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!