Call for more clarity on private rented sector fee ban in England

Banning fees imposed on tenants by landlords and lettings agents in the private rented sector in England has the potential to save renters hundreds of pounds but greater clarity is needed, according to those scrutinising the draft Bill.

The proposed legislation could be improved to be both fairer and more transparent, according to the Housing, Communities and Local Government Committee which was asked by the Secretary of State to undertake pre-legislative scrutiny of the draft ahead of its proposed passage through Parliament.

The draft Bill proposed prohibiting all payments with the exception of rent, security deposits of up to six weeks’ rent, holding deposits of up to one week’s rent, and default fees.

The Committee’s report on the Bill welcomes the aims of the proposals but recommends the maximum amount that can be charged as a security deposit be lowered from the proposed six weeks’ worth of rent and calls for more funding for enforcement.

It also recommends that security deposits should be capped at the equivalent of five weeks’ rent in recognition that finding six weeks’ worth of rent can cause financial difficulties for tenants.

Landlords should not be able to retain the full holding deposit if a tenant fails a reference check despite providing accurate information and default fees are open to abuse so the type and amount of default fee needs to be better regulated, the report also points out.

It says that additional funding should be made available to local authorities to enforce the legislation and impact assessments should be published alongside every draft Bill.

‘With more and more people living in the private rented sector, this legislation has the potential to make a difference to millions of people by cracking down on unfair fees and saving tenants hundreds of pounds,’ said Clive Betts, chair of the Housing, Communities and Local Government Committee.

‘We believe however that there are clear improvements that could be made to the Bill that would ensure it has a much better chance of delivering on its aim of making renting fairer and easier,’ he pointed out.

‘Moving home is already an expensive time and many people struggle to find large sums of money at the start of their tenancies to put down as a deposit. Lowering the cap from six weeks’ worth of rent to five will help make the private rented sector much more affordable, while also keeping protection for landlords from rogue tenants,’ he explained.

He said the committee also had concerns about how the law will be enforced. He explained that funding enforcement through the retention of fines gives local authorities a perverse disincentive to proactively engage with lettings agents and landlords.

‘If councils are to be given this extra enforcement responsibility, they must either be given extra resources or the maximum amount of civil penalty needs to be increased,’ he added.

The report concluded that it was unclear whether fees could be charged at the end of a tenancy agreement and the committee welcomes the Government’s intention to clarify that these fees will be banned. The committee is also calling for greater clarity on what constitutes a reasonable default fee, a legitimate cost to the landlord that would be permitted under the legislation.

The Government estimates that the average household in the private rented sector will benefit by between £18 and £50 a year from the reforms, but the committee heard that tenants could benefit by much more given renters paying an average of £200 to £300 per tenancy.

The Association of Residential Letting Agents (ARLA) has welcomed the scrutiny, in particular the Government’s intention to clarify the legislation and permit charges related to a change of sharer when requested by a tenant.

‘However, while it is positive that the Bill will be clarified to reflect that holding deposits can be paid to letting agents as well as landlords, not allowing agents to retain the holding deposit when a tenant fails the refencing check is both extremely unwise and very misguided. This will result in agents only selecting the very best tenants to avoid the possibility of incurring costs through tenants failing referencing,’ said ARLA chief executive David Cox.

‘Ultimately, this will reduce the availability of property for vulnerable tenants and families. The very people that the Government are trying to help most with this Bill are those who stand to lose the most,’ he added.

Build to Rent provider Get Living wants the Government to go even further and scrap security deposits. ‘We believe that tenant deposits are outdated and reducing this burden to five weeks’ rent doesn’t go far enough. Last year Get Living scrapped security deposits after finding our average deduction was just a few days’ rent and that the majority of our residents had their deposits returned in full, said chief executive officer Neil Young.

‘We hope deposit-free renting becomes the norm. We have great relationships with our residents and, given they are taking such good care of our homes, why should we hold six weeks’ rent? This isn’t just for new residents and, since last summer, we have returned millions of pounds to our residents at East Village, the former London 2012 Athletes’ Village,’ he explained.

‘As a pioneer in the UK’s Build to Rent sector and a responsible landlord with a long term perspective, it is important for us to be able to identify and address areas where we can alleviate the burden on our residents. Where we have led with no fees and longer tenancies others have followed and we hope to see the same with deposit free renting,’ he added.