CHALLENGES AHEAD AS ABOLITION OF TENANT FEES LOOMS

While everyone’s attention is focused on Brexit, the clock is also ticking towards the introduction of the Tenant Fees Act.

It is expected to come into force in June after securing support from all political parties.

Under the new law, letting agents and landlords in England will no longer be able to charge tenants for services such as credit checks, guarantor forms, inventories, referencing or administration fees, and only capped costs for early terminations.

The government says the new regulations will improve transparency, affordability and competition in the private rental market.

They will help root out disreputable agents, but there will be other consequences too.

Over many years, agents have had to lower their fees to help them remain competitive in the marketplace.

In a sense, they have been cross-subsidised by charging prospective tenants an administration fee but, as ever, some agents have billed more than they need.

The new law will ensure that tenants cannot be charged fees to compensate for the market adjustment, helping to ‘smoke out’ unsavoury agents and make the rental process more transparent.

Ultimately, costs will be directed towards property owners, who will pay fully for the services they need.

Scotland has had the tenants’ fee ban since 2011 and the lost revenue source has been absorbed by agents and landlords.

This has not resulted in any remarkable increases in rent to recover lost income.

Indeed, landlords have come to realise that their agents do perform a valuable service for them and, in some cases, agents’ fees have risen to reflect the work that has been done but had not been previously charged.

One potentially worrying aspect for landlords is that, where they engage the services of an agent who then seeks to cut their overheads (usually by shedding staff), this may lead to a depleted service and a failure to adequately look after the landlord’s interests.

In such circumstances, a poor service could ultimately prove even more costly to the property owner than the loss of tenants’ fees.

Following the ban’s introduction in Scotland, the effect was a fall in the number of agents active in the lettings industry, with the more efficient ones gaining new business.

Property owners will pay the price for the new law, but hopefully at the expense of unproductive and lesser-skilled participants within the industry.

The change is coming, and will be a challenge to everyone involved.