Banning Letting Agent Fees

On 7 April, the day after the penalty charges and rent repayment order changes in the Housing and Planning Act were introduced, the government published its long awaited consultation into its proposed ban on letting agency fees. This consultation is open for responses until 2 June 2017. The ban will need primary legislation and so the actual implementation date is not clear but is unlikely to be before late 2018.

The consultation sets out what the government sees as the key duties of letting agents in the letting process. Interestingly this mentions the function of agents in responding to tenant queries but glosses over the role that many good agents have in educating landlords and tenants as to their rights and responsibilities.

The government makes the point that there is wide variability in agency fees but also suggests that tenants, unlike landlords, cannot shop around. The government is guilty here of assuming that the entire agency market is the same. In some areas landlords have difficulty shopping around as well as there are relatively few agents in the area. In busier areas where properties are frequently listed with more than one agent (such as London) there is evidence that tenants do shop around and compare agent fees.

The mechanism of the ban being proposed is confused. The government clearly recognises the risj that agents will simply charge the fees to landlords and the landlord will re-charge them to the tenant as it is proposing to ban all fees to tenants regardless of who charges them. However, wording this is going to be very difficult indeed, especially as the government is intending to allow charges to be made for things in the tenancy agreement which are incurred by tenant request or action. This may end up being a very grey area with a lot more items being presented as options for the tenant to select and incur a fee for.

There will be concern from landlords that limiting agency fees will mean that fees to landlords will rise. With landlords already being pressed by tax changes they may well look to increase rent to cover these new costs although there will be a cap on what the market will bear in some areas.

Surprisingly, the government has also thrown in a new idea which is to limit the size of tenancy deposits. This has come out of left-field somewhat and is not something that has been suggested before. In Scotland a deposit cannot exceed three times the monthly rent but there is no similar restriction in England. Unless the sum is calculated by reference to the rent then there is a risk that deposits will not keep pace with inflation. There is also the associated limit that this places on the ability of the market to allow tenants with doubtful credit histories to rent property and this will mean that agents will ask for rent in advance or guarantors instead.

One of the big problems with this change will be the ongoing issue of enforcement. The fee transparency regime under the Consumer Rights Act is largely unenforced with only a small handful of local authorities talking any formal action. The government highlighted a Generation Rent survey that showed 12% of agents still not displaying fees. Personally, I suspect that it is worse than this in some areas and I certainly regularly encounter agencies which have no fees displayed. Given that the existing provisions have not yet been given a chance to work and are poorly enforced a further change seems premature and likely to fail unless the enforcement is far more robust.

It is clear that the government is determined to see a ban in place. The exact mechanism and scope of that ban is something that will be hotly debated.