|Bethan Sayed AM|
|David Melding AM||Yn dirprwyo ar ran Janet Finch-Saunders|
|Substitute for Janet Finch-Saunders|
|Gareth Bennett AM|
|Jenny Rathbone AM|
|John Griffiths AM||Cadeirydd y Pwyllgor|
|Siân Gwenllian AM|
|Cerith Rhys Jones||Rheolwr Materion Allanol, Undeb Cenedlaethol y Myfyrwyr|
|External Affairs Manager, National Union of Students|
|Charlotte Burles Corbett||Rheolwr Gyfarwyddwr Parkmans, a Sefydliad Brenhinol y Syrfeywyr Siartredig|
|Managing Director, Parkmans, and the Royal Institution of Chartered Surveyors|
|Chris Norris||Cyfarwyddwr Polisi ac Arfer y Gymdeithas Genedlaethol Landlordiaid|
|Director of Policy and Practice, National Landlords Association|
|David Cox||Prif Weithredwr, Cymdeithas Asiantaethau Gosod Preswyl Propertymark|
|Chief Executive, Association of Residential Letting Agents Propertymark|
|Douglas Haig||Is-gadeirydd a Chyfarwyddwr Cymru y Gymdeithas Landlordiaid Preswyl|
|Vice-chairman and Director for Wales, Residential Landlords Association|
|Hannah Slater||Rheolwr Polisi a Materion Cyhoeddus, Generation Rent|
|Policy and Public Affairs Manager, Generation Rent|
|Isobel Thomson||Prif Weithredwr y Cynllun Gosod Eiddo Cenedlaethol Cymeradwy|
|Chief Executive, National Approved Letting Scheme|
|Liz Silversmith||Cyfarwyddwr yr Ymgyrch, Let Down in Wales|
|Campaign Director, Let Down in Wales|
|Chloe Davies||Dirprwy Glerc|
|Stephen Davies||Cynghorydd Cyfreithiol|
|1. Cyflwyniad, Ymddiheuriadau, Dirprwyon a Datgan Buddiannau||1. Introductions, Apologies, Substitutions and Declarations of Interest|
|2. Bil Rhentu Cartrefi (Ffioedd etc.) (Cymru): Sesiwn Dystiolaeth 2||2. Renting Homes (Fees etc.) (Wales) Bill: Evidence Session 2|
|3. Bil Rhentu Cartrefi (Ffioedd etc.) (Cymru): Sesiwn Dystiolaeth 3||3. Renting Homes (Fees etc.) (Wales) Bill: Evidence Session 3|
|4. Bil Rhentu Cartrefi (Ffioedd etc.) (Cymru): Sesiwn Dystiolaeth 4||4. Renting Homes (Fees etc.) (Wales) Bill: Evidence Session 4|
|5. Papurau i'w Nodi||5. Papers to Note|
|6. Cynnig o dan Reol Sefydlog 17.42(vi) i Benderfynu Gwahardd y Cyhoedd o Weddill y Cyfarfod||6. Motion under Standing Order 17.42(vi) to Resolve to Exclude the Public from the Remainder of the Meeting|
Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Mae hon yn fersiwn ddrafft o’r cofnod. Cyhoeddir fersiwn derfynol ymhen pum diwrnod gwaith.
The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. This is a draft version of the record. The final version will be published within five working days.
Dechreuodd y cyfarfod am 09:11.
The meeting began at 09:11.
Okay, may I welcome everyone to this meeting of the Equality, Local Government and Communities Committee? The first item on our agenda today is introductions, apologies, substitutions and declarations of interest. We've received apologies from Rhianon Passmore and Jack Sargeant, and David Melding is subbing for Janet Finch-Saunders. Are there any declarations of interest? No.
Then we'll move on to item 2, which is our second evidence session with regard to the Renting Homes (Fees etc.) (Wales) Bill, and I'm very pleased to welcome here today Charlotte Burles Corbett, managing director of Parkmans, Royal Institution of Chartered Surveyors; David Cox, chief executive of the Association of Residential Letting Agents Propertymark; and Isobel Thomson, chief executive of the National Approved Letting Scheme. Welcome to you all. Thanks for coming along to give evidence to the committee today. We'll move straight to questions, if that’s okay with you, and the first questions are from Jenny Rathbone.
Good morning. To what extent do you think fees charged to tenants reflect the costs incurred by letting agents? David or Isobel, if you want to start.
I would say they do reflect the reasonable costs that are incurred by agents. Research from within ARLA’s membership indicates that the average fee from ARLA members is about £202 per tenant. That is England and Wales; I’m afraid I don’t have Welsh-specific figures. Last year, we did a survey of over 1,000 agencies—1,008 to be specific—on what they actually do for the fees that they charge. It came out that, on average, it takes about eight hours to start a tenancy. It covers three main topics, which is tenant referencing, which, when thinking about it, in a sales transaction, is probably akin to a mortgage application fee; contract negotiation—translate that across to sales, that’s probably your conveyancing charges; and then the inventory, which is akin to a survey. If you think that, in a sales transaction, you pay three different parties, you generally pay them a lot more than £202. In a lettings transaction, you pay it to the agent that does it. The buyer pays that in the sales; the tenant pays that in in the lettings transaction. It’s one of the reasons we have been asking to exempt referencing costs for this, because it may result in tenants being turned away at very early stages if they just fail a basic—
Okay, well, we'll come on to that in a minute. Could you just explain why £202 would be justified when you're simply renewing somebody's tenancy?
I was talking about the beginning of the tenancy. Actually, the £202 is the entire costs throughout the tenancy. Some do charge renewal fees; that is true. There is a lot of work that is actually involved in renewal fees—
—and renewal tenancies. Yes, because you have to still negotiate, potentially, special clauses. Different tenants, if they’re on the same tenancy agreement, may want different things. There’s a lot more work involved than just photocopying a piece of paper, as has been bandied around a lot over the last 18 months.
Well, we believe that fair fees reflect our level of service to the tenant, and the majority of agents do charge fair fees. We accept that agency fees can be perceived as onerous additional payments, with little or no understanding from the tenant's perspective of why they're being charged. But we believe that the fees charged are a fair reflection of the time spent, particularly at the start of a tenancy. Our research shows that the average fee charged by an agent is £172, which concurs, really, with research carried out by the Welsh Government, where I think it was a fee of £178 was quoted, and—. Yes, that's all I have to say.
Okay. So, we've established that this is your average cost for both organisations. Why do you think this money ought to be paid by tenants, rather than landlords? Because the beneficiaries are the landlords.
I think it's appropriate that fees are paid by tenants, because of referencing, as David talked about. That, the referencing process, allows the tenant to access the property. The fees cover check-in, et cetera, which is also in the interests of the tenant.
Okay. Well, that's the referencing aspect of it. What about all the other aspects that David's described in some detail? Surely that cost should be picked up by the landlord.
So, I suppose it's tort. Thinking about contract negotiation, for example, if only one party is paying the bill, then the duty of care of the agent only lies with that one party. At the moment, both sides are paying and contributing to those costs; the agent owes a legal duty of care to both sides. What could well happen is: 'This is the tenancy agreement. If you don't like it, either go and get legal advice or go and find a different property'. That doesn't exist today. That level of customer service that tenants get from agents is what they are paying for. What you could end up with is: 'Go and see an advice agency, go and see your local authority, go and pay a lot more than £202 to speak to a solicitor for that advice'. Because, with the best will in the world, tenants won't be receiving that service if they're not paying for it. The agent's duty of care will exist purely to the landlord.
That's fairly contentious—[Inaudible.]—lies in most consumer contracts, and, if you're providing a service, you have a duty of care, surely, to those who are going to receive the service. I mean, it's not tied to a fee in English law, surely.
I couldn't agree more. That's why, at the moment, both parties receive a service. Once it's made very clear in this Bill—
But you just said they won't have a service from you if they don't pay.
—that they don't receive a service—. The Bill is very clear that the tenant will no longer receive a service from the agent. It says it in the Bill. At which point, I agree with your point entirely.
But your general duty of care would extend over the customers coming to purchase a rental agreement, surely. I can't see how that changes.
The customer is purchasing a rental agreement with the landlord, not with the agent.
But not in terms of contract negotiation.
Well, I think we're on very fine points here. No doubt our legal advisers will help us.
I just wanted to ask a small question. I met with the Residential Landlords Association last week and they were saying that—. This Bill is focused on tenants, and that was the rationale for it, but they were saying that, obviously, landlords are paying fees to the agents as well. And I don't get from this Bill an idea as to the costs of those fees for the landlords to give me a balanced opinion as to, for example, if this Bill goes ahead and then there are more implications for the landlords, what that would mean in relation to the fees that they're already paying and how that would then top up the pressure on them. So, I was just wanting to get that view before we progressed any further, really.
Reputable agents charge for services that they provide, and, as a result of the Housing Act (Wales) 2014 and Rent Smart Wales, all landlords need to be registered and letting agents licensed. We have to employ suitable staff to provide those services. Those services to tenants are listed in the explanatory memorandum to the Renting Homes (Fees etc.) (Wales) Bill in 3.16. Examples of those services that are provided are: pre-tenancy negotiation, drafting, preparation of tenancy agreements, guarantor agreements, obtaining/verifying certificates for those properties that are rented out, preparing a schedule and inventory that goes in both the tenant's and the landlord's favour, deposit protection, renewing and amending tenancy agreements, assistance with early termination of tenants. I work in the lettings industry, I operate three businesses, covering south-east Wales. In the industry, we provide more services to the tenants than we provide to the landlords. The fee that David quoted of £202 is generally the application fee. In my company, we charge £150 inclusive of value added tax, irrespective of the number of tenants, irrespective of the number of guarantors per application. That is to draft tenancy agreements that a solicitor would normally charge a much higher fee for. All our staff, every single member of our management staff, need to be regulated.
So, you're saying that the £202 would be less for landlords, because you do more for the tenants—
It's not less. There are different fees for landlords.
Landlords are charged for the services we provide to them. So, as an agent—
Yes, so we charge our landlords 10 per cent of the rents collected. So, effectively, that is to manage the property. That is not for a set-up. We charge landlords for marketing the properties. We also charge for negotiations, so we are acting for both parties in some respects, but not all respects.
Sorry, could you—[Inaudible.]—landlords are charged 10 per cent of the rent collected—?
In my company. That's a—
In your company. So, is that over the life of the contract? So, you know, it's a monthly fee.
It's a monthly fee that includes rent collection and property inspections and any general repairs.
General management duties.
Okay. But do you recognise, though, that taking 10 per cent of the rent from the landlords, the amount they're going to get, is completely different to charging an upfront fee to the tenant?
It's totally different. It's for different services.
But it's totally different in terms of the impact on the tenant, because—
I think that there would be a greater—and the Royal Institution of Chartered Surveyors position is the same—impact likely on tenants as a result of this ban being in place, not only from a financial perspective, but from an industry perspective.
Okay. So, I think we've established that both tenants and landlords are charged under the current arrangements. To what extent are letting agencies likely to absorb the additional costs incurred as a result of the Bill's—?
We commissioned Capital Economics, a leading market research agency, last year, to look at the economic impact of the ban. This Bill's regulatory impact assessment has referenced that research very highly and used it as the methodology to calculate your regulatory impact assessment in the same way that Westminster has done for the Tenant Fees Bill in England. It suggested that, in the most plausible scenario—at the time, we didn't know exactly your Bill or England's Bill were going to be—was a total ban, which is what has been proposed in both Bills. Agents are likely to pass through 75 per cent of the costs of the loss of tenant fees on to landlords. Landlords are likely to pass on 50 per cent of those costs to tenants, and therefore tenants are likely to see a £103 per tenant, per year rent increase as a result of this.
Now, what I would say is that, at £103 per year, that is less than the £202 on average that is charged. Therefore, tenants that move on a regular basis will see a saving as a result of this. But when we are talking about longer term tenancies, Westminster has issued a consultation only this week, and I know this committee has looked at this question in the past as well—when everybody is trying to encourage longer term tenancies in the private rented sector, the over-under of this policy is two and a half years, and therefore whilst encouraging longer term tenancies, this Bill is actually going to increase the costs for those people who live in longer term tenancies.
It should also be noted that the people who move more often are younger, wealthier millennials who can afford the tenant fees more than low-income families who want longer term tenancies. Therefore, this Bill, based on Capital Economics's research, will actually adversely hit vulnerable and low-income families more than wealthier millennials, because they're the ones who want the longer term tenancies.
Well, that would depend on the action you decide to take, because you or the landlords involved could decide that longer term tenancies don't need to incur these additional costs.
I think we have to consider practical implementation, and if letting agencies are—. Capital Economics estimate that 20 per cent of agents' turnover comes from tenant fees. Agents' profit margins aren't 20 per cent, and therefore they will either go bust or they will have to find different ways of increasing income and reducing costs. The obvious one is to pass through. We are already seeing agencies pass through costs to landlords in advance of the ban coming into force, and doing it in a step approach so that it's not one big bang when the Bill comes into force. So, I think it is, if I may use the word, naive to think that agents will just absorb the costs. No analysis from the industry, from Government bodies, is suggesting that agents will absorb the costs. Your regulatory impact assessment even gives the scenario of when agents pass through the entire cost on to the landlords and the financial implications of what will happen to tenancies and tenants if they do pass through 100 per cent of the costs. We don't think they will be able to, but it is a possibility that has been factored into the financial calculations of this Bill.
We've seen your evidence—given the proliferation of letting agents in Cardiff, certainly in my constituency, Cardiff Central, it is difficult to think that letting agencies are on the verge of going bust.
I think at this moment in time they're not, but once the fee ban comes in and they lose a significant portion of their income, they will be on the rocks.
Can I just add to that further? Letting agents have had to overcome a number of legislative changes over the last 10 years, and in the market we can see that the landlords also have had to overcome changes with regard to the land transaction tax changes and the changes in interest rate relief on tax. And we can already see if they're going to be having to consider increased charges as landlords. They're going to want to consider leaving the market.
I think from a RICS perspective, the Bill presents an opportunity to distinguish professional services provided to tenants. The tenants are charged for services provided by letting agents. So, from the RICS position, it is an opportunity to distinguish what those professional services are and who they're provided to.
The tenant has absolutely no control over what gets charged. They just have a charge imposed on them.
Which is why, possibly, it also presents an opportunity to cap fees.
Okay. All right. If you—. You said earlier in your evidence that you think that banning fees might have an impact on more vulnerable tenants, around referencing and this sort of thing. Could you just elaborate on that?
Can I just come in on that point? We think that because of the work involved, perhaps, with universal credit or housing benefit tenants, who require even more of a service from letting agents, those types of tenants may be disadvantaged.
They need advice on affordability of properties that they apply for. They perhaps need advice to negotiate the benefits system, which the agent provides. That involves a lot of time, as I'm sure my colleague from RICS can tell you. So, what we feel is there may be a kind of pre-selection. So, where there are a number of tenants for a property, agents will have to take a practical approach and just decide which will take the least amount of time to deal with, and that is obviously concerning.
This is because of the changes to the benefits system, where people are moving on to universal—
Changes to the benefits system, but also they're not being paid to do with that work. There is no fee for the time that they are spending with the tenant. They often negotiate on behalf of the tenant with the landlord. And so, we are very concerned that those tenants will be disadvantaged by a fee ban.
I would echo everything that Isobel's just said. It's not necessarily the changes in welfare, it's a very long and complicated process and form to fill in, or telephone conversation to have, applying for welfare and the benefits that people are entitled to. Agents, if they specialise in that market, they live with it day-in, day-out, they are very well placed to assist tenants rather than just saying, 'Off you go to the local authority, off you go to the CAB.' They actually help tenants through it, they pull together the necessary evidence they need. And it's not just benefit tenants. It's also those low-income tenants whomay not be on benefits, but do need guarantors. At the moment, guarantors are charged on top because that is a whole second set of referencing that needs to be undertaken. When we have a market that we have at the moment, where there are far more tenants than there are properties available, if agents can't charge for those services, they're going to go with, as I'm sure we can all appreciate, the option of least work. And therefore, if you've got two tenants, or two sets of tenants, ones that don't need guarantors, ones that do, they'll go with the ones that don't every time, because why would they do twice the work? They're not going to be paid for any of it, so they'll go with the easier one, and it is the vulnerable and the low-income people who need the benefit application who need the guarantors. And therefore—
That pressure, frankly, exists now by your analysis because of the scarcity of supply. So, if you, from the goodness of your hearts, are still prepared to service these more vulnerable clients, why would you not continue to do it?
At the moment they can charge for those services. They do charge for those services. When we go forward, they've got to look at cutting their costs, so an agency that may have five staff now will only have four staff this time next year, assuming the ban comes into force before then.
So, how does that work, because people on benefits are simply unable to get reimbursed for the letting agency costs out of their housing benefit entitlement? They're having to use the money they're supposed to be spending on food and clothing to pay for letting agency fees, which is one of the major drivers of this Bill.
I think you actually make a very good point because at the moment letting agent fees aren't covered within housing benefit. Once we go forward and it's all rolled into the rent—
They are not, yes. Going forward, they will be, which will then inevitably increase the housing benefit budget and the costs to the Exchequer as a result of this policy.
But that is not a reason for not acting on behalf of vulnerable tenants, surely.
Can I add a point here? Within our local authority in Caerphilly they do actually assist vulnerable tenants with application fees. They will look at their financial situation and look at their financial affordability and they will assist with the application fees, which is the professional services that they provide and is what they are paid for.
Can I also add that the Bill allows for security deposits to continue to be a permitted payment? A potential outcome from the ban on fees is that letting agents and landlords might request a security deposit at an earlier stage in the application process to seek a level of commitment from the prospective tenant. The prescribed limit of the security deposit is not listed. If it is, it's difficult to find—
We will come on to some questions on the security deposit in due course.
Thank you. My point is that it might be that the security deposit, based upon the median rents in Wales at the moment, is between £500 and £550 respectively. So, that might mean that it's likely that vulnerable tenants might not be able to raise the security deposit within a timely manner.
Yes, okay, we will come on to some questions—. Jenny, I think we do really need to move on because we've given quite some time to these matters.
I've got one question on this issue of how the market won't adjust and then settle back over the medium term to a reasonable rental level that isn't stuffed with ongoing charges in perpetuity. OpenRent, which I understand is the largest letting agency in the UK, in their evidence to the select committee in Westminster that's looking at this, said they did not believe there would be an effect on rent. So, you obviously disagree with the largest agents at the moment. Can you explain your difference of opinion?
I would probably characterise them as the smallest portal with the largest agent. They provide a listing service—nothing more. I think it's also important to note that they charge a landlord £29 and they charge a tenant £20 per person. So, actually, if you've got two tenants moving into the property, they're paying 25 per cent more than the landlord is.
Okay. They've said that rents would not increase once the market settles. Why do you think that's wrong?
They operate a very different business model—
But why do you think it's wrong? Not their business. Because you've said that, once the increases go in, at £100, they'll be there forever, charged annually. And my supposition is that, actually, the market adjusts, because you adjust rents to market conditions and to inflation and whatever, and that one-off cost of rebalancing where charges for a service lie—i.e. away from the customer, and to the provider of the service—the whole thing just settles down. You've said that it'll be there forever. Why? Because this largest letting agent says differently.
I think maybe it's a miscommunication. There will be an increase when fees are banned. The market will absolutely adjust, but it will not adjust downwards, it will adjust upwards. We have a chronic shortage of housing in this country. We are seeing rent levels increasing across the country, due to constant legislative intervention, and a massive lack of supply, and a failure of successive Governments to build social housing.
You're now talking about the general market, not why this cost for the service will get preserved.
It will be passed on in year 1 and incorporated thereafter. So, you will see a significant rent increase next year—or whenever the ban comes into force, I should say—which will then level out. So, you will see it in the first year. It will continue, but it won't add £100 every year. It will add £100 on top of the rent in year 1, and then that £100 will not disappear, going forward; it will just stay there constantly.
As landlords' costs increase, rents will increase—that's the way that we view it. Landlords have the tax implications being raised, and they have to recoup the money from somewhere. So, if they're going to be charged more by an agent, then they will increase the rent, whereas before, you may have had a tenant who's been in a property for three years and everything's fine, but all of a sudden there's a reassessment—a reassessment for a number of reasons.
Okay. I think we need to move on. Time is limited. Could I just ask you about a non-legislative approach, which is explored in the explanatory memorandum to this Bill, which would involve better enforcement of existing consumer rights legislations, but also a voluntary code that standardised and capped charges? Is that an approach that you would prefer? If so, why?
Yes, that is an approach that we would very much welcome. We feel that Wales is in a unique position, because you already have regulation in Wales, you already have oversight over agents, you know who the agents are. That's not the case in Scotland; the ban came in before regulation, and likewise in England. So, I feel as if you could adopt an innovative approach. You could cap fees, and then see how the market settles, see whether the voluntary approach works, and then the next stage, if it doesn't work, could be to a full ban. But, rather than go to a full ban immediately, I would say that would be the approach that we would adopt. We are very concerned about small letting agent firms, as an argent organisation. We are already seeing consolidation within these firms—firms that maybe have two or three offices now going down to one—and, actually, agents coming out of the market. I think a cap on fees is definitely the way forward.
Okay. I take it you're in agreement on that. Yes. Okay. If we could move on quickly, then. Just in terms of Scotland, what lessons should we draw from the ban on fees in Scotland, would you say? And to what extent can we do that—to what extent are the markets very similar in Wales and Scotland?
I would suggest that it's actually quite difficult to do a read across now. The legislative landscape in which an agent and a landlord operates in Wales is very different today than the legislative landscape in which agents and landlords operated in Scotland when their fee ban was introduced. I would also note that they attempted to ban fees in 1984, but did it rather clumsily and, therefore, had to have a second go in 2012. Fees were also a different volume. The average fee, because of the 1984 Act, was lower in Scotland than it is in Wales today. We did see rent increases in Scotland over and above England—I'm afraid I can’t give you Welsh figures—but certainly over and above what we saw in England during the same period. We cannot attribute the entire amount to the ban on tenant fees—there were other legislative interventions in both countries at that point in time. But I would certainly argue that the fee ban in Scotland did have an impact on rent levels, as everybody did expect it would. But I think it is difficult. Particularly, landlords are having to deal now with 3 per cent stamp duty, they're having to deal with the removal of mortgage interest relief, and they're having to deal with Rent Smart Wales and the additional costs that that imposes. Therefore, all of those costs that exist today on landlords in Wales, and agents in Wales, didn't exist in Scotland in 2012.
Okay. We'll move on. We have some further questions from Bethan Sayed.
Thanks. I just wanted to go on to the pro—the prohibition of certain payments. I got it out in the end. We've heard about the issues with regard to default payments and that there's a lack of clarity in this Bill as to what they would be. We are told that there are going to be model contracts from a previous Bill, but we haven't seen them. I don't agree with the proposition that there shouldn't be any default payments in the Bill, as some have said, but I am wary of the fact that, again, as indicated, fees could be transferred to this particular system if it's not clear what those default payments are. So, could you give us some clarity about what you define as default payments now, how a tenant understands what they are, what you think of the Bill as it is, and whether you think that's sufficient?
I would suggest that the Bill is very clear. It does say that any of these default payments have to be written into the agreement and there has to be a breach of the agreement in order for the default fee to be chargeable. Default fees, as we believe them to be, are things like lost keys, if you've locked yourself out at 2 o'clock in the morning, missed rent payments and missed contractor appointments or maintenance appointments. There aren't that many of them. There's probably no more than a handful. These cover things that, if the tenant hadn't done it, the landlord or the agent would not have incurred a cost. The keys—locking yourself out at 2 o'clock in the morning—is the prime example. At the moment, agents charge a fee to be phoned at 2 o'clock in the morning, get up, go to the office, pick up the keys, go to the house, unlock the door, go back to the office, lock the keys away, go back home and go to bed. With the best will in the world, if agents can't charge for that, they're not going to do it, and the response will be, 'Office hours are nine to five, see you in the morning'.
Can I just get an understanding, though, as to whether you think that there would be a way in which some agents could transfer the costs from not paying the upfront fees to this default payment? I know and I appreciate you are saying that there is a generality around what they would pay, but is there a fear that there could be added implications or that they could say, 'Well, actually, we'll just add this bit on there to the contract, because we can and because we need to charge them something somewhere else now'?
There have certainly been some suggestions. I think I heard £45 for a dustbin and things like that being added in. Those are deposit deductions. The whole concept of a deposit is because you cannot think of every possible thing a tenant might damage in a property during a tenancy and, therefore, you take a security deposit at the beginning. The likelihood of lists and reams and reams of default fees (1) is highly unlikely, because they just couldn't cover every possible scenario, and (2) it would be unfair under the Unfair Contract Terms Act 1977, under the Unfair Terms in Consumer Contracts Regualtions 1999, under the Consumer Protection from Unfair Trading Regulations 2008 and Part 2 of the Consumer Rights Act 2015. So, there is already plenty of legislation covering those sorts of unreasonable and inappropriate default fees. They're already illegal, and have been for 30 years.
I'd just like to add to that. As a result of the current legislation, letting agents have to display their fees. So, tenants and landlords are fully aware of those fees prior to engaging with an agency or landlord.
Just with regard to—. This Bill doesn't specifically permit landlords or agents to require contracts for utilities and communication services to be entered into by the contract holder. Do you believe that it should?
It is the case in the Tenant Fees Bill in England and I suggest that it would be good if it could be added in here.
Not all landlords and agents do require the tenant to pay the utility bills. There are some agencies and some landlords that offer all-inclusive rent, particularly in the student market. I think one agency is actually called Bill Free Homes. So, it shouldn't be mandated, it should be an option, I would suggest. But I would also suggest that, actually, under clauses 2(2) and 3(2) at the moment it will make things like the utility bills a prohibited payment, because it bans contracts for services and a utility contract is a contract for service.
So, we would ask certainly that the sort of provisions that have now been inserted into the Tenant Fees Bill in England are inserted here, particularly because we want to avoid what I call a PPI moment, where the services continue as normal, you've got to go to the utility provider and get the contract, that becomes normal business practice, and then we end up in a situation in five or 10 years where a court goes, 'Actually, no, that is a prohibited payment under clause 2(2) or 3(2)', at which point every landlord will have to repay every utility bill back to every tenant since the ban was passed. So, I suppose it's a question of legislative certainty, in exactly the same way that we've specifically asked in our evidence around surrender of tenancy and change of sharer.
Under the default fees clauses, surrender of tenancy and change of sharer do appear as though they will be acceptable, in exactly the same way as it appeared in the draft Bill in England that they would be acceptable. However, it's not clear on this Bill, and again, to avoid a PPI moment, we would ask that this Bill follows what they did in England and clarifies that change of sharer and surrender of tenancy either are in or are out. Because we have had situations in this industry, particularly around tenancy deposit protection a few years ago, where the court reversed the will of Parliament, which caused Parliament to then have to pass the deregulation Act, or part of the deregulation Act, to reverse the court's decision in the Superstrike v. Rodrigues case, which changed industry practice and made millions of tenancy deposits in England and Wales unlawful overnight.
So, that is why I would ask, one way or another, could we have regulatory certainty on utilities, change of sharer, surrender of tenancy, and Green Deal as well. Because the Green Deal charge is technically a payment in order to facilitate the granting of the tenancy under the Green Deal regulations. Therefore, at the moment, that would also be a contract for services, which is a prohibited payment under sections 2(2) and 3(2).
Okay. I just wanted to ask about the issues regarding the insurance-based schemes that would allow tenants to transfer a deposit from one property to another. This is in the RLAs evidence. I know that I've asked the Minister about the possibility of passporting from one tenancy to another and she said that was outside the scope of the Bill. I think that would be debatable. My concern is, if this is passed, it seems to me what's been suggested by those giving evidence is that, because of the nature of insurance-based policies that that applies to, it would be exempt from this Bill. I would be worried that if there was a scheme that would incentivise something positive for the tenants, such as a passporting, they wouldn't be able to do that because of this Bill. If you can't answer it, fine, we'll ask RLA to explain further, but this is the part where I'm a bit on the fence myself, because I wouldn't want to stop some positive things happening by virtue of banning fees.
Our concern with that in the RICS is that security deposits are paid as security for an individual property. So, one can't confirm appropriate deductions from a deposit until the end of the tenancy and following inspection. The Housing Act 2004 made provisions for tenancy deposits to be regulated. It's quite a large section of the legislation. It made a requirement for the national authority to make arrangements for schemes to be available for the purpose of safeguarding tenancy deposits paid in connection with shorthold tenancies. So, while the professional lettings and property management industry adhere well to this legislation, the committee may wish to consider addressing concerns over enforcement of the existing legislation.
I would also add on that one: particularly, you're speaking about the tenancy deposit replacement schemes that are emerging into the market today. Again, technically, this is a contract for service and therefore a prohibited payment under clause 2(2) and 3(2). They specifically carved out an exemption in the Tenant Fees Bill in England, not necessarily specifically for a deposit replacement insurance scheme, but for services that can be offered as an alternative. So, for example, the deposit replacement insurance scheme is the only one I can think of at this point in time, and the only one that we've really talked about: either you pay a deposit or you pay an insurance premium. At the moment, that insurance premium—that deposit replacement insurance scheme—is a prohibited payment. I would suggest that you follow England, where it says that if there is an alternative, a tenant can choose the alternative.
We are also seeing the same, I suppose—. One that is emerging at the moment is a guarantor one as well. If somebody doesn't have a guarantor in the United Kingdom in order to stand guarantee, there are products and services available on the market—or emerging onto the market now—to provide that sort of insurance premium as well. Again, that would then also be classed as a prohibited payment.
Bethan, yes, just before you go on—just very quickly, time is very tight, but I think Jenny just wanted to come in on this point.
On the default payments, you gave us a list, all of which sounded perfectly reasonable charges. How do we legislatively prevent that from becoming a catch-all for, you know, breathing in and out?
You write guidance. I would suggest that you write very clear guidance on what is and what isn't a reasonable fee, and what would be expected, which then tenants can use to approach a court if they think they've been charged unreasonably under the provisions within the Bill.
So, if a tenant agreed to let in the plumber on Monday and then their employer said that they couldn't take Monday off and they let you know on Friday, they presumably would avoid a default payment because the plumber—
Would be able to be cancelled.
Absolutely. I think, particularly on that one: 'The plumber's got to come in on Monday. Can we come in?' 'No, I will be here.' And then the plumber turns up on Monday, and—
I'll just to put all my questions into one. I know Charlotte mentioned the security deposits earlier. So, just a comment on whether you think this should be determined by future regulations or not, and whether—. You mentioned the financing of it. With regard to the fines incurred for acquiring prohibited payments, they are not subject to an upper limit, so is an unlimited fine necessary and appropriate?
On the security deposits, I would suggest that the way the Bill is drafted at the moment, that Ministers can or cannot choose to put caps via a negative resolution, means it takes away the Senedd's ability to have any control over that. It can change on the whim of Ministers and Governments of the day on the main risk mitigation product that the industry has. So, I would suggest that, preferably, it should be set out very clearly. If it's not going to be set out in the primary legislation, it should be by the affirmative procedure.
Set out with the cost as well? I think that's where she wanted flexibility, so I just wanted to—
I would suggest that if you're going to do that, it is a cap at six or—we would probably suggest—eight weeks. I wouldn't suggest an arbitrary financial cap because you have to consider the value of money, and as inflation goes up, what that is today is very different to what that will be in 10 or 20 years' time. So, as a percentage of the rent, or I think the easiest is number of weeks or number of months' rent.
I would agree with that. It's really important to define that so that the tenants know what their rights are, and obviously they can take the necessary action if they are overcharged.
Rydw i'n mynd i droi at Ran 3 o'r Bil sydd yn ymwneud efo blaendaliadau cadw a jest ychydig bach o'r cefndir yn gyntaf, os gwelwch yn dda. A ydy pob tenant erbyn hyn yn talu blaendal cadw fel arfer, ynteu dim ond rhai tenantiaid penodol? A hefyd, rhyw fath o syniad o faint ydy blaendal cadw ar hyn o bryd ac a oes yna achosion pan fydd tenantiaid yn talu mwy na'r hyn sy'n gyfwerth ag un wythnos o rent ar hyn o bryd?
I'm now going to turn to Part 3 of the Bill, which relates to the treatment of holding deposits and just some background first of all, if you would. Does every tenant now pay a holding deposit as a matter of course, or is it only certain tenants that do so? And also, if you'd give us some idea of how much a holding deposit is at the moment, and are there cases where tenants pay more than one week's rent?
I would probably suggest that a holding deposit is pretty much standard across the board. Some agents may not necessarily call it a holding deposit—
Some will charge the application fee and they will have an application fee upfront, rather than actually calling it a holding deposit. And those fees will either go towards the actual fees at the end, they'll go towards the security deposit or the main deposit. I would suggest a week is probably the industry norm at this moment in time.
Could I just add here that Welsh Government research showed that only 34 per cent of agents charge holding deposits, currently? But, I would definitely say that—
True. I think it's about what it's called now. There's no set word in statute.
And it is more common in England, obviously, than it is in Wales.
So, if there are different words for it, maybe the Bill needs to be clearer.
I think the Bill provides the clarity.
Can I just add to that?
There's no need to press it.
Fine, thank you. Generally, a holding fee is taken after an applicant applies to rent a property and is accepted by a landlord. There is a bit of confusion with regard to security deposit and holding deposit, and as someone working in the industry for the last 12 years, it does need clarity from that. I think my concerns that I raised earlier in respect of landlords and accessibility to the market, and landlords wishing to take security deposits or holding deposits, whatever might be in their best interests, I think that it just needs more clarification from that.
But, generally speaking, in the market, the purpose of a holding fee is to verify the intent of an applicant to proceed, to protect the landlord and the agent in the case that the tenant should decide to withdraw. The holding fee does not generally protect the landlord against the loss of rent due to the tenant deciding to withdraw as a result of unsuccessful references.
Upon signing the tenancy agreement, then, the holding deposits are, generally, transferred across to the security deposits, which is generally equivalent to one month's rent. The purpose then of the security deposit, as you've listed it in the Bill, is to protect the landlord against loss of rent or damage or any default of the tenancy itself. Landlords, generally, advise us if they wish to have larger deposits, and then the deposits are registered in accordance with the deposit regulations from the Housing Act 2004, which is all pretty well covered at that moment.
Felly, os ydych chi'n dweud, yn gyffredinol, taw wythnos o rent, neu'n gyfwerth ag wythnos o rent, ydy blaendal cadw neu beth bynnag rydych chi'n mynd i'w alw fo, ar hyn o bryd, ni fedraf i weld bod gennych chi broblem efo'r rhan yma o'r Bil. Nid oes gennych chi broblem efo fo. A oes gennych chi broblem efo'r rhan yma o'r Bil, ynglŷn â'r diffiniad i gadw blaendal o wythnos o rent?
Therefore, if you say that, generally speaking, a week's rent is a holding deposit, or whatever term you're going to use, at the moment, I can't see that you have any problem with this part of the Bill. You have no problem with it. Do you have a problem with this part of the Bill, in terms of the definition and limiting it to a week's rent?
Jest i fynd ymlaen, felly, mae Generation Rent, er enghraifft, wedi argymell y dylid diwygio'r Bil i atal asiantiaid gosod eiddo rhag cymryd mwy nag un blaendal cadw ar gyfer unrhyw eiddo ar yr un pryd. Ac maen nhw eisiau gweld y Bil yn cael ei ddiwygio. Beth ydy eich barn chi ar hynny?
If I could just move on, therefore, Generation Rent, for example, have recommended that the Bill should be amended to prevent letting agents from taking more than one holding deposit for any property at one time. And they want to see the Bill amended to deliver that. What's your view on that?
I would suggest that, in the market going forward, an agent won't do that, because bearing in mind the Bill requires that if the landlord or the agent pulls out, they will have to return the holding deposit, and therefore an agent is not likely to take two and do two sets of work, knowing that they will have to give one if not both of those holding deposits back. So, whilst I can understand Generation Rent's view, I would argue that the practical implementation means that the likelihood of that happening—. One, I would suggest it's very poor business sense, if you're going to do twice the amount of work and not get paid for either of them.
So, you wouldn't have any problem with having this in the legislation, because if it's not happening on a practical level anyway, you might as well—.
I don't think I probably would, no.
Okay. Well, thanks very much for that. Siân, we have to move on. David Melding.
Thank you, Chair. I'd just like to look at the enforcement measures. I realise, in principle, you don't like this legislation, but let's assume it's going to proceed, for the purposes of this part of the session. There's an option in our legislation for local authorities to issue fixed-penalty notices at £500, which some may feel is appropriate or too modest or whatever, but what do you think of the general system of local authorities being able to issue fixed-penalty notices when they have a reason to consider an offence has been committed, but obviously it's short of any full legal proceeding?
Enforcement is key to the successful delivery of this legislation, and I would draw the committee's attention to the evaluation of Rent Smart Wales, which was issued on 7 June. Now, in that, under section 2.29, it was highlighted as a real weakness of Rent Smart Wales that there was a
'lack of resources at a local level and perceived insufficient resources at national level to enforce the Act'.
So, if that is happening with regulation, what hope do we have that the fee ban is actually policed properly? I find that very concerning.
Interviewees from local authorities, under the evaluation of Rent Smart Wales, said that
'it lacks sufficient detail on who is responsible for different actions or how the responsibilities are to be implemented, particularly in relation to enforcement.'
So, I think we can talk about all of the detail of the level of fines, et cetera, but if there's not the resource to do it and there's not the knowledge to do it, how is it going to succeed?
Okay. Well, you've put that on record. Now, could we return to my question about how you would feel about—let's assume that by whatever process it is enforceable—the actual principle of being able to issue fixed-penalty notices?
I think we're certainly very supportive of the concept. It will save local authorities a huge amount of money in terms of prosecution. However, my issue with particularly clause 13, but also clause 11, is that the fines are woefully inadequate. I would suggest you would want to add at least one nought, probably two, because, with the best will in the world, at a financial penalty of £500—. Average tenant fees are £200, average properties under management 200: that's £80,000, and you would have to issue 162 fixed-penalty notices for an agent to end up out of pocket as a result of this. If this is going to work, it has to act as a deterrent to the bottom end of the market, who are the ones that are charging excessive fees, to not charge an excessive fee.
To echo Isobel's point, the market at the moment is not being adequately enforced. In fact, it is being woefully inadequately enforced, which is why we have a rise in criminal agents and criminal landlords. Until we actually start enforcing the laws, it is not going to stop, and what we are going to create with this is a two-tier market of professional agents that stop charging fees the day the ban comes into force, and the chancers thinking that the likelihood of getting caught is minuscule, 'And even if I do, I've made 100 times more money from the tenant fees than I'll lose from the fine that I'm going to get.' It has to act as a deterrent. We were supportive of £5,000 and £30,000 in England. Both of these levels of fines need to go up significantly.
Okay, well thank you for that. That's genuinely insightful and helpful for the committee, and it does tie into the general point of enforcement, I recognise, that your colleague made.
If there is a fixed penalty issued—and, obviously, we'll reflect on what you said about where that should be set—do you think there should be an obligation for the letting agent also to repay the charge to the tenant that's actually unlawful? And, if that doesn't happen, would that aggravate the situation into a criminal offence, for instance?
I would certainly suggest that they will have to repay any prohibited payments; I think that would be only fair. The question that we have heard a lot of is compensation and making fees akin to deposit protection schemes, where, if you don't protect the deposit, it's the return of the deposit, plus a fine of three times the deposit. I have no objection to that, but, if you think about that, that doesn't then incur a criminal or a civil sanction—the fixed-penalty notice. I would suggest you probably want the fine rather than a compensation payment of multiple times the fee, because, with the deposit, a deposit is much larger than an individual prohibited payment. So, three times a prohibited payment of £50 is £150, three times a deposit of £1,000—. Once again, it goes back to what is the deterrent, and three times a tenancy deposit is going to be a lot more than three times a prohibited payment.
Okay. Thank you for that. And then, perhaps going further down the track of making enforcement effective, do you think that if there was some lead authority for enforcement designated in Wales, rather than it sitting with 22 local authorities—? Though some could combine and come up with some sort of scheme to co-operate on that, but, at the minute, it will sit with 22 local authorities. Would it be better with a lead agency?
Yes. Given the comments I've already made about local authorities not understanding their responsibilities, I think, if there was a lead authority, it would be helpful.
I would echo that one entirely. Powys County Council is already the lead authority—the national trading standards estate agency team—for the sales side. It means that, on the sales side—. Propertymark contains ARLA and the National Association of Estate Agents; we're the letting side, they're the sales side. They have one authority that they can report bad practice to across the country, and that authority then goes out and does the prosecution. We have hundreds. Some local authorities do things, most do not.
I'm sure Isabel will talk about your research last year in a second, but I can give you an example: we sent a collection of evidence to a local authority, just before Christmas, demonstrating that a number of agents in a market town were not complying with the Consumer Rights Act 2015. They did absolutely nothing. Having one point makes it a lot easier—we can go to one point and report the intelligence that we get on non-compliance, and then they can go and do something. That is what national trading standards is doing on the sales side. We don't have that on the letting side. What I would suggest is, if you are going down that route, we would not recommend that it is Cardiff council or Rent Smart Wales. With the best will in the world, Rent Smart Wales is not respected by the industry; it is seen as wildly bureaucratic and administrative. It's not performing the function that everybody hoped it would, and, therefore, if you give it to them, it becomes discredited before it's even begun.
I would also suggest you would want to tie in with national trading standards, because a lot of letting agents are sales agents as well, and therefore you might want to look, as we recommended in England, at putting the two together, and you have national trading standards based in Powys.
I won't go into your views of Rent Smart Wales—they're on the record. Would it help enforcement if the fines were then given to local authorities, or the lead agency, to help enforcement? Do you think that might be an elegant way of getting the resources in that are may be needed?
Yes. That is a way of doing it, but I think they would need funding to kick start the process because it couldn't just wait until they'd accumulated a number of fines.
Could I just mention the research that David alluded to? We carried out a survey in 2016 of 42 local authorities in England and Wales regarding prosecutions under the Consumer Rights Act 2015, and 93 per cent of local authorities hadn't issued a single penalty notice, and the three who had issued, only one of them had actually collected the funds.
I picked that up as well, from the evidence in Westminster, and it is interesting. I think you've come in very well prepared this morning, so I'm not going to spell out the differences in the enforcement regimes in terms of the fines and then criminal liability and when that kicks in and repeat offences, but, in terms of the balance between how the Welsh system would operate and the English, there's a fair bit of difference. So, are you comfortable with the approach in Wales? Or do you think the English model is stronger? What are your views on that?
I think you actually need to beef up the enforcement activities. England has taken quite a hard-line approach with the level of fines—unlimited fines of criminal prosecution. I think the fines that exist in this Bill at the moment, whilst Wales is a different market—rents are lower than in certain parts of England—they're not high enough. You need to make it a deterrent to the chancers, and there will be chancers, and the last thing you want, the last thing anybody wants, is to create a two-tier market where some continue charging fees with, pretty much, impunity.
Yes. You have said a lot about this, but I am concerned about the capacity issue. I've spoken to lots of people in local authorities and trading standards have been cut across Wales. How confident are you that enforcement will be able to take place, noting the research that you've carried out of the lack of enforcement of the current system? I think there's a lot of goodwill from the Government about how this will work and I don't feel at the moment that that's good enough. So, it's just the capacity issue I wanted some more clarification on.
I'm not confident in the slightest.
No, not confident at all.
History tells us that you pass laws, they don't get enforced, more laws get passed, they don't get enforced. This law is being passed because the Consumer Rights Act was not enforced. The problem we have is law after law after law after law is being passed here, in Westminster, in Holyrood, but none of it is being enforced. One local authority in England represents more than half of all the prosecutions against landlords in the country, every year. And they only do 250. The problem is not a lack of law, it's a lack of resources in local authorities to go out and enforce them, and that is what we are very worried about. NALS members, ARLA members, RICS members—we'll stop charging fees the day that ban comes into force. Those that aren't, won't.
And I would say, also, obviously, there's been some negative comment about Rent Smart Wales, but you have got regulation, so why would you not be enforcing that more rigorously to start with, before looking at the fee ban?
It's not us, by the way, doing it. It's Welsh Government. You said 'you' quite a few times. I just want to clarify it's the Government and we are the Assembly.
Sorry. 'You' plural.
Can I just add to that very quickly? Again, we do have over 100 regulations already in place controlling the letting agency and the renting industry already, most of which are not being enforced at the moment. From a RICS policy position, we would urge the Members to consider what is already in place and enforcement of what is already in place that is, again, being covered in the proposed Bill.
Yes, thanks. You just talked about things not being enforced. Now, the Consumer Rights Act does have rules on publicising letting agents' fees—letting agents must publicise details of fees—so, again, to what extent is there non-compliance with that and why is that the case, do you think?
I don't know the statistics in terms of non-compliance, but we know, from the survey that we carried out, that prosecutions aren't happening, so it's not actively being enforced.
Because of what we've just been talking about—local authorities aren't doing it.
I must be honest, I don't have a particularly strong opinion either way whether it is on the face of the Bill or whether it is enshrined in regulations thereafter—it's about whether or not they're going to be enforced, and, whichever way you do it, if it's not going to be enforced, it's not going to be worth the paper it's written on, with the best will in the world. One thing I would note on this one is Twitter. Twitter would be covered under the online advertising provision. It's going to be rather difficult, putting your fees and the property advert up within 280 characters. So, I think there does need to be an element of common sense added. I know it's designed for the portals, but it will cover things like Facebook, LinkedIn and, particularly, Twitter, so can there be a level of common sense built into new and emerging social media technologies that are used to advertise properties?
Okay, Gareth? I think that's fine. Thank you very much. Thank you all three of you for coming in to give evidence to the committee today. You will be sent a transcript to check for factual accuracy. Thank you very much.
Okay. Morning, both. We move on then to our third evidence session on the Renting Homes (Fees etc.) (Wales) Bill. I'm very pleased to welcome Douglas Haig, vice-chairman and director for Wales at the Residential Landlords Association, and Chris Norris, director of policy and practice, National Landlords Association. Welcome to you both. If we may move straight to questions, because time is limited, as always, and the first questions are from Jenny Rathbone.
Good morning. To what extent do the fees charged to tenants reflect the costs incurred by letting agents, in your opinion?
To letting agents specifically?
Sure. I think there is a valid distinction. I think the fees that landlords tend to charge—firstly, they tend to charge them less frequently than letting agents do. It tends to be a less normal part of their cost base and their business structure. I think when we experience landlords directly charging an application fee, let's say, to a tenant, it's directly related to the cost of a referencing service, perhaps, and it's normally splitting that cost. When we see a letting agent charge a fee, I think it's more of a commercial element of their business. So, there's certainly a cost element there, and that's the concern for us, about the cost being passed on. There's almost certainly going to be a margin that that agent is passing—or is using the fee to create.
Yes. I wouldn't disagree with that. Ultimately, I think—. Chris has already started to make that distinction, but, certainly, I would say that a lot of landlords currently don't really take account of their time when they're doing an application directly. So, if they do charge costs at all, which is very rare, I would say—I think your own figures in your impact assessment show that—at the moment, there's no account of the actual time that the landlord puts towards it. So, I think they see their time as being involved in the rent that they collect, going forward. In terms of letting agents, yes, I think that part of the reason why we're in this room discussing this at the moment is because there have been some scandalous levels of fees charged by agencies that I don't think any of us could ever possibly agree with. But I think that the vast majority of agents out there are charging something that is reasonable, given their overheads and the time involved in doing the application process.
If I just ask, just at this point, Jenny, just generally, in terms of the impacts, then, on landlords and, indeed, the buy-to-let sector: what would you say they're likely to be?
Of a complete ban?
So, inevitably, there's going to be a significant change—for landlords, there's going to be a significant change in terms of the way that agents interact with them when they do use them, and the main thing is going to be there's going to be a considerable increase in cost for the landlord, because, whilst you can reduce the total amount of fees that are being levied, and the ridiculous fees, there is a core cost to doing the process and the application, which has to go somewhere, and we're concerned about what the level of that cost is, especially when you consider vast areas of Wales and the rent levels that are being charged. As a result, you're probably going to be seeing fees that are well in excess of over a month's worth of rent being charged to a landlord just to complete a letting. So, that's one of the major considerations that we have.
I think I'd concur. There's a consideration of the direct impact when it comes to landlords, and the indirect impact. As I say, I don't think for most landlords there's a direct fee-charging culture there, but there is a cost. You can ban a fee quite simply, like I say slightly wryly, but you can't eliminate cost as easily. So, that cost is going to filter its way through, or one of the concerns we have is that cost base will be reduced by a reduction in the quality of service that's sometimes offered, whether that be to the tenant or to the landlord.
That's a real concern that we have as well, especially for maybe not some of our direct members—a lot of our members are self-managing landlords—but certainly the landlords that tend to use agents. They're not necessarily as well versed in exactly what the agent should be doing for them, so it's quite easy for the agent to maybe start to reduce the level of service that they've got, or that they're giving to the landlord as a result of this in kind of a stealth way. For me, this is one of the—. We've missed an opportunity with this Bill. I will say that I think—I know it's not the committee's timetable that is being set here—that, considering the timescale in which we've published this Bill and expecting us to come to this committee and give fairly detailed responses, we haven't really had the opportunity to scrutinise it and give you the detailed responses that we would like to do normally. I think there's been a bit of a rush in that and I think that, ultimately, it's possibly a bit of a knee-jerk reaction to what's going on in England.
What we would have liked to have seen happen in Wales is really trying to address the three things that you want to do properly, and that's increase the accessibility and the affordability and continue to increase the professionalisation of this sector. I don't think the Bill, as it stands, is going to address any of those areas. You're reducing accessibility, because I don't think that, ultimately, by banning fees it's going to mean that the people who get into tenancies are the ones that are going to be able to easily provide the documentation to get into the properties themselves.
In terms of affordability, the fee isn't actually the biggest problem in getting into a property in the first place—you're talking about the first month's rent and a deposit. On the way that the legislation has been put together, are we possibly restricting the innovation in the sector around creating zero-type deposit schemes or insurance-based schemes? In terms of professionalisation, we've got a situation where, actually, landlords are as much subject to hidden fees and unknown costs, as I've alluded to in terms of the service that they're getting. This could have been an opportunity to say, 'Well, actually, let's look at this sector. Let's put a cap on the front in terms of tenant fees. Let's create a clear schedule of things that you have to do so that it creates an equal marketplace for tenants, and, actually, let's look at what services landlords are receiving from agents and say that this is the sort of thing that you need to be providing when you're saying you're managing a property'. At the moment, you walk down a high street and you'll see 10 per cent, 12 per cent management fees, and then you'll see an agent with 5 per cent fees. On the face of it, they look like they're providing the same service. And for, maybe, some of our less-educated landlords, that seems like a very tempting offer, but that's a very dangerous trap to fall in, and that's what's happening a lot of the time.
Okay. We will come on to a number of the issues that you've mentioned there, but, Jenny.
Okay. We are where we are, so we need to ensure that this Bill does the job that we need it to do. Clearly, we need to drive out the amateur landlords who are not meeting their obligations and trying to avert the law. Some concerns have been raised that banning fees will mean either agents or landlords will cherry-pick the tenants they want to do business with, and that the more vulnerable tenants will be sidestepped and marginalised. What is your view on that?
I think there is certainly a risk. If I can draw a parallel with another piece of legislation, I think we've certainly seen a parallel with what we're discussing here and the implementation of Right to Rent in England, for instance, which imposed some quite burdensome and sometimes some fairly expensive tests that you had to pass. You had to get certain documentation, you had to comply with certain requirements. And it's led to a subtle but a distinct movement towards simple cases. I wouldn't go so far as to say it was a discriminatory issue, but, in terms of admin, you see a relatively simple, straightforward process, or you see a potentially more expensive, more complicated process. And I think it would be—we're working on anecdotal evidence here—reasonable to suggest that people will favour the simple case if you're not allowed to recoup the costs of doing that longer, more burdensome process. I think the example in here could be using guarantors, for instance. If you have an applicant who presents to you with all their documentation, demonstrating their income, which meets your tests, it's very simple to glance that over on day 1, and say, 'Yes, pending credit checks, you should pass.' If somebody presents with quite a chaotic lifestyle or an alternative household, and you know there's going to be a requirement for a guarantor, who will also have to be referenced, well, it's twice the work. So, I do think it's perfectly reasonable to incorporate into your charge to landlord that you're doing your due diligence, but if you're doing twice the work, and you would previously get charged for that, you will probably go for candidate A versus candidate B.
It would probably be easier, yes. If you have a relationship with—
That's very true, but they're not always so easy to work with.
On this issue, there's scarcity of supply now. So, if there was an inducement to cherry-pick, it would happen now. But there are certain properties in the market that are going to appeal to a certain type of tenant, and that is the force that distributes the rental of certain properties. So, I cannot see how a charge of £200 or £100 that we've heard, in terms of the difference that this legislation is going to make, is going to affect that calculation. If you're cherry-picking, or you might, you'd be doing it now because of the scarcity in the market.
I would suggest people are. You've only got to speak to applicants for properties who are reliant on local allowance or universal credit to find out how difficult it can be to access property. And that's exactly the kind of administrative discrimination or the cherry-picking that we are seeing. Now, I take your point entirely that just removing the fee isn't going to change the world. People who weren't pre-screening tenants aren't suddenly going to start doing it, but it's cumulative. And if you're already struggling to access and you put in this additional barrier, or this additional cost for, probably, the agent in most cases we're talking about, it's going to make if even more difficult.
Yes, I think you've got to look at it from the two different perspectives. So, with landlords directly, they probably are doing that to a certain extent, whereas the vast majority of landlords don't reference a tenancy in quite the same way as an agent would because the agent's got a separate liability to the landlord and they've got to have proof. If the agent puts a bad tenant into that property, then the landlord is going to be coming after the agent, and they've got to prove that they did their due diligence, whereas I think a lot of other landlords tend to base it a lot more on who they meet as a person and does their story add up—they speak to their previous landlord a bit more personally on the phone, that sort of thing. So, there is pre-screening going on with landlords already, and it's going to be more the case with the agents because it's their business, it's their time, it's a considerable difference to the way they're doing it. And they see far, far more people coming through their door than the average landlord. The average landlord will pop up once every three, four years to find the tenant for that property and then go to ground again, but the agent's in that business all that time. So, there's going to be a lot more of this screening going on.
Clearly, private renting is absolutely fine for people who are passing through, who have temporary situations. Students are an obvious example in my constituency. But most people who want stability wouldn't choose to rent if they had other options, or privately rent anyway. So, the Minister said there was compelling evidence why tenants should not be paying the letting agency fee, because it's the landlord who's benefiting from the service. You're selling something that people are prepared to buy, so why should the tenant, who, in many cases, can't even recoup the cost of the fee if they're in receipt of housing benefit—. What is the possible argument for it being imposed on the tenant?
I think in many cases, or in many elements of that charge, the Minister is absolutely right. The landlord is procuring a service, and that service is to find them a tenant to establish a tenancy. I think there are certain elements of that where there are two beneficiaries. When we're talking about that element of pre-screening, or avoiding that element of pre-screening, where we're talking about referencing and, particularly, checking in, where there is a risk, if that process isn't followed properly, that both parties could be harmed by a poor service, or the outcomes further down the line, I think there's an argument for sharing some of that cost.
I think what's been very interesting for us, as an association, is we've been speaking to our members a lot more about their interactions with letting agents. And it hadn't occurred to us quite as much how little a lot of landlords understand the charging structure of their agents. From our point of view, if you as a landlord contract an agent, you are their client and they have a responsibility to serve you as a client. We all know there's a duty of care to the tenant, but, as far as we're concerned, we were paying for that service. I think this process, and the process in Scotland, with their fee ban, and the process going on in England at the moment, has shined a light on a lot of double charging. And there are actually a lot of landlords out there saying, 'Well, why are my potential tenants being charged for these services'—like drawing up a tenancy agreement, for instance—'which, so far as I as a landlord am concerned, I've already paid for?' So, I think there is an element of truth, of validity, in what the Minister said there. We'd just like to make sure that there is a true understanding of who the beneficiaries are of different services and therefore that those costs are met by the people who are benefiting the most.
Okay. So, do you think this Bill will chase out some of the amateur landlords who have little understanding of what their responsibilities are?
Well, I think we have to be a little bit cautious about the term 'amateur'. I would say that a lot of the NLA's members are amateur, because they have other jobs as well. It doesn't mean they're not responsible. I think we do need, with this piece of legislation—and lots of other areas of legislation, and enforcement particularly—to drive out those people who are irresponsible, who do flout the law, who, even if they are amateur, don't want to provide a good service. I would question to what extent this Bill will achieve that. I think, as Douglas mentioned earlier on, in Wales you have an opportunity, because of Rent Smart Wales, and because of the licensing that exists, to use some other channels, some other methods, to effect some of that change, before resorting to something like this. There is legislation already that requires transparency and that requires enough information to be given to the consumer to drive some kind of competition, which I don't see being adhered to particularly well. I certainly don't see a lot of enforcement about. And I think, because with Rent Smart Wales you know who the landlords are, you know who the letting agents are, and you've got other ways to engage with them, there was perhaps an opportunity to do something just prior to primary legislation, which is an opportunity missed at the moment.
I would agree with all of it, but especially the final point. We would rather have seen—. We've got the Consumer Rights Act 2015, and the transparency of fees, which has not been enforced, and there's not been an opportunity really to educate the community at large through that process. And, actually, that is a route that we could have taken to look at maybe capping fees, prior to something full-blown like this. And that could be a shorter term route in getting this up and running whilst we look at possibly doing a wider piece of work about trying to achieve a better system under which agents can operate. Because, as we say, we've got the opportunities under Rent Smart Wales, in terms of licensing conditions and changing the way that agents operate in the sector. And I really do think we need to address how agents are charging their landlords and what services they're providing, as well as what they're doing.
But, to come back to your original point, no, you're absolutely right—there has been double charging going on. Some of the fee levels are ridiculous within the sector, and the trickle fees are probably the worst example of that—when you think you're getting one thing and you end up paying two or three times the amount by the end of the process to get through the referencing. There is a core cost to this, which is much lower, and I think much more reasonable—you know, £35, £100, £150, depending on where you are in the country—and that's what we should have been looking at, rather than an outright ban.
Just one point, and this is about the general principle now. I find it difficult that there is this level of opposition, given that we've heard from the letting agents that the overall costs tend to average out for tenant fees at £200. They think that, in a new system that bans those fees, about £100 of that will get passed on to tenants and so some of that will fall elsewhere. We're looking at a system of fairly limited costs on—or loss of costs in terms of the letting agents and then additional costs that you may face or have to recover in your rentals. But the benefit is that we abolish the rogue fees and drive out the very poor letting agents who shouldn't be in the market in the first place. So, why do you have this huge problem with this piece of legislation?
I don't think we have a huge problem with some of the goals of the legislation; it's just the way that it's coming forward. Ultimately, it's going to create a level of innovation and I look forward to seeing how that happens. Some of the innovation—if you look at some of the scrutiny in England—has been going on purely online models, but actually purely online models mean that you're not accessing an entire section of the market and it's excluding a significant proportion of the market. And also, the level of service that they're providing. They're probably quite good for our members, because a lot of our members are self-managing landlords. They're quite independent landlords; they come to us for information and various services, and if there’s a cut-price way of finding tenants then they're more likely to use that. But there is a huge proportion of landlords out there who are managed landlords and, therefore, these models aren't available to them. But there will be ways in which we continue to cut the price.
So, our concern is—. I have two sides: directly for my members, in the sense that fees will end up going up, and, as a result of that, you've got to look at—. I keep being told, 'Well, it's just this cost; it's just this little bit of cost.' You've got Rent Smart Wales, which is £33.50, and then there's an extra licensing cost, and then I get told by the UK Government that we've got tax changes: 'That's only another £700 or £800 a year on top of your current charges'. And then I get the renting homes Act, which is coming in, which is a good piece of legislation overall; we could have gone further with it, but we are where we are, and overall there's a lot of good stuff in it. But that's going to put costs up for the sector again.
It's this cumulative thing of keeping to put costs up. When you're renting a three-bedroomed house in the Rhondda valley for £350 a month, how much more cost can you continue to absorb in those properties in those areas? Some areas—some of the student properties, some in central Cardiff and in the centre of Swansea, those sorts of things—have probably got a bit more in them to be able to absorb some of these costs, but really, you’re talking about some of the rural areas and the provision of housing in those areas, and also the number of agents in those areas. You've got some areas that we were looking at where, in terms of agents providing services to landlords, there are only one or two in an area, and if they're losing a significant proportion of their fees, and they can't be passed on to the landlords in those areas, then they're really worried that there's going to be a complete lack of choice or they're going to be completely devoid of any such service in those areas.
I think I'd quite agree. I would say that, from the NLA's point of view, we don't have a huge in-principle objection to the goals of this legislation, but we are concerned about the rising cost base for landlords in providing homes, which is essentially what we're doing. If the cost of those homes keeps going up, it's not good for the reputation of the private rented sector and it's not good for those people, whether they're transiting, as we say, into another tenure, or whether they have made a decision that private renting, or renting in general, is for them. Because there's this view that there's almost an infinite elasticity in the private rented sector that, no matter how much cost you put on, it'll get absorbed and it's just complaining from the sector—from the landlords and the agencies—if we talk about passing on in rents. There is a limited elasticity in a tenant's or a household's ability to pay for their accommodation. Likewise, there's a limited elasticity in the landlord's or the owner of the property's ability to absorb costs.
We see it reported generally in Wales that there's about a 4.7 per cent or 4.8 per cent average yield for a buy-to-let landlord. That's better than you're going to get in a lot of similar investments, and we're not complaining about that—it's an opportunity for us—but it’s not infinite and it can't absorb some of the tax changes and licensing costs and selective licensing costs and additional regulatory burden and now additional costs passed on, perhaps, from a letting agent. If we dare to be optimistic, I am hopeful, actually, that this will lead to the kind of innovation that others have mentioned, particularly in letting agencies, because I think there has been a poor culture among a lot of letting agency businesses. They're saying, 'The industry average is 10 per cent to 15 per cent of the rent, therefore we'll provide a service—we needn't go into that, we didn't improve that service, that's what the landlord will pay because that's the market', and there's no real competition amongst high streets. You go on to high streets and you can go from one end to the other and find maybe 2 per cent variation in the fees they charge to a landlord, which is probably because they're making money back on the tenant fees at the moment, which arguably they shouldn't be, but also because they're not competing with one another. I hope this leads to some competition in quality and competition in fee.
I just wanted to go on to the pro—prohibition of certain payments. I will say that right one time today. Just regarding default payments, there is some concern that there might not be enough guidance on this issue and that there could be a longer list of what default payments would be under this particular instance, because if you ban fees then default payments could become larger at the whim of the agent. We heard from the previous people giving evidence that there was enough clarity as to what that would mean, but the model contracts are provided for in a different Bill, which we haven't seen for this Bill, which is again another timing issue from my perspective. I just wondered if you were confident that default payments were explained enough in this Bill or whether there needed to be more clarity and what that would entail in case some landlords or some agents decided to add a big list to tenants.
I think at the moment it's reasonably clear and it seems proportionate. The devil will be in the detail. I think some guidance will be crucial to enable this to work. I think you've got to be cautious not to try to legislate for every eventuality, though. There will be occurrences in a tenancy that may not easily be foreseen. Eventually, if there is a dispute, I think we have to have faith in the courts process for that to be recouped. I'm sceptical that many landlords or agents will try to recoup the costs through default, just because there are easier ways for them to do it through rent. If they are determined that they can't make efficiency improvements and they have to carry on charging that fee somehow, it's much easier to put 3 per cent on the rent or 4 per cent on the rent than to think, 'I'm going to wait until they lose their keys and then triple the fee for that' or 'I'm going to wait until they're late a day or two and then charge them.' We've got to be cautious and we've got to be vigilant, but I think it's far more likely that if people try to find other ways around this, to circumvent it, they'll do something more straightforward.
Would they add things to the contracts? That's another way of doing it. Not particularly on the defaulting, but in the upfront contract they would sign, would they potentially do that then? Obviously, because we haven't seen any model contracts yet, we wouldn't know what that would entail, but would you see that they would add stuff on there?
My expectation is that most elements that you add to the contract, if they're for the continuation or the granting of the tenancy, will be prohibited by this Bill. So, I think that they'd be quite limited in their ability to do that. I think we've got to be very clear on the type of default charge that can be made against the security deposit versus in tenancy, because lots of things that happen will simply be recouped at the end of tenancy via the tenancy deposit. So, yes, we've got to be careful, but we're not particularly concerned about that possibility.
The thing that a lot of people are concerned about is the costs at the end—agents and landlords trying to recoup things at the end of a tenancy and take it out of the deposit. To be fair to the way that deposit legislation currently works, I think there's lots of issues with it, but actually the adjudication process and the robustness of that system is there to prevent any crazy excess charges. Ultimately, if it's protected, you are protected by the dispute resolution process. If it's not protected, then you can get your money back and three times that. There were scaremongering newspaper articles abut charging ridiculous things for clearing out a jar of peanut butter or something like that, but if you took it to dispute you wouldn't get it through. Full stop. And if anybody wants to come and try a dispute process with us at any time then they're more than welcome to and they'd be surprised how robust it is. So, that parks that, and that's the vast majority of ways that you could get money back.
The default fees outside it, as Chris has alluded to, are just things that you charge for if the tenant has done something wrong or lost a key or dumped rubbish in the wrong bin and you're getting fined by the council and that sort of thing. It's those things that actually probably don't happen very often. I think landlords probably will increase slightly what they are doing. I think that, at the moment, landlords don't value their time. They really don't value their time when they are doing any extra work. I think that if they are going to be charged more through all of the things that I've already mentioned, plus what's going on here—and it's not just caused by this—they are going to say, 'Well, if I am going out and letting a tenant in at 2 o'clock in the morning, then I probably will charge what my time is worth for that', as opposed to doing it for free.
Okay. Just regarding utilities and communications services, this Bill doesn't specifically permit landlords or agents to require contracts in this regard. Is that something that you would want to change, to see in this Bill?
I think we'd need certainty. I think that's part of the discussion that's taken place in Westminster on the parallel Bill. There are times when utility costs are included as part of a rental package, and that needs to be taken into account. We don't want to see—. I think in the previous session, one of the witnesses referred to PPI. We don't want to see a return to that kind of ambulance-chasing culture if something is decided later on to have been in or outside the scope of the Bill. So, whether it's included or not, we just need to be absolutely clear from day 1.
Okay. Just coming on to the issue of security deposits, I quoted your evidence earlier in relation to the insurance-based schemes—what you propose in terms of transferring a deposit from one rental property to another. We heard in evidence that there were exemptions put into the English Bill where those types of schemes would be allowed. Obviously, my concern would be that, if something was benefiting the tenant, that would be something that would be prohibited in this particular Bill. So, I'm just wondering what your thoughts are on that, and whether the Bill goes far enough to allow for these new types of schemes to come through to their biggest potential, really.
I'm really keen on innovation in the marketplace, and I'm particularly keen at the moment on innovation around deposits. As an organisation—and personally—we've been exploring how we can free up this section of the market. I'm very concerned that there are some scandalous schemes out there at the moment that landlords need to be particularly wary of. We're highlighting them and trying to get our members to avoid them. I think we're just at the beginning of this process. We've got a couple of schemes that have recently launched. They are possibly tying in with tenant passport-type schemes, which will help with the vulnerability side—those that would find it more difficult to—
But that isn't included in this Bill. Do you think that that should be included here, as well as the banning of letting agent fees?
I think we need to be able to allow these things to happen. At the moment, there's not a—. As far as I understand it—and I may be wrong—it's about having an option. If you choose to take that up, then you can use it. But, if there's only one option, then you can't enforce that as a cost within that Bill. We would like to see deposit schemes that allow landlords to be able to secure a greater proportion of their rents for the tenants with higher risk, to be able to insure against themselves. So, if they have a foreign student with no background coming to the—well, not just students; there are plenty of people coming here to work as well with no credit history or guarantor in the UK to support them. So, some sort of deposit schemes, or insurance-based deposit schemes—.
We're also talking with some MPs as well about pets. Going back to a reference that Jenny made earlier, I slightly dispute that nobody deliberately chooses to live in the private rented sector. There's increasing evidence that—actually, I think it was in the last English housing survey—60 per cent of people surveyed said that they actually really enjoyed being in the private rented sector, and there's over an 80 per cent satisfaction rating within the private sector overall. But, we need to mature. I recognise we need to mature as a market. Pets are an example of being able to grant long-term tenancies, and families and these sorts of things. Pets are an integral part of families, but they are a high-risk option for landlords. If you're capping deposits or not allowing innovative schemes that allow you to cover your pet situation—. You say, 'Right, well, I'll pay a slightly extra bit on a deposit protection premium, so that I can have two dogs in the house.' That's not unreasonable.
The big thing is this double whammy that you get when you move from one property, because it take 14 days—a month, sometimes, in extreme cases—for a deposit to be released, and you've got to put down another deposit for your next house, and that's the point.
But, we are told that this type of thing, the passporting, would be outside of the scope of the Bill. I mean, I dispute that, because I think this would be helping tenants. Is that your view as well, that this would be beneficial to tenants?
Absolutely. We need to look at a way of not closing off this market, because there's a real potential that people can come into this market, and it would benefit both landlords and tenants, but I really do think it would benefit tenants.
Okay, sorry about that. Just with regard to the limit on the security deposits, setting that in regulations is the current proposition. We heard earlier, again, that that was something they would want to see come to the Assembly as opposed to set in regulations. Is that something that you agree with, and should there be a six or eight-week limit set in legislation?
I think that, as the Bill is currently drafted, it's a major concern for us, because obviously you don't have that same degree of debate over where that may be set. I mean, as an organisation, we don't favour capping security deposits. I've not seen any real evidence that there are excessive deposits being charged—true security deposits.
I don't believe so. I think there's a misunderstanding about what makes up moving costs. A lot of the time, when we see the very genuine challenges that tenants find in bringing together all of the moneys they need to move in, because they've got their first month's rent, they've got their deposit, they've got, at the moment, fees, plus all of the other costs of moving house, which we're all familiar with, I think they tend to get lumped in together, and you see these figures of £2,000, £3,000, £4,000 to move house. The security deposit never becomes the landlord's money. The security deposit always remains the tenant's money. Legislation already protects that. As Douglas mentioned earlier, there's a really robust arbitration process. It's not in the landlord's interest, or the agent's interest, to ramp up a security deposit that they can't use as operating capital, because it becomes a barrier to getting people in the homes. You actually want to fill that home as quickly as you possibly can. You don't want to put an arbitrary amount of money upfront, which you can't profit from, just for the sake of it. So, I've not seen a lot of evidence.
As an organisation, we provide our Members a facility to create tenancy agreements, and until the new standard contract comes in, we have an English and Welsh combined facility. Now, because of all the debate about security deposits, we went back and checked all of the information that we gather from that, and in Wales it seems to us that over the last seven years there's been very little variation on the amount, relative to the rent, that landlords have charged for a security deposit. It's been between 4.7 and 4.9 weeks equivalent in our membership, which—. At the moment, if you look at the English proposals, it's six weeks and it falls within that. What it doesn't take into account are those circumstances, like a pet, for instance, where you would perhaps, as a tenant, want to say, 'I know a landlord might not be comfortable having my two dogs living in this house. Therefore, I'd like to give you, or I understand that you want, an extra month's deposit, in case there are damages.' I, as a landlord, can't use that money for anything other than to mitigate my risk. It sits either in a custodial scheme or with an assurance policy attached to it, and it only gets used by me, and only becomes my money, if there is a default at the end of the tenancy. And there's a third party that decides whether there has been.
Do you want me to ask about the upper limit? Just quickly, sorry: do you have any concerns that the fines incurred for requiring prohibited payments are not subject to any upper limit? Do you think that's reasonable?
It does make me nervous, yes. I would prefer to see limits on things or, certainly, very clear guidance as to what is being intended. So, that would be my preference.
Buaswn i'n leicio jest trafod math arall o flaendal, sef y blaendaliadau cadw. A ydych chi'n hapus efo'r ddarpariaeth sydd yn y Bil, cyn belled â bod yr agwedd yma yn y cwestiwn?
I would like to now turn to another kind of deposit, namely the holding deposits. Are you content with the provision in the Bill, in terms of this aspect of things, in terms of holding deposits?
I think, largely, holding deposits play a role—particularly as you remove fees, they will arguably play a more important role, because they do exactly as they say on the tin: they hold that property until an agreement can be reached and until someone can move in. The provisions at the moment seem reasonable. Once again, I am not convinced there is much of an argument at the moment for legislating on holding deposits, because we've not seen evidence that there's an abuse. But if you're going to remove fees, I can see the logic.
Do most landlords now have the holding deposits? Do they use that system with every tenancy?
Not with every tenancy, no. I think it is more common with letting agencies, but it's not uncommon for private landlords to take a deposit, depending on the market you're in. I mean, a lot of markets are so fast that there isn't an enormous need, but there is, obviously, competition, and it's beneficial to both parties because you don't want to see, if you are in a very hot market, for instance, a property that you as a tenant have reserved being taken by somebody else who comes in and offers, say, a premium rent. So, it does happen, but it's not necessarily the norm.
I think there are two sides to it. From a landlord's perspective, I don't see massive issues around holding deposits because of the way they tend to operate in the market. I can see huge complications for agencies going forward, and operating it in the way it's been legislated I think is going to be very, very difficult for them to manage. I can actually see a lot of agents not taking holding deposits at all, and kind of operating in a tournament-style approach, which I wouldn't really like to see. I would want to see greater clarity on what we would say is recoverable for a landlord or an agent in that holding deposit because I think there could be quite a lot of debate around, 'What can I keep if the tenancy doesn't go through?' And I think one thing that is important to note for landlords through this process is what landlords are selling is time in a property, and if a tenant doesn't move in to a property or says that they're going to bring documents in and then doesn't bring the documents and, you know, it drags on, the landlord can't recover that rental time. So, it's fine if, ultimately, it's far enough ahead and that the current tenants are still in there and you find a new tenant and everything and there's been no genuine impact on the landlord, but if it's empty and you're waiting on a tenant to bring all the documents and things like that, and the landlord loses time as a result of that, I think that's something to genuinely consider about how you might recover money from the holding deposit. Ultimately, a week's not a long time to try and recover that money from this.
Okay. And what about this idea that there should only be one holding deposit at a time for particular properties?
To reserve a particular property?
I think that's going to be very difficult to police.
Again, I think it depends on what clarity we get on what you can recover from the holding deposit, because, for me, at the moment, that's not the case—it's not particularly clear. So, as I say, for landlords directly, I don't think it's going to be a massive issue, but I do think it's going to be a big issue for agents. So, 'Should there be only one holding deposit?'—it depends on what we see in terms of what you can recover from that holding deposit and how easy that's going to be.
So, again, you're seeing unforeseen consequences for the tenant ultimately.
Yes, absolutely. I'm very concerned that we will enter a tournament-style approach to people getting properties.
I just wanted to ask why you said that there wasn't enough clarity on the holding deposits, because, obviously, I can see from the Bill that it explains that it would be useful, so I just wanted to understand what you weren't clear about.
In terms what you can recover from the—. So, if a tenancy doesn't go through, that's when the issues arise. If a tenancy is granted, the holding deposit can be passed on to the rent or the deposit—no issues there. If the tenancy doesn't go through, either because of excess delays—that would be a really good example: so, you've taken a week's holding deposit, you've got 14 days to sign a contract, and at the end of that, the tenant hasn't presented all of their documents, so are we now allowed to take that whole holding deposit? For me, that's because, ultimately, we've lost 14 days to let that property. That's irrelevant to any work that's been done that you might be able to deduct from that. The tenancy has not been granted. The tenant might come back two days later, but you may have found another tenant, but you've then lost 14 days. So, it's those nuances that occur when you're renting, and that you understand when you're renting, that we would like to see slightly more clarified.
Okay. Siân, are you content? Yes. We'll move on to enforcement and to David Melding.
In general, I notice that Dr David Smith—I think policy director of the Residential Landlords Association—in giving evidence to the Westminster committee that's looking at similar law proposal there, said that the Act to ensure that fees are upfront and advertised has not been very well enforced, and this point has also been made to us this morning by the letting agents. Is that your view: that the current legislation around tenant fees is very poorly enforced? And therefore, does that mean it's either being observed by everyone or it's a dead letter?
We've probably got the same views on this, haven't we?
I think we probably have. I mean, in a word, yes, it's not being enforced, or it's being enforced very much in the default and very reactively. It's something that, from our point of view, could be very easily enforced proactively. You know, it's quite easy for a local authority or a trading standards bodies to go up and down a high street looking to agencies and see whether there are clear advertising, or even to do a desktop exercise of looking on websites. It's very easy to see that it's not being observed, yet there's been very, very little prosecution and very, very little enforcement. There's not been a lot of active work, but there's also not been a lot of elapsed time. There's not been a thorough review as far as we're concerned, and we're jumping onto another step of intervention. I think there is, as we mentioned before, a lot that could be done before we get to this particular stage.
And for the purpose of this morning, does the same danger exist in this proposed legislation, I suppose, is—?
I think, in essence, it's slightly easier to see. Under the Consumer Rights Act, it was actually reasonably difficult for the local authority to enforce it. The great thing here is you've got—and you won't hear me say this very often—Rent Smart Wales, and you can either do the desktop study on your licensed agents to see whether it's happening or you can go down your high street and see your licensed agents and their addresses and see if there are any agents that aren't there. And I'd like to see more of that happening. So, I suppose, the problem is that the ones that don't operate it are not necessarily directly on your high street. Basically, with the enforcement, it's got to be a combination of empowering the tenant to be able to do it, which you've done partly in this Bill, and then making it very easy for the local authority to issue the fines or—.
So, part of the process, which I expect is designed to make it fairly easy, is that— presently it's local authorities that are the enforcing agencies, and they can issue a fixed-penalty notice of £500 if they suspect, with reasonable cause, that an offence has been committed. What do you think of that type of regime? Do you think that's a fair way of administrating enforcement at that lower level? And is £500 effective?
I think, across the board, we've seen very poor enforcement when it comes to housing legislation and particularly private rented housing legislation. So, making it simple, providing those options that don't incur significant costs for the enforcing body I think are very positive. The flip side to that is making sure there is appropriate appeal and there is appropriate access to evidence and that you don't effectively appoint judge, jury an executioner in one body, which is a slight concern. On the basis of the fines—perhaps as a landlord representative I shouldn't say, but I'm not sure what use is a £500 fine in this instance. You've got particularly very significant fees. I mean, again, for a landlord, that would be significant. For a letting agent, if they were wilfully ignoring the legislation and charging fees, they could be bringing in multiple tens of thousands of pounds a year in fees, and if there's no effective enforcement catching them every single time, a £500 fine is going to be nothing.
We're making good progress, which is why I'm keen to move you on. So, we've heard from letting agencies that have given evidence this morning that they believe that—. They don't want this law, but if it's coming in they think it should be enforceable and it should act as a deterrent, and the fixed penalty, at £500, wouldn't do that, and £5,000 is—well, 'Add a nought' is what they actually said, so £5,000. So, I think you're probably in the same place on that, are you?
Yes, I think—. I was going to bring up as well that you really should be looking, probably, at different penalty costs for landlords versus agents. For a landlord, £500 I think is going to be quite a lot of money and a deterrent. For an agent, £500 is—. You need to do more than that.
And do you think that, if we have a fixed-penalty regime, then that ought to be linked to a requirement to repay the charge that was improperly imposed on the tenant?
I think so, yes. I’m aware that there are potential complications around that, but we’ve got to restore the tenant to the position that—
And it seems illogical not to have that as part of the requirement at the start.
If it was going to happen, it should probably be repaid to the local authority, then repaid to the tenant, so that there's clarity there.
Yes, and there's bite as well, because if you don’t pay it, then that will be evident immediately.
Do you have any views on a lead enforcement agency? Some have suggested Rent Smart Wales or a system where a local authority in Wales acts as the lead authority. At the minute, obviously, the model is going to be 22 local authorities, although in fairness to the Minister, she has reminded us that there is ability in law for local authorities to voluntarily join together, and they may choose to do that.
I think where we've seen it in other areas, it's probably been helpful, partly because housing law, even just—. The people who are enforcing are covering such broad ranges of things that having a lead authority allows a pot of expertise for things, so that if somebody out in the field says, 'Okay, well, there’s this', then they've definitely got somebody that they can contact who can support them through the enforcement process. So, I'd probably say it’s a fairly good idea.
There's certainly an efficiency in bringing that together. I would expect we won’t see a huge volume of enforcement against this. It’s fairly black and white—you either comply or you don’t. So, making it as efficient as possible to enforce would be favourable.
The regime in terms of the penalties: there’s quite a bit of a difference between the Welsh model and the English one. I won’t go through all the details because I suspect you are familiar, but do you prefer the Welsh model, or do you think the English model's approach—? For instance, you could discharge a more serious liability under sections 2 and 3 at £30,000, I think it was. Well, that isn’t in the Welsh law. So, how do you feel that balances?
I think the preferable system would be one that is enforced, which might sound a little flippant, but we’ve seen a lot of legislation that's imposed and implemented, but not really enforced. So, we're looking at two hypothetical sets of circumstances. I truly hope that they're both implemented and enforced as intended, and therefore will be effective. I think some of the flexibility about being able to discharge the higher liability is positive, but it does come down to the detail and what the process will be, and what access to evidence—[Inaudible.]
Yes, I suppose it’s easy to say that it'll be black and white at the beginning. There could be reasons why it’s not so clear-cut in some cases, and I suppose I would like to see flexibility around that. The ease of the way that the Welsh systems work together does seem quite good, but, yes, it probably would be good to be able to have a ramping up process. But, again, you’ve got the backstop then of any enforcement action being presented to Rent Smart Wales, hopefully, and I’m not entirely sure how that loop is closed through all of this. Hopefully, we'll clarify that going forward, so that these sorts of things will automatically be reported by the relevant local authority.
David, can I just ask at this stage, if landlords were prevented from serving notice, if they'd taken a payment wrongly, would that be an effective deterrent in your view?
Removing that—I'm assuming you're talking more about the no-fault rather than the fault process. It’s a very effective sanction. The problem being, if you look at what’s happened with the various moratoriums that have been attached to the Housing Act, it’s difficult to get the detail right, and it's difficult to be able to have some solution or some way to discharge the issue. So, if you had that moratorium or that restriction that could be discharged at some point, if there had been a genuine mistake, what you don’t want to get to is a situation that, because of a misunderstanding on day one, you’ve created an indefinite security forever, frankly, which is what we're witnessing at the moment with some of the recent changes to the assured shorthold tenancy, for instance, where issues of evidence have not been properly recorded. At the beginning of the tenancy, you have provided a gas safety certificate, for instance, but you've not had a receipt, and that, essentially, is creating an imbalance from day one, and I think that would be the danger with this.
Very briefly on that, I would also not want it to ever be used as a weapon to delay possession proceedings, which is what you get with the other things. Because, ultimately, you can be turning up in court and then there'll be a spurious claim of, 'They paid a fee at the beginning', and then the judge says, 'Okay, we'll adjourn this while we look at it.' So, that's another three, four weeks when you have a possession claim delayed. We can't be in a position where that situation is created. That would be my primary concern.
Sorry, I just wanted to go back to the lead authority issue. It just dawned on me that when the Minister came in, she said that a reason for the individual authorities, as I understood it, was that they could potentially make money from the fines, if they enforced it, so that that would benefit the local authorities to enforce, because they could see pound figures attached to any enforcement process. But if there were to be a lead authority, I'm just worried about how that would work, in the sense that if, say, Powys was doing it, then, you know, would there be a need to ensure that each local authority still had the ability to accrue their own penalties?
The main problem with this—. Please do correct me, but I believe that the money gained from the fixed-penalty notice is ring-fenced towards enforcement. So, if you've got—