Draft Bill banning tenant’s fees edges closer to Royal Assent

Posted on: May 30th, 2018

The Tenant Fees Bill is nearing the end of the scrutiny that is the parliamentary process. The Bill seeks to protect tenants against the perceived unbalanced market and rising fees however it is unclear whether these additional costs will be absorbed into higher rents.

The Tenant Fees Bill aims to improve the current situation regarding the rental market and soaring prices. The foreword to the guidance note on the Draft Tenant Fees Bill states that ‘the lettings market is simply not designed in the interests of the people it is supposed to serve’. Tenants currently pay large and occasionally ambiguous fees.

The second reading of the Bill took place in May 2018. Previously it was being scrutinised by the communities and local Government committee, who published their report on 29 March. The Government recently published a response paper to the Bill which reaffirmed its commitment to the goal of helping millions of renters by bringing an end to costly upfront and renewal payments.

The Bill seeks to introduce a ban on charging tenants ‘lettings fees’. If the Bill is passed it will prohibit all fees except those explicitly permitted. Exclusions would include referencing, inventories and some other costs which include check-in and admin fees. Payments such as lost keys replacements and late rent will not be affected. The guidance note states that under the new rules, landlords will choose the agent that provides the quality of service that they are seeking at a price they are willing to pay.

In addition, tenancy deposits are to be set to a maximum limit of six months rent. This was challenged by the Committee who thought a maximum of five weeks was more appropriate but the Government responded, ‘there is a balance that must be struck between providing tenants with greater affordability whilst ensuring landlords have adequate financial security for their assets’. Landlords could be faced with a fine of £5,000 for non compliance.
The Government believe that the ban on unfair letting fees will make renting fairer and easier for tenants by providing a clearer picture of the upfront costs related to a property rental. The aim is that the rent advertised will be the rent expected to be paid.

The Governments proposal may increase costs for the landlord. The worry from the tenants point of view is that these costs will be absorbed in the rent. This is because the Bill does not require justification for how rental prices are concluded. The ARLA (a professional body for letting agents) have commented previously that letting agents will lose large amounts of money from this Bill. They stated that the ban on agent fees will result in fewer jobs and result in costs being passed on to the tenant in other ways. They stated that the justification for the fees was due to the fact that referencing checks took on average ‘8 hours to complete’.

It is not clear how the Bill will work in practice but there is a hope from tenants that they will no longer suffer the burden of unknown fees. How this affects agents and landlords remains to be seen and we will watch with interest whether it forces rental prices to rise. The Bill is in the final stages of consideration prior to becoming an Act.

Iwan Thomas is a Trainee Solicitor currently in the Residential Property team.