The June General Election saw very little agreement between the main political parties. However on one point they all agreed, tenants should not be charged fees by landlords and agents to rent a property.
Given the Government’s very slim majority they clearly need things that are not going to cause them a problem, therefore the Queens Speech made reference to the Tenants’ Fee Bill. This will make it illegal to charge tenants fees to rent a property.
You may recall there was a consultation on a ban earlier this year. There were nearly 5,000 responses to this consultation which have yet to be analysed. Despite this the Prime Minister has made it clear that the ban will happen. There are many details to resolve and the timing is not yet known, but we expect the ban to start in April 2018.
It is important to remember how we got here. In the past tenants were never charged fees. Then some agents realised they could save their landlord costs by charging things to tenants; as this made those agents more competitive it soon became common practice.
However the reality is tenants choose a property, not an agent, with most properties being advertised by one agent. So if a tenant likes a property they have little real choice about the fees associated with it. This has been abused by some agents, particularly in some cities, who exploited the situation with some ridiculous charges to tenants.
This combined with the growing number of people renting to attract press attention, leading to Government attention, leading to a ban.
The challenge is these fees cover the staff costs associated with doing important things to protect landlords, many of which were not required in the recent past such as:
- Right to Rent checks
- Comprehensive referencing
- Chasing the records and responses required to check the referencing
- Deposit protection requirements
- Inventory management
- Proving documents read by tenants
- Tenancy renewal and recording
- Client Money Protection controls
- . . . . . . etc. etc.
Some of these are legal requirements, those that are not are things which are designed to reduce the risk to landlords.
So what is the impact on landlords? Well ultimately the costs previously charged to tenants will find their way to landlords. This is likely to mean it costs landlords more money to change tenants than in the past, leading to some changed behaviour, e.g.
- Landlords will maintain properties better in order to encourage their tenants to stay longer
- Landlords may prefer longer tenancies, which may mean more need for rent guarantee insurance, particularly with new tenants
- At tenancy renewal tenants may negotiate more robustly to get works done or improvements made
- If tenants are having difficulty paying, landlords may consider a period of reduced rent as a cheaper option than changing tenants
- During the transition before the ban comes into effect landlords and tenants may use fees as a negotiating tool.
We also anticipate that the increased costs to landlords will find their way to tenants through increased rent. We calculate that, on average, a rent increase of 3.5% will cover the increased costs to landlords. Over the past year our average rents have increased 3.2%.
As ever, when we know more we will keep you posted, in the meantime we are working to establish the process for managing the fee ban as effectively as possible for our landlords and tenants.