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The Government has found evidence that tenant fees are often poorly explained and that tenants are confused or unaware about the true cost of renting a property and proposes to ban letting fees imposed by landlords and letting agents on tenants.
The draft Tenant Fees bill was published on 1 November 2017 and is intended to prohibit all payments to letting agents and landlords for the grant, renewal or continuation of an assured shorthold tenancy or licence. Permissible fees include security or holding deposits and tenant default fees although it is proposed that deposits will be capped at 6 weeks rent.
Any tenancy that falls outside of the Housing Act 1988 regime will not be covered so other tenancies, such as company let agreements, can still charge fees.
The bill also introduces civil and criminal offences for breaching the ban. Enforcement will be through trading standards officers. The initial penalty is a civil penalty of up to £5,000. A re-peated breach is a criminal offence but can also be dealt with by way of a civil penalty of up to £30,000.
There has already been consultation on the bill but the Communities and Local Government Com-mittee is now seeking further views which is intended to get a wider scope of opinions. The consultation ends on 14 December 2017.
The Committee also plans to hold oral evidence sessions in 2018 with experts, tenant, letting agent and landlord associations and trading standards authorities.
Whatever the final amendments are, it seems clear that the writing is on the wall for letting agents' fees. Letting agents cannot expect to recoup some of their lost revenue by increasing fees payable by landlords. The consultation responses suggest that landlords will simply move their business elsewhere. Letting agents would be wise therefore to start reviewing their business models now.
In addition the Department for Communities and Local Government is also seeking comments on the proposal to make membership of client money protection (CMP) schemes mandatory for letting and managing agents who handle client money. Comments are sought on the extent to which client money protection schemes should be controlled or administered by central government, whether scheme providers should have to comply with legal conditions, what regulations on the type of CMP should be made and how enforcement should operate. The deadline for responses to this consultation is 13 December 2017.
Around 60% of agents already offer client money protection schemes since this is required as a condition of membership by professional bodies. The proposal is therefore most likely to affect small agents and new entrants to the market. The alternatives to meeting the requirements of any CMP scheme will not be holding any client money (and this would mean not being able to collect rent) or using a custodial scheme where the money would be held centrally. This is not likely to be an attractive option so small or new agents may be hit with significant costs if they want to process rent receipts themselves. However these concerns may be irrelevant if the government regulates all letting agents, which is also proposed.