how will the changes to lettings fees affect you?

“A new government bill to ban letting fees across England is set to save tenants millions of pounds and make the market fairer and more transparent.”
 
That was the intention of the Government, and particularly the Housing Secretary Rt Hon James Brokenshire MP, when they announced the Tenant Fees Bill to Parliament in May 2018.  Fast forward 7 months and that intention has become reality, with the Bill passing its Third (and final) Reading in the House of Lords.  Royal Assent is now largely a formality and likely to take place in the next few weeks.
 
So what does the Bill mean for tenants, landlords and lettings agents?  Most of the recent press has focused, rightly, on the fact that the Bill imposed a ban on lettings agents from charging prospective tenants fees in relation to new lettings.  These, and the other provisions of the Bill, are to come in on 1 June 2019.
 
In addition however, there are various other provisions imposing limitations on lettings agents and landlords including:
 

• Landlords and letting agents will only be able to charge the following additional fees:
  • Default Fees – for replacing lost keys or security devices and for costs incurred as a result of late rental payments
  • Admin Fees – for changes to the tenancy agreement (including substituting tenants) or early termination of the tenancy if requested by the tenant
  • Utilities – gas, electricity, water charges etc incurred by the landlord (assuming this is recoverable under the tenancy agreement) 

 

• The Bill imposes a cap on holding deposits at no more than one week’s rent

 

• The Bill imposes a cap on tenancy deposits at no more than 5 weeks’ rent

 

• It also creates a civil offence with a fine of £5,000 for a first offence and civil penalties of up to £30,000

 
At first glance, this appears to be a positive development for tenants with many complaining that the administrative charges imposed by lettings agents are exorbitant and lacking transparency and coupled with the deposit and first month’s rent often required, can put a significant burden on new tenants.
 
However, dig a little deeper and this may not be all good news for tenants.  Firstly, letting agents are still going to charge fees for finding new tenants.  These will now be passed onto landlords but in all likelihood the landlord will seek to recover these fees by way of an increased rent which, over the term of the tenancy, could end up costing the tenant more.
 
Further, whilst limits on deposits may appear attractive, it could impact those tenants with pets or low incomes.  Currently, landlords are generally happy to allow family pets to move into their properties on the basis of an increased deposit to protect against possible additional damage. Equally, those on low incomes can sometimes overcome issues with credit ratings by paying a larger deposit at the outset.  However, with the limits being imposed, it is easy to see how tenants without pets or with higher incomes may be preferred when applications for properties are made.
 
The Bill will of course impact on landlords and letting agents as well.  Whilst landlords may look to offset additional costs by increasing rent, that will only work in areas where the market allows an increase in the market rent.  Equally, whilst it is easy to say that lettings agents will continue to charge fees, that element of the service will now surely be squeezed with landlords less willing to agree to higher charges when these aren’t recovered from the tenant and competition in this area likely to benefit those larger agents who can benefit from economies of scale and may hit the local, smaller agents more.  
 
Time will tell how this will impact on the lettings market generally but there is also a window, between now and June, for savvy landlord and letting agents to find solutions to these changes which ultimately, it is hoped, will assist those living in rental accommodation.  
 
KPG will be working with its partners to seek to avoid passing additional charges onto tenants via increases in rent and our lettings arm, KPM, will be investing in and investigating technology to streamline our processes to absorb those initial fees in as far as we are able, improving our offering to landlords of all sizes.
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