A Clearer View

The Tenant Fees Bill is nearing the end of its passage through Parliament: it reached the Report Stage in the House of Lords on 11 December and the final stage is a Third Reading in the House of Lords which will take place early in 2019.

The Bill is intended to make the residential lettings market more transparent and affordable. Specifically, it intends to:

• Ban letting fees (except for deposits and ‘default’ fees)
• Ensure deposits do not exceed five weeks’ rent (recently reduced from six in earlier drafts of the legislation)
• Stop letting agents from ‘exploiting’ their position as intermediaries between landlords and tenants
• Prevent double-charging
• Cap the amount that can be charged for a change to a tenancy at £50 (or costs)

Restrict the conditions in which a landlord or agent can charge ‘default’ fees.

Permitted payments include rent, security deposits (up to six weeks’ rent), holding deposits (up to one week’s rent), tenant default fees and capped fees for assignment, variation or early termination of a tenancy.

Landlords will have to provide evidence of the cost of repairs and replacement items to their tenants before they can impose charges.

Supporters claim that the Bill will result in cost savings and increased stability and security for tenants, whilst also making the lettings market more competitive and transparent.  

However, opponents fear that the legislation could remove a vital revenue stream for estate agencies, as tenants’ fees currently generate approximately £700m per year for agents in England and Wales.

Fixflo’s first ever landlord survey, which surveyed 401 UK lettings agents in England and Wales relayed that agents could lose up to 30% of their revenue due to the Bill. According to Fixflo, 48% of lettings agents are certain that their earnings would reduce by between 10% and 30%, half are contemplating leaving the rental sector if the legislation passes; and 10% believe that they would lose more than 30% of their current revenue, making their business untenable.

The Committee stage in the Lords resulted in two amendments: a default fee for late rent and a ban on agents or landlords from taking more than one holding deposit from tenants. Both are intended to introduce more transparency and consistency into the renting process.

Whether these amendments are implemented is not yet confirmed, but every indication is that the legislation as it currently stands will now not change.  Third reading – the final opportunity to make changes - is yet to be scheduled but is likely to take place early in the New Year.

The government has set up a new body which, it claims, will raise estate agency standards.

The Regulation of Property Agents working group, chaired by Lord Best and made up of experts from across the property sector, will consider initiatives including regulation and the introduction of mandatory qualifications for lettings agents, a Code of Practice, and an independent regulator.

The group is due to report back to the Government in summer 2019.

As of 1 November, Sheffield City Council now operates a system of Selective Licensing on three streets (approximately 668 properties). Sheffield joins Liverpool, Hastings, a third of all London boroughs, Durham and Oldham in trailing this initiative in selected areas.  
Selective Licensing is a discretionary power, introduced in part three of the Housing Act 2004. It imposes a legal requirement for residential landlords in a designated area to apply for a licence for each property that they let. Councils are able to impose conditions on the licence.

The intention is to raise standards of both homes and management, create safer housing conditions, improve rental and property values and improve the image and perception of the area.

In applying for the licence, landlords must show that they are a ‘fit and proper’ person and that they have management, funding, repair and maintenance and health and safety arrangements in place. The licence is £750, payable in two stages, and lasts for five years.

The schemes, which opponents claim are a means of boosting council funds, have faced criticism for both the cost of licenses and fact that rogue landlords may simply choose to avoid the licensed areas. There is also concern that landlords providing good quality may choose to invest elsewhere, rather than risk falling foul of the rules, which have proved confusing for landlords, who are not necessarily aware that their property lies in a selective licensing area.

Landlords who fail to register may end up with a criminal record, an order to repay 12 months’ rent, or be banned from letting a property in the future. Out of court settlements can result in civil penalty fines of up to £30,000.

It is apparent that the scheme is proving popular with local authorities and the Clearer View expects it to be adopted by a growing number of councils in the year ahead. For more information about selective licensing in London, view this website.