New Tenant Fees laws = new problems for landlords?

by Readers Question

9:37 AM, 6th December 2019
About 4 months ago

New Tenant Fees laws = new problems for landlords?

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New Tenant Fees laws = new problems for landlords?

Something has come up and I am a tad worried about it, as I am not sure that I have correctly complied with the new laws.

Prior to the new legislation, I always asked the tenant to pay the small fee (only £20) for their reference checks, making it clear that I wouldn’t entertain renting to them without them being fully reference checked (i.e. their choice). I would of course sell this to them by rightly saying that it not only protected me, but the tenant too, since its an HMO and its a way of trying to ensure that all the tenants are more likely not to be a problem to each other. This seemed to work well and I never really had any complaints, as most reasonable people understood that it was them that needed to be checked out.

I decided to have a break with no tenants for a while as I was doing work upgrading the property so my last tenant left a couple of months before the new law came into force. I read up about the law as much as I could at the time it came in, and I thought that it was reasonably straight forward, that in future I would not be able to ask for the £20 upfront to reference check them. No problem I thought I will just ask them to get the references explaining that I was no longer able to do this on their behalf. Well that is what I thought!

I have had a situation recently, whereby someone paid a deposit and despite many requests for them to get references done and sent to me, they simply ignored me. After a month I have just been asked for the deposit back, despite it being partly for reserving a particular room that they wanted, and since having to tell other possible tenants that it had been reserved. I have since read up a little more on this because I wanted to know if I was able to make deductions for basically being messed around and having potentially losing out on other tenants who also wanted that particular room. It turns out, apart from the maximum 5 weeks deposit (mine was much less than that) the maximum holding deposit is now ONLY 1 weeks rent, in this case just £75. The deposit paid was £200, which I feel is fairly low and I only ask for it to give myself minimum protection, more of a good will gesture by the tenant to show willing and that they are serious about taking up a tenancy. Had this person come forward with satisfactory references I would have simply made it a normal deposit and as I am a resident landlord banked it, as you don’t need to do the government deposit scheme in such circumstances.

My concern is that I asked this person (who I now believe to have something to hide hence no references supplied) to apply to my normal referencing company for the references, believing that as I am not taking any money from them that is was fine. However, I have now read a guide (produced since the law came into effect) on their website which states ‘This means you will no longer be allowed to ask tenants to cover the cost of their own referencing. You also won’t be able to charge check-in, inventory or admin fees’. Obviously this was news to me and I have asked them to obtain references and referred them to the website.

It’s a real mess and another kick in the teeth for landlords. What am I supposed to say to them, I want references but cannot in any way tell you how to obtain them, but here is the list? It’s ridiculous. Like any landlord I don’t see why I should be lumbered with paying out for reference checks to make sure they are a good tenant, if you had 4 people going for one room are you supposed to shell out £80? I only ever ask for a reference after meeting them face to face and getting a good gut feeling about them (albeit I obviously got it wrong with this last one!).

So, has anyone else come across this problem and what are you all doing? Personally there is no way I would ever let anyone into my property without being fully reference checked as I made this mistake many years ago, similar to this latest one, she paid a deposit and avoided being checked out and the only money I received was the deposit, it took me 6 months to get her out, thankfully the house wasn’t too bad and I never let it again, I sold it due to the bad experience.

Obviously I learned a hard lesson, but I am now concerned about how to actually ask for a reference! I cannot even say look on the internet because there might be an inference that you are pushing them towards referencing companies. I am really not sure what to do for the next person who comes to view and starts asking me questions, other than to send them an email and say this is what I need, up to you how you go about getting it! These stupid politicians who decide on these laws have no idea the problems that they cause!

Anyway, I hope I have helped make Landlords aware of this problem and look forward to your experiences and suggestions.

All the best…Tony



Comments

The Forever Tenant

10:35 AM, 6th December 2019
About 4 months ago

The TFA was something I consider was necessary, but also came with several unintended consequences.

Fees for finding a property were getting out of hand. I last moved in March 2018 and the lettings agency charged me and my wife £750 each to apply for a place to live. I hope that the people on here could see that fees that high are unreasonable.

They had to lock down all the payments and restrict tenants being required to sign a contract with a 3rd party as otherwise that £750 would have found its way onto some other fee. Suddenly referencing wouldn't be £75 per person, now it's £750 per person and you had better pay it or else you are not getting the place.

But the costs are still there. Everyone wants their cut. So instead of the fees being paid by the tenant directly, now they charge the landlord, who in return charges the tenant in higher rent.

It's what I suggest you do in the future. You take the hit on the referencing costs, but increase your rent by £5 a month to cover it. You would actually make more money that way. There is also nothing stopping you from asking for information from them.

As for your current situation, under normal circumstances (and I'm not a lawyer and there are lawyers on this site who can advise more accurately) you would have been able to retain the holding fee if the tenant is not holding up to their end of the referencing.

In this case, it appears you took too large a holding deposit. You would be in breach of the TFA and as such you may want to just pay back everything they have paid and hope they don't take it any further.

Unfortunately good landlords and tenants alike are paying the price for the bad landlords and tenants. There is no easy solution to this one.

Robert Mellors

10:36 AM, 6th December 2019
About 4 months ago

If you want a reference then you as the landlord have to pay for the reference. If you want a professional inventory, then you as the landlord have to pay for the inventory. Basically, the landlord now has to pay for everything, and cannot require the tenant to pay for it as a fee. This means that if you wish to cover your increased costs, then the only real option is to put up the rents. - This of course penalises the good tenants by, in effect, making them pay for the bad ones, but that is the law that Shelter and the Government have lobbied for and passed into legislation, so either you take the financial loss yourself (if able to do so), or you increase the rents for everyone!

Robert Mellors

10:40 AM, 6th December 2019
About 4 months ago

Reply to the comment left by The Forever Tenant at 06/12/2019 - 10:35
The law could simply have been made that only the genuine cost of referencing (and other legitimate costs) could be passed on to tenants, as that would have in effect outlawed any extortionate or unreasonable fees, and been fair to everyone!

The Forever Tenant

10:44 AM, 6th December 2019
About 4 months ago

Reply to the comment left by Robert Mellors at 06/12/2019 - 10:40
I suspect that what would have happened is that you would have had referencing companies now charging £250 per person (with a £200 kickback to the TA). People will always look to find a way around a law. Just that this law is locked down tighter than most.

Puzzler

10:46 AM, 6th December 2019
About 4 months ago

You can't ask your tenant to pay for or provide the reference as this is effectively a fee even though it is not paid to you and it clearly not in the intent of the legislation; if you want one you will have to do it. "I can't charge a fee but you'll have to pay a third party" doesn't get round it. The point is that the tenant doesn't have to pay. Also holding deposits are now refundable.

The rules for a resident landlord are different though so do check.

Robert Mellors

10:58 AM, 6th December 2019
About 4 months ago

Reply to the comment left by The Forever Tenant at 06/12/2019 - 10:44
I'm not sure that would be the case because there would be competition between the referencing companies, as there is now, and if a landlord/agent deliberately chose to use a more expensive one (e.g. in order to get a kickback), then that in itself could be challengable as an extortionate or unreasonable referencing charge.

AroundTheClock

11:36 AM, 6th December 2019
About 4 months ago

From memory there is a clause that says you are allowed to charge a small fee if the prospective tenant provides any information at time of application that turns out to be false and so time is wasted due to the false information.
If this is the case why not ask if the prospect would pass a reference check and if they have any reason they wouldn’t pass the reference checks. If they say no and the reference comes back as a fail then you can charge them the small fee to cover the cost of referencing because they provided false information.
If the reference comes back as a pass then the landlord would cover the cost of the reference and accept the tenant.
Is this a possibility?

JJ

11:37 AM, 6th December 2019
About 4 months ago

Reply to the comment left by Robert Mellors at 06/12/2019 - 10:58
Don't feel bad about increasing the rent. It doesn't make you a bad landlord, what you are doing is reasonable; the fault is the new law, not yours and it's best if you let all your tenants know that. I think what I would do is tell all my existing tenants that I was giving them all their referencing fee back to comply with the new laws, that are not your fault, simultaneously increase all their rents.

Ian Narbeth

11:38 AM, 6th December 2019
About 4 months ago

Tony
To answer your immediate question, repay the holding deposit in full and without argument or comment. Forget about deductions. As you took £200 holding deposit instead of £75 you are in breach of the TFA and if the tenant involves the Council you will probably be fined. Maximum is £5000 fine for first offence. The Council will look at your behaviour and if you hold onto the money and argue the toss with the tenant it will not go well for you.
As to referencing, I would just absorb it as a cost. If you are not prepared to do that and you have a plethora of tenants beating a path to your property then you could say: "You are not obliged to provide credit checks/references but those prospective tenants who volunteer them will be first in the queue."
Problem is you will need to see the reference before taking the holding deposit . You absolutely cannot take holding deposits from two or more tenants for the same property at the same time and wait to see who comes forward with a reference/credit check.

Graham Bowcock

11:39 AM, 6th December 2019
About 4 months ago

Hi Tony

You are right that the system does penalise those of us who are good landlords. However, the bottom line is that you will have to pay for references, inventories and all other costs to do with the letting. I would not suggest you do without references or inventories and you will simply have to bear the cost.

I have let a couple of my houses since the fee ban and, frankly, just absorb the costs. We're not talking massive amounts of money and it gives me protection when letting a valuable asset. Life's too short to worry about what we used to do.

The upside is that supply is so short in my area that rents keep on rising. Houses where I was getting £625-£650 a month a couple of years ago are now going for £800. Sadly the tenant is the loser here as I can afford to meet the extra costs from the higher rents.

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