The fees that are charged by letting agents and landlords have been a cause of financial pain for tenants for years. Generation Rent has largely been forced out of the housing market by high prices and so demand for properties to let has increased significantly over the past decade. This led to increased pressure on the government to take action over the fees that landlords and letting agents were charging at various stages during the process of renting. As of June 1st 2019 tenants no longer have to pay these fees ¨C but what has really changed?
The Tenant Fees Act
The Tenant Fees Act came into force on 1st June 2019 and effectively introduced a ban on all those added extras that tenants had previously been forced to pay. According to the government, the new piece of legislation will save renters across England ¡ê240 million a year ¨C up to ¡ê70 per household. Some of the fees that have been wiped out by the new act include:
- A fee for tenancy renewal for any tenancy renewed after 1 June 2019
- Fees charged for check out or check in to a property
- Any costs that were previously being charged associated with viewings
- Charges for professional cleaning, for example at the end of a tenancy
The legislation has also been given teeth in the form of enforcement powers. Landlords or agents can be fined up to ¡ê5,000 for a first offence if they are still found to be charging banned fees after 1st June this year.
So, what can a landlord still charge for?
The purpose of the new act was not to leave landlords and letting agents entirely without any ability to share reasonable costs. What it has been designed to do is make sure that these aren¡¯t being unfairly inflated. So, landlords ¨C or letting agents ¨C can still:
- Charge for changes to the tenancy agreement requested by the tenant ¨C the cost of this is now capped at ¡ê50
- Ask for a holding deposit to secure the property for a tenant ¨C the amount requested must be no more than a week¡¯s rent
- Request a security deposit for the property ¨C this, too, has been capped and the maximum a landlord can now request is five week¡¯s rent
- Charge fees that are associated with utilities, communication services and Council Tax
- Apply a default fee that a tenant is expected to pay ¨C this has now been restricted to two key areas: late payment of rent and replacing a key or fob that gives access to the building. In order to be considered late, rent must be 14 days overdue and any interest charged must not be more than the Bank of England base rate plus 3%. Where a key or fob has been lost by a tenant, a landlord or letting agent is entitled to charge for ¡°reasonable costs¡± ¨C and must provide written evidence of this.
What does the industry say?
During the consultation period for the new legislation 93% of the tenants surveyed agreed with the changes that were being proposed. Perhaps unsurprisingly, many in the industry did not. The biggest issue was always going to be who would pay the costs that were no longer being billed to the tenants ¨C or who will cover what agents and landlords see as lost income to which they are entitled. The – all too predictable – answer is that this is a cost that will be passed on to the tenant. Research from the Association for Residential Letting Agents (ARLA) identified that, as a result of a full ban on fees, tenants will pay an increased rent of ¡ê103 per year. David Cox, chief executive of ARLA Propertymark, said:
¡°In order to remain profitable, landlords will increase rents to cover the additional fees they are now faced with and as a result, tenants will continue to feel the burn.¡±
There is evidence that rents are already on the up and projected to rise to by around 2% at the national level over the coming 12 months, according to the Royal Institution of Chartered Surveyors.
Pressure on landlords
Despite the desire that many landlords may have to pass on costs to tenants there is one thing standing in the way: a more competitive market. Although many smaller landlords have sold up over the past couple of years, those with bigger portfolios have continued to expand and this has led to a broader market with more choice for tenants. The upshot of this for landlords could be that putting up the rent to cover the costs of lost fee income might not be an option. Instead, in order to secure tenants and avoid an empty property, landlords may have to simply absorb the costs themselves.
The tenant fee ban should, in theory, make life cheaper for tenants. However, the way that landlords respond could remove some of the benefits. The eventual outcome depends very much on the balance of supply and demand in the rental market in the next few years.