Cross-party working closes the Tenant Fees Bill loophole

Cross-party working closes the Tenant Fees Bill loophole

In her first party conference speech as Prime Minister, Theresa May vowed to use the ‘power of government’ to step in and repair markets that weren’t working. At the time, we wrote of our hope that this could be good news for renters, a rapidly expanding group of consumers who face a marketplace full of dysfunction.

Just a few weeks later, the Chancellor announced a ban on letting fees to tenants in his Autumn Budget. The aim of the ban was clearly stated: to make renting fairer for renters as consumers. Renters up and down the country cheered. Tenant groups (including Shelter) and consumer organisations cheered. It was a ‘rabbit in the hat’ that earned the Chancellor a raft of positive headlines.

Two years later and the Tenant Fees Bill is approaching the home straight, having passed Report Stage in the House of Lords. So, are the government on course to deliver a genuine win for renters as consumers? Amendments passed yesterday suggest that might just be the case.

Default Fees

Shelter’s biggest misgiving about the Tenant Fees Bill has always been the new category of ‘default fees’. Default fees are payable if a tenant does something which breaches a term of the tenancy agreement, like losing a key or paying rent late. Although these fees must be written into the tenancy agreement, it is likely to be difficult for a tenant to identify and challenge any unfair fees when negotiating a tenancy.
Since the outset, we have felt that creative agents may seek to exploit a loophole in the Bill and our worst fears were confirmed by agents themselves.

On this issue, we have been pleased to see the government listening and responding throughout the process. After hearing oral evidence at the House of Commons Committee Stage, they brought forward two extra protections:

• landlords & agents having to provide evidence of their loss (i.e. an invoice)
• landlords & agents can only charge for their reasonable loss

These were both important improvements and it was great to see the government respond meaningfully to evidence from organisations such as Shelter, Citizen’s Advice & Generation Rent.

However, as the Bill entered the House of Lords there was still a way to go to make the Bill watertight and close the default fee loophole for good. Liberal Democrat and Labour Peers worked tirelessly behind the scenes, as well as in Parliamentary debates, to make the case to government that default fees needed tightening.

Amendments passed last night show that the government has listened to this compelling evidence. The Bill now includes a short, definitive list which limits default fees to:
• a charge for chasing late rent
• a charge for replacing lost keys (or an equivalent security device)

This closes the default fee loophole once and for all and ensures that landlords and agents won’t be able to charge for a whole host of spurious defaults. This is a big win and a true testament to cross-party working.

Importantly for landlords, the amendment also clarifies that they can still recover damages as they do now. Recovering damages in this way is a well-established legal process – for example, deducting money from the deposit at the end of the tenancy to remedy any defects caused by the tenant.

Deposit Cap

Another important measure in this Bill is a cap on the amount that tenants pay for a security deposit. A security deposit significantly adds to the upfront costs which tenants budget for when moving home and for those on low incomes, without savings or the ability to borrow from family or friends, sometimes these costs can be an insurmountable barrier to securing a new home. This policy was announced in the Queen’s Speech 2017 as a cap of one months’ rent. Given the eye-watering deposits we have seen evidence of, this would’ve been an incredibly welcome intervention.

This policy went through some changes as the Bill progressed and was raised to 6 weeks’ rent. The reason for this is the argument put forward by landlords, that renters are in the habit of using their deposit as the last month’s rent, leaving nothing left over to remedy any damage in the property. However, research from Citizen’s Advice shows that this only happens without the landlord’s consent 2% of the time.

The cross-party Communities and Local Government Select Committee, who scrutinised the Bill before it was introduced to Parliament split the difference and recommended a cap of 5 weeks.
Again, government have taken another look at the evidence thanks to the hard work of Labour and Lib Dem peers and have settled on the Committee’s recommendation of 5 weeks. Although the difference of a week’s rent may sound small, it is the equivalent of £150 or more in over half of Local Authorities – a significant sum to many households!

Although we originally argued for a lower cap, we’re pleased that the government didn’t stick at 6 weeks and we believe that the 5-week cap will be a big improvement.

Holding Deposits

Another important amendment passed yesterday introduced some additional protections for renters around holding deposits (a refundable deposit used to reserve a property before the tenancy agreement is signed).

Now, when a tenancy isn’t going ahead and a landlord or agent is retaining all or part of a holding deposit, they have to set out in writing the reasons why and for retaining some of the deposit. They have to do this within 7 days of deciding not to progress with the tenancy.
This will provide tenants with some clarity about exactly what has happened to their money and the paper trail will make it easier for them to challenge any potentially unfair practices.

At Shelter we have no doubt that this Bill will make renting fairer and more affordable for all renters. Thanks to the recent amendments, which were the result of true cross-party collaboration, the government is set to deliver a huge victory for renters as consumers.