Letting Agents’ Fees Ban

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Letting Fees:

Further news is still awaited from government on the proposed letting fees ban following the House of Commons debate about the much trailed ban last month.

Kevin Hollinrake, MP for Thirsk and Malton, who sits on the Communities and Local Government Committee, and is co-founder of Hunters Estate Agency – so has some direct experience in this field – called for the debate in the House of Commons.

The intention to introduce a fees ban was originally announced in the 2016 Autumn Statement by the Chancellor, and is expected to come into force within the next 12 months, but given the pressure on the legislative programme in the Commons, there is no firm date and the scheduled passage of a bill could easily slip.

The time it is taking has already prompted criticism from proponents, but Alok Sharma MP, Minister of State for Housing and Planning said that with 4,700 responses from the consultation exercise to analyse, the Government needs more time to work through this before drafting a bill.

Despite much evidence indicating the move would result in costs incurred by agents having to be passed on to landlords, and in turn recovered by increasing rents for tenants, the Minister has said, “all fees on tenants need to be banned”.

He did however confirm that ‘holding deposits’ would be exempt from the ban and asserted that the introduction of the ban would lead to a more affordable, transparent and competitive lettings market.

The proposed bill is said to include putting a cap on security deposits at one month’s rent and holding deposits at one week’s rent.

The cap on holding deposits at one week’s rent would not appear to cause landlords and agents a problem, but several industry practitioners have raised concerns about a cap of one month’s rent for a security deposit because:

1. Many landlords currently take six weeks rent to deter tenants from cancelling the last month’s rent and asking for their deposit to be used in lieu, a common occurrence that landlords face, and
2. Tenants with pets are usually charged a higher amount to safeguard landlords from damage and the extra wear and tear that pets often bring, so it is said the move could discourage landlords from taking on tenants with pets.

Mr Hollinrake has said he is in favour of a fees ban, but he warned about the already identified ‘unintended consequences’ of the legislation due to the possibility of rent increases, job cuts in agencies and for independent inventory clerks, and other costs being transferred from agents to landlords.

Hollinrake also called for effective enforcement by a proposed extending of the agency redress schemes, and there could be schemes, it has now been suggested, that would also cover landlords.

Another important point made was the problem of a severe lack of resources and time for local authorities, these being the agencies tasked with enforcement, to adequately deal with the extra work.

The Minister, Alok Sharma, had suggested that the Government is looking at setting up a lead enforcement authority (similar to that for Estate Agents) and that local Trading Standards were “best placed’ to enforce the new policy. However, given that most local authorities claim that they are ‘strapped for cash’, and some are even said to be at financial breaking point and on the verge of technical insolvency, it is hard to see how local government can adequately staff all this extra work.

In the fees debate the Minister acknowledged the potential for rent increases but considered that any potential rent increases would be significantly less than the fees tenants are currently charged. On the other issue of any future deposit caps, Sharma indicated that any such proposal ‘must strike the right balance’ between affordability for tenants and the need for landlords’ protection.

David Cox, chief executive of ARLA Propertymark, has expressed the view that any fees ban will cause “unprecedented damage to the rental sector”, stating that, “independent analysis commissioned by ARLA Propertymark, following the UK government’s announcement of its own ban, revealed that if a full ban was introduced, rents will increase…”

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