Landlords need to plan for higher letting agents’ fees

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Letting Fees Ban:

Buy-to-let landlords who use letting agents and those others that charge their own fees need to think seriously about how they will deal with the inevitably higher letting fees, or lost income, when the tenant fees ban comes in, most likely next year.

The extra costs involved will put a strain on some landlords, as the tax changes begin to bite and if interest rates start to rise as predicted.

It is almost inevitable that most agents will raise their landlord fees in order to recoup some of their lost income when the lettings fee for tenants ban comes in.

The government has carried out its own impact assessment of the fees ban and has estimated that landlords will lose around £83m in the first year of the ban, and the caps on damage and holding deposits have been estimated at £1.3m in total.

Letting agents themselves could be hit even harder with an estimated loss of income in the region of £157m in year one.

Tax and other regulatory changes in the private rented sector mean that landlords and agents are already facing significant challenges ahead.

Not all of these extra costs are likely to get passed on in the form of higher rents, as tenants themselves are under financial pressures. Landlords and agents need to find other ways to reduce their costs and increase efficiency.

Some landlords will consider more self-management of tenancies, but anyone taking this on for the first time must be prepared to do their homework, to mug-up on the law and to take on some extra work, especially when it comes to tenancy change-overs.

What is involved with a Fees Ban

The fees ban will apply to landlords as well as letting agents but only in England, at least initially. Scotland already has the ban.

The ban will not apply to existing tenancies, though it will apply to new tenancies and renewals which includes when a tenancy becomes periodic, after the Tenant Fees Act comes into force.

All fees required as a condition of the “grant, continuance or renewal� of an assured shorthold tenancy (AST) or licence agreement are to be banned. Company lets and non-assured tenancies will be exempt.

Examples of banned fees include:

• Admin fees
• Credit checks
• Referencing
• Inventories
• Guarantor checks
• Cleaning services
• Professional cleaning
• Gardening services

There are some exemptions:

• Rent
• Holding deposits, capped at one week’s rent and limited to 15 days
• Damage / Security deposits capped at 6 weeks’ rent
• Reasonable charges for defaulting, breach of tenancy, reminder letters, interest on arrears etc.

Varying the rent, for example setting a higher rent to cover fees for a period of time before reverting to a lower rent will not be allowed, thought rent level setting is unrestricted, so long as it is applied consistently.

Penalties for non-compliance will be a fine of up to £5000 for a first offence. Any subsequent breaches will be classed as criminal offences, or alternatively the landlord may be fined up to £30,000 and will be subject to a banning order.

These requirements may be subject to change once the Tenant Fees Act comes into force.

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