Banning lettings fees – what does this mean for tenants renting property in London?

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  • Lettings fees cover essential referencing and contract services
  • Banning fees is only a short-term win for tenants
  • The new legislation is likely to lead to referencing costs being passed back to the tenants through higher rents

The idea of abolishing lettings fees was first introduced by Chancellor Philip Hammond in his Autumn Statement last year. At the time, ARLA (Association of Residential Lettings Agents) hoped to persuade him to cap fees instead of banning them altogether. Sadly, the property sector’s pleas seem to have fallen on deaf ears. All three parties pledged to ban fees for tenants in their recent election manifestos, and June’s Queen’s Speech confirmed that the ban would go ahead.

Why did all the parties pledge to ban lettings fees?

The decision appears to have been made on the grounds that it is unreasonable to charge tenants when they are already stumping up a deposit and monthly rent. Government figures show that the average fee paid by a tenant is £223 nationwide. Henry Wiltshire’s fees are £378, which takes into account London prices.

What do the fees cover?

Tenant fees cover reference checks, contract preparation and investigation of immigration status.

What the banning of lettings fees doesn’t take into account is that the fees actually cover the cost of a service which is essential for anyone renting property in London or anywhere in the UK. Estate agents take time to check tenant references, prepare the contract and investigate immigration status. Research by ARLA shows that, on average, estate agents spend eight hours on these duties, and with good reason. Thorough checks and an accurate contract will save a lot of time and money further down the line. These checks protect landlords from risky tenants and vice versa, while a well-written contract recognises the needs of both landlord and tenant. Also, as in any industry, it is right that estate agents should be paid for the work that they carry out.

How will banning fees work in practice?

With the fee ban, money to cover these services will have to come from somewhere else. ARLA’s research suggests that rents could rise by an average of £103 annually to cover the loss of fees. This would mean that in little more than two years, the average tenant would be worse off financially than if they had paid fees in the first place. Also, if the fees were covered by rent, the whole scheme would lack the transparency and clarity that it currently provides. At present (until the new bill is published) lettings agents must display their fees, under the Consumer Rights Act 2015. The rule was created to protect tenants from “hidden” fees. Banning lettings fees is likely to result in them becoming hidden once more.

Our property consultants in Canary Wharf say, “We are very concerned that the Government is proposing a new bill which is only a short term win for tenants and could well damage the lettings market both in London and across the country. As members of ARLA, we will continue to work with them and support their position, which not only protects those working in the property industry but tenants as well.

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