Tenant Fees Bill

Written evidence submitted by Stan Heeks and others* (TFB13)

As an estate agent we continue to support the Government aim for greater transparency, fairness and professionalism within the private rented sector. We welcome the initiative for Regulation of agents however we believe that piecemeal legislation has not and will not solve the problem within the sector.

The Draft Legislation for a Lettings Fee ban should not be introduced before mandatory Client Money Protection and in addition whoever supports the bill should be aware and understand the unintended consequences this will bring.

1. On average an estate agent has a gross profit of 10% though we estimate that more than half make less than 5% given that in the Plimsoll 2017 Agency review of 1,500 agents, 384 or 26% are trading at a loss, Source Plimsoll Industry Research. Tenant fees on average are £200 per tenant and represent approximately 15% to 20% of revenue, so for many this represents their entire profit. To survive many agents will therefore be tempted to use deposit monies to assist their cash flow. This will jeopardise the very people the legislation seeks to assist. As we have always maintained a better solution to avoid this would be to cap tenant fees at for example 20% of the monthly rental value.

2. The fee ban should not include a ban on referencing costs. A tenant should be responsible for this cost. Failure to do so will have unintended consequences; especially for those who may find it harder to prove their residency, employment, financial or renting background. The Draft Bill risks introducing a barrier to renting for these tenants, making it less fair and harder for them to rent, especially in areas where there is greater competition for homes.

In addition, it is estimated that approximately 17% to 19% of tenants require additional verification, in the form of a guarantor, to prove their credentials and that the prospective tenant would be able to fulfil the obligations on a tenancy agreement. Without the additional measures to help these tenants to verify their credentials there is a real risk that a large percentage of people may inadvertently be pushed out of the mainstream housing market into less formal, unmonitored, and potentially more exploitative living arrangements. In the event of a cap on fees the referencing costs would be included in that cap.

 

3. It is positive that the Bill has clarified that holding deposits can be paid to letting agents as well as landlords. Agents and Landlords must be able to retain the holding deposit when a tenant fails the referencing check. Failure to allow this will result in agents only selecting the very best tenants to avoid the possibility of incurring costs through tenants failing referencing. Ultimately, this will reduce the availability of property for vulnerable tenants and families. The very people that the Government are trying to help most with this Bill are those who stand to lose the most.

4. A further concern is how local authorities will enforce the new legislation. Had the original legislation been enforced properly this latest Bill would not have been required. It is, in our view, too simplistic to assert that tenants will easily be able to complain about an agent or a landlord for charging a fee. The unintended consequences are that the normally compliant agents and landlords will continue to comply, but the rogue agents and landlords will continue to act under the radar with little or no redress for the consumers the government wishes to support. The current lettings market is not let down by a lack of regulation but by lack of enforcement.

5. It is difficult to concur with the conclusion that fee ban increase will competition in the sector, we know many smaller agents will be forced to close or reduce staff. How will this aid competition? We also cannot concur with the conclusion that any rent increases will be easily absorbed by tenants in England. This is based purely on the experience in Scotland and we believe is the committee adopting a wing and a prayer mentality. This warning has also been relayed by the Office for Budget Responsibility. Research by credit reference agency Equifax involving a sample of 2,136 adults found 52% of those living in the capital expected their rents to be hiked. Similarly, more than a third in all other English regions anticipated increases. Whilst they were not asked why they thought rents would rise overall, 42% of tenants in all regions said they would not be able to afford any increase in monthly rental repayments, compared to just 11% of mortgage holders.

In summary, Landlords and agents who intentionally exploit vulnerable tenants or loopholes will not stop because fees have been removed: piecemeal solutions are not the answer to the housing problem .


Lack of enforcement is evidenced by a social landlord who owns 7,300 properties, was found to have exposed tenants in more than 1,000 of its homes "to the risk of serious harm", according to a report last year by the Homes and Communities Agency through breaches of the Gas Safety (Installation and Use) Regulations. The Gas Safety Legislation has been law now for a number of years and breaches such as the above and Grenfell Tower disaster demonstrate how important it is that Regulation is enforced consistently throughout the property industry.

Therefore, we recommend that as a minimum the Draft Tenant Fee bill is amended to include referencing costs and a cap on fees combined with mandatory Client Money Protection.

The ultimate solution would be to introduce Regulation across the entire rental sector of the property industry regardless of tenure type or its duration. This should include landlords and housing associations, agents, online and short-let companies and all media in which they advertise. This should take into consideration the implementation of other obligations, such as homes fit for habitation, we should without question have a minimum property standard, piecemeal legislation is forcing everyone to lose sight of the importance of the property and the standard of the property. The Bill should take into consideration the fit and proper person test, mandatory and minimum training requirements and a simple and standardised complaints procedure that the consumer can understand and can easily action. This combined with robust and consistently applied enforcement would be a major achievement indeed and ensure the Property Market was a market all stakeholders could be proud of and trust.

May 2018

*Others:

George Matthews,

Jayne Twiddle,

Amanda Dawson,

Ed Jones,

Daniel Berrisford,

Julia Preen,

Sharon Brown,

Kathryn Loynes

Amy Scammell-Webb,

Sue O’Brien,

Carrie Alliston,

Linda Payne

 

Prepared 4th June 2018