The Government is inviting people to have their say on new legislation which will have a major impact on landlords, tenants and letting agents.

The biggest element of this legislation is the proposed ban on tenant fees, which will prevent letting agents and landlords from charging any fees when agreeing a new tenancy.

At the moment, tenant fees (typically between £200 and £300) are charged to cover the costs of reference checks, credit checks, contract negotiation and so on.

The Government wants to stop agents or landlords charging those fees to the tenant – on the face of it, saving the tenant a few hundred pounds.

It’s an interesting conundrum. On the one hand, it seems like great news for tenants and bad news for landlords and agents, but it’s not as simple as that.

Those checks at the start of a tenancy will still need to be done, and someone will still need to pay for them.

There are two basic options:

The landlord pays for the checks and rights them off as an extra cost.

Or…

The lettings agent pays for the checks and takes the cost from their profits.

But the issue is that any extra costs in a business will need to be offset by raising income. It’s basic economics.

So if a landlord has to meet the cost of the tenancy checks, they will boost their income by increasing rent.

And if an agent meets the costs, they will increase their income by raising their fees. And how will the landlord offset the rise in agency fees? By increasing rent.

So the cost is always going to eventually land on the tenant.

For proof of that theory, you just need to look at Scotland, where the tenant fees ban was introduced in 2012. New research has found that rents have risen by an average of £26pcm – so a tenant is now paying £312 more a year on rent since the ban on fees.

As one of the largest lettings agencies in Shropshire, we are currently planning how to deal with the new legislation if and when it is introduced, and we are of course going to have our say by responding to the Government’s consultation document.

If you are a landlord, we would be happy to have a chat with you about the best way forward – there are a number of different options to consider.

Please give our lettings and property management team a call on 01562 745082.

You can read more about the Government’s consultation into the draft tenant fees bill by clicking here.

Erica

 

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