What does the Tenant Fees Act mean for landlords and for tenants?
20th May 2019

You browse suitable properties. You arrange a viewing. You’re all set. You call the letting agent to discuss the deposit. Before you know it, you must pay a deposit, one month of rent and ‘referencing fees’ before you’re handed the keys.

It can add up to putting down thousands and it’s a story all too familiar for renters, though not for much longer. From 1 June (1 September for Wales), landlords and letting agents will be banned from charging tenant fees for arranging credit checks, inventory checklists and referencing.

What are the fees for?

Lettings fees generally cover a range of services that have become a standard in the world of renting. These might include organising credit checks of the proposed tenants, arranging a guarantor form if necessary, and referencing. Often, the fees also include creating an inventory checklist, having the house professionally cleaned and completing any routine garden maintenance, as well as drawing up the official contract between the tenant and landlord.

On average, these fees are an average £272 per person, a staggering amount given that a credit check costs only a couple of pounds and the contracts are ‘cut and paste’ jobs. One of the key arguments to the Tenants Fees bill, which was finally passed after two years of debate, is that the fees are paid by the tenant, but are not for the tenant.

Generally, the checks are for the benefit of both the landlord and the letting agent as a type of vetting for affordability and suitability.

Which fees are now banned?

As per the Tenant Fees Act, letting agents cannot charge the tenant (or guarantor) anything as a condition of a ‘grant, continuance, assignment, termination or renewal’ of a tenancy agreement.

In practice, this means that they cannot charge for credit checks, inventories, guarantor lists, referencing and administrative charges, professional cleaning or gardening services. Some letting agents require a specific insurance provider to cover contents, but this is no longer the case, either.

What happens now?

For tenants, the change in the law is a relief. They only worry about rent and a protected deposit to put down a house and pay nothing to simply ‘take it off the market’. Whilst one might ponder whether landlords won’t simply charge extra on the first month, the new law ensures this isn’t possible.

For landlords, organising assets will have more importance than ever before. Whilst landlords are unable to recoup these costs through one-time inflated rent, they can simply raise the rent for the duration of the tenancy and may choose to do so.

For landlords with a portfolio of owned properties, they may be inclined to raise the rent slightly for all of their houses, and whilst this may solve some of the issues that landlords have, it doesn’t help letting agents, who often rely on these fees to prosper.

What do letting agents think?

ARLA Propertymark, the UK’s foremost professional letting agent body, does not condone a full ban on letting agent fees. It argues that the fees ensure a safe and smooth passage for renters and is concerned that it may start a domino effect: letting agents will try to recoup the losses through landlords, who will recoup their losses through tenants.

In fact, ARLA’s research commissioned by Capital Economics found some crushing figures. It predicted that tenants will pay an increased rent of £103 per year and highlighted the 58,000 jobs residential lettings bring equate to employee taxes of £400 million each year. The fees equate to around 20% of the industry’s turnover.

Whether you are a tenant, a landlord or a letting agent, things are set to change in the coming months. Our relationships with leading insurers mean that we can help you with a tailored policy built to protect you no matter what. Get in touch with the team at EIC Insurance either via email or call us on 01442 286910 to find out more.

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