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Autumn Statement 2016: ban on letting agent fees – good or bad?

Whilst in England and Wales letting and managing agents have been legally obliged to clearly publicise their fees since last year, in the Autumn Statement, the Chancellor announced the government will ban letting agents’ fees to renters altogether. This is “to improve competition in the private rental market and give renters greater clarity and control over what they will pay.”

Letting agents’ fees are charges for the administration costs associated with a renter moving into a property, e.g. for drawing up contracts, taking an inventory, running credit checks etc. These fees vary widely from agent to agent, with some in the big cities charging as much as £700 (figures from Citizen’s Advice).

Such fees have already been illegal in Scotland since 1984, by way of section 82 of the Rent (Scotland) Act 1984, which states:

(1) Any person who, as a condition of the grant, renewal or continuance of a protected tenancy, requires, in addition to the rent, the payment of any premium or the making of any loan (whether secured or unsecured) shall be guilty of an offence under this section.

(2) Any person who, in connection with the grant, renewal or continuance of a protected tenancy, receives any premium in addition to the rent shall be guilty of an offence under this section.

(3) A person guilty of an offence under this section shall be liable to a fine not exceeding level 3 on the standard scale.

(4) The court by which a person is convicted of an offence under this section relating to requiring or receiving any premium may order the amount of the premium to be repaid to the person by whom it was paid.

However, the law wasn’t enforced and was flouted by many agencies until 2012, when it was clarified following the Scottish Government’s announcement that “all renter charges, other than rent and a refundable deposit, will be deemed illegal.” Subsequently, the ban on letting agents charging fees in Scotland was brought into force in November 2012.

But will renters really be better off as a result of the ban? 

Following the ban in Scotland, the Scottish Association of Landlords and the Council of Letting Agents reported that:

• 20% of agents reported increased rent as a result

• 34% of agents simply charged the same fees to the landlords

• 23% of agents increased their landlord management fees to compensate

• Average rents increased by 2.3%

The Housing Minister warned in September that “landlords would pass costs to tenants via rent” if the fees were banned. However, looking at whether this led to rent rises, a committee of Westminster MPs in March 2015 concluded “the evidence available is not strong enough to reach a view on the impact of the ban on fees in Scotland”.

It’s yet to be seen what will happen, but even if rents are increased as a result of the landlord being asked to pay the letting agents’ fees, those costs will be spread out over the course of the tenancy rather than the renter being forced to pay the fees upfront.

The Letting Agent Code of Practice (Scotland) Regulations 2016, which is scheduled to come into force in January 2018, “…prohibits any person, as a condition of the grant, renewal or continuance of an assured or short assured tenancy, from requiring a renter or prospective renter to pay any charges except rent and a refundable deposit of no more than two months’ rent.”

There’s no guarantee that England will implement exactly the same rules, but there’s a fair likelihood that we will.

The Department for Communities and Local Government will consult ahead of bringing forward legislation and the Chancellor has said that these changes are to be brought in “as soon as possible”.

 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.