Government announce ban on letting fees for tenants

Wednesday, November 23rd, 2016 -

In a surprise announcement, the government have confirmed it is their intention to ban letting fees for tenants ‘as soon as possible’.

In the 2016 Autumn Statement to Parliament, the Rt Hon Philip Hammond MP, Chancellor of the Exchequer said:

In the private rental market, letting agents are currently able to charge unregulated fees to tenants. We have seen these fees spiral, often to hundreds of pounds.

This is wrong. Landlords appoint letting agents and landlords should meet their fees.

So I can announce today that we will ban fees to tenants as soon as possible“.

Treasury tweet ban letting fees 2016

The announcement came as a complete surprise to many in the industry, particularly in light of the Fair Fees Forum, recently established by the National Approved Letting Scheme (NALS) to bring industry, trading standards and consumer groups together to discuss the creation of a fair fees charter for the private rented sector.

In June 2016, NALS had also published an ‘Effective Enforcement Toolkit’ to help local authorities enforce the existing rules that require letting agents to display all landlord and tenant fees instore and on their website (read here).

Commenting on the decision to ban letting fees to tenants ARLA Managing Director, David Cox said:

A ban on letting agent fees is a draconian measure, and will have a profoundly negative impact on the rental market. It will be the fourth assault on the sector in just over a year, and do little to help cash poor renters save enough to get on the housing ladder. This decision is a crowd-pleaser, which will not help renters in the long-term. All of the implications need to be taken into account.

Most letting agents do not profit from fees. Our research shows that the average fee charged by ARLA Licenced agents is £202 per tenant, which we think is fair, reasonable and far from exploitative for the service tenants receive.

These costs enable agents to carry out various critical checks on tenants before letting a property. If fees are banned, these costs will be passed on to landlords, who will need to recoup the costs elsewhere, inevitably through higher rents. The banning of fees will end up hurting the most, the very people the government intends on helping the most.

Andrew Ellinas, Director, Sandfords (estate agent in Marylebone and Regents Park) commented:

The news that the government is banning letting agents fees to tenants as soon as possible and that landlords should meet those fees, has left me struggling to see how that’s fair. Granted there are some letting agents charging unreasonable fees, but on the whole tenants have simply been paying for a service required in order to rent a property. The devil will be in the detail, but it would seem that this is the latest move to hit landlords who are now facing increased costs.

Looking at the different principle fees tenants currently pay, it’s difficult to see how they are going to be charged and to justify why landlords should pick up the bill. For example, referencing fees. Tenants have to be referenced, but if they subsequently fail those checks, preventing the tenancy from going ahead, who pays that fee?

This could have a real impact on the London rental market. UK and overseas landlords will not welcome this news and will look to recover their incurred costs elsewhere. Tenants may avoid a fee at the start of the tenancy, but there will be an unavoidable outcome of higher rents for them to pay.

Eddie Hooker, CEO of Hamilton Fraser (parent company to Total Landlord Insurance) commented:

We, of course, support raising standards in the Private Rented Sector and initiatives to push out rogue letting agents, but we have concerns that an outright ban may have the unintended consequence of pushing up the already heavy burden of rents on tenants, especially in high demand areas. We called for additional enforcement to drive up standards in the industry only recently, but fear this is a step in the wrong direction and could in fact have an adverse effect.

This ban will increase costs on landlords who are trying to plug the gap in a difficult housing market. Parts of these costs are likely to be passed back to the tenant through increased rents as a result. It could also have a negative impact on the rental market as a whole with possible office closures and some agents having to shut up shop entirely.

In addition, the Chancellor announced that insurance premium tax will rise from 10% to 12% next June and this will also have ripple effects for our industry. Paying a higher premium on essential cover, such as buildings and contents insurance could mean that some people avoid taking up insurance leaving them unprotected.

We understand that a consultation on banning letting agent fees will be launched in the New Year and that the ban will require new primary legislation.

Update 30/11/2016: Government officials have indicated the ban on letting fees is unlikely to be implemented before 2018 as it will require new primary legislation.