Tory MP warns lettings fee ban could increase rents in ‘unintended consequence’

A Tory MP who is also a buy-to-let landlord has voiced concerns over his own party’s plans to introduce a ban on letting agent fees charged to tenants.

Mike Freer, who represents Finchley and Golders Green, said: “Some letting agents do seem to have their bread buttered on both sides, charging both the prospective tenant and the landlord.”

But Freer has also talked to one of the biggest agents in his constituency, Martyn Gerrard.

Writing in Conservative Home, Freer says: “I was surprised to learn that they have long advocated that administration and contract fees charged to tenants by letting agents are indefensible and morally wrong. Their view is that there are only two reasons why agents charge unnecessary administration fees.

“First, an agent struggling for stock will cut their fees to landlords to boost stock, and make up income by charging tenants administration fees to make up the income. Or, second – and perhaps even worse – an agent will charge the landlord a full fee to let the property and also charges tenants a range of fees.

“Either way, Martyn Gerrard estimate that when letting agents’ fees to tenants are banned, the move will wipe between 10% and 20% off the turnover of those agents who have been charging these spurious fees to tenants. Although this may mean the loss of cut-price unregulated agents, which would not be a bad thing, the unintended consequence is that tenants will ultimately be worse off!

“This is because letting agents, according to the consensus, will shift the lost income generated from tenants to the landlord by charging higher fees.

“This, coupled with a shortage of stock (as investors are further deterred from entering the buy-to-let market), will lead to an increase in rents.”

Freer says that a holding deposit should not be seen as a fee that could be banned.

He says: “It is not unreasonable for a prospective tenant to put down a deposit – which goes towards the dilapidation deposit when the tenancy begins – to show commitment, and to assure the landlord that he or she is serious about taking the property.

“A ban on non-refundable holding deposits will mean that tenants could express an interest in multiple properties, giving rise to costs to the landlord and agent… and then simply walk away without any consequence. This is surely not the Government’s intention.

“Similarly, is it unreasonable to ask a prospective tenant to provide evidence of his suitability as a tenant?

“This usually involves an independent company providing a report having carried out credit, employment, previous landlord, immigration and right to rent checks. Again, if the tenant does not have to pay for this, what is to stop him showing interest in multiple properties, with each of these landlords paying for separate referencing checks only to be disappointed?

“Will a landlord be prepared to carry out these checks without any assurance that the tenant is serious, and what will happen if the tenant fails the checks? If the tenant is paying, he will be as certain as he can be that there is nothing in their past that will mean they fail the reference check.

“My concern is that if all the costs are to be borne by the landlord, there will be letting agents who will try to compete for business by cutting their fees. This will inevitably be at the cost of the quality of the service and checks they provide.

“Landlords tempted by the cheap fee will be left dangerously exposed, since the agent may well have had to cut too many corners in order to offer a low fee.”

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17 Comments

  1. 123430

    Yes, the intended changes may have an unintended side effect, but on the up side, all those dodgy agents will implode and only the good, adaptable agents will succeed. They will take market share from those who cannot sustain their business.

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  2. Votta583

    123430 what’s going to be your approach in subsidising the loss of tenant fees? I’m a good adaptable agent But feel the ban is outrageous, a cap would have been necessary. Our company are very confident that they will survive this well by introducing charges elsewhere for landlords. But landlords won’t pay as any letting agent knows.

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    1. Ding Dong

      Out of interest, what other fees are you going to introduce?

      and unless I am reading it wrong, you are saying that you are introducing new fees to survive but you believe landlords wont pay them?

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  3. Will

    The party line is always followed even if you have an MP  who speaks sense.

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  4. WGC

    Surprised not to have heard anything along these lines from Kevin Hollinrake MP or have I missed it?

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  5. Macs

    As a reputable letting agent of 13 years I am very disappointed at the governments decision to ban letting fees.  I am not aware of any other service industry where the service provider is ‘banned’ from charging the client a fee.  When a tenant comes in to my office and before ultimately signing contracts there are a number of tasks for me as a letting agent to perform.  Some of these should be charged to the landlord and some of these, most definitely, should be charged to the tenant. It is clear that no matter how much complaining we do on this forum this will not change the governments stance.  It is also clear that our representative trade bodies are ineffective, certainly when put against the organised bodies such as ‘Generation Rent’ and ‘Shelter’. Last week I met with my local conservative MP to discuss this topic and explain why I believed the government had got this wrong.  I also, in my professional capacity, explained the downside to such a law and the consequences on the tenant, landlord, letting agent and rental market in general.  I’m not saying it will create a U-turn in government policy but it certainly wont do any harm. The policy decision is currently going through consultation, so if all of the letting agents who read this post make an appointment to meet with their local MP and lobby directly then we may be able to influence their final decision in some small way.

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  6. paul.collins@belvoir.co.uk

    The Industry has only got itself to blame if the Government Ban Lettings Fees, we are the ones that have been charging extortionate fees to tenants.  In my area there are some agents charging £500 upfront fees, they also charge a ‘move in fee’, ‘check out fee’, ‘renewal fee every 6 month’ – even if the tenant wants to stay ‘periodic’, ‘inventory fee’ – the list goes on.  It is unfortunate that the tenants are the ones that are going to pay for this with the increase in rents and landlords will also suffer in increased management fees.  As an agent that only charges one fee – an ‘application fee’ and does not renew tenancies it is agents like me that will also suffer.

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  7. James

    Everyone in the right mind, whether in the industry or not, wants to see the demise of the ‘dodgy Agent’ and the ‘dodgy Landlord’  …..Can the government also please take steps to ensure the demise of the ‘dodgy Tenant’ at the same time though!

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  8. Beano

    Send your measured arguments to MP gavin.barwell@communities.gsi.gov.uk

    I suggest a single capped charge payable at the outset only.

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    1. Ryan Baker

      just did that !

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  9. Ryan Baker

    Totally agree with the MP. What if 10 people come and show interest and my staff has to work approx 3-4 man hours to get all documents in line for a tenancy. That’s £7.20 x 4 £28.80 Labour cost per tenant spent . Stationary/office rent/elec, credit check expenditures on top. Let’s say it cost roughly £50 per tenant to get the paperwork sorted. Now if 10 tenants apply for a property an agent will have to dish out £500 on the paperwork and screening of tenants only. Who will pay for this? Which tenant to choose and which not? The other option would be to cut corners and just get the first one in. This will lead to lower standards in tenant screening and it’s the landlord /agent who will suffer which again would be loss of business.

    Or on the contrary what if I add ‘ REFERENCE AGENCY or something like that and just do references of the tenants for which they pay a certain fee like other reference firms which charge £50-£100 per applicant. The tenant would have their paperwork with themselves and can go to any agency which their documentation. Now this would be termed as a service and i should be able to legitimately claim my fee for that? What does everyone say on this?

    i think if the Government put a cap on fees like maybe £150 per tenant or similar then it would solve many problems. It would be much fairer to both tenant and agent.

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  10. Everestiea29

    Fees Should be capped..

    Please sign the petition to save small businesses

    https://petition.parliament.uk/petitions/173668

     

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    1. Ding Dong

      Personally really struggling to sign a petition which appears to have “worded” with little thought?

      Wording below:

      It is unfair for small businesses to survive especially after the increase in online estate agency and banning the agency fee makes it more difficult for estate agency to survive. To meet costs banned fee would be forwarded to landlords who would pass the cost onto tenants by increasing their rents.

      More details

      It seems unfair for agents to charge tenants fee however Estate agents has to pay fees for referencing, Staff for viewings, Company cars, membership of professional bodies to regulated Fair trade, subscription for property portals and etc.These are paid for providing a professional first class service to the landlord and tenants.
      To cover these costs agents should be allowed to charge agency fees. A cap should be set for agency fees instead so it would be fair for the tenants and Agents.

      Sign this petition

       

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  11. SteveMAC

    Just looked at the Martyn Gerrard website and they charge tenants the full range of fees including ones we do not charge. Small selection below

    NOTICE of FEES to TENANTS

    Martyn Gerrard is an ARLA Licensed member

    Client Money Protection (CMP) provided by RICS

    Independent Redress provided by TPOs
    BEFORE YOU MOVE IN:
    Set up fee (tenant’s share): £100 (inc VAT) per tenant.

    Referencing (identity, immigration and visa confirmation, financial credit checks, obtaining references from current or previous employers / landlords and any other relevant information to assess affordability) as well as contract negotiation (amending and agreeing terms) and arranging the tenancy and agreement. Includes one Guarantor referencing (if required).

    Additional Guarantor Fee: £100 (inc VAT) per guarantor (if required).

    Covering credit referencing and preparing a Deed of Guarantee as part of the Tenancy Agreement

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    1. Ding Dong

      “I was surprised to learn that they have long advocated that administration and contract fees charged to tenants by letting agents are indefensible and morally wrong. Their view is that there are only two reasons why agents charge unnecessary administration fees.”

      That is the viewpoint of the same “Martyn Gerrard” above

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  12. areamanager47

    It was the traditional sales estate agents who have contributed most of the nails in the coffin here when they ventured into lettings several years ago – so some of you only have yourselves to blame. In order to win landlords business from their established letting agent competitors the main tactic they used was to seriously under-cut on fees. This very much cheapened the industry as gradually Landlords were given the impression that their property could be effectively and efficiently fully managed for as little as 5% and a minimal administration fee.  Reputable lettings agents know that this is just not possible. Naturally, in order to generate enough income to service a decent portfolio and workforce, agents have had no alternative but to load some additional fees onto tenants to cover costs that previously would have been absorbed by the Landlords commission. And then of course we had the less-reputable agents who jumped on this and inflated their tenant fees even more, and so here we are today…….

    I firmly believe that tenants should have to pay some form of administration fee for the work undertaken on their behalf – just as a buyer has to. However, I do think that Landlords will have to accept that some additional costs will and should be borne by them again, just as they would have been 10 years ago.

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    1. Ding Dong

      A pretty accurate statement of the current situation to me

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