Tenant Fees Bill

Written evidence submitted by Citizens Advice (TFB36)

1. About Citizens Advice

1.1 Citizens Advice provides free, confidential and independent advice to help people overcome their problems.

1.2 Last year we helped over 2.7 million people face to face, by phone, email or webchat. We provide support in 2,700 locations in England and Wales and people visited our online advice pages 43 million times.

1.3 We are a voice for millions of people on the issues that matter to them.

2. Reason for submitting evidence

2.1 Last year, our network of local Citizens Advice helped people with over 400,000 housing issues, including more than 100,000 issues relating to problems in the private rented sector.

2.2 We use this unparalleled, frontline evidence to support the Government, regulators and industry to identify and tackle the issues causing people the most problems.

3. Executive summary

3.1 The default fee clause has the potential to fundamentally undermine the Government’s aim to end tenant fees and prevent unfair practices.

3.2 The Government must significantly tighten this clause with a clearer definition of when a default fee is legitimate. Leaving this to non-statutory guidance risks inconsistent outcomes for renters.

3.3 The Bill should also be amended so that deposits are capped at 4 weeks rent, rather than 6 weeks. Setting the cap at 6 weeks will only help 8% of renters. [1] It also risks huge price rises for those struggling to enter the market.

3.4 This market is now essential for the millions of people who rely on it for a home.

3.5 Private renters do not have the same choices as people in other essential markets and have little bargaining power. Our research from December 2016 found that the average (median) amount tenants paid in fees to their current letting agent was £400. A repeat of the research in March 2018 found that this had increased to £450, a rise of 12.5% in 15 months. [2]

3.6 With the changes above and adequate enforcement mechanisms, this Bill should fix a dysfunctional feature of the rental market, helping the 4.7 million households who are privately renting. It will also make it easier for renters on lower incomes to meet the upfront costs of renting.

4. Submission

4.1 Every month, people renting their homes pay over pay over £13 million in unfair and uncompetitive fees - and £235 million since the government promised to ban them in November 2016.

4.2 We’ve called for a ban on fees for almost a decade , so we’re pleased to finally see the Bill reach this stage. However, the government has included a clause in the Bill which could fundamentally undermine these aims.

Default fees

4.3 Schedule 1, paragraph 4(1) of the Bill allows the landlord to recoup any costs caused by a ‘default by the tenant’, so long as ‘the tenant is required by the tenancy agreement to make the payment’.

4.4 The Bill does not provide a comprehensive definition of ‘default fee’. We understand that landlords can be left out of pocket due to having to pay for lost keys, or late rent payments. However, as currently drafted, the clause leaves the Bill open to significant abuse, and could allow landlords or agents to legitimately charge fees the Government intends to ban.

4.5 During our evidence session to the Housing, Communities and Local Government (HCLG) Select Committee in January, we said the clause:

"Leave(s) the legislation open to exploitation… unfair or disproportionate fees could easily and legitimately be written into contracts… a wide range of tenancy terms could be reworded or added to satisfy the definition of ‘default’ fees… this would not only affect fees for replacement keys or late rent payments, but could open the door for what are effectively renewal fees, inventory charges and exit fees."

4.6 These are the type of fees that the government wants to ban. Many people, including cross-party MPs, the HCLG Select Committee, landlord bodies, letting agents, enforcement agencies, housing lawyers, and tenant bodies, have recognised this clause is open to abuse. Leaving this loophole open undermines the government’s aim to end fees and unfair practices.

4.7 If parliament does not take action to tighten this clause, the Bill will be fundamentally flawed. As drafted, this clause undermines the Government’s aim to end tenant fees and prevent unfair practices.

4.8 While landlords/agents will be required to set out default fees within tenancy contracts, our evidence shows that half of tenants only received their current contract after they had put down money, such as a holding deposit, for the property. More than a quarter of tenants (26%) only received their tenancy contract on the day they moved into the property or later.

4.9 Tenants must balance a wide range of priorities when they look for a new home, including meeting their budget and ensuring the home is reasonable quality. This makes scrutiny of contract terms a low priority. Only 5% of renters say that the terms and conditions included in their tenancy agreement is their top concern when moving. [3]

4.10 Additionally, tenants often have weak bargaining power when negotiating a tenancy contract, making it difficult for them to challenge unreasonable conditions and fees. A third of tenants (33%) have signed a tenancy agreement without fully understanding it on at least one occasion. More than a quarter of tenants (26%) would not feel confident disputing or negotiating the terms and conditions of their tenancy agreement. And only 1 in 10 renters (11%) has ever successfully disputed the terms and conditions within their tenancy agreement. [4]

4.11 The Government plans to issue non-statutory guidance on default fees, but this is unlikely to adequately protect renters in the way the Government intends. We’ve already seen examples of where guidance doesn’t work in other essential markets.

4.11.1 Council tax debt collection practices - guidance on this hasn’t prevented the majority of councils from using bailiffs to collect debts from vulnerable people.

4.11.2 Anti-social behaviour orders against homeless people - guidance issued over Christmas 2017 hasn’t stopped some councils misusing civil powers to remove rough sleepers.

4.11.3 Energy supplier back billing - the regulator had to scrap guidance and bring in a licence to make sure consumers were protected.

Capping deposits

4.12 The Government is planning to cap deposits, recognising the significant burden they place on renters. This is a welcome move. However, setting the cap at 6 weeks - as the Bill suggests - will not reduce the costs that tenants can face at the outset, as the Government intends. It will only help 8% of renters. By comparison, a 4 week cap would save 47% of renters money.

4.13 Large deposits can be a significant barrier to accessing the private rented sector, or moving within the sector. Citizens Advice helped with more than 12,000 issues relating to private rented deposits in the past year.

4.14 Our research found that the most common amount to pay for a refundable deposit is 4 weeks/1 month (34%). [5] By setting a cap at 6 weeks, the Bill risks huge price rises for those renters who are struggling to enter the market, undermining the essence of this Bill.

4.15 Concerns that a 4 week deposit would be used by tenants as a replacement for their final month’s rent are ill-founded. Our research found that, during their most recent move, only 2% of renters used their security deposit to cover the last month’s rent, without the landlord/agent’s knowledge or consent. [6]

Holding deposits

4.16 The legislation makes provision for holding deposits to be retained in cases of ‘false and misleading information’.

4.17 Citizens Advice believes this should not enable landlords or letting agents to retain the full holding deposit following a failed credit check or reference check. As outlined in our consultation response , this can cause severe financial hardship for tenants and prevent them from being able to access the private rented sector.

Enforcement

4.18 The proposed mechanisms for enforcing the legislation are Trading Standards and first-tier tribunal proceedings. Citizens Advice is concerned that neither of these will provide an effective route to enforcement and that this could undermine the intention of the legislation.

4.19 The legislation in its current form is reliant on Trading Standards, which we believe risks rogue agents continuing to charge fees. The lack of capacity facing local Trading Standards means many will struggle to take on additional enforcement duties without support. This is particularly true given the inclusion of the default fees clause in its current form, which will make enforcement much more challenging.

4.20 The legislation also offers tenants the possibility of taking first-tier tribunal proceedings against a landlord or letting agent who has charged them unlawful fees. We welcome the government’s decision to allow cases to be considered in the first-tier tribunal system, rather than the less accessible county court system. Our research into tenants’ experiences of court processes has highlighted how few tenants feel confident undertaking court action. The main reasons underlying this are the potential costs, the time involved and the complexity of the process. However, we expect that similar barriers may still apply relating to this legislation, even within the tribunal system. Ultimately this makes it vital that tenants have accessible alternatives to the first-tier tribunal process, such as Ombudsman schemes, as well as adequate incentives for initiating a case.

4.21 Currently the repayment of fees following a tribunal process is discretionary, meaning that even in instances of unlawfully charged fees, the tenant would not necessarily be compensated. This is likely to put off tenants from initiating a tribunal case and gives notably less incentive than the deposit protection legislation, which has mandatory repayment and includes the option of more significant compensation.

5. Recommendations

Default fee clause

5.1 The default fees clause should be tightened, with a clearer definition of when a default fee is legitimate, to ensure it is not abused by rogue landlords operating within the sector. Leaving this to non-statutory guidance risks inconsistent outcomes for renters.

5.2 The Committee should make provisions for secondary legislation to specify the circumstances in which a payment is to be considered a payment in the event of a default as set out in Schedule 1, paragraph 4(1) of the Bill.

5.3 We have provided suggested wording for an amendment to reflect this in the appendix of this document.

5.4 Secondary legislation will allow government to comprehensively consult on what ‘defaults’ a landlord might legitimately charge for, and to limit the clause to those specific charges. Crucially, this will provide landlords with greater clarity on what they can legally charge for. This would significantly reduce the potential harm to renters.

5.5 By defining the list in secondary legislation it could be easily amended or added to, to ensure that it remains fit for purpose. The experience of Scotland , which has not used its power to alter or add exemptions in the 7 years it has been in force, in spite of its only exemption relating to Green Deal payments, shows that - if consulted on thoroughly - it is unlikely that a list would need radical and repeated alterations.

Deposit cap

5.6 The Bill should also be amended so that deposits are capped at 4 weeks rent, rather than 6 weeks. Capping deposits at 4 weeks would help 47% of renters, as opposed to only 8% with the cap set at 6 weeks.

Holding deposits

5.7 We recommend that the government accept the Housing, Communities and Local Government Select Committee’s recommendation on holding deposits. This set out that landlords should only be able to retain the full holding deposit where a tenant has knowingly provided false or misleading information.

Enforcement

5.8 There are alternative enforcement models the government could use, as well as ways to encourage tenants to take cases to tribunal. In particular, we highlight the opportunity to mimic the deposit protection legislation, wherein compensation of between one and three times the original deposit amount are mandatory. This is a substantial incentive for tenants to challenge breaches of the law. Without similar incentives and assurances built into the Tenant Fees Bill, we are concerned that tenants will feel unable to act.

5.9 The recent announcement of compulsory Ombudsman membership for landlords presents a further opportunity to simplify redress routes for unlawful fees. Enabling tenants to use this route to reclaim unlawful fees, rather than requiring first-tier tribunal action, would be a significant improvement for tenants. Similarly, the government should consider expanding the remit of the letting agent redress schemes, in order that they can consider breaches by agents.

6. Appendix

6.1 Suggested amendment to tighten the clause on default fees

Schedule 1

Payment in the event of a default

4 (1) Subject to sub-paragraphs (3), (4), and (5), a payment that a tenant is required to make in the event of a default by the tenant is a permitted payment if the tenant is required by the tenancy agreement to make the payment in the event of such a default.

(2) In this paragraph "default" means a failure by the tenant to-

(a) perform an obligation, or

(b) discharge a liability, arising under or in connection with the tenancy.

(3) But if the amount of the payment exceeds the reasonable and proportionate value of the loss suffered by the landlord or letting agent as a result of the default, the amount of the excess is a prohibited payment.

(4) The Secretary of State must by regulations made by statutory instrument specify the circumstances in which a payment is to be considered a payment in the event of a default within the meaning of sub-paragraph (1).

(5) Regulations under sub-paragraph (4) must also make provision as to the procedure to be followed by a landlord or letting agent in seeking to recover a payment under this paragraph, which may include a requirement to give notice of proposed recovery in a prescribed form accompanied by evidence of the loss sustained by reason of the relevant default.

May 2018


[1] Polling by Yougov for Citizens Advice, December 2016.

[2] Polling by ComRes for Citizens Advice, March 2018.

[3] Polling by ComRes for Citizens Advice, March 2018.

[4] All statistics - polling by ComRes for Citizens Advice, March 2018.

[5] Polling by Yougov for Citizens Advice, December 2016.

[6] Polling by ComRes for Citizens Advice, March 2018.

 

Prepared 4th June 2018