Tenant Fees Bill

Written evidence submitted by Dr Andrew Summers (TFB45)

Dear Committee,

I am an Assistant Professor of Law at the London School of Economics. I am emailing to comment on the Tenant Fees Bill currently under consideration by the Committee.

My comments on the Bill are as follows:

(1) Policy

I would like to congratulate the government for bringing forward this Bill.

I strongly agree with the policy motivations of the Bill as outlined in the Explanatory Notes, especially paragraphs 21 and 24 as follows:

21. Letting agent fees are not always clearly or consistently explained with the result that many tenants are unaware of the true costs of renting a property. The competitive pressure on tenant fees is weak as agents are chosen by landlords. Letting agents can therefore impose unfair or excessive fees because tenants have a very limited ability to negotiate or opt-out. This is not fair, restricts movement in the private rented sector and reduces affordability.

24. It is not simple for tenants to understand and compare agent fees since there is significant variation in the way that agents charge for their services. Further, agents charging fees to both landlords and tenants increases the risk of unfair practices in the form of double charging.

I would add, simply by way of reinforcement, the further observation that the extremely high level of fees currently charged by some letting agents, which greatly exceed any plausible estimate of the letting agents’ actual costs for the relevant service, are indicative of a lack of competitive pressure and a clear market failure that the government is absolutely right to address.

(2) Specific provisions

I would like to congratulate the drafters on a very well-drafted Bill that in my view successfully achieves, for the most part, the aims set out in paragraph 1 of the Explanatory Notes.

Against this background of overall support, I have the following comments that I would urge the Committee to consider:

(a) Schedule 1, Section 5(2) – Payment on variation, assignment or novation of a tenancy

(i) Simple renewals

In my view, the Bill should not treat all instances of variation, assignment or novation in the same way.

In particular, I think that there should be no charge at all for a ‘simple renewal’ of the tenancy agreement, where this renewal involves only a change to the dates and the amount of rent stated in the agreement. This simple renewal process is surely one of the integral functions of a letting agent, which can easily be anticipated by the letting agent as part of its routine business model. If so, this process (and any associated costs) is likely already to have been taken into account in the amount of the fee or commission that the letting agent will charge to the landlord. For this reason, even where the renewal has been requested by the tenant, in my view these simple variations or novations should fall outside the ambit of the £50 permitted payment.

(ii) The cap as the new standard

I am also concerned that £50 will still be too high in other cases that differ from the ‘simple renewal’ but that are nevertheless administratively straightforward. In particular, I urge the Committee to bear in mind that whatever maximum amount (or ‘cap’) the Bill states in this section, it will in practice quickly become the standard charge within the letting agent industry, for every variation, no matter how straightforward. In light of this, I think that (what will become) the standard charge of £50 should be reduced to a lower figure. If (which I suspect is rare, in practice) the variation is complex, it can be dealt with under the reasonable costs clause.

(iii) The meaning of ‘reasonable costs’

I am also concerned that in Section 5(2)(b) of Schedule 1, the term ‘reasonable costs’ is not defined or elaborated.

For example, does the Committee consider that reasonable costs would include:

- The staff time of the letting agent (if so, what is a reasonable hourly rate)?

- The agent’s associated indirect/overhead costs?

- A margin of profit for the agent?

Depending on the answers to these questions, a letting agent may plausibly contend that its ‘reasonable costs’ are very high, so as to exceed the default £50 maximum in many cases. For example, consider the not-unlikely scenario where a letting agent informs the tenant that their request to vary the tenancy agreement will cost £100 because it took two hours of the agent’s time including correspondence with the tenant and amending the agreement. As presently drafted, with what degree of confidence could a tenant take the landlord or letting agent to the Tribunal under Section 5(2)(b)?

Unless the meaning of ‘reasonable costs’ is clarified (for example, as a fixed hourly rate for the time taken by the letting agent), then there is a risk that in practice letting agents will frequently rely on Section 5(2)(b) as grounds for exceeding the £50 cap.

(b) Remedies of the tenant following a prohibited payment

For the most part, I welcome and support the enforcement mechanisms introduced by the Bill. However, the Bill will still place the burden on the tenant to pursue a claim before the Tribunal in the event that they have previously been charged a prohibited payment.

The question of which party in practice bears the burden of bringing a claim, is very important, especially if (as I assume) Trading Standards and Local Councils will not be sufficiently resourced proactively to pursue large numbers of cases. This is because, where the sums at stake are relatively small (for example, fees of less than £100), then it may hardly be worth the time of the tenant to navigate the Tribunal process to recover the payment, and so breaches of the legislation will go un-remedied.

Consequently, I suggest that the Committee should consider whether there is any way of reversing the burden by allowing the tenant (who claims to have made prohibited payments to the landlord or letting agent) to apply the relevant payments to the rent, without a decision of the Tribunal. I recognise that there are some difficulties here, once one introduces procedures that would allow a tenant unilaterally to reduce the rent. However, perhaps there could be some sort of fast-track or simplified process that would permit a deduction from the rent without a full decision by the Tribunal.

(3) Conclusions

I think that this Bill is necessary and important, and has been well-drafted. I highly commend it and overall I would be happy to see it passed in its current form. Above all else, I urge the Committee not to allow the protections to tenants to be watered-down in the course of scrutiny.

Notwithstanding my broad support for the Bill in its current form, I do think that the Committee should look seriously at strengthening the protections in relation to (a) payments for variation of the tenancy agreement and (b) remedies following a prohibited payment, as stated above.

June 2018

 

Prepared 7th June 2018