Rhea Newman
Rhea Newman

By Rhea Newman

The draft bill banning letting fees is under scrutiny

The government’s draft bill banning letting fees is currently being scrutinised by the Communities and Local Government Committee. We have submitted evidence to the committee, which together with evidence from other organisations, will help inform the committee’s recommendations about what the final version of the bill should look like.

Here is a summary of our main recommendations to the committee about the different proposals in the Bill.

The ban on upfront fees

We are very supportive of the ban on upfront letting fees and think it is a big step towards a fairer and more affordable lettings market. With average fees of over £200, this will significantly benefit tenants by saving them money every time they move.

The ban should also benefit landlords and the lettings industry. As landlords will now be the main fee-paying customer, agents will have far greater incentives to compete to offer a good level of service at a fair price.

We urged the committee not to allow the upfront ban to be watered down. Any exemptions, for example allowing agents to charge certain fees, will risk creating loopholes that can be exploited. Evidence from the banning of letting fees in Scotland suggests there will be greater compliance if there is a simple ban which can be easily understood by tenants, landlords, and letting agents.[1] A clear all-encompassing ban will also make it easier for local authorities to enforce the ban.

We asked the committee to ensure the bill is enacted as soon as possible. We’re aware some opportunistic agents are currently charging even higher fees to maximise their income before the ban comes in.

Permitting default fees

Our biggest concern is that the bill allows agents to charge default fees. These fees are effectively penalty charges which can be imposed if a tenant fails to pay the rent on time or breaks another condition of their tenancy (for example losing a key).

Allowing agents to charge these fees creates a loophole which can be exploited because the bill does not place any limits on what can be charged for, or how much can be charged. We are also concerned that default fees are illegitimate under consumer contract law and that allowing these fees would set a concerning precedent. Based on this, we’re recommending that charging default fees should not be allowed by the bill.

We recognise that if a tenant loses a key then it is fair for them to cover the cost of replacing the key. We’ve suggested this example of a default could be added as a specific permitted payment in the bill.  However, the tenant should only be asked to pay the cost of replacing the key, rather than pay a default fee which is likely to be significantly higher than the actual cost of a new key.

A cap on deposits

The introduction of a cap on deposits is a welcome step but we’ve encouraged the committee to review the level of the cap for both security and holding deposits. Capping security deposits at six weeks will mean private renters in England are still faced with trying to find an average of over £1100, or £1800 in London, to put down a security deposit.[2] We know private renters are often forced to use their savings or borrow from family and friends to pay deposits. However, many people on low incomes do not have these options which can make deposits an insurmountable barrier.

We also asked the committee to tighten the conditions about when a holding deposit should be returned. Currently these terms are very open to exploitation and we’re concerned those on the lowest incomes might lose out to unscrupulous agents. This is even more important given the current proposal to cap holding deposits at one week’s rent, as losing a week’s rent would have a significant impact on many private renters.

Next steps

The committee is now reviewing the written evidence received. In the new year the committee will hold several oral evidence sessions where MPs will have the opportunity to ask further questions about the bill and the issues highlighted in the written evidence.

We will be providing evidence at a session early in the new year and we are looking forward to working with MPs to help finalise this bill, so it can be enacted as soon as possible.

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[1] Shelter, Lessons from the Scottish Lettings Market, June 2014

[2] English Housing Survey, Private Rented Sector, 2015 – 2016

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