Letting agent fees consultation commits to wide ranging ban 

The ban on letting fees for tenants has moved a step closer with publication of the government’s consultation on how the ban will operate. Shelter has been campaigning for an end to tenant fees since 2013, so unsurprisingly there’s much about the consultation that we like, particularly:

  • It shows the government understands the dynamics of the lettings market
  • It’s ambitious about enforcement
  • And it recognises that letting fees aren’t the only problems for renters

Acknowledging renters’ lack of power

Perhaps the most encouraging aspect of the consultation is it signals that DCLG is getting to grips with the dynamics of the rental market.

The document is explicit in recognising that the ban is fair and necessary because the private rental sector puts tenants in a weak negotiating position where they can be exploited by agents who are only answerable to landlords. Tenants have little control over the fees charged and, even with greater transparency, can struggle to establish the total cost of renting a new home.

The consultation correctly identifies:

“The ban will recognise the stronger market position of landlords and recognise that agent services are primarily provided on their behalf; landlords will choose the agent that provides the quality of service that they are seeking at a price that they are willing to pay. This will sharpen letting agents’ incentives to compete for landlords’ business resulting in lower overall fee levels and a good quality of service.”

It’s for this reason that we, and DCLG, don’t think the ban on fees will excessively increase rents to tenants. Some agents may pass on some additional costs to landlords, and some landlords may adjust their rents accordingly. But the overall dynamic should encourage agents to compete on price and landlords to negotiate down excessive costs.

As DCLG puts it: “We would not expect the full level of tenant fees that are charged currently by letting agents to be passed on to landlords since there is evidence that a number of agents are charging excessive fees and that some agents are double charging landlords and tenants. Under the ban, all agents will need to be efficient and fair with their fees in order to secure landlords’ business and therefore the fees charged should be a fair reflection of the services provided.”

Or more simply put, a ban on fees to tenants will mean agents can no longer get away with adding a rip-off premium to their costs when faced with a client who can actually tell them where to go.

Good enforcement will be key

Past attempts to improve the lettings market through greater transparency proved that enforcement can be difficult.

We’ve argued previously that a clear, unambiguous ban is a crucial first step to making the ban work. Grey areas will only create loopholes where agents can continue to argue that their costs are justified and force tenants to pay unfair fees. For this reason, we are pleased that the consultation makes clear the ban will include allfees, premium or charges that meet the general definition of granting, renewing or continuing a tenancy”, as well as any fee charged by landlords or other third parties. There will be no wriggle room for referencing and other add-on costs.

But we’re not convinced that Trading Standards will be able to enforce the ban alone, so it’s welcome to see the government consult on ways to bolster their role.

One of the most important tools in the government’s arsenal will be a meaningful deterrent. It’s sadly unlikely that civil penalties of up to £5,000, the maximum that can be levied under the Consumer Rights Act, will bring about the huge cultural shift needed in the lettings market.

The Housing and Planning Act showed that the government was prepared to get tough with rogue landlords, imposing maximum penalties of £30,000 for landlords who breach a banning order. We think this should be the benchmark aimed at for rogue letting agents who continue to rip off tenants.

Banning letting fees alone is not the answer

Fees are a big problem for tenants. Our research in 2013 found that more than one in seven had been charged over £500 the last time they moved. But many renters also struggle to find a deposit or rent in advance. The loss of a private rented tenancy is now the single leading cause of homelessness among people turning to local authorities for help, and in our experience it’s the inability to find a new home at an affordable price and meet the up-front cost of securing a new tenancy that is a major driver of this trend.

Encouragingly the consultation signals support for capping maximum deposits, as well as the need to explore other options to protecting both landlords and tenants. It’s understandable that landlords need some guarantee that they will not be left out of pocket for damage, but low income families and government also have an interest in ensuring that the set-up costs of a tenancy are not prohibitive.

The consultation also acknowledges that further regulation of the letting agent market itself is necessary. People’s reasons for becoming landlord are varied and the private renter sector will always have to accommodate a number of accidental landlords. But there is no reason why greater professionalism shouldn’t be demanded from agents who set themselves up to let and manage properties. We’d welcome moves towards a national register of agents and a statutory code of practice to raise standards across the industry.

A ban on letting fees will bring immediate savings to tenants and tackle some of the dysfunction in the letting market. But the real prize is a sea change in the private rented sector that increases tenants’ stability and consumer power and demands all landlords and letting agents raise their game.

If you’d like to support the ban then please tell DCLG about your experiences here. The department is also holding a number of workshops with tenants, landlords and agents to explore the issues raised. Shelter will be hosting an event on 5th May at our London office. You can register to attend here.