The Tenant Fees Act 2019 came into effect on June 1st this year. Since the plans were first unveiled by the chancellor Philip Hammond in the 2016 Autumn Statement, it has been a topic of conversation within the lettings industry, with some landlords expressing concerns about the financial viability of scrapping fees for tenants.
The Tenant Fees Act will cap tenancy deposits in order to reduce tenants’ expenses and make costs associated with tenancies more transparent. Under the new legislation, the amount of deposit landlords can ask for will be capped at a maximum of five weeks, with holding deposits fixed at no more than one week’s rent. Landlords and their agents will not be allowed to charge tenants for credit checks, inventories and references. What can still be charged for, aside from damages caused by the tenant, are two ‘default fees. A Landlord will be able to charge for lost keys, including the cost of replacing them and reasonable costs, although these costs will need to be ‘evidenced’. Regarding rent arrears the Act says that you can charge 3% above the Bank of England base rate in interest, from the date arrears began. In practice, this will usually be for a tiny amount of money and is unlikely to be a deterrent to someone unable or unwilling to pay rent. The repercussions for accidentally charging tenants fees that aren’t permitted under the new Tenant Fees Bill can be costly. Not only can tenants reclaim the money they’ve paid including interest, but trading standards could fine you up to £30,000.
While this Act is clearly aimed at a tiny minority of unscrupulous agents and, the majority of Landlords who treat their tenants with fairness and consideration will get swept up as well. The Association of Residential Letting Agents (ARLA) say that the changes will cause a 20% reduction in revenue for the average letting agent. Agents will have little choice but to find ways to recoup their lost income. Charging Landlords a higher commission to find tenants and manage properties is an obvious starting point, but they could also do to property owners what they can no longer do to renters – introduce new admin fees. For Landlords the obvious response is to increase rents. Landlords may also want to try and increase tenant retention, to reduce the amount of times they must handle the costs of taking on new tenants. Failing to carry out reference and credit checks is not an option, just an invitation to problems. Landlords may want to consider charging for rent arrears and tenancy agreements if they don’t currently. Larger portfolio landlords may be able to recuperate some of the extra expenses by selling additional services such as cleaning. Looking at the financing of your properties in order to reduce costs and improve margins is a further possible way for Landlords to mitigate the costs of the new Act. Get in touch to discuss how we may be able to assist with this point.