Figures are beginning to emerge on the financial cost to landlords and letting agents of the government’s intention to ban letting agents’ fees to tenants (so-called tenant fees), according to a report published by the Residential Landlord’s Association (RLA) on the 2nd of April 2018.
The government’s plans to ban letting agents’ fees being charged to tenants were announced in a draft Bill to Parliament last November and the RLA’s report refers to the impact assessment prepared for the Housing, Communities and Local Government Select Committee (HCLGSC).
The ban on tenant fees is expected to cost landlords a total of £82.9million in its first year of implementation, says the assessment, whilst letting agents themselves face a bill of £157.1 million.
If you are a landlord, of course, your immediate response to no longer being able to charge your tenant directly for the fees you may need to pay a letting agent is to recover the cost some other way. The government has anticipated this response by introducing a specific ban on landlords increasing the first month’s rent paid by the tenant to cover the cost of the letting fees.
Pressure groups have – not unnaturally – forecast a general increase in rents, therefore, as landlords strive to recover the costs of such fees.
The proposed penalties for breaching the new regulations on tenant fees is a fine of up to £5,000 in the first instance, rising to a maximum of £30,000 if it is a second offence within five years, or potential proceedings in the criminal courts.
Included in the measures proposed in November of 2017 was a cap on the amounts of deposit a landlord may charge his tenant – a holding deposit to be limited to no more than the equivalent of one week’s rent and a security deposit (against breakages and damage) of no more than six week’s rent.
In its impact assessment of the proposed measures, the government has confirmed these caps – but stresses that they are upper limits and that, in many instances, the landlord may decide that a smaller deposit may suffice.
For the first time, however, the government has accepted a recommendation that holding deposits may also be charged by letting agents.
In its response to the HCLGSC, the government has promised to provide “guidance” to landlords on what it considers to be an appropriate level of deposit in either case. It has also suggested that the landlord’s only reason for retaining a security deposit is as the result of some breach by the tenant of the tenancy agreement.
According to a report in the Guardian newspaper on the 6th of January 2018, the ban on tenant fees and caps on tenants’ deposits are unlikely to come into force until “after spring of 2019”.
Tenancy Deposit Protection scheme
The regulations on tenant fees currently under consideration suggest no change in the present Tenancy Deposit Protection scheme, which came into full force on the 23rd of June 2015, and which require any landlord to place a deposit received from a tenant in an approved, independent account for safekeeping until its return.
Failure to place the deposit in an approved scheme may attract an unlimited fine, up to three times the value of the deposit taken, but typically in the sum of £3,600.
Please note: This should not be construed as advice and is based on our current understanding of the legislation.