What all Sales & Lettings agents should know about the Tenant Fee ban
In less than a month on the 1st June, the much-heralded “Tenant fee ban” will come into force across England and Wales.
While it has seen some fierce opposition from many agents the losers will be those unscrupulous estate agents who have for too long relied on charging exorbitant unjustifiable admin fees to tenants to supplement the agency income. At Martyn Gerrard we haven’t charged tenants an admin fee so we are well placed and prepared to deal with the ban when it comes in.
First announced by the Chancellor of the Exchequer Phillip Hammond in his Autumn Budget in 2016, the ban means the only payments that can be levied on tenants are the rent, a dilapidation deposit and certain default fees. A tenant will no longer be asked to pay referencing fees and will only be asked to pay a maximum of one weeks rent as a holding deposit - there are also new rules on how long the holding deposit can be held before returning it to the tenant.
The dilapidations deposit has been capped at a maximum of 5 weeks rent (6 weeks when the rent is over £50,000 per year) so a landlord is, for example, no longer able to ask for an extra deposit when a tenant had a pet. However, the Let Alliance Nil Deposit replacement scheme exclusively offered in our area through Martyn Gerrard is a major benefit for Landlords as it gives cover for the equivalent of 6 weeks rent rather than the 5 weeks with a traditional cash deposit.
The default fees a tenant can be liable for are changing a tenancy, such as replacing a tenant, the costs incurred if a tenant has to replace keys or a security device, a charge for late rent payment, or a charge for early termination of a tenancy when requested by the tenant.
The ban doesn’t just apply to new tenancies. One risk for landlords is that when renewing an existing tenancy after the 1st June, the dilapidation deposit already held needs to be reduced to the acceptable level or the landlord risks a hefty fine!
However, breaching the new rules isn’t the only risk for landlords. The fact that you can no longer charge tenants a fee for referencing will mean that some unscrupulous agents will be tempted to cut corners on what is an absolutely fundamental task. There is now a greater onus on landlords to make sure they are using a reputable, quality agent. This may cost a little more but it is imperative a landlord ensures any tenants are properly vetted and approved, as getting it wrong can cost thousands. Again, our Let Alliance Nil Deposit Scheme protects landlords against this risk as the product is only offered to tenants who have been fully referenced and it also gives a rent guarantee policy too.
The Tenant Fee ban is the latest in a line of legislation introduced into the letting market. A major change that all landlords should be aware of is the introduction of the Homes (Fitness for Human Habitation) Act 2018, or ‘Fitness for Human Habitation Act’ which came into effect on the 20th March this year. It isn’t entirely new, rather a clarification and bringing into line of previous legislations, but it is harsher in a number of ways. There are now 29 hazards that landlords are responsible for monitoring – including damp, mould, cold, asbestos, heat, and radiation to name a few. Tenants can take landlords to court and sue if it is found they have failed to maintain standards in one of these areas.
On top of this are the changes to rules for a ‘house in multiple occupation’, or HMO’s. HMO licenses are traditionally required in any property where five or more people live over three floors, but are not part of the same family. HMO’s require landlords to introduce various safety measures, from fire doors to electrical equipment certification. Non-compliance can result in unlimited fines, a criminal record and a ban from acting as a landlord in the future.
What many don’t realise however is that HMO rules can be different for each borough, and many councils in the North London area have updated their rules and are getting much stricter about enforcement. The main reason for this is that the councils get to keep the fines! Camden, and soon Haringey, have changed their rules so that selective HMO licenses are required for any property with three unrelated persons, and also within properties on a single floor, so many are expanding their enforcement teams. Tenants are also being encouraged to report non-compliance, encouraged by the fact that landlords can be forced to repay all rent to tenants for the length of their contract. In just one London borough, there have been 1200 prosecutions of landlords and agents for HMO breaches in the last 5 years, and so for any landlord ensuring that they are HMO compliant by checking their borough’s specific rules is an absolute must.
The demand from tenants to find a suitable property to rent continues to rise. With the amount of new rental property coming to the market we believe rents will continue to rise, giving a good return for Landlords. Self-management can seem tempting in the quest to reduce costs in the short-term, but pale in comparison to the very costly risk of being caught out for non-compliance of the multitude of legislation.
At Martyn Gerrard we offer our landlord clients the comfort of decades of knowledge and experience and a full understanding of the responsibilities and requirements put on a landlord, making our letting and management service a must for any landlord.