Deposits should be capped at 5 weeks’ rent, says committee

Review of tenant fee ban suggests reducing deposit amount landlords can collect

The Housing, Communities and Local Government Committee, which is examining the tenant fees ban, has published its findings and recommendations. As part of the report, it has concluded that the deposit amount that landlords can seek should be reduced to the equivalent of five weeks’ rent.

This is one week less than the original proposal of six weeks’ rent.

The committee says it has based its recommendation on the current average deposit, which is equivalent to 4.9 weeks’ rent. It understands that while six weeks rent places a large financial burden on tenants, four weeks opens landlords to unnecessary risk. Settling on five weeks creates a middle ground between both requirements.

Chair of the committee, Clive Betts MP, said:

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

The committee’s other recommendations are:

• Reference checks: landlords can only retain the full holding deposit if the tenant has knowingly provided inaccurate information
• Default fees: better regulation of the type of charge and the amount to prevent abuse of this system
• Local Authorities: more funding should be made available to help these agencies enforce the new law
• Impact Assessments: to be published alongside every draft bill

Landlords groups have reacted negatively to the report. The National Landlords’ Association claim that the restrictions will cause unforeseen issues for tenants with pets, as landlords will not be able to extend deposits to cover a pet clause.

An open door

Meanwhile, the Residential Landlords Association (RLA) has railed against the recommendation. They see this as an open door for unscrupulous tenants. It points to research it has recently conducted that shows that 40% of landlords have had problems with tenants not paying their last month’s rent.

RLA chairman Alan Ward said:

“Policy makers need to address the problem of tenants who fail to pay their rent with as much energy as tackling rogue landlords. Proposals to lower the cap on deposits paid by tenants will play into the hands of the minority of tenants who cheat those providing housing for them out of the rent they are legitimately owed.”

More clarity needed

As well as the suggested change to the deposit cap, the Select Committee has also raised concerns about elements of the bill, as it stands.

The current draft of the legislation would see the law enforced through civil penalties. The Committee has queries whether this would disincentive Local Authorites to work with agents.

Clive Betts, said:

“We also had concerns about how the law will be enforced. Funding enforcement through the retention of fines gives local authorities a perverse disincentive to proactively engage with lettings agents and landlords. If councils are to be given this extra enforcement responsibility, they must either be given extra resources or the maximum amount of civil penalty needs to be increased.”

The draft law’s approach to agents charging default fees was also questioned. The committee wants the government to provide more clarity on this contentious point. While it sees that reasonable charges can be levied, it is unclear what constitutes ‘reasonable’.

Again, the landlords’ associations are strident in their opposition for too drastic an approach to default fees. Chief Executive of the National Landlords Association, Richard Lambert, said:

“If agents are unable to charge fees to tenants, they will have no other option than try to shift it on landlords, who will then want to pass it back to the tenant through increasing rents. But that does depend on tenants’ ability to pay higher rents, and we expect that landlords will have to absorb some of the extra cost, at a time when the Government is already taxing them more.”

With the tenant fee ban pencilled in for spring 2019, there is clearly some way to go before the legislation is fit for purpose.

In related news, the Government has also announced a new mandatory code of conduct for letting agents.

Further reading:

www.parliament.uk/housing-communities-and-local-government-committee/news/draft-tenant-fees-report-17-19/
www.landlords.org.uk/news-campaigns/news/private-rented-sector-needs-be-more-affordable-commons-select-committee-argues
https://news.rla.org.uk/deposit-cap-plans-a-charter-for-rent-cheats/