Five Warnings for 2018 – #5 The Tenant Fee Ban

by Property 118

8 months ago

Five Warnings for 2018 – #5 The Tenant Fee Ban

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Five Warnings for 2018 – #5 The Tenant Fee Ban

A short series from landlord & tenant lawyer Tessa Shepperson on things you need to watch out for.

I include this not because the rules are likely to come into force in 2018 (although this is not impossible), but because you need to start preparing now.

There seems to be no doubt that fees to tenants will be abolished.  The measure is supported by both the Tories and the Labour party.  When it happens will depend on what Parliamentary time is available (bearing in mind Brexit) but I suspect it will not be delayed too long and we are probably looking at a date in 2019.

My views on the tenant fee ban

I personally approve of the ban.  When I practiced as a solicitor, avoiding conflicts of interest was an important part of the code of ethics I had to comply with.

Had I advised both parties to a transaction I would have been vulnerable to disciplinary proceedings and could have lost my practising certificate.  Solicitors are trained to avoid ’conflicts of interest’ and even now, when I no longer practise as a solicitor, I would be very wary about advising a landlord if the tenant had previously been a client, or vice versa.

The solicitors ‘conflict of interest’ rule is there because it is difficult if not impossible to give impartial advice to one party if you have a financial interest in the other party – i.e. are being paid to act on their behalf.  Plus, there are issues of confidentiality.

I suspect that the current situation, where it is common for agents to take fees from both sides, has only been allowed to develop because letting agents are unregulated.  I talk more about this here.

It would have been better if the current tenant fee situation had never been allowed to develop, but this does not alter the fact that as of now many perfectly respectable and honourable agents do charge these fees to tenants.  Their removal is going to cause a lot of upheaval.

It’s going to affect agents and landlords differently so let’s take a look at this.

Letting agents

There is a lot of difference in the fees actually charged.  Some agents only charge a modest £100 or so to cover the referencing fees.  Others charge up to £1,000 or so covering referencing and other ‘admin charges’.

Needless to say, the agents who charge the lower fees are going to be the ones who come off best after the change!

My advice would be to work steadily towards eliminating tenant fees from your charging structure.  However, when I speak to agents about this they tell me that they are reluctant to do this as it would put them at a disadvantage if their fees are higher than other agents who can afford to charge a low commission due to the tenant fees they charge.

One answer to this is to develop alternative sources of income.  For example, you may be able to earn commission from recommending services and products to landlords (provided the fact that you earn commission is clearly disclosed in your agency agreement).

The other possible solution is to work out an alternative pricing structure which you can put into place as soon as the ban comes into effect.

However overall you should work towards reducing your reliance on tenant fees as much as you can from now on.

Landlords

The main problem for landlords is that agents’ fees look set to become more expensive after (and maybe before) the ban comes into force.

Will you be able to afford them?

Moving to cheaper agents is probably not a good answer as there is a danger that they will be less competent.  An incompetent agent can end up costing you thousands, for example by breaching the deposit rules or letting in poor tenants due to inadequate referencing.

Raising rents is one answer but in an economy where wages are static or even diminishing, there is a limit to how far you can hike up rents.  If tenants are too stretched they will often fall into arrears which could end up costing you more.

Another solution is to manage your properties yourself.

You need to be careful here though as regulation is increasing and Local Authority enforcement is hotting up.  If you are fined or prosecuted for non-compliance this could be extremely expensive.  Much more expensive than using a good agent would have been.

However self-management can be a good option provided you get some proper training and take care to comply with all the rules.  A service like Landlord Law can help.

The final solution, and one which I think many landlords are taking, is to sell up.  Which is fair enough.  More property may then become available for desperate first-time buyers.

I suspect though that if you are an investor, you will find it hard to find an investment which pays as well (even after the fee hikes) than a buy to let property.

In Conclusion

Whether you are a landlord or an agent, this is a big change coming and you need to plan for it.

It is unlikely to go away.

Tessa Shepperson

Tessa is a lawyer specialising in landlord & tenant law and runs the popular Landlord Law  online service for landlords.

NB Get more help in Tessa’s 2018 January Mystery Box Giveaway



Comments

money manager

8 months ago

I'm sorry but non of the solutions are really solutions and only time will tell of the affects.

It cannot be denied that tenants change their mind and the overt and covert costs of withdrawal and consequent delays on letting can be substantial, will we see a rise in multiple reservations on a fptp basis.

If I go into a solicitor's or accountant's office I may be offered a fixed fee, no sale no fee, or an hourly rate by agreement, why should tenants be uniquely protected when requesting professional services?

Further than that is the idealogical conflict between this proposal and that followed in consumer finance by the FSA/FCA.

That regulator has banned commission to be replaced by a clear and broken down fee structure, at some levels every element of say a fund manager's charges and remuneration must be identifiable.

The proposal to ban fees to tenants which may be responded to by landlords increasing rents is tantamount to hiding the cost of fees, daft.

We do self manage, do charge fees, and 100% clear. With the initial fee ban we may have to look at the level and breadth of subsequent charges and our levels of tolerance of transgressions.

It will be interesting to see how the no fees, pet loving, redecorating, and flexi tenancy rtr crowd fare, don't hold your breath

H B

8 months ago

Estate agents never used to charge tenants fees and I don't think that landlord fees have got any cheaper.
As a landlord I pay an agent to find the best tenant for the price, not to find that they have reduced the pool of possible tenants by charging fees.

Gary Dully

8 months ago

The Total ban on fees is ridiculous.
Why not set maximum fees instead?

Many Lettings agencies share the same building as Estate agents, where one desk will be able to charge for a service and the other won’t.

To tell anybody that they cannot charge for their time is an absolute disgrace.

Tenants object to everything that costs money, no kidding Sherlock?

The cost never goes away, it will be there in one form or another.

This is a political gimmick, just like Section 24 and will just add to a landlords problems.

The Tory party is pandering to idiots and not it’s core beliefs, because it hasn’t got any beliefs anymore, such as competition and fair taxation.

Monty Bodkin

8 months ago

"The main problem for landlords is that agents’ fees look set to become more expensive"

No it isn't.

The main problem is a total ban will allow professional rogue tenants to fish around with impunity until they find a sucker.

A rogue tenants charter from those that don't understand the industry.

Holding fees an effective deterrent? HO! HO! HO!

Monty Bodkin

8 months ago

"Raising rents is one answer but in an economy where wages are static or even diminishing, there is a limit to how far you can hike up rents."

There is a limit but we are nowhere near there yet.

The population is increasing and supply is not keeping up with demand.

Tenants who could afford a 4 bed property will rent a 3 bed, 3 bed tenants a 2 bed, etc, all the way down the line to the bottom of the heap and an inevitable increase in slum landlords and overcrowding.

What the do-gooders fail to realise is that punitively taxing landlords, banning fees, preventing evictions etc has a price to pay. Inevitably it is the weakest in society that pay it.

Monty Bodkin

8 months ago

"The final solution, and one which I think many landlords are taking, is to sell up.  Which is fair enough.  More property may then become available for desperate first-time buyers."
Less property may be built, less commercial property may be converted to residential, less property may be brought back in to use.
Still, as long as the relatively well off first-time buyers can buy the property they deserve (in the short term), who gives a damn about the poor sods who will never be able to buy?

Romain Garcin

8 months ago

The claims about conflict of interests do not reflect reality, and the focus on letting agents is just spin to score political points. We have seen that from both main parties.

As it stands letting agents indeed work for landlords and already may not charge tenants anything unless instructed or authorised by landlords.

Letting agents do not advise both parties.

It is for landlords to keep on top of things and control their agents.

In any case, the proposed ban is NOT a letting agent fees ban. It's a ban on landlords as landlords will explicitly be banned from charging tenants even if they do not use agents at all.

The argument against letting agents' practices does not therefore hold up to scrutiny of the bill.

This is political, and only political.

Monty Bodkin

8 months ago

Reply to the comment left by Romain Garcin at 24/12/2017 - 10:48
"In any case, the proposed ban is NOT a letting agent fees ban. It's a ban on landlords as landlords will explicitly be banned from charging tenants even if they do not use agents at all."

Good point Romain, makes a nonsense of the 'conflict of interest' justification.

Marlena Topple

8 months ago

I have no problem with banning tenant's fees. When I work with agencies I am horrified at the fees they charge tenants particularly when this includes charging both parties for the same thing e.g. the inventory, tenancy renewals.

Binkie

8 months ago

While I agree that there is no excuse in extortionate admin fees by agents, I think it's outrageous not to be able to charge tenants for referencing fees and credit checks. Fine, create rules about the maximum level of these, but to pass them onto the landlord is ridiculous. We've had tenants lying about their credit status and subsequently failing their checks - the ban will only encourage this sort of behaviour if tenants have nothing to lose in doing so. Why should the landlord pay for this?

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