Our vision
Everyone in Wales should have a decent and affordable home: it is the foundation for the health and well-being of people and communities.
Mission
Shelter Cymru’s mission is to improve people’s lives through our advice and support services and through training, education and information work. Through our policy, research, campaigning and lobbying, we will help overcome the barriers that stand in the way of people in Wales having a decent affordable home.
Values
Introduction
Shelter Cymru welcomes the opportunity to provide evidence on this draft Bill. We’ve been calling for a ban on fees since our 2016 Letting Go campaign[1], which highlighted the cost of tenants’ fees and the lack of transparency and consistency in agents’ fee policies.
We warmly welcome the Welsh Government’s commitment to ban fees. Doing so will help tenants to afford to find and keep a home; and it will assist local authority homelessness services by reducing demand on local ‘spend to save’ homelessness prevention budgets.
However, there are certain aspects of the Bill that need to be strengthened in order to avoid creating loopholes that could be exploited.
Default fees
Default fees are primarily levied against tenants on low incomes who are falling behind with their rent. In our experience it is the most vulnerable tenants who are the most likely to be hit by excessive or unfair default fees.
The Welsh Government’s explanatory memorandum gives the rationale for not including default fees in the Bill as follows: ‘The charging of payments in default is longstanding practice of which there is little evidence to show tenants within the PRS are being overcharged to a significant or consistent degree. On that basis, the Welsh Government sees no need to change such practice.’
There is a great deal of evidence of unfair and excessive default fees being applied in Wales.
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We sampled 80 recent calls to our helpline where there was a problem relating to letting agents. One quarter of those calls related to agents’ fees, half of which were default fees.
Agents claim that fees are only meant to cover their costs in chasing late payments, but we see many people who are charged fees that are completely out of proportion to the cost to the agent.
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The Welsh Government proposes that listing default fees in the tenancy contract will suffice in terms of transparency and fairness. The vast majority of agents already do this, and unfortunately it doesn’t give tenants the protection they need. Contract terms can be written in ways that are hard to understand, and result in excessive fees being charged.
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Our mystery shopping exercise[2] carried out by our campaign supporters found that default fees were among the least transparent of all fees, with many agents appearing to make up fees on the spot.
We do recognise that there is a legitimate need for agents to recoup some cost when they are chasing arrears. However, if the Bill does not create consistency and fairness in the charging of default fees, this will become a loophole exploited by agents seeking to maximise profit. The Bill in its current form does not even require that default fees are reasonable and fair. It allows default fees to be summarily charged for any alleged ‘breach by the contract-holder of a term of the contract’. This is open to abuse.
We propose an alternative approach. The Bill should require that default fees are limited to:
As an absolute minimum, the Bill should require that default fees be reasonable and fair. However it would be better for the Bill to set a cap, to reduce reliance on the courts to establish reasonableness. Many tenants are unwilling or unable to seek redress via the courts due to the costs and other difficulties. More detail on this is under the section on enforcement.
Holding deposits
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Our view is that the Bill needs amending to clarify when a holding deposit can be kept by the agent. The clause on ‘false and misleading information’ is too subjective and unclear. There’s a risk that holding deposits could be retained simply where a tenant has failed a credit check or referencing: ARLA have already suggested that this will be the case[3]. There is the possibility that minor, unintentional errors by tenants or normal fluctuations in income could be interpreted as false and misleading.
We query why the Bill allows holding deposits to be retained if the tenant fails a ‘right to rent’ check. The right to rent has not yet been enacted in Wales. Even if it is subsequently brought into force there is no requirement on Welsh Government to follow England in respect of how this affects letting fee regulation. Shelter highlights that right to rent checks in England can be complicated, and an individual may not always know whether they have the right to rent, or may fail simply because they don’t have all their documents in order[4].
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There are times when a tenant is unable to take up a tenancy for good reasons, such as a family crisis or bereavement. Reputable agents will exercise discretion in these situations but unfortunately some take advantage to retain the deposit at all costs. The Bill should be amended to require holding deposits to be returned when the contract-holder has a good reason for withdrawing.
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Finally, we suggest it would be helpful if the Bill could require an agent to provide the tenant with a written explanation including evidence of why a holding deposit is being retained.
Enforcement
We broadly welcome the proposed use of Fixed Penalty Notices (FPNs). These are already being used effectively to enforce landlord licensing under Rent Smart Wales. Our view, however, is that £500 is too low to be an incentive, and will be even less of an incentive as time goes on. For this reason we would advise against setting the level of the FPN in the Bill itself as is currently proposed.
Instead, the Bill should allow for the level of the FPN to be set by the Minister and periodically revised in order to remain responsive to changing rent levels. We suggest that a fine set at 15 to 20 per cent of the average annual revenue for privately rented property in Wales would be appropriate.
It’s welcome that the Bill requires convictions to be reported to Rent Smart Wales but this should also go for FPNs, since the licensing authority would want to know if an agent is repeatedly infringing the law.
The Bill proposes that contract-holders should apply to the County Court for recovery of fees. There are practical barriers to this and the Bill would be strengthened by also providing for alternative routes of redress. Applying to the County Court costs money and can be highly intimidating, especially for vulnerable tenants who may well be deterred from exercising this form of redress.
We have a number of suggestions:
· The Bill should also provide for contract-holders to apply via the existing redress bodies for recovery of fees: The Property Ombudsman, Property Redress Scheme, and Ombudsman Services: Property
· The Bill should allow the County Court to award compensation in addition to the recovery of the prohibited fee and costs, of up to three times the amount of the prohibited payment. This would be in line with existing legislation for security deposits
· A ban on possession actions while a prohibited payment has been taken and held would be a strong incentive for agents to refund. This measure has worked effectively in relation to landlord licensing. However, learning lessons from the implementation of the Housing (Wales) Act 2014, the ban should apply for section 8 fault-based possession proceedings as well as section 21 no-fault proceedings
· The Bill in England places much more emphasis on the role of Trading Standards, giving powers to local weights and measures authorities to require the repayment of prohibited fees, including interest. The English Bill also allows local weights and measures authorities to help tenants to make an application to recover prohibited payments. This would be very desirable for some tenants who may otherwise struggle with the process. The Welsh Bill would be stronger if it made similar provisions.
Security deposits
We welcome that the Welsh Government is prepared to set a limit on security deposits. It would be clearer for agents if this were included in the Bill rather than in regulations. We would argue for a cap of one month’s rent, as was originally proposed for the Bill in England (subsequently revised upwards to six weeks).
Other issues: fees for ending a tenancy
The Bill makes it an offence for a landlord or agent to require payments as a condition of the granting, renewal or continuance of tenancy contracts. But the Bill doesn’t mention fees for ending a tenancy, either in the form of checking-out fees (outside a fixed term) or cancellation fees (within a fixed term). These costs can be very high and we would urge the Government to ensure that the Bill explicitly bans fees for ending tenancies, to avoid creating a loophole. Our mystery shopping exercise found that tenants were being charged as much as £89 simply for handing their keys in at the end of the tenancy.
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It’s possible that agents may argue that some charges for ending tenancies are legitimate, such as in the case study above when a tenant needs to move out during the fixed term and cancel the contract early. In these cases agents often require the outgoing tenants to find replacement tenants: in which case, the actual cost to the agent of establishing the new tenancy only includes credit and reference checks and getting the new agreement signed. However, if the agent re-advertises and recruits new tenants themselves, then costs to the agent might be higher. It may be fair to expect the outgoing tenant to pay a reasonable amount.
End-of-tenancy fees are by far the most common form of default fee that we have queries on. Problems arise frequently, so the Bill does need to address them.
In our view the Bill should:
· Include payments for ending a tenancy in the list of prohibited fees; and
· Allow agents to charge a reasonable fee for early cancellation of tenancies within the fixed term. Cancellation fees should be capped at one week’s rent.