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.
A STATUTORY SCHEME
TO PROTECT
RENT DEPOSITS
AND TO
RESOLVE DISPUTES
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.
LICENSING PROPOSALS
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.
THE ROLE
OF THE
INDEPENDENT HOUSING
OMBUDSMAN
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.
RIGHT TO
BUY
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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