Letting agent fee ban won’t come into force until spring 2019

January is off to flying start for me. We’ve signed up our first franchisee for Home-Share who will be bringing this unique business model and excellent brand to Bexley. Alongside that, we have been helping many landlords looking to invest in the area with advice and guidance. 

The lettings fee ban

Something that has been a hot topic of discussion is the letting agent fee ban. In November the government published a draft bill to ban all letting agent fees to tenants. This was based upon a full consultation into the current fees, including the views of tenants and agents, and the existing protocols.

The consultation

The consultation exposed wide disparity in the views of agents and tenants about fees. Firstly, under the Consumer Rights Act 2015, it is now a legal requirement for all letting and managing agents in England and Wales to publicise details of their fees. Agents were largely happy with this, indicating they felt this increased transparency for tenants would surely mean they offer a better service. But interestingly, tenants did not agree. They felt it was fees – regardless of publication – that limited their ability to move home, with many stating that they were still unsure of their fees. For those tenants that did know, the consultation found that there was a considerable difference between what they (the tenants) believed fees were and what landlords stated the fees were. The findings made for an almighty muddle and the government decreed that without standardisation of fees, lack of transparency would remain an issue.

Probably the key finding was that tenants didn’t care if they knew the fees or not, as they had no power to affect or change them anyway. The people who could do that, were landlords. The flexibility for landlords to pick and choose agents, should have pushed competition and driven down fees, but some felt landlords were picking the cheapest, not the best, with the service the tenants receive being affected. In order to ensure fairness, the fee ban for tenants was proposed and supported, which led to a draft bill.

The specifics of the bill

The draft bill was published simultaneously with the consultation findings. It details a blanket ban on all fees charged by a landlord or agent for the grant, renewal or continuation of an assured shorthold tenancy or licence.

But there are a number of exonerations from the bill and therefore permissible fees including fees for breaches of tenancy and holding deposit fees. The bill also fails to mention lease assignments, which it has been suggested is due to a lack of understanding of these more complex tenancies.  

The bill also requires all agent fees to be clearly stated on all advertising, including third party websites (such as Rightmove), and also mentions capping tenancy deposits to an equivalent of six weeks rent.

When will it happen?

The draft legislation is very detailed and is currently under extreme scrutiny, which has delayed it being approved. The elongated process for review and subsequent approval in parliament, means it is unlikely that the bill will be implemented before spring of 2019. When it is finally approved, Trading Standards will enforce the bill and have the power to impose civil penalties of £5,000 to those found to be in breach, and up to £30,000 for repeated breaches. Because Trading Standards have a duty to enforce the legislation, in theory, agents would be able to raise a complaint (which must be investigated) about another agent they believe to be breaking the rules.

What’s the impact?

The 2018 rental market looks to be relatively stable. But some landlords are getting fed up with all the legislation changes (such as the EPC rule change + HMO licensing laws) which are impacting their ability to let their properties profitably.

I believe the tenant fee ban is unfair as there is a lot of work required to prepare a tenant for move in. However, this seems to be the inevitable result of party politics due to negative opinion because of a small minority of agents charging exorbitant fees. In a way, the ban could be good for the quality agents as the competition won’t be able to charge tiny management fees and prop themselves up by large tenant fees. At our agency we only charge £80+VAT per tenant.

Perhaps one of the most controversial points of the bill is the proposed cap on deposits. The law already states that all deposits must be protected in a Tenancy Deposit Scheme (TDS), which is great for both tenants and landlords. But capping the amount of deposit could affect both sides. Tenants who fail a referencing process but are willing to pay a higher deposit as security, would no longer be able to under the new legislation.

If you are impacted by the lettings fee ban, I’m really interested to hear what your views are. You can connect with me via LinkedIn or join our discussion group over on Facebook.

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