Well the draft Bill is out which will ban agents and landlords from charging tenants any fees associated with setting up or managing their tenancy. We have no idea when this take effect, or the exact detail. Based on past practice we are confident the Government’s final decision will take place without much notice!
We know there is a great deal of activity by the various trade bodies and other groups to try to prevent the ban taking place. Whilst we may hope for the best, we think it is best to plan for the ban taking effect. This seems the likely outcome, particularly given every political party supports a ban.
Despite the uncertainty our landlords need to know the impact of any ban to help them plan for a ban, if and when it takes effect.
What we can see from the draft Bill is tenants can be charged rent, a holding deposit (up to one week of rent), and a security deposit (up to 6 weeks’ rent). So far so clear. They can also be charged anything which is defined in their tenancy as a default, e.g. late rent fees, costs for replacing lost keys. The scope for what may be considered a default may be tested in the months to come. We also know the Bill may change as it gets debated.
What we do know is the main costs we will not be able to charge tenants are almost all related to tenancy start or end, plus a small amount for tenancy renewals. These charges cover the staff costs of managing important protections such as Right to Rent checks; deposit protection requirements; inventory management; tenancy renewal; end of tenancy negotiations; Client Money Protection controls; as well as ensuring the property check in happens properly and all legal aspects are well managed.
Interestingly over 20 of the items are things that were not needed 10 years ago. We have looked at which of these we could safely remove, and where we can improve efficiency to reduce the cost of maintaining these protections. However we have concluded there are still some significant costs which need to be passed on to landlords.
The obvious question is how landlords will meet this cost? Happily there is a precedent for this. In 2012 a tenant fee ban came into effect in Scotland. Following this ban rents increased 6% – 8%, essentially covering the increased costs of the landlords who had to meet the fees previously paid by tenants. We anticipate the same model will apply in England.
Given this our proposal is to charge landlords a fee which covers the amount we can no longer charge tenants. This will either be spread over the first 12 months of any tenancy, or paid as a lump sum at the beginning of the tenancy, dependent upon the preference of each landlord.
Unless there are any profound changes in the rules this fee will be eligible for tax relief, thereby reducing the cost to our landlords.
Our calculations suggest that for most landlords a rent increase of £22 per month will cover the full cost of the tenant fee ban over an average 18 month tenancy. We have spoken to a number of our landlords to test this approach, which has been well received, particularly seeing how a small change in rent can cover the cost. We have also had a number of tenants say they would prefer to see a small rent increase than have to find lump sum fees when they move property.
We would welcome your views on our proposals.
One of the consequences of the ban is shorter tenancies will significantly increase landlord’s costs. One glimmer of hope is at the recent Conservative party conference there was discussion about positively recognising those landlords who offer longer tenancies. So again we need to watch this space. We will monitor developments of this Bill – rest assured that as soon as we know what is happening we will update you further. In the meantime if you have any thoughts or ideas then please share them.