membership of the Independent Housing Ombudsman a condition of managing any private rented property. This would deliver significant benefits to private tenants who, because of their limited security of tenure, are often reluctant to challenge landlords when disputes arise. It would also be likely to result in more professional management practices throughout the industry. A step in this direction would be to include membership of the IHO as a means of demonstrating that the landlord or agent meets the "fit and proper person" test which is to be a requirement for obtaining a licence.


  Evidence from CABx repeatedly demonstrates the problems which arise as a result of the chronic shortage of secure and affordable housing to rent in many parts of the country. We therefore welcome the changes to the Right to Buy scheme introduced by the Bill which should have the effect reducing the loss of social housing lettings through the scheme.

  CABx also report many cases where tenants have been poorly advised with regard to exercising their Right to Buy. For example:

    A CAB in Merseyside reported a single parent on income support that was informed by a mortgage broker that if she exercised her right to buy, he could arrange a mortgage, and that income support would cover the full mortgage payments as long as these did not exceed the amount she was receiving in housing benefit. In fact only part of her interest and none of her capital repayments were covered by income support. She now has a mortgage she cannot afford and is at risk of homelessness.

    A CAB in Yorkshire reported a man in his 70s who had recently been discharged from a mental hospital following a suicide attempt after the death of his wife. He was visited by a representative of a private company who advised him that if he exercised his right to buy, he could get him a mortgage which would be cheaper than his current rental payment, although he was currently in receipt of income support. He agreed to go ahead and was provided with a 40-year interest only mortgage. The agent's commission was £1,200. He quickly got into arrears and the lender eventually repossessed the property. By this time the monthly contractual payments had increased to £943 pcm because of the addition of solicitors' costs. The CAB discovered that at the time of the purchase, the client had almost sufficient savings to have purchased the property outright. The CAB is now helping the client make a complaint to the Financial Services Ombudsman.

    A CAB in Yorkshire reported a man in his 70s in receipt of income support and housing benefit who responded to a leaflet drop from a company offering to help him purchase his property. He responded and an agent visited and advised him that as he was on income support he would have nothing to pay. He therefore went ahead with the purchase and took out a mortgage of £16,000. He now finds that he has to find £178 per month out of his income support to meet the shortfall between ISMI and the mortgage payment due. He is unable to sustain this and faces repossession.

  CAB evidence across a range of subject areas repeatedly demonstrates how many consumers pay a high price for being ill informed and unconfident when it comes to making important financial decisions. It also shows how some companies within the financial services sector are able to take advantage of consumers' lack of financial literacy to sell products and services that represent poor value.

  We would therefore welcome the addition of safeguards to require local authorities to ensure that all potential purchasers have access to a free source of independent financial and budgeting advice before proceeding with a Right to Buy purchase.

1   Tenancy money: probity and protection. ODPM Nov 2002. Back

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