Tenant Fees Bill
Draft Tenant Fees Bill
The government has been talking about banning tenant’s fees since the
end of 2016, and they have now finally published their draft bill. We had fully
expected the Bill to follow very closely the ban that was introduced in
Scotland in 2012, and this is largely the case.
It will however, put further requirements on letting agents and
landlords, which were also expected.
The only fees a landlord or letting agent will be permitted to charge
to are tenant are as follows:
·
Rent
·
A refundable tenancy deposit, but capped to six
weeks' rent
·
A refundable holding deposit, but capped to 1
week's rent
·
Tenant default fees defined in the tenancy
agreement (lost keys, late payment of rent etc.)
There are a number of fees that Tenants commonly pay today which will
therefore be considered
"prohibited payments" and therefore banned from being charged
to the tenant. These include (but are not limited to):
·
Tenancy Application or Setup Fees
·
Referencing Fees
·
Tenancy Renewal Fees
·
Larger deposits that six weeks for permitting
pets for example.
·
The tenant can also not be required to enter
into a relationship with a third party that may also charge fees.
·
This could include tenant’s accidental damage
insurance in the property for example.
Whilst much of this is the result of unscrupulous practice by some
landlords and letting agents, it will nonetheless have an impact on the
lettings market and the way that landlords and agents view both their tenants and
their tenancy agreements.
Tenancy Application or Setup
Fees
Firstly, the removal of the ability to put tenancy application and
referencing fees in place, means tenants are far more likely to apply for
multiple properties (as there is no cost to them in doing so),
and pull out of their least favourites based on which tenancies are
accepted.
The Bill does however allow for a refundable holding fee of 1 week's
rent to be taken which is not refundable should the tenant withdraw for no good
reason.
It will also result in landlords and agents requiring prospective
tenants to sign their tenancy agreement as soon as they have passed
referencing, to ensure they are held legally to the tenancy agreement as early
as possible.
Referencing Fees
Carrying out Landlord and employment references and credit checks on
prospective tenants to good practice for all landlords, and usually also determines
the landlord's ability to obtain Rent Guarantee or Free Eviction insurance. As
a result, it is likely that landlords will have to pay for this themselves
going forward.
Tenancy Renewal Fees
As most landlords are aware, after the end of the initial 12 month
period of any Assured Shorthold Tenancy (as defined by the Housing Act), you
have the option to either extend the original fixed term tenant for a further
term, and continue with an Assured Shorthold Tenancy, or roll the tenancy on
month to month in what is commonly referred to as a periodic or statutory
contract.
The benefit to the landlord of extending to a new fixed term agreement,
is that you get a new, minimum fixed term agreement (usually for 12 months, or
12 months with a 6 month break clause), and both parties are required to give
two months’ notice to vacate at the end of the term, and rent increases and
serving of documents such as How to Rent and Prescribed deposit information is done automatically.
As this usually involves the creation of a new tenancy agreement signed
by both parties, the cost of this is usually split between the tenant and the
landlord. Going forward, the full cost would be borne by the landlord.
If you choose to allow the tenancy to roll on month to month, this
agreement would now be under statutory law, meaning there would be no fixed
term, the tenant can give one months' notice at any time, (but the landlord is
still required to give two months’ notice), any rent increase has to be served
via a section 13 notice, and deposit prescribed information and how to rent
guides still have to be provided to the tenant. Again, the cost of serving any
statutory notices will still need to be borne by the landlord.
Cap on Deposits
Currently, a normal deposit taken in the Basingstoke area is 6 weeks,
so on the face of it, this is not a big change.
However, there are certain circumstances, where a larger deposit would
be taken. This would include where pets would be permitted in the property, where
there are younger tenants, or when referencing might suggest that the tenant is
a higher risk.
The likely impact of this cap, is that landlords will look much more
carefully at whether to accept a tenancy where in the past they would have
requested a larger deposit. This will impact tenants with pets most heavily we
suspect, making it much harder for them to find landlords willing to accept
them.
We are unsure as to what prompted this element of the bill, but this is
far more likely to impact tenants than landlords.
The result in Scotland, was that the ban on fees, resulted in higher
costs to landlords, who then passed this cost back to their tenant through
higher rents, and that far from reducing the cost of renting for most tenants,
the increase in rent meant that over time, it actually cost the tenants more.
The exception to this is where unscrupulous landlords or agents have
charged ridiculous fees to their tenants (particularly application fees).
Consumer Rights Act
The additional changes that will be brought into law, will be the
requirement for Agents to:
·
Be part of a redress scheme (e.g. The Property
Ombudsman)
·
Have client Money Protection (Protect deposits
and other client money held)
In Martin & Co Basingstoke's opinion, this is long overdue. We are
already ARLA licenced (Association of Residential Letting Agents) which already
requires us to be part of the property ombudsman scheme, hold client money
protection insurance and conduct a minimum number of hours training for our
staff.
We believe it should go further, and require all deposits to be held in
a custodial scheme such as the DPS rather than allowing either landlords or
agents to hold the money and insure it as they can today.
Summary
As the bill requires an act of parliament to pass into law, it is
unlikely that this will become law until the second half of 2018 as far as we
can tell at this point. Overall it currently has a lot of support, and is
unlikely to receive much resistance in its passage through parliament.
https://www.gov.uk/government/publications/draft-tenants-fees-bill
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