Why the Impact of the Tenant Fee Ban is Actually Positive for Landlords

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Jonathan Werth, Managing
Director at LiFE Residential, London based estate agency

We are just about a month
away from the infamous Tenant Fee Ban, set in the Tenant Fees Act, which is
coming into effect 1^st June 2019. There has been plenty of talk of
how the new law will benefit renters across the country and ‘punish’ estate
agents, but its impact on those in the middle – the landlords – is not
discussed as widely. For those of you who may not fully understand the
implications of the Tenant Fee Ban, let me say it will be only as irritating as
your our monthly WiFi bill increase, bringing long-term benefits to both
property investors, and the entire property sector.

The Tenant Fees Act prohibits
landlords and agents to force any charges onto a tenant, other than the rent
and deposit. The agents cannot charge any admin and agency fees, which include
costs for tenant referencing and inventories a tenant is usually charged with.
The new law also reduces the amount of deposit the agents can hold, from six
weeks to a maximum of five weeks rent.

Historically, estate agents have
been able to increase their revenue by charging both tenants and landlords for
specific fees. By charging tenants the admin and agency fees, estate agents
were able to offer landlords a lower fee and still maintain good level of
service and grow their business.

But times have changed, and the
UK Government now wants landlords to be accountable and pay all the fees necessary,
which means that estate agents are having to increase their letting and
management fees. The first time in 19 years of operating in a highly
competitive London market, we here at LiFE have just informed all of our
landlords with lower fees about the changes that come with the Tenant Fee Ban,
and what fees they can expect to increase from the 1^st of June. I am
confident, if not yet, that soon other agents will follow with the same
announcements. 

Naturally, some of our landlords
questioned why they must accept the increase, as they didn’t realise that some
of the estate agents’ revenue comes from charging the tenant fees. We, as
estate agents, are guilty of not properly explaining this to landlords.

The percentage of fee increase
landlords can expect to pay will vary with every estate agency and also be
influenced by the original amount of fees the landlord is currently paying. For
example, let’s say a landlord charges £1,500 a month for his rent, with a fee
increase of 1%, they will only have to pay an extra £15 a month. When you
divide the fee increase per week, the amount is minimal. Some people, however,
may expect to see bigger increases due to the historically low fees they are
on.

To combat the fee increase, landlords are having to increase
their monthly rents, which we are already seeing. In most places, such as
London, where demand overrules supply, the market will allow for the rents to
increase as a way of paying for the extra fees charged to the landlord.

The Tenant Fee Ban will, without
a doubt, make tenants happier and they will enjoy the renting experience more,
because when they must move, they’ll only have to pay their rent and deposit,
with no extra fees. During their tenancy, tenants will then be more positive
towards the landlord and estate agent and will be more inclined to renew their
tenancy with annual rent increases.

The most important implication to
the landlord and the entire industry, to my opinion, is that the loss of
revenue from tenant fees will clean up the industry from rogue and incompetent
agents. It will simply make it harder for anyone to start up an estate agency
without any knowledge, experience of qualifications.

Faced with all this pressure,
amateur agents and landlords are already leaving the industry, whilst professional
landlords have more room to grow and receive a better service from their
agents. Ultimately the new law is setting higher standards across the board for
both landlords and agents.

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