The inescapable fact is that neither landlords nor letting agents in England will be able to charge lettings fees to tenants from June this year.
Such a ban has already existed in Scotland since 2012, and is seems likely that Wales will follow suit before too long.
So what does this mean?
As things currently stand, tenants can be charged administration fees, such as tenancy renewal fees, referencing fees and credit check fees, by landlords and agents. On average, this can amount to £350-450.
But from June 1st, all costs relating to new tenancies will have to be covered by the landlord, and inevitably, rents are likely to go up to ensure that they don’t lose out.
Once the new legislation is implemented, the only costs landlords and agents will be permitted to charge tenants for will be:
- Electricity, gas, water and council tax (if these are included in the tenancy)
- A refundable deposit, capped at 5 weeks’ rent (or 6 weeks’ if the annual rent is more than £50k)
- A refundable holding deposit to reserve the property (up to a week’s rent)
- Costs of changes to the tenancy asked for by the tenant (capped at £50)
- Early termination fees if the tenancy is cut short by the tenant
- Defaults by the tenant, including fines for lost keys or delayed rental payments.
All other fees will be excluded, and anyone attempting to impose the fees could be fined £5,000 for a first offence, and an unlimited amount for any repeat offences within 5 years.
What will the impact be on agents?
With the introduction of the new legislation, fees for the services many letting agents have been providing – such as advertising, preparing documentation, lodging deposits, collecting rent, carrying out inventories, issuing safety certificates and taking references – will no longer be allowable.
So how else can they be covered?
Many agents will simply pass these costs on to the landlord, who will, of course, raise rents in response. But other agents are considering charging landlords a monthly subscription.
Ultimately, the tenant is always going to be the party paying the rent, and the landlord the party receiving it. The costs for the role played by the agent as a provider of services to both parties will have to be covered by someone, and with the law protecting the tenants from any fees, the only other source of payment is the landlord.
Assuming that to be the case, the questions shift to how agents can offer best value to the landlords, and to what extent will the market tolerate increased rents?
Some agents have suggested that they could offer a wider range of services to landlords and tenants to compensate for the shortfall, and some have indicated that they simply wouldn’t be able to continue running profitably and may withdraw from the market altogether. This is especially true of let-only agents, as opposed to those offering a fully managed service.
What is the likeliest outcome of all this?
Arguably, the total cost burden on the tenant will not increase; they will simply have to pay a higher rent, rather than paying rent and fees separately. And because the law applies equally to all tenants, landlords and agents, no individual or organisation will be unfairly disadvantaged.
The evidence from Scotland supports this.
Nevertheless, some commentators are predicting that many agents – particularly smaller operators or those who don’t have a sales offering – will be at increased risk, potentially handing greater market share to the larger agents and management companies, which in turn might mean less competition, and rents subsequently rising still further.
All in all, it’s an uncertain and worrying time for all parties, as no-one is entirely sure how things will pan out. The best advice we can offer landlords and tenants is to make sure you shop around for a reputable, professional agent who will be transparent and communicative.
Mark Newton is the owner/director of Compass Residential in Whetstone, London N20.