23 September 2017

Holding deposits are excluded from the upcoming letting fees ban, says Housing Minister Alok Sharma.

In a recent House of Commons debate, he confirmed draft legislation is nearly ready but the deposits will not form part of the new rules.

The minister also revealed he would set up a ‘lead body’ to enforce the ban and that all letting agents would have to offer a client money protection scheme.

Other new facets of the legislation would also cover a central register of landlords for the UK and a national rental standard, although he did not disclose any details of his plans.

He told MPs that his staff were sifting through almost 5,000 replies to a recent consultation over the fees ban, but he had decided the ban will result in a “more competitive, affordable and transparent lettings market” and that evidence from a similar ban in Scotland showed the ban “won’t have the negative consequences people have suggested it would”.

The minister also felt the ban would not see rents rise, so a rental cap demanded by some would not offer an alternative.

His general view was letting fees charged by landlords and agents were unfair on tenants as they could not choose which business to deal with and had to pay the fees without any alternative of a cheaper option.

“A landlord is better placed to pay reference and credit check fees and anyway it is they who ask for the checks to be completed, not the tenant,” said Sharma.

“Many letting agents are concerned that some tenants withdraw from a tenancy before paying a deposit despite referencing having been completed, which this will prevent.

“This will also prevent tenants registering to rent multiple properties.”

Preparedness is the Key 

Navigating unchartered waters means unfamiliarity and a letting agent does not want to flounder. We have no experience of this type of change; comparisons have been made with the Fee Ban in Scotland, yet this does not provide a realistic similarity. The corporates are set to lose on average £20 million per year in revenue whilst the smaller independent is looking at £50,000.00. So what do we know so far?

The fees currently charged to a tenant, will disappear, this includes referencing, administration/ document fee, inventory, check-in/check-out charges, renewal fees, and so the list goes on (We have an in-depth list).

What might stay? Apparently any charge that is a a result of a “tenant action”, for example, damages (currently and always dealt with through the deposit), requests to amend the contract (permission for a pet, additional occupants, surrender/early termination).

What’s new? For the first time we will see the “Capped security deposit and holding fee” both, bizarrely, refundable. Again, we need to see the detail in the Draft Bill expected in October 2017, but because of this many referencing companies are offering an “insurance” product which will replace the deposit.

What are the options? Offering additional or new services to landlords- we have seen an increased demand for Block Management training; advising tenants to source their reference through referencing companies we already use; reviewing current fees charged to landlords (currently very low) and putting in place an increase; making the decision to take commission from suppliers, insurers for example. Streamlined systems to reduce cost and increase efficiency.

The fire at the Grenfell Tower mean that civil servants are dealing with far greater issues, however, there will without a doubt be an announcement in the coming months.