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Banning letting agent fees paid by tenants

The Government has published its consultation paper on banning letting agent fees paid by tenants. The consultation is expected to last for 8 weeks until the 2 June 2017.

The Government is keen on banning letting agent fees in the hope that it will improve competition in the market and give tenants greater clarity and control over what they will pay. They also hope that such a ban will ensure that tenants may at a glance see what a given property will cost without any hidden costs which will make moving around the rental sector easier and less costly.

For agents and landlords, the Government hopes that a ban will sharpen and increase letting agents’ incentives to compete for landlords who will be in a stronger position to shop around and may result in a better and more transparent service.

At present the Consumer Rights Act 2015 places a positive obligation on agents to clearly display their fees in their office and website. However, despite this transparency requirement some agents are still failing to do so and some agents display their fees in such a way that neither landlord or tenant can determine whether they are being charged correctly.
Therefore, the Government’s rationale for the ban is that a small minority of agents exploit their role as an intermediary between the tenant and landlord by imposing unfair charges on the tenant or double charging tenants and landlords for the same service. Furthermore, fees are usually payable at the outset, renewal or extension of a tenancy which can incentivise some agents to offer short term tenancies but a ban could help to promote longer term tenancies. Such a ban may also help tenants save for a deposit should they ever wish to buy their own home.
The ban is expected to be clear and simple for all involved without unreasonably increasing the risk or financial exposure of landlords and agents. However, some exemptions to the ban are expected and they are:

  1. Holding deposits- properties are then taken off the market while references are checked; and
  2. In-tenancy property management service charges arising at the request of the tenant or because of the tenant’s actions.

The proposals will mean:

  1. A ban on any letting fees charged to tenants by landlords and any other third parties to ensure that letting agent fees are not paid by tenants through other routes. Tenants should only be required to pay their rent and a refundable deposit.
  2. An examination of the option of capping the amount of deposit that can be requested by the landlord to prevent the ever-increasing amount that is currently demanded.

The ban will be enforced by Trading Standards which builds on their existing work by enforcing breaches of the Consumer Rights Act 2015.

Finally, the Government is not expecting agents to pass on their fees to landlords after the ban because it believes that often these fees are excessive or double charged. The Government is hoping that following the ban agents will implement a policy of efficiency and fairness to secure landlord’s business with fees charged on a fair basis for the service provided.

Comment
There is no doubt that this ban is going to be implemented and as such agents are strongly advised to consider their business models to ensure that they can continue once the ban is in place.

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