Government Could Cap Deposits as Well as Ban Tenant Fees

GOVERNMENT COULD CAP DEPOSITS AS WELL AS BAN TENANT FEES

With the Government finally announcing its long-awaited consultation on the ban on tenant fees and then deciding to scrap its proposed workshops to consult with the sector as soon as news of a General Election was announced, the industry is understandably all at sixes and sevens at the moment.

The Association of Residential Letting Agents (ARLA) is already calling on the Government to either extend the consultation period for the proposed ban in England – or scrap it completely until after the election. Chief Executive David Cox is also calling for the cancelled agents’ workshops to be reinstated. The current consultation period is due to end on June 2nd, six days before the election.

Whatever the outcome, the Government’s consultation paper makes for interesting reading as it suggests additional measures, as well as the ban on fees, might be implemented. This includes the proposed introduction of a cap on deposits or the way they are paid, how the new legislation will be implemented and some tough penalties for those who flout the rules.

Whilst ARLA and other industry bodies campaign voraciously against the overall ban, we pose the question: Would these proposed new measures be such a bad thing for the industry? Or will small agents drown in government interference, as is being suggested.

 The Devil is in The Detail

Although most agents have accepted that the proposed ban on fees, which is likely to be in place as early as next year, is a done deal, the debate shows no sign of letting up. However, there are a few finer details within the consultation paper that aren’t currently making the headlines but are worthy of a closer look.

For instance, management service charges that arise because of the direct action of the tenant or that are carried out at the request of a tenant are considered exempt, and therefore chargeable. It is anticipated that these charges will be limited to services such as arranging replacement keys, repairs carried out as a result of deliberate damage or breach of tenancy and for late payment of rent.

It also suggests that agents might be able to charge for premium services, for example when arranging a rental property for someone currently living in another country that is relocating to the UK. It is anticipated that these non-standard chargeable services will probably be more applicable to the top end of the market.

In addition, the Government doesn’t raise any objection to tenants choosing to undertake their own reference checks or obtaining a tenant passport, but it does stipulate that no agent or landlord can insist on them doing so, either via the agent or a third party. Once again, the Government has stated quite clearly that it proposes to ban 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 any other route. Tenants should only be required to pay their rent and a refundable deposit, which means no agent will be able to charge fees relative to the granting, renewing or continuation of any tenancy.

Our research suggests that in order to protect their landlords as much as ever, agents will continue to carry out the same vital business practices as before, even though tenants can no longer be charged for these services. As we haven’t yet come across a single agent who plans to stop carrying out reference checks on tenants it will be interesting to see how the process evolves over the next year or so. As always, you can rely on us to keep coming up with innovative solutions to help you along the way, so watch this space!

Capping Deposits

In its white paper the Government says it recognises that a deposit (usually equivalent to up two month’s rent) is a significant amount of money for a tenant to find at the outset of every new tenancy and is keen to explore ways of minimising this financial burden. Due to the fact that deposit levels have been increasing, making it harder for people to move home, they want to examine the option of capping the amount that can be requested.

They are also considering wider possibilities to address the problem, such as enabling tenants to pay their deposits in instalments over the first few months of their tenancy or using a line of credit approach where an agreed deposit amount is blocked on a tenant’s credit card.

Here is what Vicky Spratt, Deputy Editor at online magazine The Debrief who led a petition in April 2016 demanding letting agent fees to tenants be banned in England and Wales, had to say on the subject:

“For people who rent, instability is a key issue. If you move often, because a landlord increases rent, your contract runs out, or your housemates change – you may find yourself regularly paying out for deposits. They vary from agent to agent and can be several months’ rent. This can be particularly challenging when the deposit from your previous property is not released before you have to make a down payment on the next. Figures from Shelter show that tenants are often having to get into debt to cover upfront moving costs. A cap on deposits would standardise them and allow tenants to plan and save, they would know what to expect when moving.”

Whilst the Government has suggested that holding deposits might also need to be capped, it plans to allow agents to continue to collect them in order to ensure there is equal commitment on the tenant’s part when reserving a property. It also agrees that deposits should be forfeited if the applicant fails to uphold their side of the agreement by providing false information or withdrawing from the tenancy.

We asked Nick Griffiths, Director of Lettings and Sales at Manners Residential, what impact this new ruling is likely to have on the independent Woking agency and this was his response:

“I am fully supportive of any new regulations that will improve the Private Rented Sector for tenants and landlords, but the proposal to cap or ban deposits is going a step too far in my opinion. The majority of deposits are 1.5 times the monthly rent, and we rarely come across a tenant who has been unwilling or unable to pay this, and when we do we try to find a workable solution. Deposits are held to protect Landlords against damage and non-payment of rent, and help ensure that tenants take care of the property they rent. Tenants do get this money back at the end of the tenancy provided they have looked after the property and have kept up to date with their rental payments and other conditions of the tenancy agreement. Should the Government implement a ban, or cap deposits at a lower level than 1.5 times the monthly rent, some tenants may feel less inclined to look after the property. Let’s not forget that the deposit money is there to protect the landlord against damage and unpaid rent at the end of the tenancy, and reducing the size of the deposit could lead to rental increases.”

Nick, who has a wealth of estate agency experience, as well as a fantastic knowledge of the Woking and surrounding areas added:

“We always look towards minimising Landlords exposure to any loss or liability by securing a deposit on all tenancies as well as utilising the experience of The Lettings Hub for comprehensive referencing which helps us minimise risks to landlords by carrying out thorough checks on all our prospective tenants.”

So How Does The Government Plan to Implement The Ban?

We know that the consultation paper invites views and comments from tenants, landlords, letting agents and other interested parties on how the ban should be implemented and enforced and that an impact assessment will be completed following the consultation, but in its paper it already proposes the answer – that the ban should be enforced by local authorities, primarily Trading Standards.

In its vision for a ban that is clear and simple for all involved, it also proposes that the empowerment and education of tenants regarding their rights in the lettings process will be a useful tool in enforcing the ban; thereby reducing the burden on local authorities. Are we to take it then that the tenant is expected to proactively police agents?

Enforcement

Trading Standards may require additional support to ensure that enforcement of the ban is effective and the Government plans to seek the view of the sector on the following:-

  • The introduction of a lead enforcement authority
  • Increased data sharing to assist enforcement
  • Further regulation of the sector

Consideration will be given as to whether to make noncompliance with the ban on fees a civil or criminal offence. A civic penalty is incurred at the moment through non-compliance of the redress scheme, resulting in maximum fines of £5,000 which could be adopted but the Government isn’t ruling out tougher penalties, such as criminal prosecution.

Under the Housing and Planning Act 2016, the Government is introducing civil penalties of up to £30,000 for breach of banning order and a similar level of fine for agents who fail to comply with the ban on fees would arguably act as a considerable deterrent. Non-compliant agents could be subject to a fine as well as being banned from operating and placed on the database of rogue agents.

To read the Government’s full consultation paper, click here:

https://tinyurl.com/ktsco4a

To respond to the open consultation by completing an online survey, click here:

https://www.surveymonkey.co.uk/r/dclglet