Autumn Statement 2016: ban on letting agents’ fees

Autumn Statement 2016: ban on letting agents’ fees

The Chancellor announced in the Autumn Statement 2016 that letting agents’ fees would be banned. But why has this been brought in? How soon will it take effect? Will all charges be banned? Can agents charge the landlords instead? And will landlords managing their own properties still be able to charge fees?

These are just some of the questions that many landlords and agents must now be asking.

There was little detail in the Autumn Statement itself…

'3.41 Letting agent fees – The government will ban letting agents’ fees to tenants, to improve competition in the private rental market and give renters greater clarity and control over what they will pay. The Department for Communities and Local Government (DCLG) will consult ahead of bringing forward legislation.'

...so Sarah Coates-Madden, Housing Litigation solicitor at Gosschalks, has taken a closer look at the details to try to answer these questions.

Why has the ban been brought in?

Consumer and tenant groups have long been lobbying for the ban because there are reports of some agents charging extortionate fees for doing very little.

Some landlords have commented that a greedy few agents have spoilt it for all by demanding charges that far exceed actual costs.

The Autumn statement introduces the ban as a measure to assist consumers by means of increased competition, more choice and lower prices.

How soon will the change take effect?

In terms of timescale, the RICS reports that DCLG has confirmed that it will carry out a full consultation, and that there will then be primary legislation to bring the ban into effect.

This means nothing is likely to change during 2017, so landlords and agents do have some time to prepare.

How will landlords, tenants and agents be affected?

It’s not yet clear precisely who and what will be affected.

The statement is clear that it will only be fees to tenants that will be banned. Leaving agents open to charge the landlord instead, or absorb the charges themselves.

After all, the agent is working for the landlord and not for the tenant. So some would see this as only fair.

Landlords can choose which agent they use, or whether to use an agent. But tenants don’t necessarily have a choice.

Will landlords who manage their own properties still be able to charge fees?

The Autumn Statement referred only to letting agents. But there are many landlords managing their own portfolios that raise administration and similar charges against tenants.

It’s not clear if the new legislation will cover them.

If it mirrors the Scottish legislation then it will cover any person requiring payment of a premium as a condition of the grant, renewal or continuance of a tenancy, not just letting agents.

Whether all and any costs and fees will be banned, or whether agents will be able to charge tenants the actual costs of say, paying for a credit reference, or paying for an inventory clerk, but not add on their own fee for obtaining the reference or arranging the inventory, will be seen in the detail of the legislation.

No doubt there will be measures put in place to prevent loopholes.

In the Scottish legislation, which has actually been around since 1984 but was more robustly defined in the Private Rented Housing (Scotland) Act 2011 'premium' was defined as:

‘Any fine, sum or pecuniary consideration, other than the rent, and includes any service, administration fee or charge.’

What this means for you

I have no evidence, but I can’t help but feel the reports of the most extortionate agent charges are from areas where there is a high demand for rental properties, such as London and the South East. And as with much housing policy, this has been made with those areas in mind.

For areas like Hull, where the rental market is highly competitive and supply outstrips demand, it is less likely that agents can get away with hiking up their charges, less likely that 'rogue' landlords and agents will be widespread, and also less likely that landlords will be able to absorb the charges by adding them to rents.  This is because the market is going to be the main factor that determines the rent a landlord can achieve.

There are concerns among landlords’ and letting agents’ associations that the costs will just be passed on to tenants’ rents. But there is no clear evidence that has happened in Scotland.

The full detail and the effects remain to be seen.

In the meantime, agents and landlords should look out for and take part in any consultation by DCLG and plan their businesses around the proposed changes before they’re introduced.

Need advice? Get in touch today

Please call Sarah Coates-Madden on 01482 324252.

Or email Sarah here.

You can find out more about our Property Law services here.

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