What the Competition and Markets Authority will investigate in the private rented sector

11 September 2023

From deposit alternatives to guarantee clauses, here's what the Competition and Markets Authority will look into based on the initial results of its tenant consumer protection project.

The Competition and Markets Authority (CMA) recently announced that it would review consumer protection for tenants - and the results are now in. The Rented Housing Sector: Consumer Research Project report says that disputes tend to escalate due to a lack of understanding around rights and responsibilities for landlords and tenants. It also raises concerns in five areas, which may be targeted for future enforcement. 

The five areas of concern

1. Deposit alternatives

In Deposit Alternative or "Zero deposit" schemes, tenants normally pay a non-refundable fee or premium upfront at the start of their tenancy. If there's damage at the end of the tenancy and the tenant can't cover the costs, the scheme will provides the landlord with the protection equivalent to or more than a traditional deposit.

This is instead of a large sum of money for a deposit being tied up in the property. Although the tenant will pay a small amount upfront, they would have more in their pocket in the present.

However, the CMA highlights that tenants may be unaware of the costs they're liable for. Agents may also need to be more open about any commissions that they receive if they offer tenants these services.  

2. "Sham" licences

A sham licence is when a landlord says that they're giving a tenant a "licence to occupy" a room, but in fact creates a tenancy instead. Those tenants may then not be aware of their rights.

The report indicates that this tends to happen with recent UK arrivals, such as overseas students. However, the CMA has shared that it does not know how often this occurs - so further information is needed.

3. Guarantee clauses

As rents rise, landlords and agents are increasingly asking for advance rent payments, of up to 12 months rent in some cases, or a guarantor with a high salary. Sometimes, a single tenant in shared accommodation is also asked for a guarantor to cover their housemates too.

The CMA's report highlights that this disadvantages less well-off tenants or those without the support of a guarantor.

"Lengthy and potentially intrusive information requests" of applicants are also a by-product of this scenario, which can lead to discrimination.

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4. Unlawful discrimination

On that topic, not renting to tenants on benefits, with pets, or with children - as shared in the Renters (Reform) Bill - are other forms of discrimination that are areas of concern, according to the CMA's report.

The Equality Act 2010 already outlines that it's illegal to discriminate based on disability, gender reassignment, pregnancy and maternity, race, religion or belief, sex and sexual orientation.

5. Fees for older tenants in retirement homes

The CMA shares that there are some issues around the fees imposed on retired tenants when they leave or sell their retirement homes.

These fees can sometimes be unpredictable for this vulnerable group, which the report says can limit the tenants' "choices and financial outcomes".

What happens next?

The CMA will look into whether it needs to take enforcement action on these topics.

The CMA has also advised on the creation of more guidance to help reduce the number of disputes between tenants and landlords. For example:

  • Terms in a tenancy agreement would be deemed "unfair" if they make the tenant liable for any repairs that the landlord should be responsible for
  • Providing tenants with incorrect information about their legal rights may be "misleading"
  • It could be a "breach of professional diligence" if landlords or their agents didn't comply with standards in the industry
  • It could be seen as an "misleading omission" to not highlight if they receive a commission for services offered by a third party

The CMA will continue to speak with stakeholders from across the industry, before taking action.

This article is intended as a guide only and does not constitute legal advice. Visit gov.uk for more information. 

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