How the Tenant Fees Act 2019 will affect letting agents

Former Managing Director of Northwood and Belvoir, Eric Walker, gives us his opinion on how letting agents will be effected.

Eric Walker Northwoods

The Tenant Fees Act 2019 is another big shake-up in the private rented sector. Implementing both a ban on fees charged to renters and capping the value of holding and security deposits taken by landlords and letting agents, the Act is sure to change the face of the lettings industry.

We’ve asked former Managing Director of Northwood and Belvoir, Eric Walker, for his unique insight into how he thinks letting agents will be affected by the Act. With over 30 years of experience within the lettings industry, Eric is perfectly positioned to advise on what agents can do to ride the wave of changes.

The Tenant Fees Act 2019 came into force on 1 June 2019. It applies to all letting agents and landlords in England. It’s not a complicated piece of legislation and the Ministry of Housing Communities & Local Government (MHCLG) guidance notes are pretty comprehensive.

There are two keys elements:
1. Permitted and prohibited payments
2. Capped holding deposits and capped security deposits together with set time frames for repayment

The obvious bit:

You can’t charge tenants any fees unless such fees are listed as permitted payments or where the tenant chooses to pay a fee for an additional service. There really are no loopholes in respect of fees, however clarity is needed over how to handle the 5-week deposit cap, return of excess deposit and deductions from monies held.

In respect of deposits, the Tenant Fees Act needs to be read in conjunction with the Housing Act 2004 and even then, there are unanswered questions such as how to deal with requests for default payments during the term of the tenancy. Similarly, at the end of the transition period, you must return any deposit in excess of the cap without deductions as the tenancy has not ended. As an agent, you should seek advice from your deposit scheme provider rather than risk wrongful interpretation.

The not so obvious bit:

Most agents have prepared for the loss of income and the inevitable changes on profit, staffing and resources. What many have not considered are the consequences of falling foul of the new Law. It’s not just the financial penalties but also the implications of failing to secure possession of a property as a result of a breach and the potential compensation claims from angry landlords which may follow.

Additionally, tenant fees have not been banned entirely, rather those upon which the grant of a tenancy or renewal are contingent. An agent can still charge a tenant a fee for a service which the tenant chooses to accept. Whilst there is concern over the resources needed for enforcement, remember the fee ban will be policed by a pretty thorough watchdog, that of tenants themselves.

Many third-party suppliers are offering additional income streams to replace tenant fees. Understandably, these look immensely attractive but a word of caution; this may only be a short-term fix as Government is now looking very closely at such fees. As with the tenant fees ban, industry was first given the opportunity to be reasonable and transparent. The rhetoric in respect of referral fees is chillingly similar to that of tenant fees and should not be ignored.

There are still many opportunities for agents to combat the fee ban by working more efficiently than ever and focusing on the potential business they already have. A recent Rightmove survey showed that over a third of enquiries from potential customers were not responded to, a fact supported by many mystery shopper reports.

Additionally, there is little doubt that there will be consolidation within the sector offering agents the opportunity to make acquisitions and generate more efficient economies of scale. Finally, the political landscape has compounded the challenges faced by the industry. Once stability and certainty returns and industry gets used to the changes forced upon it, agents will do what they do best; adapt and thrive.

To help you understand the new law, we've written a blog that will tell you everything you need to know about the Tenant Fees Act and help you find out if your deposits are compliant.