Following what seems to be an eternity the government has finally announced that the Tenant Fees Ban will come in to force from 1st June 2019 and is likely to receive Royal Assent in the coming weeks where it will be passed into law and implemented as the Tenant Fees Act 2019.  Our experienced lettings manager, Chris Hughes ARLA, explains what the ban means to Landlords and Tenants and gives his view on the consequences.

So, what does the Act include?

A full ban on administration fees charged by agents for the initiation or renewal of tenancies. Tasks that are included in this ban include, drawing up Tenancy Agreements, Tenant Referencing and Credit Checks, Right to Rent Checks, Inventories, Check-in and Check-out Fees.

The Act will also restrict the amount of Deposit the landlord can take at the start of each tenancy to protect against unpaid rent and dilapidations. It is expected that the deposit will be limited to 5 weeks rent for tenancies where the annual rent is below £50,000 as opposed to the average 6 weeks rent usually taken.

Our Concern: These deposit restrictions are particularly concerning to landlords who rent out properties with high-quality fixtures and fittings. For example, if a tenant vacated a property owing one month’s rent then the landlord only has the equivalent of one week's rent to cover any dilapidation costs.

Why is the Government implementing the Tenant Fees Act 2019?

The Government argues that the industry needs increased regulation and transparency in a bid to tackle the “unfair” fees charged to tenants. It is hoped that by banning these fees it will encourage greater standards and competition within the rental sector as well as giving more control to the tenants over what they pay.

Our concern: After nearly 10 years working in the rental sector, I am surprised by the Governments bullish attitude towards ‘banning’ tenant fees. We agree with the principle but feel that they have taken a sledgehammer to crack a nut. For too long some agents have been charging extortionate fees to tenants who have had no choice but to pay them. Various organisations including Shelter and the National Approved Letting Scheme report fees on average to be between £170-200 although in some cases fees have reached over £700. If this were the case for all agencies then it’s hard not to agree that action needed to be taken.

However, completely banning tenant fees is excessive and some would argue reckless. Many letting agents including Dee Atkinson & Harrison believe that instead of an outright ban the government should have capped tenant fees, for example, our agency charges a very reasonable £70 per person application fee to cover referencing, credit checks and a substantial amount of administration. Unlike many agents, we do not charge tenants for other tasks such as renewals and checkout inspections, because of this we do feel let down by the pending Act and are disappointed with the view that ‘all agents’ are ripping tenants off.

So what will happen?

A report commissioned by our governing body the Association of Residential Letting Agents (ARLA) indicates that the industry could lose up to £200 million in turnover, that’s 1/5th of the total revenue made from the residential letting industry and the prediction is that this will inevitably lead to thousands of letting agency staff losing their jobs.

The Consequence

With a substantial decrease in revenue coming at the same time as ongoing increased training and running costs, where will agents make up this deficit?

The obvious answer is that the tenant fee deficit will be passed onto landlords who in turn, will pass it back to tenants in the form of higher rents, which totally negates the intention of the ban! The government has already conceded that this scenario is very likely, but have still pushed for the legislation to be ratified.

The good news for tenants is that they won’t be financially burdened or committed when applying to rent a property. Dee Atkinson & Harrison expect there will be an increase in tenant movement when the act comes into force as tenants won’t feel restricted or limited by the cost. We also expect to see tenants applying for numerous properties at a time, which will inevitably lead to wasted administration time for agents.

Because tenants prefer to let a property that is managed professionally by a reputable letting agent, landlords who manage their own investment properties may find that it takes longer to find a tenant and existing tenants who have been holding on because they can’t afford to move, will feel more able to look elsewhere for a well-managed property.

Forward Planning

We have known this is coming for some time. As such we have had time to evaluate our processes with a view to implementing a more streamline and cost-effective way to offer our services to clients. This may lead to more specific, tiered levels of service, replacing the standard Fully Managed and Let Only service. Landlord will be able to choose what elements are included in their service agreement package. We will also be offering a number of additional products such as rent guarantee insurance and utility deals.

Chris Hughes MARLA
Lettings Manager and Valuer

We would love to hear your views via our social media pages or if you have any questions or concerns then please contact Chris on 01377 232149.