Since this is such an important issue, we make no apologies for the length of this article.
On 23rd November, in his Autumn Statement, The Chancellor of The Exchequer, The Right Honourable Philip Hammond, outlined his plans to outlaw fees payable to letting agents by tenants by introducing amendments to The Landlord and Tenant Act 1985. An exact timescale has yet to be determined, but restrictions imposed in Scotland in 2012 have paved the way and the industry has been expecting some form of government intervention ever since. It is widely assumed that these amendments could take effect early in 2017.
In particular, it has been the housing and homelessness charity, Shelter, lobbying for these reforms and, at first glance it seems as if the move is not without its merits. In a largely unregulated industry, there are unscrupulous lettings agents throughout England and Wales and the cost of moving home for a tenant can sometimes be almost prohibitive.
Not all fees, however, are prohibitive; The Safeagent Scheme (Safeagent) conducted research this year which seemed to indicate that the average tenant fee was £172, whilst The English Survey of Housing reported a national average of £233.
A tenancy agreement quite rightly affords a tenant significant rights with security of tenure for a period of time being just one such right. It is absolutely correct, therefore, that comprehensive referencing and credit-checking be carried out. Were checks not carried out, an agent or landlord could easily sign a tenancy agreement with an applicant manifestly unable to afford the rent or with an individual of means who, for whatever reason, has left a financial trail of destruction and unpaid rents accounts in his wake.
It follows that the cost of these checks has to fall to the applicant. Were it not to do so, then there is little to prevent an applicant applying for any and every property until he finds a landlord or agent who is either incompetent or not diligent enough to discover that he is a bad risk. Each time an unsatisfactory credit check is conducted, someone will have paid for the checks and carried out administrative tasks in order to have them carried out. It doesn’t matter how little these checks may cost, if they are being repeatedly carried out, the costs will mount.
Another recent change in legislation has even placed the burden of ensuring that a tenant has the legal right to be in the country on the landlord or his agent. The Home Office has introduced onerous procedures, with the threat of heavy financial penalties for getting it wrong. Once again, an applicant who is here illegally will have nothing to lose when applying for a tenancy. Sooner or later he’ll find someone ignorant or perhaps apathetic of legislation, but in the meantime, how many landlords or agents will have wasted time and money on adhering to this legislation?
If, as often is the case, an applicant tries to play one agent, landlord or property off against another, these costs are compounded. Applications are often made by such a tenant who then goes to ground and cannot be contacted. Very often we discover that he has made similar applications elsewhere and is actually hedging his bets, in a fast-moving marketplace, hoping to secure the property of his dreams, but keeping a couple as a fall-back position. Having taken an application, we will do the various checks in good faith. As will each and every other responsible agent or landlord with whom the tenant has expressed very real interest.
Currently, we only take a property off the market and suspend further viewings upon receipt of a fee, which is only taken once the landlord has said okay in principal. By having the security of this measure removed, not only will money be wasted, but the landlord will inevitably end up with a longer void period. With average rents in Basingstoke of around £800, an extra week’s void as a result of having been approached by a less than scrupulous tenant will cost the landlord around £200. No matter how understanding the landlord, once he’s experienced this a couple of times, he’ll be questioning our abilities and looking for another agent, or electing to take charge of the management himself.
It is also worth noting that a scattergun approach by an applicant also affects other applicants. When properties are taken off the market unnecessarily, there will be a consequential fall in the number of properties available to other appliacnts.
We’re very good at what we do, as is evidenced by our virtually complete and utter lack of rent arrear problems. We read applicants very well indeed and ask all the right questions. We remind them of the fact that financial problems they may have will inevitably be uncovered by our procedures. They are told that they must suffer the consequential cost of any wasted credit-checks as a result of them having lied about their income or neglecting to admit to having a less than satisfactory credit history. As a matter of policy, unlike the unscrupulous agents that have undoubtedly caused this whole issue in the first place, we return the vast majority of the application fee in the event that an applicant is declined as a result of credit checks. How many times will we now have our bluff called when the applicant has nothing to lose?
I have already stated that I believe there to be merit in the scrutiny of tenant fees, but I firmly believe that an agent can demonstrate very real costs incurred and ought to be able to charge an applicant a fair and transparent sum in order to establish the credibility of an application.
Once a tenancy has started, there are also limited occasions where a charge of some description is entirely legitimate. For example, on occasions, a tenant might be late with a rent-payment. This might be of his own making, or it might have been caused by a banking malfunction. There have been a few occasions in the recent past where bank systems have failed. Only a matter of a few days ago, Tesco Bank was seemingly hacked causing problems for many.
On such occasions, we are obligated to chase the rent and receive payment as quickly as possible. Debit card charges are not so expensive, even though they are now based on a transaction percentage, rather than a set and relatively small fee. Credit card charges are, however, significant. Why should either the landlord, or the agent be expected to swallow a bank charge of perhaps 2.5% (£20 on the same average £800 rent) for a problem caused by the tenant himself or possibly the bank? Even if the tenant were refunded any costs by his bank, we will have no way of collecting the charge, even were the tenant to offer to refund it.
When a tenancy agreement is written, it is written for a fixed term of some description, whether this be 6 months, 12 months or whatever. This gives the tenant some security of tenure and it also provides the landlord with peace of mind that his property is tenanted for a set period of time. Very occasionally, however, a tenant seeks an early-release from his tenancy. For example, he may be 2 months into a 12 month contract and discover that his company wish to relocate him. Or he may have volunteered to change jobs and this might involve moving to the other side of the country.
Once we can no longer charge fees, we are potentially presented with an impasse. The landlord will have paid fees for the marketing of the property, the credit and referencing checks, the inventory etc. This will have run to at least a few hundred pounds. Currently, our approach is simply to ask whether the tenant is prepared to pay the re-marketing costs and any other out-of-pocket expenses the landlord may incur, including the rent up to the day before the tenant vacates. With Belvoir in Basingstoke, the marketing costs are reduced pro-rata, since the landlord will have had the benefit of a tenant for 2 months or so that the tenant has lived there. The tenant invariably agrees, since the landlord is under no obligation to release the tenant and the tenant is usually sensible enough to accept that the terms are transparent and fair to all parties.
If the landlord will in future be expected to swallow any and all such costs, quite how many landlords are going to be willing to accept such an arrangement? And, when everything carried out by his agent was carried out in good faith, then why should the agent have to contribute towards this? Does a solicitor involved in a property sales transaction that falls through simply tear up his invoice?
No doubt there are other occasions where a fee is justifiable, but these are all genuine examples which are entirely valid and not really open to debate in any way shape or form. In truth, the subject of fees is far more complex than Shelter or H.M. Government will have everyone believe and the expected amendments to legislation will do nothing other than cause mayhem.
In Scotland, where the changes have already been made, there are two opposing points of view. Some will have you believe that it’s been no big deal and that everything is swinging along nicely and according to them, rents haven’t been increased at all as a result. Some have a view diametrically opposed to this and claim rents have increased.
The increased rent argument is, in my opinion, the most likely outcome. In England, if a landlord were to take even the lower average tenant fee of £172 and apportion it over a 12 month period, rent for his property will increase by £14.33 a month. Were he not to do so, he would be bearing yet another additional cost to his business, in a climate where he has been hit by stamp-duty increases and is imminently to lose his mortgage interest tax-relief. He will be unlikely to accept shorter term tenancies and those wanting only 6 months will have difficulty. Alternatively, we might find that rent on a 6 month tenancy is increased by £28.66 a month. If a tenant stays beyond the initial fixed period, then he will be contributing £14.33 or £28.66 to the landlord for each and every month he remains, thereby paying his tenant fee over and over again. (Our average tenancy length is around 2 ½ years.)
Of course, some landlords will dispense with the services of an agent, thereby placing tenants in an even less regulated environment. It is fair to assume, however, that such a landlord will match the rents charged by those using the agents, so the tenant will be contributing the extra rent each month and not even have the benefit of an agent’s involvement.
Regulating the industry fully and capping fees for all the various occasions that they might be appropriate is absolutely the way forward. Issues such as staff training, client money protection, codes of conduct, hidden commissions, redress schemes and other similar subjects also need addressing.
There is still a period of consultation. Let’s hope that following the consultation, common sense prevails.
If you have any concerns about the changes and would like to chat to us about the measures we are contemplating to address this issue, please do not hesitate in calling us on 01256 830800. Alternatively email, or drop in and discuss it over a coffee.