Should letting agents be worried about the impact of new legislation?

The Tenant Fees Act 2019 or, as it’s more often referred to, the tenant fee ban, is a piece of legislation that came into effect on 1 June 2019 and basically prohibits landlords or letting agents from charging certain fees to tenants for the granting, renewal or ending of a tenancy. 

These banned fees are:

• tenancy set-up fees
• credit check and referencing fees
• preparation of inventory
• renewal fees
• checkout fees.

Permitted fees are limited to:

• rent
• a holding deposit of no more than one week’s rent
• a security deposit of no more than five weeks’ rent (six weeks if annual rent is more than £50,000)
• late payment charges. 

A penalty of £5,000 can be issued by the local authority for a first non-compliance, and a second offence committed within a five-year period carries a penalty of up to £30,000. 

The legislation has rocked the industry – understandably, as letting fees are a significant part of any letting agent’s income. For most agents, the only way to survive is to pass these fees onto landlords, who in turn are demanding increased rents to compensate.

As anticipated, lettings enquiries slowed in the months up to June as well-informed tenants waited for the ban on fees to be implemented. Only six weeks into the ban, Rightmove reported a 7% increase in rental enquiries during May and June (13% for London). Early indications suggest that the ban, along with landlord attempts to recoup the fees imposed by agents, is pushing rents upwards – by as much as 8%, according to some reports. 

At the Lettings Room, our landlords have responded positively to the increased agency fees, though with a small number deciding to exit the market altogether. We have always considered our tenant fees very competitive, so our landlords will not feel the change quite so hard as some. However, we are also aware that, with increased fees, our landlords will expect more from us than ever before, and we have been preparing for this. Over the past 12 months we have overhauled our business, investing in our people, our systems and our processes to ensure we deliver the high level of service our landlords and tenants demand. We are always striving to add value and have recently committed to providing landlord references to outgoing tenants, a service that many agents have withdrawn since the fee ban. 

What does it all mean for the wider industry, though? The UK rental market has seen a surge in recent years, as changing attitudes towards renting make it now the first choice for many. Given this increased demand for rented accommodation, it is unlikely the fee ban will have much impact beyond the initial panic. As we have seen at the Lettings Room, some landlords will see the additional fees as a step too far and choose to exit the market completely – reducing supply and thus worsening the housing crisis we read about every day. However, I believe the biggest change will come in the balance between tenant finding instructions as opposed to full property management. Those landlords who want to stay in the market but cannot justify the fees will simply instruct an agent to market their property and find a tenant, then manage the tenancy themselves.

As we become a nation of renters, I suspect rents will continue to increase as much as local markets will allow, agents will suck up a share of the additional fees, as will landlords, and it’ll be business as usual – until the next piece of legislation to be thrown at us.