Mon 18 Mar 2019

What are Tenant Fees?

To understand the tenant fee ban, we probably need to understand what the current fees that tenants are liable for are. Estate agents make a charge to cover the administration costs of the following fees:

Application fees;
Guarantor fees;
Inventory fees;
Referencing fees;
Increased deposits for things like pets.

Whilst the term “administration costs” sometimes seems like a cop out for a cost that is there simply to earn a company more money, this could not be further from the truth! A large portion of time is spent processing the documentation associated with these requirements, chasing up third party companies on behalf of the prospective tenant, and dealing with any queries that crop up as a result of them. All of this work is with the sole aim to ensure the landlord gets an approved tenant and the tenant is protected legally, because everything has been processed correctly.

Why is the Tenant Fee Ban Coming Into Place?

To be fair, the government probably didn’t have a choice as a result of Scotland doing this in 2012.

Its purpose is to try and stop rogue landlord and agents charging extortionate fees (Some charge in excess of £500 per tenant!) and to make the what is a not very regulated sector much fairer. We can’t argue with the reasoning begind this change – any changes to hold the participants in our industry to higher standards is something we welcome.

So, What Exactly is it?

Essentially all tenant fees are banned apart from those that have been specifically allowed. Agents will still be able to charge:

Rent (well, obviously!);
Deposit (capped at 5 weeks rent);
Holding deposit which must either be refunded to the tenant upon successful move in or offset against the deposit;
Late rent charges;
Lost keys/security devices.

When Will the Tenant Fee Ban Come into Effect?

The tenant fee ban is coming into place on 1st June, 2019. This was confirmed by the Government in February this year.

What Impact Will This Have?

For some agents this may represent a loss of income of up to 40% which may well sink some companies unless drastic measures have already been taken. This isn’t pessimistic thinking, it’s been seen in Scotland already.

Luckily, our tenant fees are relatively low compares to most agencies so we won’t be the hardest hit.

Most agents will be increasing their fees to landlords which is probably going to be biggest change. We think that the fee ban will mean rogue agents currently charging landlords very low fees and tenants very high ones will be forced to put their charges in line with other decent agents. We think those landlords who have been tempted to use cheap, low quality agents will be jumping ship.

Here at Oulsnam we started making changes 12 months ago to make sure the ban didn’t hit us hard. We have been looking at other avenues to increase income to make up the shortfall in ways that don’t impact on our clients pockets. This has been from things like insurance commission, utility transfer commission, teaming up with companies like Zero Deposit and improving our back-end systems to cut costs in other areas.

We think the impact of landlord fees going up will mean 2 things:

Rents are likely to increase. (They went up massively in Scotland following the ban);
Some landlords will sell their properties that aren’t attracting a good return.

In turn this means tenants will be end up paying more, and have less stock to choose from.

The thing landlords have to bear in mind is that although they will probably have to pay slightly more in fees they should be able to offset these fees against tax. Allso they should seek to keep their rents in line with market value (rather than letting tenancies drift on in a periodic status without a rent increase).