Thursday 13 June 2019 6:30 am

The potential consequences of the Tenant Fee Ban

Welcome to a new era, where unscrupulous letting agents are no longer allowed to demand that tenants pay hundreds of pounds in unjustified fees.

The new law has been several years in the making, but at the start of this month, it finally became illegal for letting companies in England to charge tenants rip-off fees.

Cue the sighs of relief from the millions of renters, who – according to Generation Rent – were paying up to £813 in fees every time they moved.

With these fees combined with the added burden of deposits (which are refundable, but payable upfront), it’s not surprising that many young people have had to ask family or friends to help them with the costs of moving.

It’s estimated that a third of millennials will rent for their entire lives, so a better, fairer system has become increasingly necessary.

So here’s what could happen now.

What are the new rules?

Under the new Tenant Fees Act, letting agents are now significantly restricted in what they can charge tenants.

Renters in England who sign new agreements can no longer be charged fees for referencing, renewals, admin, or inventory, meaning that, for the most part, you’ll only have to pay rent and a refundable deposit.

If you entered into an agreement before 1 June 2019, you can still be charged fees until the end of May 2020.

The government has also imposed thresholds, capping deposits at five weeks’ rent (or six weeks where the annual rent exceeds £50,000). With tenants in London paying an average of £420 in rent each week, this caps the average upfront cost of a deposit at £2,099.

Meanwhile, refundable holding deposits – which are used to reserve a property – are capped at the equivalent of one week’s rent. And unless the letting agent can justify a greater expense, they can now only charge tenants a maximum of £50 for any amendments to be made to the agreement during the tenancy.

If you are more than 14 days late on your rent, you can also be liable for a “default” fee, which is charged as interest – though it cannot be more than three per cent above the Bank of England’s base rate (currently 0.75 per cent) for each day that the payment has been outstanding.

To put this in monetary terms, for those in London, you would only be liable to pay £5.18 on average for the whole month your rent is late. “Don’t be fooled by any hefty charges for late rental fees,” says Tom Gatzen, co-founder of Ideal Flatmate. “Although, of course, it’s much easier to be a good tenant and pay your rent on time.”

A default fee also applies if you need a lock or key fob replaced, but the letting agent has to provide written evidence to show that any costs are reasonable. Bear in mind that fees still apply if you want to terminate your contract early – in fact, that’s the one area of the letting industry where the charge remains variable.

“Early termination of a contract can put a landlord at a disadvantage, and early termination fees can include any outstanding rent plus an additional charge from the letting agent,” says Gatzen. “Fees will be dependent on the agent, so try to avoid exiting early at all costs in order to dodge any unfair fees.”

Rising rents?

With such a massive overhaul of the rental rules, it’s possible that there will be some knee-jerk reactions, particularly as letting agents grapple with new business models.

Since the ban was promised by the government three years ago, much of the private rental sector has warned that rents could climb as a result. Whether this will happen is up for debate – rents haven’t increased in Scotland, where a tenant fee ban has been in place since 2012.

Andrew Turner, chief executive at Commercial Trust Limited, thinks it’s unlikely that rents will rise. “On the whole, landlords are not out to make a quick buck, and many would rather retain a good tenant than risk losing them over rental hikes.”

Indeed, Turner suggests that rental increases will be a last resort for most landlords, particularly as letting agent fees and management fees are tax-deductible, meaning that landlords don’t bear the brunt of the cost because they can reclaim the tax on additional charges. But if your landlord does insist on a rent hike, they must give you at least one month’s notice, and you must have agreed to it.

Will they comply?

With community union Acorn warning that some letting agents are planning to disregard the new rules, there are concerns about how effectively the fees ban will be enforced.

One way to gauge how compliant these companies will be is to look at how they’ve behaved with older laws.

Back in 2017, Generation Rent published research which found that 131 of 1,088 letting agents were in breach of the Consumer Rights Act by failing to display the fees they charge to tenants. This Act, which came into force in 2015, requires letting agents to outline their fees in-branch and on their website. The penalty for failing to do so is £5,000.

When Generation Rent conducted new research this year, looking at the 131 agents that weren’t compliant in 2017, plus an additional 61 (some of which had been reported to the campaign group), it found that 21 letting agents were breaking the law.

“The scale of malpractice from the lettings industry is shocking, and in some instances, they were found to be deliberately misleading tenants,” says Georgie Laming, campaigner at Generation Rent. “While the Tenant Fees Act is a brilliant victory for renters, it is clear that we need better enforcement of the law if it is to work properly.”

And if they break the law?

If your landlord or agent is asking you to fork out on any unlawful fees, you should refuse.

If they insist, get evidence in writing, and make sure that you keep a record of any correspondence.

For renters who pay a prohibited fee after 1 June, there are ways of getting this money back – first by asking your letting agent directly. If they still refuse, you can lodge a complaint with the relevant redress scheme, before escalating to your local authority. Make sure you keep written confirmation from the agent, as well as any receipts, invoices, and bank statements.

Letting agents who breach the ban will be liable for a fine of up to £5,000. If they breach the ban again, the penalty ramps up to £30,000 or prosecution.

Hopefully, this will be enough to deter dodgy letting agents, but for this ban to be properly enforced, part of the responsibility lies in the hands of tenants to report any wrongdoings to local authorities.

But more positively, let’s hope that these new rules will be the catalyst that encourages letting agents to provide a good service.

Who knows, perhaps tenants will finally be treated like customers, rather than a cash cow.