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The tenant fees ban – frequently asked questions

23rd January 2018

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The tenant fees ban will come into effect on 1 June 2019. This has left many letting agents, landlords and tenants speculating over how it will affect them.

So to help you understand how it might affect you, here we answer some of the most frequently asked questions on the subject.

What is the tenant fees ban?

The tenant fees ban will prohibit landlords and letting agents from charging tenants a fee for the granting or renewal of an assured shorthold tenancy. Examples of such fees include the cost of credit checks and inventories.

The ban also prevents landlords and agents from charging fees for services throughout the tenancy, such as cleaning services and admin fees.

This will effectively put an end to charging tenants almost any kind of fee before, after or during their tenancy, unless it is classed as exempt.

What payments are exempt from the tenant fees ban?

Deposits, holding deposits and charges for breaking the contract are exempt from the ban. This means that:

  • Tenants can still be charged a deposit, but there will now be a cap equivalent to five weeks’ rent. If the rent is more than £50,000 a year, the deposit will be limited to six weeks’ rent.
  • Tenants can be charged a ‘holding’ deposit, but there will now be a cap equivalent to one week’s rent. The deposit must be returned unless the tenant backs out of the tenancy, fails right-to-rent checks or provides false, misleading or inadequate information.
  • Tenants can still be charged fees for any damages resulting from a breach of contract. They can also be charged interest on late payment of rent, and for costs incurred by the landlord if they lose their keys.

Does the tenant fees ban apply to tenancy renewals?

Yes, renewals that take place after 1 June will be subject to the tenant fees ban. 

Does the tenant fees ban apply in England, Scotland, Wales and Northern Ireland?

The information in this article relates to English law, but Wales will also be passing a similar bill. In Northern Ireland, there is currently no legislation in place. However, a recent court ruling ordered a letting agent to pay back a £36 admin fee they charged to a tenant. In Scotland, there has been a ban on fees since 2012.

How will the tenant fees ban affect tenants?

Tenants who move frequently will see the most benefit from the fees ban. This average total fee charged to two tenants in the United Kingdom before getting the keys is £412 (source: ARLA). So your next move, it it's after 1 June, could cost you significantly less than your last one. 

But the change in law has raised another key question for tenants: will the tenant fees ban lead to rent increases? Some groups predict that landlords may increase rents to mitigate the loss of fees. There will therefore be a ban on charging a higher rent at the start of the tenancy, then dropping the price at a later date. Charging more rent than usual throughout the whole course of the tenancy will remain legal.

But in order to remain competitive, landlords may be reluctant to increase rents significantly. Following the 2012 tenant fee ban in Scotland, a report found that rent did increase, but just 2% of landlords stated they had raised rents specifically because of the ban.

However, research conducted by ARLA estimates that tenants are likely to end up paying an increased rent of £103 per annum.

How will the tenant fees ban affect letting agents and landlords?

As yet, it is unclear whether letting agents will take the financial hit following the ban, or whether they will pass it on to landlords.

The ARLA report found that tenants’ fees account for around one fifth of letting agencies’ revenue from residential lettings. So if letting agents decide not to increase the fees they charge to landlords, the ban is likely to cause a significant dent in their turnover. 40% of agents think the ban will result in a decrease in employment in the medium to long term.

A likely outcome is that letting agents will pass on some, but not all, of the loss to landlords. In turn, landlords are likely to pass on some of their increased costs to tenants through higher rent.

Other coping strategies for landlords facing decreased cash flow may include selling some or all of their rental properties, renegotiating their mortgages and reducing reliance on letting agents.

Letting agents are unlikely to be able to pass the entirety of their losses on to landlords, as this poses a risk of landlords going elsewhere. Therefore, the reality is that agents will have to find ways of streamlining their costs and increasing their revenues.

Following the Scottish ban on fees, agents used a combination of approaches to cut the cost of tenant referencing. These included taking a ‘do it yourself’ approach, charging landlords more, asking tenants to provide third party references and paying for referencing themselves.

Agents will need to think creatively about ways to increase their revenue. Our partnership programme is designed to help agents do just that.

How is Spark helping agents to reduce the impact of the tenant fees ban?

We’ve been working with the lettings sector for years, and we know the climate is challenging. That’s why we’re as committed as ever to helping agents gain new revenue streams and reduce time and cost. By partnering with us, you can:

  • Earn revenue via Tili, the digital home move assistant. Tili takes the hassle out of your tenants’ home move, and you’ll earn money when they use it.
  • Save hours of admin time by switching your void properties to Spark, the only energy supplier built around the rental sector.
  • Save money on your own utilities by switching to Spark Business Utilities.

We know you’re committed to giving your tenants a great customer service experience. That’s why our products and services are not only built around making life easier for you, but making the home move process smoother for your customers.

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Tenant fees account for 20% of letting agents' turnover
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