Tenant fees ban. What are the unintended consequences?

The Tenant Fees Act came into effect in England on Saturday and there are already big question marks hanging over the new legislation. Both the government and the lettings industry want to make renting fair for tenants, but agents are not convinced the new Act will work in the way that was intended. Glynis Frew, the CEO of major letting agent Hunters, said this week that good intentions could easily result in unintended consequences.

We agree that a small number of rogue agents and landlords have charged what she describes as “mind-boggling” fees, but this isn’t representative of the industry as a whole. Instead of opting to cap fees, they have been scrapped altogether. The likely results are rent increases, landlords leaving the sector in even greater numbers than they are already, and letting agents shutting up shop–which as well as reducing consumer choice, also has a negative impact on our beleaguered high streets.

Our view is that the Act will mean agents looking closely at their all-inclusive management fees and having to pass on disbursements, such as deposit registration costs, to landlords. The industry will be looking to push extra products such as insurance, on which agents can take commissions to cover the shortfall in income. Local authorities, charged with enforcing the legislation, can find landlords and agents up to £5,000 for levying a payment that is now prohibited (see yesterday’s blog for a list of allowable fees) and they can prosecute or impose a fine of up to £30,000 if an ‘offence’ under the Act has been committed.

This is where a landlord or agent has been fined or convicted for a breach within the last five years and commits a further different breach. Being a landlord has never been more precarious. Reducing deposits from 6 weeks to 5 is no real protection against tenants not paying their last month’s rent and the Deposit Alternative products that are now springing up may offer landlords more protection but are of course optional, and cannot be forced on tenants.

Flexibility as to how tenants make payments is also diminishing as many landlords refuse to take rent or deposit payments by credit card as, understandably, they don't want to pay the fees. The challenge for agents will be to ensure they are providing an added-value service to landlords by having effective tenant referencing, contractual and deposit systems in place, as well as ensuring compliance with the new Act.