Five Warnings for 2018 – #5 The Tenant Fee Ban

A short series from landlord & tenant lawyer Tessa Shepperson on things you need to watch out for.

I include this not because the rules are likely to come into force in 2018 (although this is not impossible), but because you need to start preparing now.

There seems to be no doubt that fees to tenants will be abolished.  The measure is supported by both the Tories and the Labour party.  When it happens will depend on what Parliamentary time is available (bearing in mind Brexit) but I suspect it will not be delayed too long and we are probably looking at a date in 2019.

My views on the tenant fee ban

I personally approve of the ban.  When I practiced as a solicitor, avoiding conflicts of interest was an important part of the code of ethics I had to comply with.

Had I advised both parties to a transaction I would have been vulnerable to disciplinary proceedings and could have lost my practising certificate.  Solicitors are trained to avoid ’conflicts of interest’ and even now, when I no longer practise as a solicitor, I would be very wary about advising a landlord if the tenant had previously been a client, or vice versa.

The solicitors ‘conflict of interest’ rule is there because it is difficult if not impossible to give impartial advice to one party if you have a financial interest in the other party – i.e. are being paid to act on their behalf.  Plus, there are issues of confidentiality.

I suspect that the current situation, where it is common for agents to take fees from both sides, has only been allowed to develop because letting agents are unregulated.  I talk more about this here.

It would have been better if the current tenant fee situation had never been allowed to develop, but this does not alter the fact that as of now many perfectly respectable and honourable agents do charge these fees to tenants.  Their removal is going to cause a lot of upheaval.

It’s going to affect agents and landlords differently so let’s take a look at this.

Letting agents

There is a lot of difference in the fees actually charged.  Some agents only charge a modest £100 or so to cover the referencing fees.  Others charge up to £1,000 or so covering referencing and other ‘admin charges’.

Needless to say, the agents who charge the lower fees are going to be the ones who come off best after the change!

My advice would be to work steadily towards eliminating tenant fees from your charging structure.  However, when I speak to agents about this they tell me that they are reluctant to do this as it would put them at a disadvantage if their fees are higher than other agents who can afford to charge a low commission due to the tenant fees they charge.

One answer to this is to develop alternative sources of income.  For example, you may be able to earn commission from recommending services and products to landlords (provided the fact that you earn commission is clearly disclosed in your agency agreement).

The other possible solution is to work out an alternative pricing structure which you can put into place as soon as the ban comes into effect.

However overall you should work towards reducing your reliance on tenant fees as much as you can from now on.

Landlords

The main problem for landlords is that agents’ fees look set to become more expensive after (and maybe before) the ban comes into force.

Will you be able to afford them?

Moving to cheaper agents is probably not a good answer as there is a danger that they will be less competent.  An incompetent agent can end up costing you thousands, for example by breaching the deposit rules or letting in poor tenants due to inadequate referencing.

Raising rents is one answer but in an economy where wages are static or even diminishing, there is a limit to how far you can hike up rents.  If tenants are too stretched they will often fall into arrears which could end up costing you more.

Another solution is to manage your properties yourself.

You need to be careful here though as regulation is increasing and Local Authority enforcement is hotting up.  If you are fined or prosecuted for non-compliance this could be extremely expensive.  Much more expensive than using a good agent would have been.

However self-management can be a good option provided you get some proper training and take care to comply with all the rules.  A service like Landlord Law can help.

The final solution, and one which I think many landlords are taking, is to sell up.  Which is fair enough.  More property may then become available for desperate first-time buyers.

I suspect though that if you are an investor, you will find it hard to find an investment which pays as well (even after the fee hikes) than a buy to let property.

In Conclusion

Whether you are a landlord or an agent, this is a big change coming and you need to plan for it.

It is unlikely to go away.

Tessa Shepperson

Tessa is a lawyer specialising in landlord & tenant law and runs the popular Landlord Law  online service for landlords.

NB Get more help in Tessa’s 2018 January Mystery Box Giveaway

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