Amendments to the Tenant Fees Bill were approved by peers in the Lords yesterday – including the proposed changes to Client Money Protection (CMP) and the decision to cut the cap for most security deposits to five weeks’ rent.
A number of Peers raised RLA concerns over the CMP arrangements in the House.
Lord Flight (Conservative) said: “The new rules to protect rent paid by tenants to agents do not protect landlords fully.
“Letting agents will have to join the new government-approved client money protection insurance scheme, but changes proposed by the government as to the level of insurance held by these schemes will not cover the full value of rental money held by agents.
“I cannot see the point of that.
“Is it not in the interests of all parties for the insurance to effectively to cover all potential liabilities?
“The scheme will not pay out in some circumstances; it will be able to cap the amount it pays out. Surely it would be more sensible for the scheme to provide for full protection.”
Lord Palmer of Childs Hill (Liberal Democrat – Co-Chaired the government’s working group on Client Money Protection) said: “I want to pick up on a point made by the noble Lord, Lord Flight, because it is one of the questions that arises from these amendments.
“Perhaps I may tackle it by dealing with the level of insurance required, which is what the noble Lord, Lord Flight, was talking about.
“The best way of looking at it is perhaps to think about what the Residential Landlords Association —the RLA—has recently said.
“It advises, consequent to the changes to the legislation, that to help reduce the risk, landlords should spread their properties across a number of agents so that they reduce the need to go over whatever insurance limits were agreed with each one.”
The Minister, Lord Bourne pledged to write to Lord Flight and Lord Palmer to provide a full response to their concerns.
Baroness Gardner of Parkes (Conservative) went on to raise the concerns the RLA raised with her about the decision to cap security deposits at five weeks’ rent. She told the House: “Many landlords find that,towards the end of a tenancy, the tenant pays nothing, and they are well out of pocket—even if they have six weeks’ rent—if the property is damaged, which happens more frequently than one would hope.
“I cannot see that it is worth making the major differentiation between five and six weeks. I was perfectly happy with six weeks, and I thought it was fair that everyone should be in the same position.”
Speaking on the same issue, Lord Flight commented: “The objective for everyone is to have a fair balance that works. I note that, at Second Reading in the Commons, the Secretary of State referred to the then proposal of six weeks as: “a balance of greater protection to tenants while giving landlords the flexibility to accept higher-risk tenants”.
“I also note that Scotland has an eight-week as opposed to a six-week arrangement.
“I urge the Government to think again on this issue.
“Cutting the deposit to five weeks’ rent will quite likely leave the landlord out of pocket. In turn, that will make landlords more cautious about the tenants they take on, at a time when the need for more rented accommodation is acute.
“This is not a huge issue, but the Government’s previous proposition of six weeks was the sensible and fair balance. I do not understand why they have moved to five weeks, and nor does the industry—having not been consulted or advised about this, it feels somewhat mistreated by the Government.”
The Earl of Lytton also raised concerns about the decision to move from the six week deposit cap. He told the House:
“The industry standard has been six weeks for a considerable time. In my part of Sussex, six weeks’ rent represents a figure between £1,200 and £1,800 in general terms. That does not go a long way if, in addition to non-payment of rent—bear in mind that defaults tend to have many heads—the tenant also leaves the property in a damaged condition, including damage to carpeting, kitchen units and electrical wiring.
“Given that situation, can the Minister explain why it is now five weeks? If you strip out non-payment of the last month’s rent, under this proposal you are left with a single week’s rent to cover any other form of loss. Does that represent a fair balance? I am not sure that it does.”
The Minister, Lord Bourne, responded:
“On the point that we have moved significantly from six weeks to five weeks, yes, it is a movement, but it is scarcely, as the noble Lord suggests, a fundamental shift. It is not as if we are moving from 10 weeks to one week. Perhaps I may provide some reassurance. All the evidence is that most people currently take deposits of between four or five weeks. It is not therefore massively inconsistent with current practice.
“At the top end of the market we are retaining the six-week limit for the most expensive properties where the fittings and fixtures may be more costly. It will remain at six weeks where the annual rental is more than £50,000. I hope that provides some reassurance to those noble Lords who have raised the concern.”
The full transcript of the debate can be read here.