§ (".—(1) The Secretary of State may by order make a scheme or schemes authorising the registration and holding of all rental deposit monies charged by landlords letting residential properties.
§ (2) The Secretary of State may at any time by order vary or revoke a scheme.
§ (3) An order under subsection (1) shall be made by statutory instrument and shall be subject to approval by resolution of both Houses of Parliament.").
The noble Lord said: My Lords, we had a debate in Committee about elements of the point raised in this amendment; namely, that there should be a scheme to protect the rent deposits paid by tenants so that there would be some safeguards for the money being held. The Minister was not too convinced at that time about the proposals and, therefore, we have now brought forward an amendment which is somewhat different in form. It would enable the Secretary of State to develop a scheme which would authorise,
the registration and holding of all rental deposit monies charged by landlords letting residential properties".
After all, it was recognised in our earlier debate that landlords can hold considerable sums of money. Indeed, on finishing their tenancies when their time is up and they wish to leave, some tenants have experienced difficulties in securing the money held on deposit. I do not believe that there would be any weakening of the position of landlords if there were a scheme to safeguard the way in which such deposits are held.
§ Tenants fail to get their money back at the end of a tenancy because sometimes there may be a letting company involved which acts like a bunch of cowboys or, indeed, which may have collapsed. Alternatively, the landlords sometimes claims damage to the property which is disputed by the applicant. The National Association of Citizens Advice Bureaux has pointed out that this is likely to be a matter of one or two months' rent and certainly not an insignificant sum of money. That is especially so if the individual concerned wishes to utilise that sum of money as a deposit for another property into which he or she might move.
§ Unlike other countries, we have no specific system as yet for tackling what is a growing problem: how tenants get their rent deposits back. The problem has damaged the image of the private rented sector and, indeed, is a sign that yet more modernisation is urgently needed. As we discussed earlier in Committee, other countries have recognised the need to modernise their whole private rented sector by tackling the problem of rental deposits and disputes. I believe that reference was made on the last occasion to a scheme in New South Wales which was developed in 1977, called the "rental bond scheme". I understand that such a scheme is favoured by both citizens advice bureaux and the National Consumer Council. It is an independent and impartial custodian of rental bonds taken on private residential tenancies.
§ From people who have examined the scheme in New South Wales, I understand that it has performed very well; that it is efficient and cost-effective; that it has not developed any significant faults; and that there are no major criticisms of it. Indeed, it has handled a large amount of money, and by all standards it has worked well.
§ I do not want to go into all the details of the scheme but it is more than a custodial service for holding money. It is also linked to tenancy services and to a tenants' advice and advocacy programme. There is also a residential tenancies tribunal. As I have said, I do not want to go into too much detail. However, the board in New South Wales has reduced bureaucracy and the need for court action. It has also reduced the number of disputes. It has therefore become popular not just with tenants but also with estate agents because it has saved time and it has taken away the unpleasant air of controversy which sometimes surrounds arguments about the return of moneys.
§ The moneys received by landlords are deposited with the rental bond board. At the end of the tenancy either party can claim the deposit. If the landlord does not claim within seven days, the full bond is returned to the tenant. Evidence from the board suggests that the return of deposits is on the whole dealt with in a satisfactory manner. Far from being bureaucratic, the system speeds up the process of the return of the money. There are some impressive statistics which show how well the system has worked. I understand that it has had all-party support in New South Wales.
§ At an earlier stage the Minister suggested that the small claims court offered a cheap and relatively simple way of dealing with disputes. However, I do not think 359 that is as good a system. There are many doubts about whether the small claims system in county courts works as well as all that. Certainly evidence from the National Audit Office shows that 49 per cent. of plaintiffs surveyed thought the small claims procedure was either fairly or very slow. Fewer than 40 per cent. of arbitration cases were completed within six months, and one in five plaintiffs found that their case took more than a year to complete.
§ The small claims procedure has its faults. It may be cheap but it is not free. It takes rather a long time, whereas the New South Wales system works quickly, has all the advantages of a small claims court and appears to have none of the disadvantages. I think what we have here is an approach which is sensible and which should work well. The amendment would give the Secretary of State the power to develop such a scheme. The experience of New South Wales could be considered and the scheme could be amended in the light of different circumstances in this country. It would deal with a problem which has caused much upset and much anxiety to many tenants. It seems to me that there are simple ways of dealing with that anxiety, but doing nothing is not one of them. I beg to move.
§ Lord Strabolgi
My Lords, I should like to support this amendment so ably moved by my noble friend Lord Dubs. There is currently no regulation on how these sums are held by landlords or agencies and the money is often put in an agency's general office account or in a landlord's own personal account. All too frequently this leads to tenants failing to get back their deposit—as my noble friend has said—at the end of the tenancy, in some cases because the limited liability company has folded, or more commonly because the landlord simply claims there has been some damage or wear and tear to the property, or that professional cleaning is required. In other cases no reason is given and tenants are left with the feeling that the landlord clearly never had any intention of returning the money. We are not dealing here with the many good large landlords, but the small, rogue landlords. We are not dealing with great letting agencies and estate agents such as those one sees in Berkeley Square or Belgravia, but with small, fly-by-night, bucket shops which are often on the verge of bankruptcy and often disappear with the deposits. There is absolutely no protection at all for the tenant.
The problem is compounded by the fact that few tenancy agreements give any indication of the grounds on which a deposit may be withheld or of the cleaning and redecorating responsibilities which will be demanded at the end of the contract. There are also rarely any indications of the timescale within which a deposit should be returned. My noble friend has mentioned a scheme which seems to be working well in New South Wales. I gather that it has also been taken up by other states in Australia. I hope that the Government will study that and see how they can introduce a similar scheme over here. If it is working so well in Australia, why should it not work over here? I hope therefore that the Government will treat this suggestion with sympathy and consider some of the 360 difficulties involved with tenants as regards these deposits. I hope that the Government will do what they can to help.
§ Lord Monson
My Lords, in comparison with Amendment No. 144, moved by the noble Lord, Lord Dubs, a few minutes ago, the issues at stake here are much simpler and less controversial. Any action taken by the Secretary of State—were this amendment to be agreed to—would be smaller in scale and effect, as well as being unlikely to have any adverse, unintended consequences. I should be happy therefore to support this amendment were the noble Lord to put it to a Division.
§ Baroness Hamwee
My Lords, I, too, support this amendment to which I have added my name. Recently I received a document—I imagine other noble Lords may have received such a document—from the director of trading standards of Suffolk County Council. The document refers to problems identified during the council's anti-poverty strategy. The trading standards department had undertaken a monitoring programme of accommodation within the county and reported that there were some 60 agencies operating, most of them entirely satisfactorily. However, the letter states:It is a matter of concern however that our officers have encountered one problem that appears to recur with alarming frequency".That problem is accommodation agencies going out of business and deposits being lost as a result.
The lack of any safeguards as regards how deposits are held to me contrasts starkly with the stakeholder arrangements with which solicitors are used to deal in the transfer of property. To allow deposits to be put into a normal bank account undifferentiated from other funds gives obvious scope for problems. As has been said, those who may lose their deposits—either because the landlord has misused them, or refuses to return them, or because an agency holding them goes out of business—are not well placed to withstand such losses. Given the intention to increase the occupation of the kind of property and tenure for which deposits will often be payable, this is a matter that is worthy of the Government's attention.
§ Baroness Gardner of Parkes
My Lords, I believe I first referred to this matter at Committee stage when I tabled an amendment on similar lines. Since then I have received a letter from the Small Landlords Association. That body has statistics on the New South Wales experience which indicate that it is a great failure. That was interesting. The Government should consider this matter carefully, as I do not know the facts. I only repeat what I have heard from that association. In an earlier debate I said that on the whole the people in New South Wales seem to be reasonably satisfied with the scheme. The Government should check whether there is strong evidence one way or the other.
We also need to check the cost of running such a scheme. The noble Lord, Lord Dubs, said that the scheme in New South Wales is linked to various other services. Unless it was linked to other services, it might 361 be an expensive system to set up. The prime point of importance concerns who is responsible for the money. An agent may be responsible for holding the money. If the agent is bonded for that amount, that is fine. As the noble Baroness, Lady Hamwee, said, we are concerned about those agents who go out of business. Those agents may, for example, have been using the money to pay wages. That is when the situation becomes hopeless. People should be protected from that situation. The landlord needs to be protected. If his lease or tenancy agreement entitles him to have the premises left in the clean order in which they were found at the beginning, he would be entitled to claim for cleaning at the end of the tenancy. There are procedures which deal with those matters.
I strongly support the principle of ensuring that a tenant's deposit is not lost through the vanishing of the deposit or of the person holding the deposit. To that extent I support the amendment. But the matter should be considered carefully in terms of what the Small Landlords Association said about the failure of the New South Wales system. Perhaps the Government will look into that matter before Third Reading to check whether or not the claims are accurate.
§ 7 p.m.
§ Lord Finsberg
My Lords, I have had some experience of this issue over the years. I have great sympathy for what the noble Lord, Lord Dubs, said. However, the problem does not stop at deposits. Many of us know of the recent experiences of tenants of blocks of flats in Westminster and elsewhere where the agent did a bunk taking tens of thousands of pounds that had been collected for maintenance charges. The two issues are connected. I do not believe that it will be possible to legislate for that situation in this Bill. But I hope that the Minister will consider the general picture with a view to further legislation in due course which will cover both aspects.
§ Lord Selsdon
My Lords, I agree with my noble friend that questions arise not only about rental deposits and sinking funds, but the problem of someone running off with the money. However, the administration can be complex. Where does the money belong—the sinking fund or the rental deposits? What is its purpose? Its purpose is to pay for expenditure which may be incurred genuinely in order to bring a building up to scratch or to clean it after rental.
But there are complications. If the money is placed on deposit in a bank, to whom does the interest belong? Is that interest taxable? I have raised these issues previously. The administration can be extremely complex and costly.
If we introduce a further element of protection involving the Secretary of State, or registration, it causes even more costs. In most cases we are not talking about large amounts of money relating to individual blocks but of amounts often involving only a few thousand pounds. Your Lordships will be aware that these days the professional classes of this country have a tendency to charge relatively large amounts of money for each hour 362 of work or advice. My worry does not relate to the principle, which I accept, but to the cost of making the provision more complex.
My Lords, I am grateful to the noble Lord, Lord Dubs, for having put down the amendment. It has stimulated an interesting debate on a complicated subject. It is one on which the Government do not have firm views and convictions.
There is a problem here which ought to be addressed. The difficulty is how best to address it. The issue was considered in Committee. My noble friend Lady Gardner of Parkes tabled an amendment to allow a local authority or a body authorised by the local authority to register and hold rent deposit moneys. We have considered that but have come down against the proposal because it is likely to complicate and slow down arrangements which, in the case of the majority of landlords, are already working satisfactorily. It could also impose a considerable burden on local authorities. I know that a number of your Lordships shared this concern.
The noble Lord's amendment leaves open the question of who should oversee and operate such schemes. Presumably it could be a local authority, or it could be an independent public body as is the case with the Rental Bond Board of New South Wales, to which a number of noble Lords referred. Quite heavy costs are associated with that scheme which effectively deprives both the landlord and the tenant of any interest accruing on the deposited moneys. That is one of the points my noble friend Lord Selsdon made. Who gains the interest? If one is not careful, the interest goes on administration. But someone has to be the beneficiary of the interest, and someone has to pay the tax.
The noble Lord, Lord Dubs, said that the proposal had universal support, but the Small Landlords Association opposes the introduction of a scheme such as the one which operates in New South Wales. So it does not have universal support.
A criminal offence would need to be created if the scheme is to work properly. It is a point to which the noble Lord, Lord Monson, referred. Is that the right kind of provision to have in secondary legislation?
Other options have been presented to us as well. The Association of Residential Letting Agents favours bonded schemes run by recognised letting agents. However, there are also disadvantages with that proposal. Only about a third of lettings are organised through an agent, so the majority of lettings would not be covered by bonding. Since most landlords operate only on a small scale, it would not be practical for them to join bonding schemes individually and the requirement to hold deposits jointly would impose unwelcome burdens.
What I am saying is that this is not a straightforward or easy matter and there are a number of complicated issues to be resolved. First, there is the question of whether the problem is sufficient to warrant the cost and the bureaucracy of setting up such a scheme—and there will be both elements.
363 Secondly, the main problem with rental deposits is disputes—to which my noble friend Lord Selsdon referred—over who has the best claim to the money at the end of the tenancy, and the interest on it during the tenancy. The key problem is finding a speedy and effective means of resolving who has the best claim. There will be cases where the landlord has a legitimate claim to some or possibly all of the deposit to cover theft or damage. In other cases, the tenant will have every reason to expect the full deposit back.
I am not clear whether we are to give schemes powers to act in lieu of the courts. I cannot see how that would be appropriate. If we do not give the schemes powers to act in lieu of the courts, I am not clear what benefits the scheme would bring. The small claims court—it was argued that it was not working well—offers a cheap and relatively simple way of dealing with disputes of this nature. If the claim is not contested, there is no need for a court hearing. If it is contested, the amount in dispute is likely to be sufficiently small for the hearing to be dealt with under the informal small claims arbitration procedure.
I understand and share the concerns of the noble Lord, Lord Dubs, and others who have spoken, that a small minority of landlords or agents should not be allowed to misappropriate their tenants' deposits. My noble friend Lord Mackay of Ardbrecknish made clear in Committee to my noble friend Lady Gardner of Parkes that the Government will look at schemes in other countries to see whether they have any advantages for our own situation. I was interested to hear the noble Baroness say that she has discovered since she made her remarks in Committee that not everyone in New South Wales likes that scheme. It might be surprising if everyone did. The noble Lord, Lord Strabolgi, seemed to think that the scheme was so good that it should be employed everywhere in this country and that everyone would enjoy it.
§ Lord Strabolgi
My Lords, I did not say that. I said that the scheme seemed to be working well in Australia and the Government might have a look at it.
My Lords, the last thing that I wish to do is to put words into the noble Lord's mouth. Of course, if the scheme is working well in Australia, that is something to be considered in this country. Even if it is not working well in Australia, we shall still consider it.
Perhaps I may say this to the noble Lord, Lord Dubs. We have had an interesting debate in which, regrettably, I misappropriated the speech of the noble Lord, Lord Strabolgi, for which again I apologise. It indicates that there are problems. The difficulty is how best to resolve them without creating another bureaucratic and complicated set-up.
My noble friend Lord Finsberg is right that it would not be appropriate to legislate on the matter in this Bill. If your Lordships are content, I shall consider all that has been said and look at the scheme which works in New South Wales. I hope your Lordships will understand that it is unlikely that we would be able to reach a conclusion on a matter of this nature and complexity by Third Reading, but we will consider it.
§ Baroness Hamwee
My Lords, before the Minister sits down, as regards interest, does he agree that most 364 provisions for a deposit with the landlord or an agency do not provide for interest? To that extent, the tenant does not normally receive interest on the deposit when it is returned. It is an open issue and is probably quite unfair to the tenant. However, it is not a major reason to discard the scheme because what is proposed is no different from the present situation.
My Lords, the noble Baroness is correct that it is not a reason for discarding the scheme, but it is a factor which must be taken into account. If the Bill works well and in the way that everyone expects, there will be a certain amount of money in limbo which earns interest. If it does not do so, it has not been looked after properly. What happens to the interest is a matter of concern. As I understand it, in New South Wales most of the interest has gone into running the scheme. One might ask whether that is a good idea. There are complicated problems here which need to be resolved.
§ Lord Dubs
My Lords, I fully accept that the whole subject is complicated. That is why the amendment did not stipulate a scheme. It simply suggested that there was a way forward through giving the Secretary of State the power, if he chose to use it, to develop a scheme based on consultation, examining the New South Wales experience. I thought that the amendment went quite a long way towards meeting the Minister's objections. However, he said that he would consider it further. He could have done so while accepting the amendment, because it has not been couched in terms which oblige the Secretary of State to act unless he wishes. The amendment could have been on the statute book without compelling any further action, while giving the Minister time to look into it. However, he has said he would look into the scheme, and on that basis I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
My Lords, I beg to move that further consideration on Report be now adjourned. In moving this Motion, I suggest that the Report stage begin again not before 8.15 p.m.
§ On Question, Motion agreed to.