Industry reacts as Queen’s Speech reveals lettings fee ban beyond original proposals

Anyone hoping the fallout of the General Election or Brexit negotiations would push the lettings fee ban into the long grass was bitterly disappointed yesterday after it was included in the Queen’s Speech.

A draft Tenants’ Fee Bill was among 27 proposed laws that MPs will be working on over the next parliamentary term, however long that may be.

In a further twist, the Bill, put forward just a couple of weeks after the fee ban consultation closed, also proposes allowing tenants to reclaim unlawful fees, which wasn’t mentioned in the initial documents for consideration.

The Government has also followed through on suggestions to tackle tenancy deposits, by saying holding deposits would be capped at no more than one week’s rent and security deposits at no more than one month’s worth.

David Cox, chief executive of ARLA Propertymark, said any provision for redress was unlikely to be retrospective as fees are currently lawful as long as they are property displayed.

He suggested legislation could be written over the summer and introduced after the party conference season. It could then take up to six months to get through Parliament.

He told EYE: “The ban could be introduced by October next year or maybe April if MPs are really quick.

“It depends how slow Parliament is and how high it goes up the agenda.”

But Ajay Jagota, managing director of sales and lettings firm KIS, suggested it could come as soon as this autumn as it may be one of the few proposals with cross-party support that a minority Government can get passed.

Cox also expressed doubts that the Government would have even looked at many of the consultation responses since it closed at the start of June.

He said: “It appears they had already made their decision and therefore the consultation was no more than a ‘tick box’ exercise and they haven’t appropriately taken the industry’s views into account.

“A ban on letting agent fees will cost the sector jobs, make buy-to-let investment even less attractive, and ultimately result in the costs being passed on to tenants.”

Criticism also came from the National Landlords Association, with chief executive Richard Lambert labelling the deposit cap as a “political gesture from a Government desperate to court the voters who supported their opponents at the last general election”.

He said: “Some landlords use a higher deposit to give them the extra confidence they need when letting to higher risk tenants, so this could also have the unintended consequence of deterring them from offering their property to those likely to be struggling with affordability in the first place.”

Other landlord groups and lettings agents were equally scathing.

Alan Ward, chairman of the Residential Landlords Association, said the Bill left tenants and landlords in “unhelpful limbo”.

He said: “Rather than proceeding with draft plans that will be eclipsed by battles over Brexit, ministers could instead use powers they already have to introduce a fixed menu of fees which letting agents would have to publish.

“This would enable tenants to immediately understand fee structures, and enable them to more easily shop around.”

Aaron Cambden, director of Fairview Estates, said lettings agents were being unfairly targeted.

He said: “I don’t understand how a government can come in and tell people how to run their businesses, and how much to charge their customers.

“Competition between businesses keeps prices competitive and just like any industry some companies will charge way more than others, but then it’s up to the customer to choose who to go with. That’s why there is an open market.

“The Government would never tell top solicitors to lower their prices and ban them charging thousands to deal with a property sale; the Government is also quite happy to charge home owners stamp duty in the thousands when purchasing a home and I don’t see how this is different.”

Not all were angry, though.

Charlie Woods, senior lettings director at Russell Simpson, said: “This is something the industry has been expecting.

“From our point of view it’s business as usual. For quite a while now we haven’t charged the standard administration fee, because we simply don’t see the need.

“We also don’t charge the landlord their portion as they are paying us a fee already so we’ve always felt it was unjustified to ask for anything else on top.

“There has been talk of some agents pushing the fees on to the landlord, who could subsequently increase the rent to cover the additional costs.

“However, I feel this is unlikely, as with the sales market, overly high prices in the rental market stand out and the properties will simply not let, so all-in-all this will be a very positive move for tenants.”

Other proposals in the Speech that could affect agency include a consultation on leasehold reform and the usual commitments to build more homes.

There was yet another pledge to “look at ways we can streamline the home buying process so it is cheaper, faster and less stressful for people when they make the biggest purchase of their life”.

Similar promises were made on the home buying process by former Chancellor George Osborne early last year but never materialised.

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29 Comments

  1. Will

    The fact is we will all survive. Schemes will be devised to get around the legislation or market forces will have an effect.  Perhaps tenants will have to carry insurance policies to protect landlords?  The rent act of the1970’s killed the rented market through the 1970’s and 1980’s. Osbourne’s tax changes will significantly impact the rented market in due course. The pundits seem to feel that all landlords are well informed – many will not be and once the tax changes really bite the supply of rented accommodation is likely to fall. In some areas where letting boards prevailed I am already seeing “for sale” and “sold by” boards replacing them.  The first signs of significant change?  With such rapid changes and constant attacks the Government will not be able to judge the impact of each policy and it could all end in tears!  The more Government attack the less attractive property investment in the UK will become and investors will look elsewhere, such as outside the UK or holiday accommodation.

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  2. Votta583

    This hasn’t been explored at all and David Cox hit the nail on the head it’s a tick box excercise!

    “However, I feel this is unlikely, as with the sales market, overly high prices in the rental market stand out and the properties will simply not let, so all-in-all this will be a very positive move for tenants.”

    No no no no!!!! Tenants will still move, because if they want to leave an unfit dwelling then they will pay what they need to in order to protect their family! THEN THEY HAVE NO CHOICE.

    Tenants will still need and want to move.

    whats the governments proposals when landlords sell up they rental properties due to incurring further costs as well as taxation????

    there will be a repeat of what happened in Ireland where the government had to incentivise landlords again because there is a housing shortage.

    the ripple effect will be catastrophic!!!

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    1. Marvin05

      With more than 1.5 million houses for sale in the UK, there is no housing shortage.  The cost of houses has remained high due to landlords purchasing houses to let them out. If houses has not been selling the cost would have dropped as it did in Ireland, and more people would have been able to afford to buy.  So Landlords should not be allowed to profit further from that by which they have already profited from. i.e. by creating the need for more people to rent.

      Renting property should be applied similarly to that in Scotland, allowing tenants far more freedom to move within a shorter period – renting out property is a business and should not encroach on the rights of the general public. At present, many jobs are on short contracts, or jobs can end without more than a week’s notice – Landlords should bring their contracts more up to date in respect of this – is it fair that a person should continue to pay rent for the total period of a renting contract, when they no longer work in the area?

      Why do people become Landlords if the situation is so bad?  The truth is that it is still a cash cow and the situation is not as bad as they make out.

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  3. Chads62

    So will mortgage arrangement fees, application fees for lease cars and anything else where you have to pay something up front all be scrapped in time to come – don’t think so.

    the government are so shortsighted thinking the fees will just not be charged when all that’ll happen is the fees will be incorporated into something else such as rent.

    I think we’ll see split rents where the first month is higher than those that follow it but that’s just my thought.

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  4. PropExpertWM

    Charlie Woods, senior lettings director at Russell Simpson, said: “This is something the industry has been expecting.

    “From our point of view it’s business as usual. For quite a while now we haven’t charged the standard administration fee, because we simply don’t see the need.

    I wouldn’t either Charlie if I was dealing with properties at £6,500 rent per week!!

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    1. James Morris

      It get’s worse..
      http://www.russellsimpson.co.uk/wp-content/uploads/2017/05/Landlord-Fees-2017-Correct-version.pdf
      Their full management service is 19.2% including VAT?!
      So lets do some basic maths here..
      £6,500 per week for a 12 month let = £338,000
      Their management service nets them = £64,896 per year

      Which is £5408 a month.

      Goats and monkeys – That’s just for one property. I’m feeling a bit faint.

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    2. Marvin05

      Perhaps it has gone unnoticed that prospective tenants are seeking property where they have access to the Landlord directly,  in preference of renting through an agency where the identity of the Landlord is unknown.

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  5. lettingsguru

    I agree with David Cox, that the industry hasn’t been listened too. But it is his job, and the job of his colleagues at Property Mark to ensure the industry IS listened too.

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  6. cybelex

    “Competition between businesses keeps prices competitive and just like any industry some companies will charge way more than others, but then it’s up to the customer to choose who to go with. That’s why there is an open market.

    “The Government would never tell top solicitors to lower their prices and ban them charging thousands to deal with a property sale; the Government is also quite happy to charge home owners stamp duty in the thousands when purchasing a home and I don’t see how this is different.”

    These comments don’t make sense because tenants choose the property and not the agent (the landlord chooses the agent), if they want the property, they’re stuck with the agent and can’t go to one with more reasonable fees. The comment about solicitors is the same, a buyer and seller can choose their own solicitor, based on cost if they wish.

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    1. Romain

      You also choose a property based on what it will cost you, in the same way as any other service or product.

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      1. Tim Hall

        But this choice should be based on the rent, not the fee!

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        1. Romain

          Why?
          The choice should be based on the overall cost, same as everything.

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          1. Tim Hall

            Yes, that response clearly demonstrates why the fees are being banned.

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    2. Marvin05

      What has been happening in the past is that a Landlord will place additional charges on their property for a variety of services – i.e. gardening, up-keep of property, cleaning services and any other charges they can think of to increase the overall rent.  If that Landlord is seen to get away with doing this in areas where property is hard to find – then other Landlords will do the same.  This is wrong – the tenant should be asked if they want to pay for the additional services, or if they want to make their own arrangements.  Again – the tenant is being blackmailed for if the tenant is desperate to find somewhere to live – they have no choice and the Landlord profits yet again.  There should be set rents and rent should be capped!

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  7. Romain

    Fees ban are actually the least of landlords worries now that the proposal is also to cap tenancy deposits.

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    1. Ding Dong

      why is a cap of deposits a massive negative Romain?
      ARLA crying this morning apparently it will costs thousands of jobs
      it will for those who built businesses on the back of fleecing tenants and landlords alike i.e. renewals at £100 for the tenant and £100 for the landlord
      really, it costs £200 to renew a tenancy, or more like numerous agents have seen this as way of making money doing very little work and pretending they go through the doucmentation with a fine toothcoombe
      Most of my tenancies become periodic and both parties are generally happy with that position. if they want more security then I charge £30 between them for creating a new tenancy, re issuing any compliance paperwork.
       

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      1. MKM1979

        Why is a deposit cap a problem? Nothing is a problem with innovative thinking. There are insurance policies out there that will provide protection in the same way a deposit does (which is just one potential route we are now looking at) and these may well mean that the need for the likes of the TDS/DPS and MyDeposits fall by the wayside… It is a time of change, I don’t truly believe it will all be in the best interests of the Tenants as those with rose tinted specs would like to believe as I do believe that in areas of low supply and high demand the poorest will be the ones that loose out and the fight for proeprty will see rents increase, but only time will tell… Nobdoy likes change, but those who readily embrace it are more likely to succeed. Equally, it is another great reason for stand alone Landlords to make use of us trained professionals.

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      2. Romain

        Hmm, I wrote about a cap on deposits and you replied on fees…
        It is difficult enough for landlords to recover cost of damage and rent arrears. If they are prevented from taking reasonable deposits they they’ll be in a significantly worse position.

        The only outcome is that they’ll become even stricter when picking tenants, and bump up rents instead of bumping up deposits. Or tenants will actually be sued more often than now.

        I can’t see how that would help either tenants or landlords.

        Those “insurances” don’t come close to offering the protection a deposit does, if they pay up at all.

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        1. RealAgent

          I totally agree Romain. The amount of times over the years tenants have tried to leave the property without paying the last months rent says EXACTLY why a cap on deposits is a problem. No money left to cover dilapidations and extra stress for Landlords to then try and recover the money.
          We are a nation of pet lovers, what happens when a tenant with pets wants to rent a property? How many landlords with just the last months rent as a deposit will accept them?
          I can tell what will happen, Landlords will say: you can have pets but I want an extra £50 a month, so whereas the 6 weeks that many landlords are advised to ask now is returnable, the increased rent wont be!! ….Yep well played. 
          Oh hang on there will probably be a pet based cap anounced now Ive said that…..£50 for medium to big dogs, £25 for cats, £10 for rabbits and what a fiver for goldfish??
           
           

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        2. Marvin05

          The rents that Landlords charge already take into account any repairs that may need to be carried out. If a Landlord places a unfair high rent on property, and the more restrictions placed on the tenant,  the less likely the tenant is to respect the property.  A firm but fair landlord is recognised and respected, a Landlord who tries to be too nice is walked over, and an overly strict, greedy landlord gets what he deserves.
          To protect both landlords and tenants – there should be a national tenant register and a landlord register, both containing feedback on previous experiences.

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  8. cannon64

    Sorry, I may have missed something here but could someone please explain how a landlord is expected to pay for “each” tenant application (regardless of if they may get it back in the first month rent as an example) IF the tenant, who will no doubt be less “honest” with their application as they have nothing to lose financially, end up failing and not being the right agent for the landlord/property…..so the landlord then has to pay again for the next “possible” suitable tenant. I know we can do certain checks but some tenants will simply avoid the full truth surely?
    Unless you’re an agent within London (possibly other parts of the UK) who are making margins from higher rents/commissions, this will simply be a cut in costs, cut in quality, increase in issues and possibly arrears, increase in LL jumping ship and less homes available for tenants….which is almost certainly already happening now as the LL tax changes start to become reality..
    Good move Government, Shelter…..brilliant thought process. Honestly the whole political “debate” process is a joke.
     
    Simple solution. Fix Fee Structures for the UK, £100-£150 per application, this would cover the cost of referencing and circa 6-8 hours of labour that a “good” agent should put in to make the required checks and controls.

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    1. Beam Splitter

      You wouldn’t do it with a job application, so why do it with tenancy?

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      1. cannon64

        A job application that goes wrong can be solved quickly within a probation period along with your gut feeling at interview counts for a lot + a proper CV (which you dont pay for)
        A tenant application without any financial commitment / consequence??? 

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        1. Beam Splitter

          Surely you charge a holding deposit already? 

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  9. KByfield04

    The letting fee ban was coming- all parties agreed and most agents had readily accepted this.

    The question over reclaiming ‘illegal fees’ should be quite simple: if you comply with current regs then you’re fine. For those that don’t (and there are still many) this should be of major concern. However, as long as they quickly comply now I doubt many tenants would be able to prove a historical breach.

    A cap on Holding & Secuirty Deposits is surprising & disappointing (especially given the comprehensive SD regs already in place) but ultimately will make little difference. The average UK deduction stands at around £170 so a 1 month deposit is still ample however those ‘borderline’ tenants who pass on additional deposit security will either need guarantors OR will simply be required to pay rent in advance. Tenants still lay out funds.

    What I still find unclear is how this relates to cleaning & inventory charges. As these are charged by 3rd parties I can only assume these are not covered by the ‘letting fee ban’.

    As a London letting agent out fees are such that this doesn’t majorly concern me (we estimate a loss of around 1.5% revenue) however I do worry for the regional letting agents operating in low rent areas. Surely they will only survive by passing costs to Landlords who will have no choice but to increase rents due to a gluttony of additional costs through taxation & regulation.

    Interesting times indeed but a desperate move by a minority government to try & swing approval from generation rent but many will remain unmoved due to a distinct lack of tackling the major housing issues (of which letting fees definitely isn’t one- it’s just a great distraction with a juicy click-bait headline).

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  10. James Morris

    What exactly are the letting fees which are being banned?

    What happens when we advertise a property and find a tenant. That tenant then fills in the application form and it’s sent off to a 3rd party to be referenced, which for arguments sake, lets say costs us £30.

    Should that tenant decide not to proceed, what happens with that £30?

    Are we able to charge for it up front or are we losing out on the £30?

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  11. Woodentop

    Ignoring agents fees that cannot be justified, we are still left with the problem of who pays for referencing? Failure to reference  a tenant leaves an agent open to negligence, as does Right to Rent etc. The simple answer to all of this is rents will go up, if you want to recover costs you have incurred. The same will apply with deposit caps. The extra bit you deserve will be included in a rent increase over the first six months or cost of an insurance policy. Job done.

     

    On the other hand, just refuse to allow a tenant unless they come with a tenants pack from a reputable company with all those things you want from referencing. Tenant still has to pay and will have a shelf life ending no later than when they change landlord/property.

     

    Trying to stop fee’s was stupid. A cap was the way forward for work done. Now the tenant will end up paying even more in the long run.

    Wealth Warning: Todays TPO complaints report ….The case of the highest award where the agent was ordered to pay £21,972 concerned an agent’s use of a third-party referencing firm.This outsourced firm failed to verify the tenant’s identification, although it was the agent that paid the price.And last but not least, unless a tenant is squeaky clean (difficult to prove) many tenants will be turned away as soon as they enquire.

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    1. Eric Walker

      Hang on – that’s not quite accurate. The referencing firm informed the agent that they were unable to verify the tenant’s ID. The agent chose not to act on this and simply told the landlord that the tenant has passed referencing. The Law & TPOS code states that is in encumbant on the agent to check ID. It was their responsibility and their’s alone as they knew ID hadn’t been verified.  A fair decision by TPOS. 

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  12. TC73

    Can someone please confirm whether this is correct. Draft bills cannot be passed until the next parlimentry session. The next session will not be for two years as there will be no queens speech next year due to Brexit etc..therefore the tenant fee ban will not be implemented for a minimum of two years??

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