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Furious industry criticism as government reveals costs of ban on tenants’ fees

The industry has reacted angrily to the announcement yesterday that the Tenants’ Fees Bill is now formally starting its progress through Parliament – and to an estimate of its costs to the industry.

An impact statement released with the Bill reveals that costs to agents could in the first full year of the ban – set to start in spring 2019 – be around £157.1m.

It also concedes there could be job losses or even some branch closures amongst the industry in England, which it says consists of some 16,000 letting agent branches.

You can see the full impact assessment here.

“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” says David Cox, chief executive of ARLA Propertymark.

But he accepted that the Bill could have been worse.

“ARLA Propertymark has worked hard over the last 18 months to explain the unintended consequences of the ban to government, and we’re pleased they have listened and allowed Change of Sharer, Surrender of Tenancy, holding deposits, exempted the Green Deal Charge, and capped security deposits at six weeks, rather than the [MHCLG Select] committee’s proposed five-week cap. Now that we have greater clarity on what the ban will entail, agents must start preparing for when it comes into force” he continues.

Meanwhile the Bill has been branded “a missed opportunity” by landlords, which is critical of the many months – possibly longer – that the measure will take to become law.

The Residential Landlords Association argues that much quicker changes could and should be made to better enforce existing regulations designed to improve transparency around letting agent fees.

It says that since May 2015 the law has compelled letting agents to publish details of the fees they charge. Agents breaking this law can be fined up to £5,000.

Figures published last year by the National Approved Letting Scheme found that after two years of the law coming into effect, 93 per cent of councils had failed to issue a single financial penalty to a letting agent for breaching the law. Only three penalty notices had been served across England for failure to display all relevant landlord and tenant fees.

Some 59 per cent of councils admitted that they do not consider the displaying of fees to be a high property for the allocation of resources within Trading Standards and 45 per cent said they only undertake reactive enforcement activity.

Instead of banning letting agent fees paid to tenants, the RLA is calling for immediate action to better enforce the law as it currently stands. This includes the government using powers it has so far failed to use to force agents to display the fees they charge in more prominent positions and specify them in much greater detail.

The Bill comes after the Office for Budget Responsibility warned that plans to ban letting fees paid by tenants could lead to rent rises as a result of fees being passed on. In 2013 Shelter concluded that if letting agents did not absorb the cost of ban fees paid by tenants, “landlords may be justified in increasing rents to reflect their additional costs”.

RLA policy director David Smith says: “Rather than pressing ahead with plans for more legislation in the sector that will take time to be considered by Parliament and enacted, ministers could achieve a greater and earlier impact by using the powers they already have to improve the transparency of fees charged by agents.

“With warnings that the policy could lead to rent rises, there is a very real danger that whilst the cutting the upfront cost of renting, tenants will find themselves paying them through higher rents on a permanent basis.

“Instead of using scarce Parliamentary time to make changes to letting fees much of which could be done by regulation and better enforcement, the Government could do more to reform the deposit system to deal with the need for most tenants to fund two deposits, one for the property they are leaving and one for the property they are going too. This cost is much higher and a much more substantial barrier to tenant mobility than agency fees.”

The new Housing Secretary James Brokenshire, introducing the Bill into Parliament, said: “This government is determined to build a housing market fit for the future. Tenants across the country should not be stung by unexpected costs.

“That’s why we’re delivering our promise to ban letting fees, alongside other measures to make renting fairer and more transparent.

The Tenant Fees Bill will stop letting agents from exploiting their position as intermediaries between landlords and tenants, and prevent unfair practices such as double charging for the same services.

“It will also help to increase competition between agents and landlords, which could help drive lower costs overall and a higher quality of service for tenants.”

Key measures in the Bill include:

– capping holding deposits at no more than one week’s rent. The Bill also sets out the proposed requirements on landlords and agents to return a holding deposit to a tenant;

– capping the amount that can be charged for a change to tenancy at £50 unless the landlord demonstrates that greater costs were incurred;

-creating a financial penalty with a fine of £5,000 for an initial breach of the ban with a criminal offence where a person has been fined or convicted of the same offence within the last five years. Financial penalties of up to £30,000 can be issued as an alternative to prosecution;

-requiring Trading Standards to enforce the ban and to make provision for tenants to be able to recover unlawfully charged fees via the First-tier Tribunal;

Alongside rent and deposits, agents and landlords will only be permitted to charge tenants fees associated with:

– a change or early termination of a tenancy when requested by the tenant;

– utilities, communication services and Council Tax;

– payments arising from a default by the tenant such as replacing lost keys.

The measure will become law in the spring of 2019.

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