The new Government Bill to ban letting fees across England has been introduced in Parliament with the new Housing Secretary saying it will save tenants millions of pounds and make the market fairer and more transparent.
In his first action since being named Housing Secretary earlier this week, James Brokenshire pointed out that unexpected letting fees and high deposits can cause significant affordability problems for tenants.
The Government has decided to ban letting fees as they are often not clearly explained and many tenants are left unaware of the true costs of renting a property in the private rented sector but the Association of Residential Letting Agents (ARLA) does not think it will fulfil its aims with tenants being worse off.
While the Residential Landlords Association (RLA) argues that much quicker changes could and should be made to better enforce existing regulations designed to improve transparency around letting agent fees.
It is estimated that the Tenant Fees Bill will bring an end to costly letting fees and save tenants around £240 million a year as well as giving tenants greater assurances that the deposit they pay at the start of the tenancy cannot exceed six weeks’ rent.
Other key measures in the Bill include capping holding deposits at no more than one week’s rent. The Bill also sets out the proposed requirements on landlords and agents to return a holding deposit to a tenant.
The amount that can be charged for a change to tenancy will be capped at £50 unless the landlord demonstrates that greater costs were incurred.
There will be a financial penalty with a fine of £5,000 for an initial breach of the ban with a criminal offence where a person has been fined or convicted of the same offence within the last five years. Financial penalties of up to £30,000 can be issued as an alternative to prosecution.
Trading Standards will be required to enforce the ban and to make provision for tenants to be able to recover unlawfully charged fees via the First Tier Tribunal and it will also prevent landlords from recovering possession of their property via the section 21 Housing Act 1988 procedure until they have repaid any unlawfully charged fees.
A lead enforcement authority will be appointed for the lettings sector and the Consumer Rights Act 2015 will be amended to specify that the letting agent transparency requirements should apply to property portals such as Rightmove and Zoopla.
Local authorities will be able to retain the money raised through financial penalties with this money reserved for future local housing enforcement. Alongside rent and deposits, agents and landlords will only be permitted to charge tenants fees associated with a change or early termination of a tenancy when requested by the tenant, utilities, communication services and Council Tax and payments arising from a default by the tenant such as replacing lost keys.
The new measures are subject to Parliamentary timetables and will be introduced in law next year.
The Tenant Fees Bill builds on Government’s work this year to protect tenants and landlords through the introduction of new rogue landlord database, banning orders for rogue landlords and property agents as well as a new code of practice to regulate the letting and managing
‘This Government is determined to build a housing market fit for the future. Tenants across the country should not be stung by unexpected costs. That’s why we’re delivering our promise to ban letting fees, alongside other measures to make renting fairer and more transparent,’ said Brokenshire.
Overall the aim is to stop letting agents from exploiting their position as intermediaries between landlords and tenants, and prevent unfair practices such as double charging for the same services.
It will also help to increase competition between agents and landlords, which could help drive lower costs overall and a higher quality of service for tenants.
However, David Cox, chief executive of the Association of Residential Letting Agents (ARLA), said he does not believe the Bill will achieve its aims. ‘Our own research last year demonstrated that tenants will end up worse off and banning fees will not result in a more affordable private rented sector,’ he pointed out.
‘ARLA has worked hard over the last 18 months to explain the unintended consequences of the ban to Government, and we’re pleased they have listened and allowed Change of Sharer, Surrender of Tenancy, holding deposits, exempted the Green Deal Charge, and capped security deposits at six weeks, rather than the Committee’s proposed five week cap,’ he explained.
‘Now that we have greater clarity on what the ban will entail, agents must start preparing for when it comes into force,’ he added.
The RLA pointed out that since May 2015 the law has compelled letting agents to publish details of the fees they charge. Agents breaking this law can be fined up to £5,000 yet figures published last year by the National Approved Letting Scheme found that after two years of the law coming into effect 93% of councils had failed to issue a single financial penalty to a letting agent for breaching the law. Only three penalty notices had been served across England for failure to display all relevant landlord and tenant fees.
It added that 59% of councils admitted that they do not consider the displaying of fees to be a high property for the allocation of resources within Trading Standards and 45% said they only undertake reactive enforcement activity.
Instead of banning letting agent fees paid to tenants, the RLA is calling for immediate action to better enforce the law as it currently stands. This includes the Government using powers it has so far failed to use to force agents to display the fees they charge in more prominent positions and specify them in much greater detail.
‘Laws without proper enforcement serve only to let tenants and good landlords down. Rather than pressing ahead with plans for more legislation in the sector that will take time to be considered by Parliament and enacted, Ministers could achieve a greater and earlier impact by using the powers they already have to improve the transparency of fees charged by agents,’ said RLA’s policy director David Smith.
‘With warnings that the policy could lead to rent rises, there is a very real danger that whilst the cutting the upfront cost of renting, tenants will find themselves paying them through higher rents on a permanent basis,’ he pointed out.
‘Instead of using scarce Parliamentary time to make changes to letting fees much of which could be done by regulation and better enforcement, the Government could do more to reform the deposit system to deal with the need for most tenants to fund two deposits, one for the property they are leaving and one for the property they are going too. This cost is much higher and a much more substantial barrier to tenant mobility than agency fees,’ he added.
