Banned 'Tenant Fees' Part 2

More doom and gloom and yet another own goal for the government  

We were told this would be happening in November last year (see Banned 'Tenant Fees' good for tenants?) but that there would be consultation with the industry into what the impact such a ban would have. Research conducted by Capital Economics for ARLA Propertymark earlier this year carried out surveys with agents across the country to determine what impact the ban would have on a range of aspects, from jobs, to rent prices, to property availability.

The report produced showed a ban on letting agent fees will cost the sector jobs, make buy-to-let investment even less attractive, and ultimately result in the costs being passed on to tenants. The Research shows that referencing checks undertaken by agents take, on average, eight hours to complete. It is therefore right and proportionate that the industry is recompensed for this work, which benefits tenants. The research also showed that letting agents stand to lose around £200 million in turnover, costing the sector 4,000 jobs. Landlords themselves would lose £300 million, meaning they may seek to cover their losses by increasing rents to tenants.

On average, rent costs will go up by £103 per tenant, per year, ultimately meaning tenants who move more frequently will reap savings on their overall costs but longer term tenants, who are usually lower-income families, will see a loss as their rents rise year-on-year.

The ban, therefore, contradicts the Government’s stated aim to encourage longer term tenancies, as tenants who stay in their homes for the long-term will end up shouldering the costs of those who move more frequently.

The impact of recent events

During the time period this report was being conducted, Teressa May decided to call a snap election resulting in a hung parliament with a majority government still to be had. In addition, there have been three terrorist attacks in the UK, the tragic fire in Grenfell Tower and negotiations have started on Brexit.

Therefore it's unlikely the Government had enough time to analyse all of the responses from the consultation, as it only closed 12 working days ago, on the 2nd June. It appears they had already made their decision and therefore the consultation was no more than a ‘tick box’ exercise and they haven’t appropriately taken the industry’s views into account. A bit like the general public's attitude to the Tory manifesto!

Queen's Speech announcement

The Queen's Speech states:

Tackling unfair fees on tenants will make the private rental market more affordable and competitive. The draft Bill will bring forward proposals to: ban landlords and agents from requiring tenants to make any payments as a condition of their tenancy with the exception of the rent, a capped refundable security deposit, a capped refundable holding deposit and tenant default fees cap holding deposits at no more than one week’s rent and security deposits at no more than one month’s rent

Security deposits

In response to the consultation document, it made clear that security deposits should be set at a level that ensures that tenants have a meaningful stake in paying the rent and maintaining the condition of the property. In setting the figure at no more than one month's rent, the Government are failing to take into account any damage that can be incurred while a tenant is simultaneously defaulting on the rent. Experience has shown that for agents and landlords that have asked for a deposit equal to a month's rent in the past, some unscrupulous tenants default on the last month's rent and simply forfeit their deposit. With no additional funds to cover any cleaning or delapidations that may inevitably arise (especially likely if they are the sort of person to default on rent), the landlord is left out of pocket, paying for cleaning or damages caused by the tenant.

Landlords and letting agents throughout the country will inevitably have to work out how to manage the risks involved and recover the difference in costs, the most obvious being, agents increase fees to landlords, and landlords increase the rent to cover extra costs and damages which a deposit otherwise would have satisfied. 

Final Word

It would have been great if the Government had scrapped this, like they have done with the Dementia Tax, like they have done with the scrapping school meals, like they have done with potentially bringing back fox hunting, like they have done with grammar schools, but sadly no, this piece of legislation has stayed, from a consultation that was ignored. Legislation that is going to have the exact opposite of what it set out to do.

Good job! 



Tenants: What happens at the end of my tenancy?

If you're on a fixed term tenancy that's due to end, you might be wondering what options you have. This article sets out to explain the choices you'll have. 

Tenants and Landlords should expect to hear from us about 2 months before the end of the fixed term to find out what their intentions might be. In most cases, landlords are happy for tenancies to extend if there have been no issue so it's usually just a case of ensuring the tenant's circumstances haven't changed much. 

Confirming your choice

We send a document through DocuSign to all tenants detailing the various options and ask this is completed as soon as possible. These options are:

Option 1: Renew on New Fix Term Basis

This would mean you are bound by the same terms as before and neither party can serve notice before the fixed term end date. You could choose either a new 6 month agreement or a new 12 month agreement and the tenancy would perform the same way as it has done currently.

Option 2: Renew on a Statutory Periodic Basis

This would mean your current agreement would be allowed to continue on a month to month basis. If you would wish to leave the property at any time, you must serve written notice giving at least 30+ days from the day of the month the tenancy started. However for a landlord to serve notice, they must do so giving at least 60+ days written notice from the day of the month the tenancy started. (see Tenants Handing In Notice On Rolling Contracts)

Option 3: Vacate the Property / End the Agreement

If the intention is not to renew at the end of the fixed term, please select this option, and we’ll shortly send a check out instructions document together with useful information from the TDS outlining the procedure for the end of the tenancy.

other variables

  • Rent amount change: In some cases, the landlord may feel that the market has changed since the original contract was first drawn up, and may decide to increase the rent. If this is the case, a new tenancy agreement would be created on another fixed term basis. 
  • Vacate sooner: If you would like to vacate the property but not sure when your tenancy is up, contact us and we'll happily help. If your tenancy end date isn't for some time, you might find the article Surrendering your tenancy early useful.
  • Change in occupants: If you're in a joint tenancy and wish to alter the occupants, you might find the article I want to swap a person in my tenancy. What do I do? of help.

Banned 'Tenant Fees' good for tenants?

The 'Renters Rights Bill' moved forward last week with the announcement from the Chancellor Philip Hammond in the Autumn statement that Lettings Agents will no longer be allowed to charge tenants fees in England. The details of the ban have yet to be addressed, but in a bizarre strategy, the DCLG (Department for Communities and Local Government) is asking industries bodies such as ARLA (Association of Residential Letting Agents) for their views in the new year, after this decision has already been made.

While the press and some social media commentators feel this is a good attack on greedy letting agents, this article sets out to address it's implications for not just to agents like ourselves, but landlords and tenants, once this comes into force sometime in 2018-2019.

What are tenants fees in the first place?

Prospective tenants who go through an agent are charged fees by the agent in the event they wish to take a property, in addition to the first month's rent and deposit. Fees cover a range of services for tenants such as:

  • Referencing - determining whether tenants would be suitable to rent
  • Adverse Credit Check
  • Affordability Checks
  • Any References from Previous Landlords
  • Right to Rent in the UK Checks
  • Creating the tenancy documentation
  • Compiling Inventories
  • Travelling costs to the property for the Check In
  • Deposit Protection Fees
  • Credit card charges 

Fees range in prices depending on which agent you choose. ARLA, which represents over 70% of all agents in the UK ran a study and found the average fee tenants are charges is £202. However, some agents, particularly in London, charge anything between £550-£650. 

In addition, tenants paying a non-refundable fee acts as a sign of commitment to taking a property and demonstrates to the landlord they are serious about taking a tenancy - if they are willing to put down money, it's unlikely they will pull out of the deal later and in return, the property is listed as 'under offer' and no further applications from other potential tenants are taken.

What's the idea behind banning these fees?

Each year, rental prices have generally increased over time. In the October 2016 Statement Edition from Homelet, they found the average UK rent price was £902, this is 3.0% higher than last year (£875pcm). To help make these increasing costs more affordable for tenants, banning tenant fees will make it easier for tenants to rent a property by not having to fund so much upfront costs. 

What else has been done?

Last year, legislation was put in place requiring all letting agents to publish their fees avoiding the hard sell some agents are known for. The idea being that landlords and tenants can make an informed decision about which agent they would like to use before being charged for things they weren't aware of (see is your agent complying with the law). However, despite this, many agents still don't comply with the law and many councils don't have the resources to effectively police them. Landlords and tenants don't shop around for more competitively priced agents, and so the idea has largely failed.

Scotland banned the fees in 2012 so it's possible to look at them as an example of what to expect.

What do these fees pay for?

Some people think that the lettings process is simply amending a template and hitting print - this couldn't be further from the truth. Tenants fees are an income for letting agents in addition to income received from the landlord in order to keep the business running. On average these fees make up about 12-18% of a letting agent's income. 

Good business has always been about being able to serve the bottom line in order to function, but also to grow. An agent's costs could be summarised as:

  • Office space rental and rates
  • Wages for the people we employ (we employ three people)
  • Advertising costs for Property (Rightmove is currently £1,236 a month)
  • Mileage costs for visiting properties for viewings, check ins, check outs and inspections (45p a mile)
  • Computer software subscriptions for management, inventories, floor plans, file storage
  • Professional body membership (ARLA, The property Ombudsman Scheme, The Tenancy Deposit Service)
  • Fixed assists such as office equipment and computer systems
  • Mobiles and broadband costs

In addition, agents experience, expertise, availability and professionalism are all valuable asset which tenants benefit from which aren't direct costs, but still something seen as a chargeable benefit.

Is it just a case of more charges for landlords now?

MP Kevin Hollinrake said:

There is clearly not a free market for tenants, who follow property rather than choose between letting agents because of fees, so it is an issue that we need to address. However, letting agents rely on these fees for income, and so that income would have to come from somewhere else; it could be added to rent or else come from higher fees for landlords. Agents may also choose to take the most secure tenants and prefer those with good credit histories, rather than take a risk on a tenant with an inferior credit history, because of the risk of having to do the work twice, which would add to their costs. There is a potential issue there, so should we consider a cap rather than abolition?

Whether this will happen or not remains to be seen. 

If there was scope for the landlord's to be charged a higher fee, it would almost certainly result in rents being increased further and so tenants would indirectly be paying more than if they just paid an upfront fee.

In the case of Scotland, rents did increase but not dramatically. Some agents went so far as charging an extra £25 rent to every tenant but charged that as a fee to the landlord to recover the lost income. 

Is it really all doom and gloom then?!

If tenants can't be charged a fee, then there's nothing to show a commitment from them to taking a property. What's to stop a prospective tenant applying for 5 different properties at the same time before rejecting 4 of them at the last minute? Four of the agents would have carried out unnecessary work and be faced with all the lost time and costs associated with it. The landlords of those properties would be faced with an increased void period. These costs, of course, would have to be made back up from somewhere, which is almost certainly higher rents for everyone.

A possible solution would be to continue viewings until a tenancy agreement is signed, but in the cases where there are outgoing tenants, you wouldn't dream of having a new contract signed until current tenants had vacated. This would mean tenants won't know for sure if a property is theirs or not until a week or so before they are due to move in. If there are five applications on a property, all waiting for the go ahead, that's four people that could be facing homelessness or a scramble to find another vacant property at the last minute.

While a free market would be preferable, it's clear that doesn't work. If someone sees their dream property, they aren't going to decide not to go for it because the agents charge £50 more than another agent that doesn't have the property - the reality is they are going to take the £50 hit and the property of their dreams. Equally, if a market is low on properties with high demand, a prospective tenant is going to pay what they need to secure a property.

So what's the alternative? I'm not sure, but if the issue is how to kerb rising costs for tenants, the answer certainly isn't banning agents fees to tenants - it will merely drive up rent prices for tenants and be an administrative nightmare for everyone. 

I would have thought no one wants this, but we live in a post-truth society where facts don't mean anything anymore (perhaps why no one from the industry was consulted before the announcement was made?). Perhaps at the end of the day, it's all about sticking two fingers up at the greedy London letting agents, the only problem is, everyone will pay the price #slowclap.

Silver Lining?

The move could spur competition as landlords, unlike tenants can shop around for a more competitively priced agent. Most agents around Wilmslow charge a month's rent upfront as a letting fee. Martin & Co charge 90%, we charge 60%, and yet we don't have flocks of landlords coming to us from other agents because our fees are less. A study by Rightmove in 2015 showed that when landlords were asked how important fees are compared to agents location, the number of properties on the books, visibility, industry accreditation etc, fees came in at just 26%. 

What the future holds remains to be seen, it's still a long way off, but despite the applause from vocal social commentators, our view is this is not the way to fix the housing crisis. 

Stamp Duty Changes: A Guide for Buyers, Sellers and Landlords

The Stamp Duty tax has been the star of much of the housing news in recent weeks. A hike to the duty included in the 2016 budget is said to have major implications for the sector. The move is intended to take steps towards solving the current UK housing crisis, the main element of which is a major shortage of housing stock. However, confusion has arisen as to exactly how changes to stamp duty will help, if at all. We've put together a guide to stamp duty; what it is, what it’s intended to do – and what it actually does.

What is the stamp duty hike?

Stamp duty was a tax on the cost of homes and properties valued at over £125,000. As well as introducing a lower threshold of £40,000 (at which stamp duty will now begin at 3 per cent) the 2016 Budget proposes to raise the duty by 3 per cent, for people with second homes. So the total rate will now be 5 per cent in the £125,000-£250,000 bracket, and 8 per cent for homes valued between £250,000 and £925,000.

What’s the goal?

The purpose of the rate change is to discourage people from buying second and third homes, so that some of the UK housing stock can be opened up to first-time buyers. The idea is also to target new buy-to-let landlords, so that people are encouraged to buy rather than rent their homes.

Who does it affect and how?

Landlords: The target of the rate hike is new landlords, who were found to be among the "losers" by the Telegraph’s assessment of the 2016 budget.

Renters: Because new landlords are hit with an extra tax on buy-to-let investments, renters are also going to wind up paying higher prices for their homes.

Buyers: While the rate change is intended ultimately to benefit first-time buyers, it heavily discourages buyers of second and third properties. Additionally, the fact that it will end up driving up rent prices means that those who have not previously bought a home will be saving less, and so will be less likely to be able to buy in the near future. No matter what, it’s lose, lose, lose for buyers.

Sellers: Sellers, especially those looking to downsize from two or three properties to just one, are benefited by the changes to stamp duty, with housing prices currently at an all-time high and still rising. The Telegraph has declared downsizers to be among the winners in the 2016 budget. "The new stamp duty rates applying from April 2016 – which had been announced previously – ran the risk of catching out those people who owned two properties temporarily while, for example, they sought to downsize," the Telegraph reported. "In his Budget, Mr Osborne said they will now have 36 months in which to sell one of the properties – increased from 18 months in the earlier proposal."

With average home prices now at a record high of over £200,000, sellers are in a better position than ever, while everyone else may suffer. The changes to stamp duty don't seem to do much to change that situation. If anything they make the disparity just a little bit bigger.

Tenants Handing In Notice On Rolling Contracts

Ever wanted to know the procedure  for handing in the notice when on a rolling contract, otherwise known as a Statutory Periodic Agreement?

Tenants must give at least 30 days notice from the contract start day (usually the rent due date), and landlords must give at least 60 days notice from the contract start day (usually the rent due date).

Notices to end the tenancy should always be in writing and addressed to the landlord or agent at the address found on the tenancy agreement (unless given an alternative address found in a section 48 Notice). In some cases, an e-mail or text message can be accepted but you should make sure you get an acknowledgement that the landlord or agent has received your correspondence.

For example, if you're a tenant wishing to serve notice to end your tenancy, and your rent is due on the 15th of the each month, and the current date is the 6th of September, then the tenancy would officially come to an end on the 14th of October. If the current date was the 18th September, then the tenancy would officially come to an end on the 14th November, quite a bit later!

In addition, it is important to note that if you have made arrangements with your landlord or agent to change the rent due date, this date is not taken into account when working out the notice period - it is the tenancy start date that is relevant.

Therefore if you're looking to leave a property by a certain time, it is very important you take into account the time in which you would have to serve notice, as any delay could make you liable for the rent beyond what you would wish to pay for.