It’s been a long time coming, but the government recently revealed when the ban on letting agent fees charged to tenants will come into force.
From June 1 2019, letting agents will no longer be able to charge fees to set up or renew a tenancy for homes in the private rented sector. As well as this, security deposits will be capped at five weeks’ rent for tenancies under £50,000 a year.
The Tenant Fees Bill
, which started its journey through the House of Commons in May 2018, recently completed its final parliamentary hurdles – the third reading in the House of Lords and the consideration of amendments in the Commons – and is now being prepared for Royal Assent. Once it has gained Royal Assent, it will become an Act of Parliament and will officially become law.
But how did this all come about in the first place and what impact could the ban have on the rental sector?
A long-winded process
We have to go all the way back to 2016 for the origins of the ban which has caused so much controversy and division ever since.
In his first major fiscal event as Chancellor, Philip Hammond announced in the Autumn Statement 2016 that letting agents in England would be banned from charging fees to tenants ‘as soon as possible’.
For a while, it seemed as if we might never know when the ban was coming into play – with the government for a long time going with the vague ‘spring 2019 at the earliest’ answer when questioned on its implementation – but since the second reading in the House of Lords in October 2018 it has made fairly rapid progress towards receiving Royal Assent.
Now, at last, tenants, landlords and agents know for sure when the ban is being introduced – with agents and landlords now able to plan accordingly.
What does the fees ban mean in practice?
There is no one set fee in England, with tenants across the country potentially being charged for a host of administration tasks – including credit, immigration and reference checks – when attempting to rent a property.
These fees often vary widely depending on location, with costs in some of England’s bigger cities much higher than others. Opponents of fees say the costs involved don’t match the level of work required, while they are also criticised for not being clearly or consistency explained. Very often, tenants are unclear what they are paying for.
The ban will mean tenants are no longer burdened with upfront fees, which – especially in the case of those on low incomes or with little to no disposable cash - could prove prohibitive.
The government has said previously that the ban will help ‘improve transparency, affordability and competition in the private rental market’, while also preventing agents from double charging both tenants and landlords for the same services.
As well as credit, immigration and reference checks, some of the other fees that will be banned from June 1 include: charges for guarantor forms, inventory checks, domestic cleaning, professional cleaning and administration costs.
Additionally, fees for gardening provisions and having a property ‘de-flead’ as a condition of allowing pets in the property will also be outlawed.
There are certain exemptions from the ban, including holding deposits, rent and charges for defaulting on the contract, but these are also subject to additional restrictions as part of the new legislation.
The ban will initially apply only to renewals of tenancies and new tenancies - with statutory and contractual periodic tenancies that arise after June 1 excluded - but it appears the ban will be applicable to pre-existing tenancies from June 2020 onwards.
The Residential Landlords Association offers very detailed guidance on the fees ban in England
, from who it applies to and deposits to possible financial penalties for those who don’t comply.
What will it mean for tenants?
Many charities, campaigning groups and MPs have long called for a fees ban so there has understandably been a positive reaction now that a date for implementation has been set.
“This is a landmark moment for the millions of people who rent privately,” Citizens Advice chief executive Gillian Guy commented.
“For too long families and other renters have had to hand over hundreds of pounds on unfair and uncompetitive letting fees every time they moved home.”
Government figures suggest tenants will save approximately £240 million a year by not having to pay letting fees, and unsurprisingly the majority of tenants back the incoming ban.
During the consultation period, 93% of the tenants surveyed agreed with the government’s proposed approach. The ban may also encourage more people to consider renting in the future if the upfront costs involved are reduced.
What about landlords and letting agents?
As you’d expect, landlords and letting agents have been much less positive about the ban, with vociferous opposition from industry trade bodies.
ARLA Propertymarket, in particular, has been a strong opponent of the ban and has attempted to lobby the government to limit its impact on agents and landlords. Equally, the National Landlords Association (NLA) has lobbied MPs extensively
to defeat various amendments.
In research analysing the possible economic impact of the ban on letting agent fees, ARLA found that fees charged to tenants generate around £700 million per year (roughly 20% of the industry’s turnover).
The findings, conducted by Capital Economics, also predicted that in the event of an outright ban agents stand to lose £200 million in turnover, with the possible loss of 3,000 jobs.
One of the main arguments against the ban was that it would end up harming the very people it is supposed to help, with letting agents simply passing the extra costs on to landlords who, in turn, would pass them on to tenants in the form of higher rents.
However, supporters of the legislation point to Scotland – where a ban on letting agent fees has been in place since 2012 with little discernible impact – as evidence that it can work well without harming the rental sector.
For landlords, there have been concerns that the extra costs they will face as a result of the ban could lead to many exiting the market. Others have suggested they will increase rents to cover the shortfall or manage their properties themselves, rather than paying an agent’s management fee.
“The Government has not given the industry sufficient time to adapt to the changes coming into force,” Chris Norris, NLA Policy and Practice Director, said. “It is not a move that considers the needs of businesses.”
The long-term impact of the ban on letting agent fees will not become known until a few years after it has been implemented, but it’s an issue that continues to prove highly divisive – with very strong opinions on either side of the argument.
A bit like another topic that’s been in the news of late…