Banning Tenant Fees – We know a bit more

So, after a year of waiting we finally have the details of the proposed ban on tenant fees.  This is a subject we will be visiting over the next few months as the bill goes through parliament but in this article, we are going to look at the nuts and bolts of the proposed legislation and what it could mean to you as landlords.

Tenant Fees

The headline policy is of course the ban on tenants paying fees to agencies.  We now have a more detail on this.  There is a lot of fine detail but the overriding principle is that tenants will not pay anything towards the setting up of a tenancy.  Apart from the obvious no fees to letting agents other ancillary charges are also banned for example: charging a tenant to register the deposit will be outlawed, as will charging a tenant for referencing, any legal costs that in the past have been passed to the tenant will also be banned.  A tenant will be able to rent a property without any expense.

Deposits

The maximum deposit that can be taken will be six weeks’ rent.

Holding Deposit

If you take a holding deposit the maximum that you will be able to charge will be one week’s rent.  This is not a fee and must be used towards the rent or towards deposit.  There are however proposed exceptions where the agency or landlord can keep the holding deposit these are:

• The tenant withdraws from the property
• The tenant does not take reasonable steps to enter the tenancy
• The tenant fails a right to rent check
• The tenant provides misleading information which materially affects their suitability to rent the property

Let’s look at these one by one.

The Tenant withdraws – This is pretty self-explanatory.  But is it?  If the tenant feels he has been misled about the property (Eg. Works to be completed before a tenancy starts) and subsequently pulls out, is that good cause to withhold the holding deposit? 

The tenant does not take reasonable steps to enter the tenancy – This is vague.  If the tenant’s employer does not respond to a request for a reference is that cause for keeping the holding deposit?  The problem as I see it is that there are several elements of a pre-tenancy that are nominally the tenant’s responsibility but actually he or she cannot control as it relies on others.  I am sure this will be given more thought as the bill progresses

The tenant fails a right to rent check – This is probably the most straightforward of the provisions.  If a tenant tells you he has a right to live in the UK but subsequent checks prove otherwise, then the tenant loses the holding deposit, however with Brexit approaching the right to rent regulations are also likely to change. 

The tenant provides misleading information which materially affects their suitability to rent the property – The vaguest of all these provisions.  What is misleading information?  If a tenant is pregnant and does not make you aware that she is until after you have offered the tenancy.  Is that misleading?  My view is yes but a court may feel otherwise.  Where does misleading begin and privacy end.  Once again, I am sure parliament will scrutinise this and amend it accordingly but at the moment it is as clear as mud

When will this all come into force?

The bill was published on November 1^st and will now make its way through parliament.  The government has intimated that there will be a period of adjustment so agencies can make necessary changes to their businesses.  However, we are expecting this to be law towards the end of 2018

What are the penalties?

In the first instance failure to comply will be considered a civil matter with a fine of £5,000.  If a letting agent offends again within five years the maximum fine will be £30,000 and there is the possibility of it being turned into a criminal offence with all that entails.  This will be policed by local trading standards

What will this mean to me as one of your landlords?

Over the years our fees charged to landlords have been subsidised by tenant fees.  This will inevitably change.  Whilst it is early days, is not our intention to increase our monthly fees for managed landlords.  However, tenant fees make up a significant percentage of our income and it will require changes to how we do business.  Self-managing landlords who use our tenant finding service will I am afraid see an increase in fees, although we are not sure how by how much yet.  For 26 years we have never charged our managed landlords an admin fee at the start of a tenancy, and it is with regret that I have to it say this is an area we will be looking into over the next few months.  I can assure you that we will keep you informed of any changes we make and will give plenty of notice.