Comment

Letting agent fee ban bill published

Friday, November 10, 2017 - By David Smith, Partner at Anthony Gold Solicitors

David Smith, Partner at Anthony Gold Solicitors

The government has today published its response to the consultation on banning letting agent fees to tenants (read here) along with a draft bill (read here).

Consultation Response

There was a disparity between the views of agents and tenants in terms of the response to the consultation. Most agents felt that the new requirement to publish fees had increased transparency. Most tenants felt the opposite. Landlords were fairly neutral. Tenants were strongly anti-fees and said that fees charged had limited their ability to move house. Around half of tenants claimed to be unaware of fees. There was a surprising disparity in the fee levels with agents responses suggesting an average fee of £238 per tenant with tenant responses suggesting an average fee per tenant of £327. This is likely to be due to confusion over how agents charge fees and the different fee models in use were a point of comment for the government with it stating that unless there was more standardisation there would remain a lack of transparency.

Most landlords charge little or no fees at all and the difference is remarked on by the government. Landlords also said that agent fees had affected their agency decision in the past and that increased agent fees would motivate them to move agents in the future.

A hugely persuasive part of the consultation responses was the fact that tenants felt that it did not matter whether they knew about agency fees or not as they had no power to affect the fees charged. This aligned closely with the government initial thinking that it was landlords who truly had the power to choose agents and therefore to drive fees down.

Most tenants were keen to see the ban extended to landlords and for it to include all other premiums and other fees. Most tenants accepted the idea of holding deposits but 7% of tenants did not agree with those either.

The consultation also showed a very high level of support for a cap on tenancy deposits more generally although the exact level of cap was disputed. There was also a surprising amount of support for caps on holding deposits, even from landlords and agents.

The Fee Ban Bill

The draft bill creates a blanket ban on all fees charged by a landlord or agent for the grant, renewal, or continuation of an assured shorthold tenancy or a licence. Any tenancy that falls outside the Housing Act 1988 regime will not be covered. Strangely the draft bill also does not mention lease assignments. In practice, this means that ASTs and licences cannot have fees charged in respect of them but other tenancies such as company let agreements and the like can. There appears to be no particularly good reason for ignoring other types of tenancy although that has been the case before and the reality is probably that the government only had a weak understanding of such tenancies.

There is then a list of permissible fees set out in the schedule which includes fees for breaches of the tenancy and holding deposit fees. This schedule can be amended by the Secretary of State by order.

There are some anti-avoidance provisions such as disallowing a rent for a higher sum initially which then drops later on. There is also a provision which states that any clause in a tenancy which purports to charge a banned fee is void although this does not make the entire agreement void and tenants can seek repayment of their money through the county court as well.

Enforcement will be through trading standards officers. However, they are under a duty to enforce the legislation unlike the current regime where they are not so obliged and so agents will be able to complain about other agents who are not obeying the provisions properly. The initial penalty is up to £5,000 payable as a civil penalty. A repeated breach is a criminal offence but can also be dealt with by a civil penalty of up to £30,000. If the sum taken unlawfully has not been repaid already and no claim has been made for it through the civil courts then this can be added to the fixed penalty and recovered for the tenant in this way. As usual, if the offence is being committed by a company the directors can be made individually liable as well.

There are also amendments made relating to Client Money protection on which a consultation has also opened up.

Finally, there are amendments requiring all fees being charged to be shown on any third-party website (eg. Rightmove etc) that the agent is advertising on.

Deposit Limits

There is a limitation in the bill over tenancy deposits too. These are capped at 6 weeks rent equivalent. This has increased from the month originally proposed which is a positive step. However, this will mean that some tenancy deposits will need to be reduced in certain cases.

Next Steps

This bill is still in draft and has not yet been formally laid before Parliament, so there is still some way to go before this all comes into force. However, the writing is clearly on the wall for agency fees. Given that the consultation responses make fairly clear that landlords will vote with their feet if they are asked to pay more agents will need to start considering their business models carefully now.

Reviewing fees charged for tenancy breaches and also fees charged in tenancy types that fall outside the legislation will be important. Considering how best to implement a holding deposit regime will also be useful. Agents should also give some thought as to how this will work with their clients. For example, if a tenant has breached the agreement giving rise to breach fees then these will need to be in the tenancy agreement but the agent terms of business will need to make clear that they will be passed to the agent by the landlord if they are paid. Likewise, if there are deductions from the tenancy deposit due because of rent arrears and there are also breach fees due then the agent will need to consider if they are going to demand their fees first before any residue is paid to the landlord.

Anthony Gold is holding a legal update seminar on 6 December at which we will be discussing this issue (find out more).

If you have any questions and would like legal advice, please contact David Smith who is a Partner in the Housing team at Anthony Gold. His email is David.Smith@anthonygold.co.uk

Please note that the views and opinions expressed in these blogs are those of the author and do not necessarily represent the views of London Property Licensing. These blogs are designed to stimulate discussion and debate within the property industry.

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