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Fri, 25 September 2020

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Tenant fee ban? Yes, but how will we enforce it?

Tenant fee ban? Yes, but how will we enforce it?
4 min read

Kevin Hollinrake MP supports the Government's proposals for ban tenant fees, but highlights the issues around enforcement of any new legislation.


I absolutely believe in the power of market forces; it drives innovation, delivers improvements in service and lower prices for consumers. Yet the reality is that parts of the lettings market suffer from market failure and are not open to competition, so I do support the Government’s pledge to ban tenant fees. Properties ‘to let’ generally move very quickly and when tenants have found the home they want, perhaps after a hectic and competitive chase, they are obliged to pay whatever fees the letting agent, chosen by the landlord and not the tenant, chooses to levy. Of course, the vast majority of agents apply reasonable charges for important services such as inventories and referencing checks, but some do not. Research by DCLG officials established average tenant fees of £318 with a variation between £120 and £747.

Of course, every rule and regulation has its own price tag - effective free market economies do not make excessive profits and therefore cannot simply absorb new costs. Evidence from the 2013 fee ban in Scotland and the loss of agent income was that agents became more efficient and made some staff redundant and increased charges to landlords, which inevitably increased rents. According to LSL Property Services/UK tenantdata, rents increased by 4.3% in 2013, the year of introduction, compared to a near zero increase the previous year.

Although renters will benefit from a reduction in up-front fees, increased rents will mean that those tenants who move more frequently will enjoy a saving on overall costs but those who do so less frequently (which are likely to be lower income families) will see a loss. The consultation and Shelter both accept this as a possible outcome and the tenant comments from our forum on Money Saving Expert also generally prefer transparency even if this leads to rent increases.

But we do need to deal with a number of possible unintended consequences. Agents carry out references include credit checks and income verification, which do cost agents money in terms of their time and paying third party specialists to undertake such work. Currently the tenant pays for this service so the letting agent is no worse off if they fail the checks. If the cost had to be carried by the agent or the landlord, then agents will take a very cautious approach, probably undertaking some preliminary checks before going to a full reference. This would mean that less well-off tenants and those receiving Housing Benefit may be less likely to be able to find a home if agents plump for ‘safer’ bets.

Of course, legislation without effective enforcement is next to pointless. The consultation proposes that local authorities should enforce the new rules but it is clear that they have not proactively overseen existing transparency regulations. Only three penalty notices have been served for failure to adhere to current rules that apply to letting agents and 45% of local authorities say they only undertake reactive enforcement activity in this sector. 

Quite rightly, the consultation proposes that the ban would extend to the 57% of landlords who let their properties without the help of an agent. But the enforcement proposals do not deal with the supervision of landlords. England, which these proposals are limited to, is the only part of the UK which does not maintain a register of landlords.

In England, all estate agents and letting agents are required to join an independent redress scheme. A solution to the enforcement challenge may lie in giving oversight of the regulations to the redress schemes with the introduction a simple requirement for landlords to also join these schemes leading to an effective, light touch way to protect tenants, tackle and police unfair charges and this may also provide a vehicle to improve rental standards.

Kevin Hollinrake is the Conservative Member of Parliament for Thirsk & Malton and was elected to Parliament in 2015 after having worked in the property sector for over 30 years. 

Read the most recent article written by Kevin Hollinrake MP - The coronavirus pandemic shows our assisted dying laws are in need of review

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