Landlords – How the tenant fee ban could affect you

April 2, 2017

The Government is going to ban tenant fees and landlords may wish consider the potential effect on them.

Background

The Government has made it clear that the ban on fees to tenants will proceed as soon as possible. What is not clear, and will be the subject of imminent consultation, is whether charges may be banned as well. This may include the cost of referencing, inventories, late payment fees and possibly any charge to a tenant may also be banned.

The cost to letting agents varies but we have seen that some agents could lose over 20% of their income. In some case, this may wipe out all profits. A minority of agents have taken advantage of tenants and we broadly support the ban on fees though believe that reasonable charges should remain to ensure tenants interests are protected and a duty of care is shown to them.

What it means to Landlords.

It is well known that some agents discount fees to landlords and supplement these fees by charging tenants unfair sums and penalties often hidden in their contract. These agents will have little choice other than to increase their fees to the landlord. The alternative is to cut costs, cut corners and perhaps reduce staff. With changes to taxation, some landlords will have little choice other than to increase rents which in turn may increase void periods. Some landlords may decide to ‘self-manage’ others may simply consider selling their asset.

The Scotland Experience

Many people have asked what effect the tenant fee ban had in Scotland in 2012. This confuses the issue and is largely immaterial as tenant fees were actually banned under Section 82 of the Rents (Scotland) Act 1984. This was simply clarified in 2012 which is why many tenants were able to recover fees retrospectively and encouraged to do so by Shelter among others. Retrospective claims will not occur in England.

Nevertheless, the wording of legislation north of the border may well offer an insight in to what is to come.

Any person who, as a condition of the grant, renewal or continuance of a protected tenancy, requires, in addition to the rent, the payment of any premium or the making of any loan (whether secured or unsecured) shall be guilty of an offence under this section.

premium means any fine, sum or pecuniary consideration, other than the rent, and includes any service or administration fee or charge

Northwood’s view

We have long believed that this ban was inevitable and have planned for it. As such, the impact on us as a business will be minimal and we do not intend to pass on any additional costs to landlords. When instructing an agent, consider the long term view as when this ban takes effect you could see your costs increase. Remember, when using our Guaranteed Rent service, you won’t pay any commission and we take care of the void periods in addition to non-payment of rent.

Our advice to landlords contemplating selling their investment is to consider this very carefully. What will you do with the proceeds of sale? Interest rates are low, shares unpredictable and commodities volatile. The effect of ‘Brexit’ is uncharted territory. Whilst your yield may drop a little, property prices continue to rise making property an immensely attractive long term investment. Look at your investment in the round and consider capital growth and yield together.

Obviously we wouldn’t advocate ‘self-management’, however this is not entirely born from self-interest. The increasing myriad of legislation makes letting and management a minefield. Getting possession of a property is no longer simply a Court appearance and proof of service of the appropriate notice. Judges have a long checklist of criteria before they will even consider a case.

Many private tenancy agreements we see are so out of date, possession is nearly impossible if things go wrong. There are now some 150 pieces of legislation which apply and letting has become far more technical and complex. Many agents get it wrong too so ensure your agent is property accredited or is part of a reputable chain who keep pace with compliance. When it goes wrong it can be very expensive through non payment of rent and possibly penalties, fines and even prosecution. Make no mistake, there is a focus on cleaning up the rogue element of the industry.

The future

We don’t yet know the timetable for implementation of this ban but expect it to be later this year or early next year. This white paper may include other measures such as compulsory Client’s Money Protection insurance (CMP). Northwood was a founding member of SAFEagent which was a campaign to highlight the need to compulsory CMP and we are delighted that this now looks likely.

The consultation will start shortly yet some agents still don’t believe the ban will become a reality. Northwood is a member of the Fair Fees Forum and regularly meets with Government, leading agents, regulators and redress schemes. As such, we have a far better understanding of what is happening than many and there is no doubt as to the Government’s determination to impose this legislation. The only uncertainty is how far it will go and what else it will include.

We appreciate landlords dislike uncertainty which is why we at Northwood have carefully planned as to how we will deal with these changes. Obviously our Guaranteed Rent service negates any fees, uncertainty or risk and unlike many agents our service is not an insurance policy with a myriad of restrictions and limitations. Nevertheless, no matter what service you decide upon, we are committed to ensuring neither you nor your tenant will suffer as a result of the tenant fee ban.

Eric Walker, MD

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