Why we’re absorbing tenant fees until a decision is made

In November 2016 when the Autumn Statement was delivered by Chancellor Philip Hammond, the announcement was made to ban letting agent fees for tenants in England, in a move expected to save 4.3 million households hundreds of pounds. 

Whilst in Scotland lettings agency fees to tenants have already been banned, lettings and managing agents in England and Wales have, since 2015, only been legally obliged to clearly publicise their fees.

With the private rented sector increasing rapidly in size and further growth expected over the coming months, addressing the issue of letting agent fees is more critical than ever.  In order for tenants to assess the true cost of renting a property, transparency around any up-front costs is key.   

With any tenancy agreement, there are a number of processes that need to be managed, which in most cases can prove to be time consuming. For example, a tenant may want to keep a pet, so the landlord needs to be approached about this and, if the landlord agrees, a suitable clause added to the tenancy agreement.

Equally, if a tenant wants to have their own furniture transferred or any additional furniture needs to be provided by the landlord, the required admin incurs a cost that needs to be covered by one or other parties involved in the agreement. The truth is that it does cost to reference tenants and it does take time and money to draw up tenancy agreements and these are essential processes that cannot be omitted. 

It has been widely debated whether these fees should fall to tenants or landlords but in either case, there are knock-on effects to be felt throughout the market. If letting agent fees are banned, the administration costs will have to be absorbed by a third party, as referencing checks and the corresponding paperwork are a necessity. 

If fees are not charged to the tenant then the majority of them will fall with the landlord, which would not be well-received, particularly given the existing pressures caused by the tax relief changes that are gradually being phased in.

Finally, and perhaps most critically, if these fees are shifted onto landlords, there are concerns that this will result in increasing rents for tenants as landlords are forced to look for a means to cover these additional costs.  

The most significant problem that exists with the current system is that there is no consistency; fees vary greatly, with costs in some big cities much higher than elsewhere and a number of agents charging higher fees than others. I strongly believe there needs to be a process in place that is fair on both landlords and tenants and consistent across all agencies. 

Until an agreed policy has been announced by the Government, it is important for agents to serve their clients’ best interests, whether they are landlords or tenants, and do everything possible to simplify the process of moving home.

It is evident that with the Government’s focus on the upcoming snap election a firm decision is unlikely to be made for some time. Although Jeremy Corbyn has confirmed this week that if his Labour party were to be elected, it would legislate to ban letting agency fees charged to tenants, not all parties are in agreement; the debate is still proving controversial. 

Furthermore, whilst the proposed ban is currently at its formal consultation stage and is open for responses until 2 June 2017, it is predicted that a new policy is unlikely to be implemented before late-2018, which leaves the issue in agents’ hands to make a decision on how to proceed in the meantime.

Here’s to hoping that the pitfalls of the current system are considered and addressed accordingly in the forthcoming consultation on letting agent fees and a policy is put in place that fairly represents the interests of both landlords and tenants.  

United Kingdom Sotheby’s International Realty has announced that it will be absorbing any administration costs previously charged to the tenant. Under this new offering, no additional administration costs will be imposed upon tenants, other than a basic referencing fee of £8 +VAT, whilst the Government disputes the issue.

*Hannah McDougall is lettings manager at United Kingdom Sotheby’s International Realty