‘Make rules on tenancy default fees clear or agents could face costly PPI-style claims’, MPs warned

The Government must provide more clarity on the planned tenant fees ban if it wants to avoid the prospect of PPI-style compensation claims against letting agents, MPs have been warned.

Speaking to the Communities and Local Government Committee, David Cox, chief executive of ARLA Propertymark and Isobel Thomson, chief executive of the National Approved Lettings Scheme warned of the unintended consequences of the Draft Tenant Fees Bill.

Cox, who repeated warnings that the ban would result in a loss of income for agents and subsequently lost jobs, demanded more clarity on the issue of whether or not agents could charge tenants default fees.

The Bill as it is currently drafted aims to reduce costs to tenants by banning landlords and their agents from requiring any payments from tenants as a condition of granting, renewing or continuing a tenancy with the exception of rent, a refundable tenancy deposit, a refundable holding deposit and tenant default fees (for things like lost keys or late rent payments).

But Cox expressed concerns that the Bill is poorly drafted and is worried that without making the rules clearer, a court could potentially hold that default fees were unlawful at some point in the future, possibly resulting in what he called a “PPI moment” for letting agents.

He later told EYE: “We are worried that as the tenant default fees clause in the Bill is so widely drafted that there is the possibility that if agents do charge such fees, a court could find in a few years time that such fees are unlawful which would require all such fees to be repaid across the industry (hence the PPI analogy).

“We are asking for absolute clarity on the face of the Bill as to whether such fees will be lawful.”

And he called for clarity on deposit replacement schemes and whether they would be allowed, especially if there were renewal premiums involved.

He also warned that mandatory client money protection (CMP) should come in before the fee ban to stop agents running off with rents and deposits if they start going bust as a result of the ban.

He told MPs: “You have to factor in agents going bust and propping up businesses by taking rent and deposits.

“I would strongly make sure CMP comes into force before the fee ban does as otherwise you may end up in a situation where agents go bust and run off with the funds before mandatory CMP comes into force.”

Meanwhile, Thomson cautioned that agents would have to pass their increased costs as a result of the fees ban onto landlords, who would in turn increase rents.

And she warned that if there was no one to pay to reference tenants then they may simply not get any accommodation.

She said:  “Tenants of certain categories will not be well served. Agents will have less time for those on housing benefit or universal credit.”

Cox also added that currently housing benefit covers rent but not fees, so if rents were increased the state support would no longer be sufficient.

He was also asked about agents already not charging fees and whether this showed the ban wouldn’t be catastrophic, but he replied that in most of these cases rents were set higher.

MPs also asked for their views on landlord licensing. Cox said the low level of prosecutions in local authorities such as Newham suggested it wasn’t that effective and said better enforcement, education and training was needed for tenants, landlords and agents.

He said: “It’s not a lack of law but a lack of enforcement and education that is the problem.”

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