Letting Agents admit they’ll exploit loophole in draft Tenant Fees Bill

Letting Agents admit they’ll exploit loophole in draft Tenant Fees Bill

The Housing, Communities and Local Government Committee has published its report on the draft Tenant Fees Bill, which will ban letting fees to tenants. The Committee has been tasked with scrutinising the bill before it’s formally introduced to Parliament and making recommendations about how to strengthen it.

To help do this, the committee received evidence from a wide range of organisations, including letting agents, landlord bodies and tenant groups. We submitted written evidence and then gave oral evidence at the first of five sessions.

Below are our thoughts on the Committee’s report – what we like and what we still need to see changed if the bill is truly going to deliver a fairer and more transparent market for tenants.

The good

The committee’s report is a great reminder of how important this ban is and why it’s been so wildly popular with tenants. Our new research shows that tenants have forked over £678 million in fees over the past five years and the average fee has now risen to an alarming £272 per person. The report states that the ban will make renting more affordable to tenants and reduce the upfront costs which are a big barrier to finding somewhere to live.

A key recommendation of the report is to cap deposits at five weeks’ rent, down from six weeks as is in the draft bill. Given that the majority of landlords already take deposits of six weeks or less, we felt that a six-week cap wouldn’t be hugely meaningful in practice. Although we argued for a slightly lower cap of four weeks, we welcome the committee’s recommendation nonetheless. It’s a good first step in addressing the affordability issues posed by deposits and we hope that the introduction of a cap will lead to a wider conversation on deposit reform, including consideration of initiatives such as deposit passporting.

The committee’s report also recommends that funding is made available for enforcement of the ban. We think this is spot on. Meaningful enforcement is key to the success of the bill and new responsibilities must be accompanied by the resource to back it up.

The not so good

There is a still a major loophole in the draft bill which will allow agents to continue charging exorbitant fees to tenants via ‘default fees’. Default fees are charges for tenants defaulting on a tenancy term or otherwise incurring costs for the agent, such as losing a key. There is currently no limit in the bill on what can be charged for, or any cap on how large those charges can be.

The committee rightly identified that these charges are ‘open to abuse’. And letting agents’ own evidence to the committee says that default fees will be ‘increased severely’ to make up for the loss of money from other fees that are now banned. This is an extraordinary admission from the industry and proof of our argument that this loophole will be exploited, leaving tenants to pick up the bill.

We highlighted the issue in our written evidence and, alongside Citizens Advice and Generation Rent, wrote to the Committee urging them to make strong recommendations for closing the loophole.

Unfortunately, this hasn’t happened. The committee recommends ‘clear guidance’ to landlords and tenants around what should be considered a default fee, which we don’t feel will be anywhere near sufficient for preventing exploitation. Our evidence shows just how creative agents can be in devising new fees. And they’ve freely admitted that this loophole is the mechanism they’ll use to do so.

We do agree with the committee that there are a small number of legitimate costs that may need to be covered. A commonly cited example is a lost key. To allow for these, we would like to see default fees redefined as ‘landlord or agent expenses’ and limited to covering the cost only, evidenced by something like an invoice. For instance, if a tenant loses a key and it costs £10 to get a new one cut, we think it’s right the tenant should pay £10. We absolutely do not think a landlord or agent should be able to make a profit or charge an arbitrary amount.

We also have some concerns around the recommendations on holding deposits and the circumstances in which a landlord keeps some or all of it. Our initial reading suggests a situation where those who fail a reference check – for whatever reason – will end up being charged a fee for that reference check. We’ll be taking a closer look at the proposals and writing more on that soon.

Next steps

The bill will now be introduced to Parliament for all MPs to consider. We are urging the government to reflect further on the default clause loophole, and we’ll be working hard to change its mind. If the government doesn’t tighten this clause, it risks fundamentally undermining the original aim of the bill.