The Tenant Fees Ban – what is banned and why?

The Tenant Fees Ban

In this post we will look at what the ban is, why it happened, what it will do to the market and what the exact requirements of Landlords and Letting Agents are.

The Tenant Fees Act 2019 comes into effect on 1-JUN-19 whereupon Landlords and Letting Agents will not be able to charge most fees to Tenants. Deposits will also be capped at 5 weeks.

This is great for Tenants but causes a problem for letting agents as for more than the 20 years I have been in the industry fees have been split between Landlord and Tenant. Usually the Landlord covers a share of Tenancy Agreement, deposit registration, inventory, share of renewal fee, safety certificate admin and end of Tenancy admin whereas the Tenant often covers a share of the Tenancy Agreement as well as referencing, inventory check-in, arrears letter fees, share of renewal fee, end of Tenancy referencing fee and check-out fee. It is therefore logical for a letting agent to include Tenant fees in their business plan, they are not a new thing.

Tenant fees contribute between 20 – 50% of an agents annual revenue, depending on how fair they have been. Loss of even 20% annual revenue would be catastrophic for most businesses. Some agents have given up and sold and those not equipped for change or in denial are unlikely to be around in 12 months time unless they cut expenditure EG staff members & marketing, neither great for long term survival.

Those letting agents who are prepared will have to increase Landlord fees to make up some or all of the difference. You might be able to tell which agent has been charging Tenants too much by looking at their new management fees. A well known South Coast agent went from 12% inc VAT to 19.2% inc VAT for example. Bishop Sullivan are now at an all-inclusive 12% inc VAT as a comparable.

It is also logical that the Landlord recoups these losses from the rent at that next opportunity – IE renewal or re-let. Any good agent will offer this advice. So in effect the money will just slosh around so what is the point?

The younger generation have less disposable income and Govt know that it is easier for Tenants to pay a small increase in rent EG 2% per month and a 5 week deposit than much higher upfront costs per move EG £250 per Tenant for admin and a 6 week deposit.

Before the Credit Crunch where getting cash and buying homes was a bit too easy for our own good there were approx. 6.5 million Tenants whereas there are now approx. 12.5 million Tenants. Govt also know there are more Tenant voters than the 2 million UK Landlord voters. Remaining in power is more important to a ‘pro-business party’ at the end of the day, and they have already done the tax part of the equation with the 2016 3% stamp duty surcharge & the 2017 loss of mortgage interest tax relief. Tax and votes!!!

Despite this the fee ban will actually be a good thing in the long run. The Tenant (consumer) pays the rent (the fee) for the property (the product) and the Landlord (supplier) has all the associated costs. This fits with most modern consumer driven markets. It also means Landlords can choose their letting agent based on the fee and service combined, rather than in some cases a lower management fee or higher level of staffing supplemented by Tenants.

If as expected all or most Landlords increase rent to cover losses Tenants will ultimately pay more over an average 2.4 year Tenancy than they would with upfront fees. However isn’t that the same with utilities spread over the year compared to being seasonal or a lease-hire car compared to a cash purchase? It fits with the modern ‘monthly’ lifestyle. That’s why we now provide our management service as an all-inclusive fee. All the admin and 3rd party costs are included in one manageable monthly payment.

Tenants pay one monthly fee. Landlords pay one monthly fee. Simples!

As deposits are decreasing we have offered Reposit to our Landlords and Tenants since AUG-18. Essentially it is an insurance backed alternative to cash deposits but the BIG difference is that it covers 8 weeks for cleaning, damage and rent arrears for which the Tenant remains liable. It is just an alternative but always good to move with the times.

One thing to watch though is how agents treat Tenants moving forward as knowing how some behave it is possible service will deteriorate where only the Landlord pays a fee (to the agent). Bearing in mind that for these types of agent Tenants moving regularly was a good thing since fees get paid each time, therefore service mattered less. However moving forward keeping good Tenants happy in a long term Tenancy is the name of the game. Without large upfront costs preventing Tenants from moving any agent providing poor service will get found out pretty quickly and with regular void periods their Landlords may decide to move to a better equipped agency. More than ever before lettings will be a people business where consistently good service really matters.

The Nitty Gritty

Below is the detailed breakdown of the Tenant Fees Act 2019 including our recent 141 second video. If you like to be kept up to date with the property market and like to view useful lettings related content feel free to Subscribe to our YouTube channel ‘Letting Agents in Brighton’ after watching the video, we post a video once a week:

Which fees are not banned?

  • A holding deposit capped at a maximum of 1 week’s rent, refundable in certain circumstances
    • Only one holding deposit can be held at a time per property
    • The holding deposit must be refunded when the tenant enters into the Tenancy; the Landlord decides not to rent the property; an agreement is not reached before the ‘deadline for agreement’ through no fault of the Tenant; or you act in such a way it would be unreasonable to expect the Tenant to enter into the AST
    • Deductions can be made if the Tenant provides false or misleading information; they fail a right to rent check; they withdraw from the agreement; or fail to take reasonable steps to enter an agreement
    • The deadline for an agreement is usually 15 days after a holding deposit has been received unless agreed otherwise in writing.
  • The rent – thankfully! But it must be equally split across the tenancy and paid at regular, specified intervals
  • A 5 week refundable cash deposit if annual rent lower than £50k, 6 weeks is acceptable if over £50k
  • A Tenant request to make changes to the Tenancy capped at £50 (EG to allow a pet or picture hooks)
  • A Tenant request to end the Tenancy early and associated costs (EG rent, referencing or check-out costs the Landlord will incur) – cannot benefit the letting agent and cannot total more than the rent for the remaining period
  • Payments for utilities, communication services, TV licence and council tax
  • A default fee for lost keys or security devices
  • A default fee for late payment of rent. This is complicated and nearly pointless as the amounts are so small I cannot see it being much of a deterrent. Essentially the fee must not exceed interest at more than 3% above the Bank of England base rate for each day the payment is outstanding, and the rent has been outstanding for 14 days.

Any fees not included in this list are a ‘Prohibited Payment’ which may not be charged under the ban.

All fees must be listed in the Tenancy Agreement.

But remember that fees in Tenancies commencing on or before 31-MAY-19 can still be applied to Tenants up to 31-MAY-20.

What if you breach the ban?

  • It will be a civil offence with a penalty of up to £5,000 per breach so best avoided
  • If a further breach is committed within 5 years of a financial penalty being imposed, this will be a criminal offence with up to £30,000 as an alternative to prosecution. That’s definitely worth avoiding

Can Tenants claim compensation for breaches?

  • Any unlawfully charged fees can be reclaimed by Tenants through the First-tier Tribunal and they may also recover interest on these fees
  • Tenants can also seek repayment through the relevant redress scheme (EG The Property Ombudsman Scheme)

Anything else?

  • Landlord’s cannot serve a Section 21 Notice if any unlawfully charged fees or deposits have not been repaid
  • This will be a bit of a problem regaining possession if the Tenant refuses to take payment so best to get it right from the off

I hope this has helped your understanding of the ban and any further questions feel free to contact us.

If you need a letting agent to manage your professional HMO property we are the only local agent with a bespoke service, called ProShare.

If you need any assistance letting your property in Brighton, Hove, Kemptown and surrounding areas or if you just have some general queries please feel free to contact us on +44 (0)1273 646426 or lettings@bishopsullivan.co.uk

Best Regards,

julian-sig

Leave a Reply