The Tenant Fee Ban Is Almost Here!

The following is an open letter addressed to our landlords, however it is likely to be useful for any landlord considering their options after the tenant fee ban.

Dear Landlords

Tenant Fee Ban – from 1st June 2019

I am writing to you regarding changes that are due to affect letting agents and their clients when it comes to letting their properties.  For those of you who follow our MailChimp Newsletters, Blogs and circulars you will be well aware that these changes have been coming and we now know the date.

The Chancellor announced in his 2016 Autumn Statement that the Tenant Fee Ban was to be introduced and we have recently been advised that it is now to take effect from 1st June 2019.  From this date landlords/agents will be extremely limited in what payments can be taken from applicants/tenants for all new lettings. It does not immediately affect existing tenancies.

See the link: https://www.gov.uk/government/collections/tenant-fees-act

The only payments that can be taken will be as follows:

1. Rent and specific charges such as utilities, TV licence, internet provision where they may be provided by the landlord.
2. A holding deposit prior to the commencement of the tenancy equivalent to one week’s rent – which on completion of the tenancy has to be used to contribute towards the initial rent or deposit.
3. Deposit not exceeding five weeks’ rent.
4. Charges for tenant default for rent arrears, key loss, change of tenancy, surrender of lease, novation of contract and green deal charges – generally limited to £50 inclusive of VAT.

The ban applies to agents, landlords and third parties – it is wide ranging and presently offers no scope for avoidance.

Hazells Response

This change in legislation will undoubtedly be a significant challenge to all letting agents. Nationally it is estimated by ARLA that around 20% of all agents’ fee income is secured through charges made to tenants. For many agents this represents all of their profit.

At Hazells we have always tried to be fair when it comes to fees but like nearly all other letting/managing agents we have relied on charges to applicants/tenants in order to keep landlords’ costs down.

This combined fee income from both landlord and tenant has enabled us to provide the depth of services required in an ever more complex market.  For example, did you know that at the last count in the autumn of 2018 there were 154 pieces of legislation which apply to the letting and management of residential property? And this number is increasing at an alarming rate.

It is worth reviewing the areas of expertise which make up our services and these are appended for your ease of reference: see Appendix A

Without the contribution from the applicants/tenants the current business model comes under severe pressure. In short after 1st June 2019 our revenue stream will be reduced substantially.

Therefore, our business model, must change and adapt.  At Hazells we have been finding ways of smarter working to reduce our costs and will continue to pursue avenues of efficiency into the future but we cannot find the entire shortfall ourselves.

The likely outcome of the tenant fee ban is that we are going to have to increase our landlord’s costs for new lettings after the 1^st June.  We are currently considering the best way forward in this matter and will let you have our further thoughts as we approach the deadline.  We are hoping to keep the increase to a very manageable amount and do want to be transparent about the process.

We would very much like to hear about your views on the matter over the coming weeks as it is extremely important that we take these into account in everything we do.  Do please feel free to call or email me with any comments you would like to make.

Yours sincerely,

Chris Oakes

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If you are affected by any of these changes in legislation and would like to find out more, do not hesitate to get in touch with our residential experts who will be happy to help.

Chris Oakes MRICS