From June 1st, 2019, the Tenant Fees Act comes into force, in England. For landlords who use agents, it is important to understand the implications, as one possible outcome is that agents could increase fees elsewhere.
Andrew Turner, chief executive at Commercial Trust Limited, looks at the issues that landlords may face as a result of the new legislation.
What is changing?
Under the new Act, the number of chargeable items for which letting agents can charge a fee to tenants, is significantly restricted.
From June 1st, 2019, agents may only charge tenants for the following, in connection with a tenancy:
- a) rent;
- b) a refundable tenancy deposit, capped at no more than five weeks’ rent, if the total annual rent is less than £50,000, or a maximum of six weeks’ rent, if annual rent exceeds £50,00;
- c) a refundable holding deposit, of no more than the equivalent of one week’s rent;
- d) amendments to the tenancy agreement, if requested by the tenant – and capped at £50, unless the agent can justify a greater expense;
- e) payments associated with the ending of a tenancy, before the stated end date of an agreement, when requested by the tenant;
- f) payments in respect of utilities, communication services, TV licence and council tax; and
- g) default fees for late payment of rent and replacement of a lost key/security device, where required under a tenancy agreement.
The potential impact
The general consensus is that many letting agents may find it hard to replace lost income, as a result of the above changes.
We have seen changes within the lettings industry, with mergers and acquisitions taking place, to create larger agencies.
Other agencies may look to streamline costs with by automating more of their processes.
But there is also concern that, unable to charge tenants, some agents will instead increase the costs they charge to landlords for managed services.
The knock on effect of this, many fear, is that the tenant, whom the Act is meant to benefit through lower costs, could find that their rent goes up, as landlords feel the financial strain of yet more additional outgoings.
A pragmatic landlord approach
Landlords on the whole are not out to make a quick buck and many would rather retain a good tenant, than risk losing them over rental hikes.
The priority for landlords using letting agents, will be to understand what (if anything) is going to happen and when, in terms of services and costs.
If landlords haven’t heard anything from their agency yet, it is worth making contact as soon as possible, to understand if there are likely to be additional costs and if so, what these will amount to.
Knowing from an early stage how the Tenant Fees Ban will affect a landlord’s finances, puts that individual in a stronger place to adjust their strategy accordingly.
If there are no changes to fees from the agent, the status quo is maintained. However, if an agent is proposing to increase their fees, it is vital to calculate the impact.
If the net end result is that the cost cannot be absorbed, increasing the rent may be the only recourse.
This is why planning in advice is vital.
The last resort, increasing the rent
A minimum of one month’s notice (where rent is paid weekly or monthly), or 6-months’ notice (on yearly tenancies) must be given to the tenant, if the rent is to increase. The tenant must agree to the increase.
It should be noted, when doing the sums, that HMRC clearly states that letting agent fees and management fees are tax deductible.
In other words, whilst landlords may have to find extra money to cover additional charges, they can reclaim the tax on this cost.
Closer attention to accounting and financial planning, is something that landlords are becoming increasingly used to, of late.
However, once the state of play is clear and plans in place, life will carry on as usual.