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The Autumn Statement and banning tenant fees

You may be surprised to learn that we have long advocated that letting agent’s administration and contract fees to tenants are indefensible and morally wrong.

There are only two reasons agents charge unnecessary admin fees; at best an agent struggling for stock will cut their fees to landlords and charge tenants just plain hazy admin fees to make up for it. At worst an agent charges the landlord a full fee to let the property and also charges tenants fees. Either way it is estimated that when letting agents fees to tenants are banned it will wipe between 10 and 20% off the turnover of those agents who have been relying on these spurious fees to tenants. Although this may mean the loss of cut price unregulated agents, which would not be a bad thing, the unintended consequence is that tenants will ultimately be worse off!

The consensus is that a total ban means letting agents will shift their lost income generated from tenants to the landlord in higher fees, this coupled with a shortage of stock (as investors are further deterred from entering the buy-to-let market) will lead to an increase in rents.

At Martyn Gerrard the only charge we make to tenants are for referencing at £100 per person (an additional charge may be made if a guarantor is required). This cost is to provide the landlord with the surety the person/s they are letting move into their property are sound.

The average fee paid by tenants quoted by the Government is £233, while Shelter quotes an average of £350. The reality for many tenants, especially in London, is a much higher figure. But what is a fee and what is a reasonable cost?

For example I would hope a holding deposit will be seen for what it is rather than a fee that is banned. It is not unreasonable for a prospective tenant to put down a deposit – which goes towards the dilapidation deposit when the tenancy begins - to show commitment and to assure the Landlord they are serious about taking the property. A ban on non-refundable holding deposits will mean tenants could express an interest in multiple properties giving rise to costs to the landlord and agent, and then simply walk away without any consequence. Surely not the Government’s intention.

Similarly is it unreasonable to ask a prospective tenant to provide evidence of their suitability as a tenant? At Martyn Gerrard this involves an independent company providing a report having carried out credit, employment, previous landlord, immigration and right to rent checks. Again if the tenant does not have to pay for this what is stopping them showing interest in multiple properties with each of these landlords paying for separate referencing only to be disappointed? Will a landlord be prepared to carry out these checks without any assurance the tenant is serious, and what will happen if the tenant fails the checks? If the tenant is paying they will be as certain as they can be that there is nothing in their past that will mean they fail the reference check.

At Martyn Gerrard when a property is let we urge the landlord and tenant to have a professional inventory carried out. This not only protects the landlord it also protects the tenant. At the end of the tenancy an independent and qualified third party ensures a fair assessment is made of the condition of the property and its contents, helping guard the tenant’s dilapidation deposit and ensuring that if any deductions are required they are fair and reasonable.  The landlord will pay for the check in, is asking the tenant to pay for the checkout unreasonable?

Our concern is that if all the costs are to be borne by the landlord there will be letting agents who will try to compete for business by cutting their fees. This will inevitably be at the cost of the quality of the service and checks they provide. Landlords tempted by the cheap fee will be left dangerously exposed as the agent will have had to cut too many corners in order to offer a low fee.

In a speech that lasted 51 minutes, the Chancellor’s announcement to ban fees to tenants took just 26 seconds. Details of what is intended are sketchy to say the least.

This will lead to confusion for tenants as it is unlikely the ban will come into force until 2018.  DCLG has still not given any more information other than ‘Government will begin consultations in due course and primary legislation will follow to bring the ban into effect’.

This smells like another piece of Government policy that is well intentioned but badly thought through. The consultation due to begin in the New Year will hopefully allow all sides to give a fair account of the problems that a total ban across the board will bring and common sense will prevail when the legislation is finally brought before Parliament.