Ban on letting agents' fees delayed until Spring 2019
A ban on letting agents’ fees for tenants will not be come into force until spring 2019 - because of the time it will take for the legislation to get through parliament.
The National Approved Lettings Scheme was told about the start date this week by the Ministry for Housing, Communities and Local Government.
The ministry expects the ban to come into force in around 15 months, once the proposals have been fully scrutinised by Parliament and stakeholders.
Industry experts have questioned the need for such a ban since it was first mooted in the 2016 Autumn Statement.
David Cox, ARLA Propertymark Chief Executive, said: “A ban on letting agent fees is a draconian measure, and will have a profoundly negative impact on the rental market.
"It will be the fourth assault on the sector in just over a year, and do little to help cash poor renters save enough to get on the housing ladder.
"This decision is a crowd-pleaser, which will not help renters in the long-term. All of the implications need to be taken into account.”
A government spokesman said: "This government is determined to make sure the housing market works for everyone.
"That’s why we’re delivering on our promise to ban tenant fees, alongside other measures, to make renting fairer and increase protection for people in the private rented sector.
“We announced our Tenant Fees Bill, which has been first published in draft so it can be fully scrutinised by everyone affected.
"As confirmed in our written evidence to the Communities and Local Government Select Committee, we expect the ban to come into force after spring 2019.”
An all-party Communities and Local Government Select Committee of MPs is carrying out pre-legislative scrutiny of the draft Tenant Fees Bill - the legislation containing the ban.
Background to the ban
The Government introduced the draft Bill to Parliament in November 2017, after formally announcing their intentions in the Queen’s Speech at the state opening of Parliament in June.
The thinking behind the ban was outlined in a statement: "Evidence shows the level of fees charged are often not clearly or consistently explained, leaving many tenants unaware of the true costs of renting a property.
"This latest action will help improve transparency, affordability and competition in the private rental market. It will also prevent agents from double charging both tenants and landlords for the same services."
An eight week consultation seeking views on the detail of how a ban should be introduced was launched in March and 4,724 responses were received from a range of individuals and organisations.
Details of the Ban
The draft Bill bans landlords and agents from requiring tenants to make any payments as a condition of their tenancy with the exception of the rent, a capped refundable security deposit, a capped refundable holding deposit and tenant default fees.
It also seeks to cap holding deposits at no more than one week’s rent and security deposits at no more than 6 weeks’ rent.
The draft bill also sets out the proposed requirements on landlords and agents to return a holding deposit to a tenant.
It creates a civil offence with a fine of £5,000 for an initial breach of the ban on letting agent fees and creates a criminal offence where a person has been fined or convicted of the same offence within the last 5 years.
Civil penalties of up to £30,000 can be issued as an alternative to prosecution.
It requires Trading Standards to enforce the ban and to make provision for tenants to be able to recover unlawfully charged fees.
It will appoint a lead enforcement authority in the lettings sector.
It also amends the Consumer Rights Act 2015 to specify that the letting agent transparency requirements should apply to property portals such as Rightmove and Zoopla.
Current fees are "fair and reasonable"
Research by ARLA Propertymark, a professional body for letting agents, shows that the average fee charged by an ARLA Propertymark Protected agent is £202 per tenant.
A spokesperson said: "We think is fair, reasonable and far from exploitative for the services tenants receive including completing various critical checks on tenants before letting a property.
"We believe that the ban on fees will involve passing the costs on to landlords. Who will then look to recoup these costs elsewhere; inevitably through higher rents.
"It will have a drastic impact on many people and businesses and to announce it without consultation or clarity is wrong.
"We do not support the banning of letting agents charging fees to tenants. We believe fees should be open, transparent and reasonable. They represent legitimate costs to the business that need to be covered."
Economic impact of the ban
The residential lettings sector turns over around £4billion per year and employs some 58,000 workers.
Fees charged to tenants generate around £700 million per year or approximately 20 per cent of the industry's turnover.
Capital Economics has predicted that in the event of an outright ban agents stand to lose £200 million in turnover and a staggering 3,000 jobs could be lost.
David Cox, chief executive of ARLA Propertymark, a professional body for letting agents, said: ”We have discussed the proposal to ban letting agents fees with Government ministers and officials many times since the announcement.
"Having now seen the Draft Bill, it is essential that during its passage through Parliament, this legislation is shaped to make it fair to consumers, while supporting businesses to carry out the work necessary to create and maintain successful tenancies; including legal requirements such as Right to Rent checks.
“We are very pleased to see that government has listened to our call and increased maximum security deposits from four to six weeks and are encouraged that it appears those tenants who wish to break their contract will have to cover the legitimate costs of finding a new tenant.”