How can landlords prepare for the ban on tenant fees?
With the date for the ban on tenant fees now confirmed, we take a look at how landlords can protect themselves against the incoming legislation.
It’s finally official. After a long-winded process, which began way back in November 2016 when the Chancellor Philip Hammond announced in that year’s Autumn Statement the government’s plans to ban letting agent fees charged to tenants ‘as soon as possible’, the Tenant Fees Bill recently received Royal Assent and passed into law. It had already been announced that the measures outlined in the bill – which is now an official Act of Parliament – would be applied to all new tenancies signed after June 1 2019.
What does the ban include?
As a result of the new Act, landlords and letting agents will no longer be able to charge fees to set up or renew a tenancy in the private rented sector. What’s more, it will cap security deposits at no more than five weeks’ rent and holding deposits at no more than one week’s rent, while also setting out the proposed requirements on landlords and agents for returning a holding deposit to a tenant.
In addition, it will cap the amount that can be charged for a change to a tenancy at £50 unless the landlord demonstrates that greater costs were incurred, levy financial penalties for breaches of the ban and prevent landlords from recovering possession of their property via the section 21 Housing Act 1988 procedure until they have repaid any unlawfully charged fees.
After confirmation of the bill receiving Royal Assent, Housing Secretary James Brokenshire said: “Tenants across the country should not be stung by unexpected costs from agents or landlords. This Act not only delivers on our promise to ban letting fees but also caps deposits at five weeks’ rent and sets out how and when landlords can charge tenants fees – helping renters keep more of their hard-earned cash.”
He added: “This is part of our ongoing action to make renting fairer and more transparent and make a housing market that works for everyone.”
How will landlords be affected?
Although the government insists that the ban will make renting properties in England fairer, more transparent and more affordable, it has proved to be one of the private rented sector’s most divisive topics in recent years – with strong advocates and equally strong opponents of the measures being introduced by government.
Landlords are expected to be impacted in a number of ways, and as such need to be fully aware of what is being banned and how this might affect them. Many letting agents have said they will have no choice but to increase their management fees to offset the loss in revenue caused by the ban, so landlords who use an agent to manage their properties should be ready for increased costs once (or even before) the ban comes into force.
With this in mind, landlords may wish to shop around to find the best possible management package or even consider the self-managing approach. There are pros and cons to such an approach, though, and landlords managing their own properties will be in the same position as letting agents when it comes to charging upfront fees for the various admin tasks needed to set up a tenancy.
To be as clear on the future situation as possible, it’s a good idea for landlords to communicate closely with their letting agent to work out their intentions after the introduction of the ban. Will their pricing structure change? Will their fees rise? Will they be changing the services they offer?
Landlords may also want to ask how letting agents – who have known about the ban for a long time and have been warned to prepare and find alternative streams of revenue – are streamlining their services and using new technology to cut costs. Will this mean they can still offer a suitable level of service or does an alternative provider need to be sought?
It’s vital that landlords are clear on whether they will face higher agency costs. Getting in touch with a tax specialist to work out which agent costs are tax deductible is also a prudent move. This could prevent the need to increase rents over time, which is something a landlord may be reluctant to do if they have good, long-term tenants in place.
Awareness of the legalities
It’s equally important that landlords are prepared for the legal changes (and the implications of not abiding by these) that the implementation of the ban will bring about. From the start of June, there will be a host of fees that landlords and agents can no longer charge for. And, if this does happen and a banned fee is levied, the ability to serve a valid section 21 notice will be lost until a full refund of this charge has been made. Equally, landlords should consider reviewing existing contract templates before the ban is introduced. If there are any clauses that will no longer be valid after the ban – such as those related to outlawed fees – these should be removed or updated.
For total peace of mind, landlords may wish to seek expert advice and assistance on the implications of the new Act to ensure falling foul of the law is not an issue.