Last week the government tightened its Right to Rent rules, making it a criminal offence for a landlord to let to anyone they know, or have reasonable cause to believe, is an illegal immigrant. Previously breaches of this law were sanctioned by civil penalties. However as of 1st December the penalty for failing to check a tenant’s right to rent is a criminal offense which may risk a prison sentence.
Under the Rent to Right policy, landlords must check that their tenants can legally rent a property. Tenants must produce a document, such as a passport or a certificate of naturalisation, to prove their Right to Rent.Under the new rules, landlords could also receive government notices to terminate tenancies for people disqualified from renting. In such circumstances renters may face eviction without a court order.
This policy has serious ramifications for renters. According to a survey conducted by the housing charity Shelter, 44% of landlords said the policy would make them less likely to rent to people who appear to be immigrants, with similar numbers saying the same about people without a British passport.
In addition to potential discrimination , reports exist of letting agents charging prospective tenants additional agency fees to conduct Right to Rent checks.
In 2015 a Home Office evaluation of the Right to Rent scheme found that some landlords were charging a fee which ranged from £10 to £120 to carry out immigration checks which the government estimates would take around five minutes to complete. The Right to Rent policy must be applied to all tenants and by law, landlords must check that every tenant has the right to rent in the UK which could lead to increased lettings fees for tenants.
Although the Chancellor Philip Hammond’s Autumn Statement announced plans to ban lettings agent fees, there is an important window where landlords and letting agents can pass on the enhanced Right to Rent checks to tenants. Renters should therefore be vigilant that they check the amount charged by landlords for administration fees before the letting fee ban officially comes into force.
In his Autumn Statement today the Chancellor Philip Hammond announced plans to ban letting agent fees in England “as soon as possible” which may be save 4.3 million households hundreds of pounds.
Currently many tenants face charges to draw up tenancy agreements, conduct immigration and credit reference checks in addition to the payment of a non-refundable holding deposit paid before signing up to the deal.
The move comes as numerous reports have indicated that many tenants living in sub-standard housing are discouraged from moving out because of extra fee charges. A report published by the English Housing Survey covering April 2014 to March 2015 found that 69% of tenants living in poor quality homes are discouraged from moving out because of agent fees.
Nonetheless, landlords groups have claimed that banning letting fees will not necessarily reduce rental costs with landlords and letting agents increasing rental values to offset loss of income. However, renters groups assert that the ban will make it easier for tenants to compare the cost of different properties and reduce the incentive for letting agents to replace tenants.
The move is a culmination of greater regulation of the letting market and will move England further in line with Scotland where lettings agency fees to tenants have already been banned. Since 2015 lettings and managing agents in England and Wales have legally been obliged to clearly publicize their fees.
More than 170 tenants are being evicted every day according to 2015 Ministry of Justice figures.
More than half of the 42,728 evictions recorded in England and Wales last year were attributable to private landlords with rent arrears being cited as one of the most common factors. Retaliatory evictions of tenants who complain about poor property standards was also a factor in a significant number of the eviction cases. Many such evictions may have been brought forward in anticipation of laws against revenge evictions which entered into force on 1st October 2015.
It is believed that a significant fraction of the rise in evictions originated from the private rather than the social rental sector. Ministry of Justice figures show that the majority of evictions in 2015 resulted from a section 21 accelerated procedure which are usually a feature of private landlord evictions.
This situation is set to deteriorate as increasing numbers of people are forced into the rental sector due to the housing affordability crisis. According to information from the Association of Residential Letting Agents (ARLA), home ownership is expected to be permanently out of reach of around a fifth of people in the UK. Property unaffordability is exacerbated by rising rents with an average renter in the North East and London estimated to spend around £31,300 and £68,300 respectively on rent over a decade. To compound this situation further, rents are forecast to climb at a faster rate than house prices in future.
Since the entry into force of the Tenancy Deposit Scheme many landlords and letting agents have devised ways of evading and ignoring deposit protection rules.
One common tactic which renters should be aware of is issuing tenants with a “licence to occupy” in place of an “Assured Shorthold Tenancy”.
A licence gives the right to occupy and is typically used for bed and breakfasts, hotels, holiday lets and some HMOs. Often tenants only discover that a license has been issued when attempting to recover their deposit at the end of their occupation. However, despite being called a license, you may still have an Assured Shorthold Tenancy (AST) in the eyes of the law. In this event it may be possible to use typical AST measures to recoup moneys owed.
Do I have a License or a Tenancy?
A tenancy is created automatically if someone moves in and starts paying rent. Some landlords incorrectly issue licenses, either through inexperience or design to give tenants less rights than they would usually expect with an AST. A tenancy cannot be turned into a license merely by both parties signing a piece of paper headed ‘license agreement.’ A landmark case which defined the requirements for a tenancy as opposed to a license was Street v. Mountford in 1985. This stated that one has a tenancy if one:
pays a rent
occupies the property for a term
enjoys exclusive possession of land / property
These conditions do not apply if one does not pay rent or if the occupier does not enjoy exclusive possession such as in a shared room or if cleaning and meals are provided as in a hotel.
The clearest way to identify the difference between the two [license and Assured Shorthold Tenancy] is exclusivity. If a tenant has exclusive use of at least one room in the property, and that room(s) is specified, this will usually be classed as a Tenancy Agreement. If the property is shared with more than one individual, this is more likely to be a Licence.
I believe I have been incorrectly issued with a license and my landlord has not protected my deposit, what should I do?
It may therefore be possible to claim damages from your landlord if they incorrectly issued you with a licence and failed to protect your deposit. According to current deposit protection rules, your landlord must register your deposit in one of the three government-approved deposit protection schemes within 30 days of the start of your tenancy. The penalty for non-compliance is a fine of between one and three times the deposit amount.
Despite the pessimism of most young people who voted to remain in the EU in June, there have been some suggestions that Brexit may be good for British renters.
Whether brexit is good or bad for renters depends fundamentally on whether house prices fall relative to the earnings of renters.
Following the referendum result, Zoopla predicted that house prices may fall up to eighteen per cent. KPMG envisages a more modest decline of 5 per cent with London hit harder than the rest of the country. Both cite possible limited future access to the European market which might make British property less attractive to overseas buyers. Others speculate that there will be no house price fall since demand has far outstripped supply over the past few decades. However one ought to bear in mind that over optimism in the Housing market is a constant feature of house price predictions in the UK. Few for example predicted the 2007 sub-prime mortgage crisis and subsequent recession.
The devaluation of sterling might also offset any reduction in the attractiveness of UK property due to exclusion from the single market for international investors.
On the side of earnings; before the referendum, the Treasury warned that Brexit would cut economic growth by 3% to 6%. The TUC also warned that leaving the EU could reduce average earnings by £1976 per year by 2030. However, it is still too early to say whether wage decreases offset house price falls.
Fundamentally the most important cause of Britain’s housing crisis is British government policy, not international investors or the EU. The remedy, liberalization of planning laws and regulation of the letting sector, is opposed by most English and Welsh MPs. It is therefore unlikely that Britain’s decision to leave the EU will improve or worsen the lot of private sector renters.
Letting agent Foxtons is facing an £80m “class action” over letting agent fees which could see the company forced to pay back hundreds of pounds to current and former tenants.
The case, launched by the social entrepreneurial firm CaseHub, claims that Foxtons’ fees could be illegal under the Unfair Terms in Consumer Contracts Regulations 1999, and its successor the 2015 Consumer Rights Act. CaseHub’s founder, Michael Green, claims that “service charges” such as £420 for administration, £300 for name changes and £165 for checking out a property are vastly inflated. Green states that fees for such services should instead range between £10-£55.
The Foxtons’ case comes at a time when the issue of letting agent fees and regulation has attracted increasing Parliamentary attention. In May the Conservative MP for Lewes, Maria Caulfield, secured an Adjournment Debate in the House of Commons to discuss the Government’s actions in relation to letting agent fee capping.
Miss Caulfield reported research from Seaford and Lewes Citizen’s Advice Bureau which found that letting agent fees can range from £175 to £922. This is in addition to an average of a six-week rent deposit. During the debate Conservative MP Kevin Hollinrake, co-founder of Hunters Estate Agents, argued against fee capping. Hollinrake claimed that agents may choose to decline tenancies to prospective tenants with inferior credit histories or increase rents should fees were scrapped.
Green states that the proposed class action against Foxtons is about extravagant, gratuitous and hidden fees. These include overcharging, double charging landlords and tenants and introducing fees at the last minute.
Foxtons dismisses the claim, saying its fees are “open and transparent” and that tenants have full visibility of charges before renting a property.
Landlords in the UK may soon find it easier to track renters’s private social media content using software developed by a UK startup. The company, Score Assured, uses a program to scan prospective tenants’ social media profiles and private posts to record information such as relationship and family status. Also recorded are key words such as “no money,” “poor” and “staying in” which the company claims may indicate how reliable a tenant may be in maintaining rent payments.
The company’s co-founder, Steve Thornhill, has rejected claims that the program breaches privacy laws saying that the software is more innocent than it appears. “It’s about giving the tenant more opportunity to get the property they want,” he says. “A lot of people now, millennials, for example, don’t have credit scores — so how they can get a property when the answer from the traditional credit score is going to be no?”
Supporters of the program claim that a tenant must consent to a landlord running the program on their social media profiles before it can be used. Thornhill claims that such consent means that the program, Tenant Assured, is no different from a traditional credit check.
Others say that often tenants have no other option than to accept the download of their social media information to secure a property and hence tenants will be forced to accept an invasion of their privacy. Also consumer protection laws regulate credit checks because of their potentially large impact on consumers. Regulators also have recognized that although such checks may technically be “opt in,” they’re effectively not optional for those who don’t have the luxury of only choosing landlords, jobs or loans that don’t require them, or who work in industries or live in areas where such checks are standard practice.
A Renters’ Rights Bill was given a second reading in the House of Lords Yesterday. Under the proposals presented as a Private Member’s Bill by the Liberal Democrat Baroness Grender, local authorities would be required to give tenants access to a database of rogue landlords and property agents. Also included are proposed amendments to the Landlord and Tenants Act 1985 which would abolish a large number of letting agency fees currently paid by a large number of renters in England such as: These include:
inventory check fees
reference check fees
tenancy extension or renewal fee
The Baroness also proposes that persons deemed suitable for inclusion on a database of rogue landlords would preclude one the right of obtaining a HMO (House of Multiple Occupation) license.
Baroness Grender claims that the short-term nature of many modern tenancy agreements, with around one in four renters moving home in 2013-14 makes the abolition of agency fees significant. The Baroness claims that in London, the median anount that a renter must pay before moving is £1,500 with some renters forced to use loans or cut down on food and heating to cover up-front moving costs.
Contributing to the debate was the Conservative Viscount of Younger who commended Baroness Grender for introducing the Bill but expressed the Government’s reservations about the bill. The Viscount claimed that the banning of letting agent fees would not make renting any cheaper for tenants and Tenants would still end up paying through higher rents.
Aside for reservations however due to the the definitions of rogue landlords and letting agents and the best manner of regulating letting agent fees, the Bill enjoyed broad support and is scheduled to be considered by a House of Lords committee later in the year.
The private rented sector in London has grown from 17% of all homes to 26% over the last decade according to a London Housing Committee
However despite the rapid growth in private renting in the capital, the rules governing the sector remain largely unchanged since the 1980s. According to the report which represents the view of the majority of the London housing commitee, the Mayor of London should:
Stimulate the build to let sector by getting government help for landlords competing to develop land;
Set up a London-wide register of landlords to help the boroughs enforce existing legislation and better protect tenants; and
Support London’s low-income renters by lobbying government to review the freeze imposed on Local Housing Allowance levels in London until 2020.
In addition to its consumer protection role, the National Renters Alliance is always open to ideas to present to government. If you have any suggestions to better protect and improve the situation of renting in London and across the rest of the United Kingdom please send us our thoughts.