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Time’s almost up for residential letting fees

Seven months on from its publication in November 2017, the draft Bill to ban residential letting fees has undergone the Committee Stage of pre-legislative scrutiny without amendment and now heads back to Parliament for its Report Stage. As the Bill looks increasingly likely to become law, we take stock of the Bill’s aims and review its anticipated impact.

The Bill

The Tenant Fees Bill is intended to make the residential lettings market more transparent and affordable for the 4.7 million private rented sector households in England. The Government hopes to achieve this by capping security deposits and banning landlords and letting agents from charging residential tenants and occupiers (including those in student accommodation) any fees other than those expressly permitted.  Research shows that fees currently paid by tenants range from £120 to £750 per letting.  Permitted payments include:

(1) rent;

(2) security deposits of up to six weeks’ rent;

(3) holding deposits (to take the property off the market) of up to one week’s rent;

(4) tenant default fees; and

(5) capped fees for assignment, variation or early termination of a tenancy.

Impact

Proponents claim the Bill will result in savings for tenants (almost three quarters of whom cite letting fees as a hindrance on their ability to move) and result in broader economic benefits as tenants’ disposable incomes increase. However, opponents argue that the legislation could remove a vital revenue stream for residential estate agencies; tenants’ fees currently generate approximately £700m per year for agents in England and Wales. Warnings of consequent job losses, consolidation and reduction in service quality abound.
Debate remains as to how to ensure tenants do not get charged letting fees ‘through the back door’ if landlords simply pass higher service fees onto tenants through rent hikes.  The Government is mindful of this potential pitfall, but argues that transparent, up front costs are preferable to ‘hidden fees’.

Time frame

The Government’s determination to ban residential letting fees and cap security deposits is clear. Having passed through the Committee Stage unamended and with cross-party support as to its aims, we expect to see the Tenant Fees Bill become law in late 2018 or early 2019.