Tenant Fees Bill

Written evidence submitted by Generation Rent (TFB 52)

Generation Rent represents the UK’s private renters and campaigns for secure, safe and fair private rented homes. We have campaigned for a ban on letting fees since we were established in 2014.

Summary:

· Generation Rent supports the purpose of the Bill, which it believes will cut costs for tenants, give them greater bargaining power, and create a more efficient market.

· We are concerned that default fees could be abused and that guidance promised by the government will not be sufficient to protect tenants who wish to challenge what they believe are prohibited fees.

· Enforcement of the Bill will be crucial and we welcome the inclusion of the route for tenants to apply to the First-Tier Tribunal in order to exercise their rights as an alternative to going through the council. However, we believe that tenants should be entitled to an element of compensation on top of getting a prohibited payment repaid.

· It is welcome that holding deposits are covered by the Bill, and tenants would benefit from the process being more formalised. We recommend two amendments, to prevent agents from wasting tenants’ time by taking more than one holding deposit for a property at a time, and to require the landlord or letting agent to provide the proposed tenancy agreement as soon as they take the holding deposit.

· We would like to see the cap on security deposits reduced from six weeks, but also believe that the wider system of deposits needs review.

Benefits of the Bill:

By banning the routine charging of fees to tenants, the Bill will reduce the cost of moving home by an average of £404, based on our research. [1] With lower barriers to moving home, tenants will have a stronger negotiating position with their landlord or letting agent as a threat to move out is more credible. The market will work more efficiently because landlords will bear the costs of the agent, who they appoint, and renters will have clearer pricing in the rental market.

Because landlords will have more incentive to shop around to get the best value for money from their letting agent, we do not expect fees to rise significantly for landlords. Because the market sets the rent that the tenant pays, rather than the costs of the landlord, we do not expect rent levels to rise.

Default fees (and other permitted fees):

We are concerned that the ability to charge fees in the event of a default will be abused by some agents and landlords. If the circumstances under which default fees can be charged is not clear, then some landlords and agents will include unfair clauses in tenancy agreements which are difficult for the tenant to comply with, incurring a fee in the process.

They may also make claims that exaggerate the amount of time spent dealing with a default, or the value of their time. This concern also applies to other permitted fees such as the change of sharer fee.

This lack of clarity will also mean tenants won’t have confidence to challenge fees they believe are prohibited. We believe that guidance will not have the weight needed to ensure that disputes are handled consistently by authorities and courts.

We asked our supporters for their experiences of disputes with landlords and agents and attempts to claim deductions on spurious grounds are common, such as excessively prescriptive cleaning requirements and for damage that has been caused by the landlord’s neglect.

Many respondents had succeeded in having fees and deductions waived but felt that less confident tenants would not be as tenacious in challenging them. Others had relented in their deposit disputes because they needed the reduced sum of money as soon as possible rather than wait longer for the full amount. This behaviour, from a minority of landlords and agents, suggests that there will be attempts to exploit loopholes in the Bill.

We recommend that the Committee amends the Bill to require secondary legislation to define default fees and limits on these. This would provide a clearer, legal definition of default fees, which would prevent abuse and protect tenants.

Enforcement:

We are concerned that trading standards will not have enough resources to fully enforce the ban. We welcome the inclusion in the Bill of measures to allow district councils to carry out enforcement where appropriate, instead of county councils, and an alternative, direct route for the tenant to claim back prohibited fees, through the First Tier Tribunal.

Prohibited payments are an offence which can see the local authority issue a civil penalty to the operator up to £5000. However, many authorities may not have sufficient resources to deploy in enforcing the fees ban. When we researched the impact of transparency legislation on letting agent behaviour in 2017, two years after the rules had come into force, 12% of letting agents were still not displaying fees online. [2]

Clause 15 allows tenants to claim back their money directly, through the First Tier Tribunal. But they only get awarded the value of the prohibited payment. In addition, the repayment of fees following a tribunal process is discretionary and requires further effort on the tenant’s part to be enforced. A tenant will have little incentive to take a case of illegal fees to the First Tier Tribunal without the provision that they will receive any compensation.

Clearly the civil penalty is intended to meet some of the costs of the local authority’s enforcement work. On that basis there ought to be some reward for the tenant who decides to take action directly – we propose a value of three times the prohibited payment, which is in line with tenancy deposit protection legislation. Such an element of compensation would give tenants more of a reason to enforce their rights as well as something in return for the inconvenience of applying to the tribunal. It would save the local authority potential costs, and create a greater deterrent to operators from charging prohibited fees.

The First Tier Tribunal option set out in Clause 15 may only take place if the local authority is not taking action in that case. Similarly, the local authority may only take action if the tenant has not already taken action independently. This prevents the problematic scenario of the operator being penalised twice, so there should be no reason to prevent the tenant being eligible for compensation.

We welcome Clause 17 which prevents the serving of a Section 21 eviction notice on the tenant if a prohibited fee has not been returned to the tenant. We note that the tenant could still be evicted on no-fault grounds after receiving repayment of a prohibited fee.

Holding Deposits:

Holding deposits serve a purpose but would ideally not exist if the referencing process was more efficient and decisions could be made immediately. However, assuming that there will be always be some cases where a landlord will need to take a refundable holding deposit, we welcome the Bill’s aims to formalise the process and prevent abuse.

We recommend that the Committee amends the Bill to provide clarity on what the tenant should expect when they hand over their deposit. Two problems we have heard from supporters are:

· Only getting the tenancy agreement the day before or the day of moving in, at which point it is very difficult to object to unfair terms. The tenancy agreement should therefore be provided upon payment of the holding deposit.

· Being declined for a tenancy because the agent took holding deposits from several prospective tenants then selecting one. Doing this means that the prospective tenants must put their househunting on hold because they cannot afford to put any more holding deposits down. Even though the Bill would entitle them to a refund, they will have wasted up to 15 days when they could have been finding a new place to live. The Bill should prohibit landlords and agents from taking a holding deposit when they already hold one for the same property.

Security Deposits:

We would like to see the cap on deposits reduced from six weeks’ rent. Because few tenants pay a deposit larger than this, the proposed cap will not benefit most tenants, and might make starting a tenancy harder for tenants who currently pay a four-week deposit.

Given the need to find a new deposit well before the current tenancy ends and the existing deposit is refunded, we support calls to develop a system of passporting deposits between tenancies, and a wider review of the deposit protection system. We have made proposals on this subject in a report of March 2018. [3]

June 2018