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Tenant fees ban to cost agents up to £4bn plus job losses and closures, Government admits

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The tenant fees ban will cost agents anywhere between £1bn and £4bn over the first ten years, the Government has said.

In its impact statement released at the same time as the Tenant Fees Bill was introduced to Parliament, it said that in the first year alone of the ban, the cost to landlords will be £82.9m, and to letting agents £157.1m, excluding familiarisation, or transition costs.

However, the cost to agents in that first year could be as high £273.9m, or as low as £76.8m – again, without transition costs.

It acknowledges: “There is a potential negative effect on the closure of letting agents and employment losses, and on third party suppliers to letting agents such as inventory suppliers.

“However, if it is the most inefficient agents that leave the market, then in turn market efficiency would improve.”

The impact assessment states: “We are not able to reliably forecast the loss of employment from the ban on tenant fees.”

However, it estimates there are 16,000 letting agent branches in England, employing an average of 3.6people and managing 200 properties.

The impact assessment also acknowledges that letting agents will make up some of their lost income by passing more costs over to landlords.

The paper states: “We expect that landlords using letting agents will see their fees rise by an amount equivalent to 50% of what their letting agent was charging their tenant.

“This is in line with a report from Capital Economics prepared for ARLA Propertymark, which argued that the pass-through rate is likely to be 50-100%.”

In a separate paper released yesterday, the Government has rejected a recommendation that tenants’ deposits should be capped at the equivalent of five weeks’ rent.

Instead, a deposit equal to six week’s rent will be the upper limit and is part of the Tenant Fees Bill introduced into Parliament yesterday.

At the same time as the Bill appeared, the Government published both its impact assessment, and its response to the Housing, Communities and Select Committee, which scrutinised the draft Tenant Fees Bill.

The Government accepted most of the Select Committee’s recommendations, including one a designed to prevent agents from inflating the first month’s rent as a means of circumventing the ban on fees charged to tenants.

The paper makes clear that the fees ban will be rigorously enforced, with one trading standards body in England being appointed as the lead enforcer. One industry figure told EYE: “This sounds like regulation of the industry through the back door.”

Agents who charge illegal fees will be fined £5,000 for a first offence, but if another breach is committed within five years, it will be a criminal offence.

It will also not be possible to claim possession of a property unless the prohibited fees have been paid back. Tenants will be able to recover prohibited fees through the First-Tier Tribunal.

The paper speaks volumes about the level of distrust that exists between the Government and the lettings

For example, the paper says that the ban will prohibit all fees “except those explicitly permitted”.

It says: “We believe that this approach, as opposed to listing all fees that are banned, will prevent letting agents from creating new types of fees in order to circumvent the legislation.”

In order to prevent the first month’s rent being inflated, a varied level of rent can only be charged in the unlikely event of being agreed with the tenant after the tenancy has been entered into.

One of the Select Committee’s recommendations – that landlords could retain a holding deposit if the tenant knowingly provided false information, but only retain the cost of a reference check if the misinformation was not knowingly provided – clearly caused a headache.

The recommendation was rejected.

However, the Ministry of Housing will provide guidance to clarify when a holding deposit can be retained.

In addition, the original clause that would have imposed a criminal penalty for unlawfully withholding a holding deposit has been dropped. A breach will now be punishable only by a civil penalty of up to £5,000.

The Government’s response said it would also issue guidance on default fees.

The official response also gives a boost for the burgeoning deposit replacement sector.

The Select Committee had suggested that the Government should assess the merits of alternatives to traditional deposits.

The response says that the Government will do exactly this, and report back within six months.

David Cox, managing director of ARLA Propertymark, said: “We do not believe the Bill will achieve its aims, as our own research last year demonstrated that tenants will end up worse off and banning fees will not result in a more affordable private rented sector.

“[However] now that we have greater clarity on what the ban will entail, agents must start preparing for when it comes into force.”

The full response document is here:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/704100/Tenant_Fees_Bill_SC_response_Cm_9610_web.pdf

The impact assessment is at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/704295/Tenant_Fees_Bill_Impact_Assessment.pdf

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Source:: Tenant fees ban to cost agents up to £4bn plus job losses and closures, Government admits