The new tenants’ fees bill is due to have a second reading in the House of Lords.
This bill is going to affect the whole property industry. The same fee ban has already taken place in Scotland and shook the industry to its core. 55% of letting agents disappeared overnight or merged with other companies in that case. It also increased rents for tenants by 7%.
The details of the bill are still up for debate. It could extend as far as including renewal fees, arrears fees and anything else that letting agents could charge.
Does this mean that landlords will pick up the bills? Will letting agents add it to the rent charge? Will landlords have a choice in future of letting agents? We anticipate that this will rock the market. A lot of landlords will lose out as estate agents who do lettings and sales go into liquidation. It could force Landlords to choose a new agent and the choice could be very limited in the future. How will it affect tenants? It will be good for them as there will be no fees involved. However, will there be a reduction in service? If letting agents are charging tenants for any form of their service the charges will be heavily landlord based.
Update: The Tenants Fees Bill has been Announced
The Government has now confirmed that the tenants’ fee bill will take place from the 1st June 2019. This will dramatically change the whole way that letting agents charge tenants. It could possibly be detrimental to landlords, causing them to increase their rents.
The main amendments are:-
- The maximum security deposit is now limited to five weeks rather than six. The original proposal by the Government capped the deposit at four weeks rent. Various landlords then campaigned to increase it, arguing that the average charged was 4.8 weeks. Hence the increase to five weeks.
- Default fees are now permitted where costs arise from the fault of a tenant. For instance, where the tenants have lost a key or other security device or where the tenant is two weeks late in paying their rent. Where there are further contractual breaches the landlord will be able to charge for damages. However, if a tenant fails to pay, the landlord will either need to pursue the claim in court or make a claim against the security deposit. There is also a clause in the bill that allows the Government to change the charges in future. This will mean that further changes will not require going back to Parliament.
- The landlord and/or agents are now only allowed to take one holding fee for a property at any one time. They must pay the first tenants deposit back in full before taking a second holding deposit. That is unless the tenants choose not to enter the tenancy or provide false information. In these cases, the landlord and/or agents can hold the deposit.
- Where landlords and/or agents retain a deposit they must explain to the tenant in writing why they are doing so.
- If there is a right to retain the deposit but the tenancy is still not entered into it must be returned to the tenant.
- The landlord/agent must refund the holding deposit if the landlord/agent breaches any terms. Or if the landlord or existing tenants behave in an unreasonable manner, delaying the tenancy going ahead.
The recent pandemic has made some slight amendments to the tenant fee bill. It is now acceptable for agents/landlords to be able to charge where tenants wish to break their tenant early. The fee is dependent upon the agent/landlord and it is their decision to make. This is a fee to break the contract not necessarily any conditions that are attached to it. You will often find that landlords will try and relet the property and that tenants are responsible until such time as the property has been relet.
These can be charged at a reasonable cost if the landlord/agent can show evidence that they were the tenants responsibility and the landlords. Ie for instance where something was broken by a tenant and it needs to be fixed.
It may seem an obviously item but a rent is something that is not a fee and therefore is not relevant to this item.
What if I provided a deposit some considerable time ago and I have renewed my contract but it is more than the 5 weeks’ rent?
A lot of tenants aren’t aware that if they paid more than 5 weeks’ deposit when they moved in they are now to reclaim some form of refund. Most schemes have the ability to be able to refund the balance between the deposit you paid and the 5 weeks’ maximum.
What is a deposit scheme?
The landlord/agent must put a deposit into a recognised scheme by the government within 30 days of it being receipted or the tenancy agreement begins. A lot of agents do ask for deposits when the tenants first take the property rather than a reservation fee/holding fee but tenants should not pay this. It is not correct. The only way it would be correct is if the tenants confirmed with the agent that they are registering it as a deposit. There are three available schemes these are, depositportection.com, mydeposits.co.uk and tenancydepositscheme.com.
Each scheme works slightly differently in the way that they are dealt with and administered. However, there are normally two schemes within a scheme as such. There is what is known as a custodial scheme where the scheme itself holds the money and deals with any payment out. The other scheme is an insurance scheme, the agent pays a fee to have the deposit insured and then the agent can make deductions as long as they adhere to the insured schemed results.
You should check with your agent whether it is in a custodial scheme or an insured scheme. There are different rules and regulations of each scheme itself. They also have to serve you with a relevant notice ie details of the scheme and how it works.
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The tenant fees act is going to completely transform the letting market. It throws the emphasis from tenants back to landlords for fees. It will be interesting to see how the market changes over a period of time with letting agents not being able to charge fees. A substantial amount, we suspect, will go out of business or change their method to instead charge landlords. This may leave the market with a very small amount of independent letting agents and large corporates.
It will be interesting to see how the market will react over the next few months. The government wanted to put an end to tenant fees so whether that happens remains to be seen. It is surprising to us why all landlords have to take on the burden of the cost. But we understand the frustration from tenants point of view and the amount that they have to pay out. We hope that this will equalize the position for all parties concerned.