Tenant Fee Ban update

News at Howland Jones | 25/07/2017

During the 2016 Autumn Statement, the government announced it would consult on introducing a ban on letting agent fees paid by tenants. The government believed this would improve competition in the private rental market sector and provide tenants with “greater clarity and control over what they will pay”. This consultation paper invited views and comments on how this ban should be implemented and enforced.

The Association of Residential Letting Agents Propertymark (ARLA) co-ordinated a robust campaign against this proposal and sought the support of its members accordingly. We completed the online government survey as well as the ARLA survey, detailing our concerns over the proposed ban. Many of our landlords also put forward their viewpoint in this way.

Essentially, we don’t support the ban on letting agent fees to tenants as we don’t believe this action will result in the outcome intended. We believe the majority of agents charge fair and reasonable fees to their tenants; landlords and agents who are less scrupulous who charge extortionate fees to tenants, knowing the tenants must pay them in order to rent their property of choice are in the minority. In our own area, we believe the vast majority of agents charge fair and reasonable fees for the work they carry out. For us, the fee ban will be a disproportionate measure.

Rebecca Howland has been closely following the progress of this movement and took part in a debate at this year’s ARLA conference. Baroness Hayter attended the conference and gave a concise statement of the government’s vision for banning tenant fees. Considering the thousand or so letting and estate agents in attendance at the conference, Rebecca was disappointed to hear the disparaging way she addressed the room, delivering a clear message that our industry is hindered by a minority of rogue agents treating tenants unfairly. “Every agent in the room was there because they had voluntarily chosen to qualify for and join this industry regulatory body” Rebecca said. “Clearly they were not therefore the rogue agents she alluded to. The atmosphere in the room was icy to say the least and everyone seemed to be vehemently against the proposed ban”.

In our opinion, it would be fairer to set limits for fees and deposits as well to prevent unfair charging by the few. However, after the consultation closed, with thousands of submissions to be considered, it took the Department for Communities and Local Government (DCLG) just twelve days to complete their review and it would appear none of our voices were heard.

David Cox, ARLA Propertymark Chief Executive commented “The Government’s housing policy is shambolic and today’s consultation contradicts its already stated aim to encourage longer term tenancies. Independent analysis launched at ARLA’s annual conference last week revealed that if an outright ban was introduced, rents will increase by £103 per year which will punish long term tenants financially.

“The decision is a short-term crowd pleaser and we are disappointed DCLG has not considered our proposals in today’s consultation. We urge the Government to use this process to think again to ensure that consumers, and the wider economy are not penalised by contradictory Government policies.”

In order for letting agents to continue to do their job professionally and effectively, and to offer the services required of them, the same level of fees will need to be earned. If this cannot be shared between the landlord and tenant, it will clearly fall to the landlord. I would anticipate all landlords would in turn expect the rent to increase sufficiently to recoup the additional fees charged.

In this scenario, the tenant actually stands to lose more than the original value of fees. For example, we charge a set installation administration charge to the tenants of £180.00 per new tenancy (inc VAT), plus £60.00 (inc VAT) per adult referencing fee. So for an average rental with two tenants applying, the total fees currently charged to the tenants would be £300.00 (inc VAT).

If this is going to be charged to the landlord and the landlord instructs us to increase the rent to recoup this new cost, on an average rent of £580pcm, the new rent would be £605pcm to retrieve the cost over the first year. However, if the tenant should remain in the property for the average tenancy period of two years, the tenant could end up paying £300.00 more than they would have done if they had paid the up-front fees. Of course, this doesn’t take into account the annual rent review which is usually a percentage of the incumbent rent or the rising costs being incurred to keep pace with the ever-increasing burden of tightening compliance across the rental sector.

The tenant fee ban is going to happen; this much we know. How encompassing it will be is yet to be announced, but this will undoubtedly be an enormous change to the industry. We have already worked very hard to streamline and reduce our overall costs across the board whilst maintaining our service levels and attention to detail. We must now wait to understand the full extent of the ban and will keep you posted.