Tenant Fees Bill

Written evidence submitted by Susan Rowlands, Peach Lettings (TFB19)

Tenant Fees Bill – Written Submission

Peach Lettings is a small, independent, high street agency in Wadebridge, Cornwall, with a lettings portfolio of around 40 properties.  We applaud the Governments’ wish to protect Tenants, but feel the decision to put an outright ban on Tenancy Fees is ill advised. Although this will provide relief to the Tenant in the short term – it will add to their burden in the long term as the ban will inevitably lead to rent rises across the board – having a detrimental effect on all Tenants in rental properties. 

Before we go into the reasons why we think the ban is wrong, we think it is important to clarify exactly what a Tenant receives for their Tenancy Fee.  This fee pays for a service provided by the Letting Agent and covers the time it takes for a member of staff to get a Tenant successfully into the property they wish to rent.  It covers legislation, right to rent, how to rent, referencing, due process and conveyancing plus dealing with all the enquires that arise from the Tenants themselves – a minimum of 8-10 hours of work by a trained and knowledgeable member of staff.

The ‘Fee’ is a transaction for services rendered. To ban the ‘Fee’ removes the payment for the member of staff to undertake this work, but not the need for the work to be undertaken.  If fees are banned who pays for this?

The Governments’ stated objective is to deliver "a fairer, more competitive and more affordable lettings market where tenants have greater clarity and control over what they will pay and where the Landlord is the primary customer of the letting agent".  Do the provisions of the Draft Bill enable this objective to be achieved?

A fee ban will not improve clarity or control.  Currently it is a legal requirement for all agents to display their fees for both Tenants and Landlords clearly within their premises and online.  In addition, we make any future Tenants aware of our fees in writing when they wish to view a property to rent – how could such clarity be improved upon?  With regards to control – Tenants have the right not to rent a property through any Agency when presented with its fees – they have total control already. 

As consumers, we do expect to pay a fee when we ask for a service to be provided – solicitors, mortgage lenders, banks – all charge fees. Why make it illegal to allow Letting Agents to do the same?  Surely this is where any ‘unfairnesses’ comes into play?

The need for property to rent is increasing - it is estimated that almost one in four households in Britain will be renting privately by the end of 2021 as soaring house prices and stagnant wages put home ownership out of the reach of growing numbers of people.  Yet the Government is making it increasingly unattractive for Landlords to rent their properties by removing benefits such as tax relief and 10% on wear and tear.  This Tenancy Fee ban will be yet another nail in the coffin for Landlords who will end up paying for the work their Letting Agents are undertaking to get a Tenant into their property.

So what will be the result?  Well, it will be two-fold – either the Landlord will decide that renting their property has become untenable and remove it from the market – adding to the already current shortage of rentable homes in the UK, or they will increase the rents they charge to cover the Tenancy Fees that they must now absorb.  And who pays the rent?  Why the Tenant of course! So, they will still end up paying Tenancy Fees – but these will now be buried within their rent – so a lot less ‘clear’ than the current system and of course, they will have no control over whether to pay them or not and rent rises will continue unabated.

Indeed, if they end up renting the property for a long time, they will be paying far more for the Tenancy Fee than the one-off payment currently charged as they will be paying for it via a monthly rental increase that they will continue to pay ad-infinitum.

For example, the Letting Agent charges £250 for Tenancy Fees, but after the ban this will now fall to the Landlord to pay.  He then puts the monthly rent on his £500 per month property up by 8% to £540 so he can recoup the £250 within the first six months of the Tenancy.  However, the Tenant ends up staying a year – but continues to pay £540 per month – so he will in effect have paid £480 in additional rent to cover the Tenancy Fees and this will continue to increase every 12 months he rents. If he stays in the property for 5 years, he will have paid £2,400 extra rent. This penalises the Tenant far more and given the choice I am sure they would rather pay the £250 upfront.  We have many tenants that have been in properties for a number of years with Landlords content with the rent they are achieving. They would rather keep a good Tenant than lose them due to a rent rise, but this will change and the message we are receiving from our Landlords is to raise rents, which of course they are entitled to do once in every 12 month period.

One question you ask is "Are the draft Bill’s provisions necessary, clear and workable?"  We would argue that they are not necessary, they will make fees unclear and the system is not workable.  The Lettings industry is constantly being monitored and legislated to provide higher standards of service and Tenants want to live in decent properties where all the necessary safety checks have been carried out.  It is the Letting Agency staff who keep abreast of all this – if you remove the revenue which contributes to them doing so, standards will inevitably drop across the board as more and more agents cut down on numbers of staff or fail to invest money in training their staff properly. 

The other scenario is that Landlords stop using Letting Agents to rent their properties to avoid the fees. However, many Landlords do not have the knowledge or the inclination to rent their properties according to legislation – so again the result will be an overall nose dive in renting standards.

The other option for Letting Agents is to try and absorb the lack of Tenancy Fees by reducing the level of service they provide – for example not providing an adequate Inventory.  However, to save costs by watering down this invaluable stage of the Lettings process again will lead to other costs in the end.  No Inventory or inadequate Inventories just make deposit disputes more likely leading to more adjudications and more cost.

To conclude, the Tenancy Fee ban will in the end punish the Tenant via increased rents and/or reduced standards -  is this really the Governments’ goal?  Surely a much sounder idea would be to introduce a cap on Tenancy Fees – which allows the Letting Agent to be paid for its invaluable work and protects the Tenant and, as such, the Landlord – leading to an all-round healthier and more closely legislated lettings industry – which is surely what we all want?

Susan Rowlands

May 2018

 

Prepared 4th June 2018