Agents who charge tenants after the fees ban comes in could be bankrupted and put out of business, the head of trade body ARLA has said.
David Cox, chief executive of the Association of Residential Letting Agents, also warned that referring tenants to third party companies that pay agents commission could mean that legally, those agents will be sailing dangerously close to the wind.
The Tenant Fees Bill finished its passage through Parliament yesterday and is now ‘inevitable’, Cox said yesterday.
Earlier in the day, he warned: “Agents who are continuing to charge fees after June 1 could be prosecuted to the full extent of the law.
“They could be fined to such an extent that it bankrupts their companies.”
Cox was speaking at a webinar hosted by Goodlord on the tenant fees ban.
He emphasised that agencies which are found to be still charging fees will not be fined once, but penalised £5,000 for every fee charged.
Cox said: “The concept is that these will be bankruptcy-level fines, because otherwise, it is not going to be fair on professional agencies, and ARLA has no objection to that.
“A simple mistake is a different matter.
“But we all know there will be agents out there who will wilfully ignore this law.”
During the webinar Cox answered questions submitted by letting agents from throughout the country who were looking for more clarity on the ban.
Many questioned whether fees already charged or deposits greater than five weeks taken would need to be refunded after June 1.
Cox said: “We’re expecting the guidance to say that as long as the tenancy continues after the introduction of the ban, you won’t be expected to retrospectively give back two or three weeks of the deposit.
“If you’re signing the contracts today or in the next few days you can continue charging fees for a period of 12 months after the ban comes into force – so the last date of chargeable fees for existing tenancies will be May 31, 2020.”
Cox said letting agents would still be able to earn commissions for selling products such as insurance to tenants, but only where those products were optional.
He said: “If they’re a condition of the tenancy, they’ll be a prohibited charge, but if they’re optional, that’s absolutely fine as it’s the tenant’s choice to take that out.”
However, he strongly urged against letting agents referring tenants to any third party companies from which they earn commission, such as referencing firms.
He warned: “You will be skirting very close to the edge of the law.”
Speaking about how letting agents could make up for the loss of revenue from the ban, Cox said it could be time for agents to start charging for extra services they provide to landlords.
He said: “You don’t need to put up your fees, but it might be time to start charging your landlords for extra work that goes above and beyond, that you’ve been doing free for years.
“That’s very laudable but we’re moving into a very different world now.
“Landlords take agents for granted and I think it’s time to tell your landlords the amount of work you actually do for them.”
Under the fees ban, agents do face potentially huge penalties. Accompanying guidance (currently draft) to enforcement bodies states:
Each request for a prohibited payment is a breach. For example, the following would be considered multiple breaches:
- An agent/landlord charging different tenants under different tenancy agreements prohibited fees
- An agent/landlord charging one tenant multiple prohibited fees for different services at different times
- An agent/landlord charging one tenant multiple prohibited fees for different services at the same time
- An agent/landlord charging one tenant one total prohibited fee which is made up of different separate prohibited requirements to make a payment e.g. £200 requested for arranging the tenancy and doing a reference check would represent multiple breaches
Where an agent or landlord is being fined for multiple breaches at once and they have not previously been fined, the financial penalty for each of these breaches is limited to up to £5,000 each.
Yesterday, the Bill completed its passage through Parliament, and Cox said: “The tenant fees ban is now an inevitability, and agents need to start preparing for a post-tenant fees world.
“The Bill will now receive Royal Assent in the coming few weeks, before being passed into law and implemented on June 1.”
You can watch the complete Goodlord webinar at:
https://blog.goodlord.co/webinar-arlas-david-cox-on-the-tenant-fee-ban
Why would an agent get a large fine? Agents who break the law now dont get large fines, they get hardly any punishment at all. Nothing will change without trading standards etc being beefed up which i doubt will happen.
Letting agents up and down the country dont display their tenant fees which is law. Local authorities do nothing about it because they have more important things to deal with.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
100% agree, if you complain about a letting agent currently who is not compliant, the stock answer from local councils is that an informal talk will take place
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Taken from the House of Lords Briefing Notes –
Enforcement and Redress
Clauses 6 and 7 would place a duty on trading standards authorities to enforce the Bill, though district councils that are not trading standards authorities would have the power to enforce if they chose. The Bill would also make provision for tenants to recover unlawfully charged fees through a first-tier tribunal and would prevent landlords from recovering possession of their property until they have repaid any unlawfully charged fees.
14 The Government intends a breach of the ban on imposing fees will usually be a civil offence and subject to a financial penalty of £5,000. However, if a breach is committed within five years of the imposition of a financial penalty or conviction for a previous breach, this would be a criminal offence. The penalty for such would be an unlimited fine, and it would constitute a banning order offence under the Housing and Planning Act 2016.15
Clause 8 of the Bill would further stipulate that, where such an offence is committed, local authorities may impose a financial penalty of up to £30,000 as an alternative to prosecution. The Government has stated it intends for local authorities to have discretion as to whether to prosecute or impose a financial penalty, but intends to publish guidance on this matter.
16 A breach of the requirement to repay a holding deposit would be a civil offence and subject to a financial penalty of £5,000. The Government intends that local authorities will be able to retain the money raised through financial penalties, with this money reserved for future local housing enforcement. Further, ministers have stated the Government will provide £500,000 in additional funding during the first year after the Bill is enacted to support enforcement activities, in recognition of the additional costs arising from the new duties.
17 After this time, the Government anticipates the reform costs to be fiscally neutral to local authorities, as set out in its impact assessment on the Bill: There will […] be additional costs, such as for cases where landlords or letting agents have not complied with the requirements of the Bill. This may involve cases where a letting agent or landlord continues to charge fees that are banned or where landlords or letting agents have taken deposits greater than permitted. The extent of these costs is not certain. They largely depend on the extent to which there is noncompliance with the requirements of the Bill. It is proposed that local authorities will be able to retain the money raised through civil penalties for future local housing enforcement. Therefore, if levels of non-compliance are higher, the money generated for enforcement would be greater…..
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Based on a civil servant being paid £20,000 per year, they are going to provide nationally an extra 25 people to help with the fee ban. I cant assume this will be £500,000 per local authority, but you never know. I would also assume that the £500,000 would be well exceeded by the extra cost of training staff as how to enforce the ban and punish and companies or individual landlords to break the law.
I refer back to my original point, if local authorities cannot enforce something as simple as agents displaying their fees, they have no hope of enforcing something that may well be a very complicated fee ban with agents and councils alike not understanding exactly what they can and cant charge for.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Sorry to go off topic but what will happen to agents who don’t have CMP? The uncapped liability the government are imposing on insurance underwriters means with 3 months till CMP is mandatory it is looking unlikely there will be a competitive choice of CMPi providers.
I am not sure how those with current insurance are going to fair once the premium they have been paying suddenly doesn’t go anywhere near covering the responsibility being imposed on the insurers.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Good morning Robert.
The 1st April deadline for compulsory CMP will leave thousands of agents with a serious problem. Just opening a client account with a bank is difficult these days, banks are not readily inviting client account business.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
There is a grace period of 12 months, if you are actively seeking a client account
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
That might be the case Darrel, however I’m not sure and CMP scheme will allow membership without a client account, so the grace period is potentially useless. I raised this with the ministry concerned, they are fully aware and expecting many agents to cease trading. In their words “at the lower end of the market”
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
I think the grace period is still applicable (hearing the minister words yesterday)
If an agent cannot get CMP, then they will have to change their model, and get the tenants to pay the landlord direct. Might not be ideal, but an option for the *lower end of the market*.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
I think i just made my point. Our industry is a goods train hurtling down the tracks towards almost certain derailment.
Everyone is naturally concerned about the fees ban but there is a more pressing deadline in 3 months time and the practical matters that will effect every agent has to be raised by someone who understands the implications of legislation that has only partially been thought through.
Agents can’t wait till March 29th to think Ah! then expect to pick up the phone to an insurer, they are going to struggle to find an insurer and then are going to find it impossible to meet the criteria of the policy with no time to sort things
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Our focus should be on what we can do, not want we can’t. The agency market needs solutions; products and services that support agents and gives them a proposition that will at least replace the tenant fee income.
The comment; “The tenant fees ban is now an inevitability, and agents need to start preparing for a post-tenant fees world” is out of time, this was the case in Autumn 2016.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Circumventing the tenant fee ban by selling tenants zero deposit insurance products which actually protect the landlord and not the tenant, and on which the agent gets paid an undeclared commission will be the next battle line. I can’t see the Government leaving this fee charging by the back-door loophole open.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
You mean the loophole they deliberately left open:
(6) For the purposes of this section, a letting agent does not require a relevant person to make a payment, enter into a contract or make a loan if the letting agent gives the person the option of doing any of those things as an alternative to complying with another requirement imposed by the letting agent or the landlord.
As long as the tenant is given the option of paying a deposit or paying for an insurance policy it is not a prohibited payment. The whole reason for the bill was to reduce the costs for tenants so stopping a cheaper (in the short term) option being provided would be counterproductive.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Free markets don’t work.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Can I just check with anyone reading this – but I think I might be going crazy.
David Cox is quoted as saying he ‘strongly urges against letting agents referring tenants to any third-party companies from which they earn commission, such as referencing firms.”
I think David needs to check out his own ARLA website – under the Industry Suppliers he offers “Exclusive offers on specialist products and services for members” – and what are listed? Plenty of companies that pay commission!!! Vouch to name one,
As letting agents we need guidance – not confusion – from ARLA.
Andy Halstead is quite correct – David Cox has had the best part of 2 years to offer advice to us. Stating the obvious with months to go – no use to anyone.
Tell me David – what should I do? Continue using Vouch (as recommended by you on your site), or stop using them (as recommended by you in this article) ?
Confused.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Hi Andrew, give me a call, we can help.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
As I understand it commission payments are fine as long as the service it relates to is optional.
In Scotland we had similar issue.
I am aware of agents here who stipulate that applicants must use a specific referencing company for their application to be considered. These agents believe that by the applicant paying the reference company direct and not themselves it doesn’t contravene the fee ban. I disagree and believe this practice to be illegal and look forward to the day when a tenant raises this with the First Tier Tribunal as I am convinced I’ll be proved correct.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Why not raise it yourself?
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
ARLA recommending Vouch is very questionable. Any referencing service that includes an element of ‘DIY’ adds risk to a professional agents business. Fraud is on the increase, fraudsters and often sophisticated. If a fraudster gets through a partial DIY referencing service, where does the risk and compensation exposure lie? Saving money in the short term can cost serious money in the medium term. Buyer beware.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
They don’t just recommend them Andy, they use the phrase approved and accredited. Whole different ball game.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
In my view very risky, ARLA could be liable if the service fails. DIY referencing is scary territory, even for the most diligent agents. What due-diligence have ARLA carried out?
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
He said: “You don’t need to put up your fees, but it might be time to start charging your landlords for extra work that goes above and beyond, that you’ve been doing free for years”.
Lol. Just about every agent in the country must be wincing at that statement and this from someone who is supposed to know what he is talking about as the head of ARLA. There is a reason why some agents have been doing some things for free … its part of their service structure they offer their clients to stay competitive but within overall budget, unless you are operating a charity. The second, is that landlords will not pay higher fee’s if it eats into viability of their investment or just hostility towards the idea. What he is saying, agents should start to charge more … how is this cost going to be covered if you are a landlord? Answers on a postage stamp please!
ARLA have failed to represent agents and clearly have no influence with government. This has to be one of the worst draconian decison by government who have not listend to the industry but those that are not within the industry.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Spot on Woodentop. A buy-to-let P&L looks challenging with all of the recent government intervention. Increasing landlord costs is a very difficult thing to do. The market is moving to a tenant centric model, we need products and services that tenants want and need, and that they are prepared to pay for. Products and services are not banned, the fee ban relates to the granting, maintenance and termination of a tenancy. Let’s get focused on what we can do that delivers a world class service to tenants and landlords, and makes money for professional agents.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Andy Halstead What is it you are selling?
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
I can only comment on our own experience and we did pass all costs previously paid by tenants onto the landlords as they are the ultimate beneficiaries for referencing being carried out and inventories being prepared.
We tell them if they don’t want to pay for referencing or an inventory then that’s their choice and entirely at their own risk. Whilst some weren’t very happy, 100% of our landlords so far have agreed to pay.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Who’s your client?…Yup, the landlord. If he wants the service and wants to rent his property out he should pay for it. Clients pay fees. We don’t charge buyers, we charge sellers. Same should apply with landlords and tenants.
The fee ban can’t come soon enough. Tenant fees are an embarrassment to estate agency.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
if my local trading standards are anything to go by, then it would be *words of advice*, first, then another set of *words of advice*, then maybe an informal letter, followed by a formal letter, then by the time prosecution is considered, the agent has disappeared.
Unlike deposit compliance, there is no real incentive for the tenant to complain
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Lettings needs regulating for the security of all.
30 years ago when I started in agency there were no fees to tenants at the firm I worked for and landlords paid 15% + vat.
Tenant fees rose, as landlords fees dipped in order to win more landlords.
The tenants are the vulnerable people in all of this; and with some agents charging many hundreds of pounds for applications etc, it is no wonder the government have got involved to protect tenants.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Buy-to-Let started in 1996, so 30 years ago the number of properties in the PRS was far less. In today’s market, with all of the government intervention, taxation etc. it is very difficult to make Buy-to-Let work with a 15%+ management fee. Without capital growth, which is hard to come by, alternative investments to residential property and starting to look attractive. We need to work together and find solutions, keeping professional letting agents profitable and successful
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
I started in 1996 and we did not charge a penny to a tenant, although there was less to do.
From my own experience, some of the worst offenders in high tenants fees were ARLA members, and nothing was done. If ARLA had taken a stance some years back and capped fees as part of membership, then we may not be where we are today.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Exactly. That’s what comes of getting so greedy and showing themselves to be so immoral. Govt stops trusting them to do the right thing anymore cos the industry showed us time and again that it won’t.”
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Some agents now charge 6%, that slippery slope of winning business by charging less. The principle of any business is to make a profit or go bust. Government has jumped into a free market and dictating that expenses cannot be covered resulting in some at risk of going out of business, who probaly are the ones that were already offering all the free deals. If you were a member of Unite etc, all out war and strikes before commone sense prevailed. Rents will rise and the tenant will be paying more in the long term. Only today we hear that Mr Khan wants to cap rents in the city. That is the next phase of labour and has been muted for many years, not new news.
You are right some within the indusrty overcharge and milked the system, but Government have taken the easy and blinded approach, ban all and the problem has gone away. Stuff the ripple effect, as they are not on the recieving end. Remember the MP’s scandals over expenses … rule for one, not the rest of the country.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
I think I’m right in saying that most, if not all, decent Agents were hoping for a fee cap, rather than an outright ban. Even if the cap was at £50 it would still cover the referencing and credit checks, which I think it the worst thing for all of us. We are having to pay to see if someone is able to rent a property! I am not responsible for someone else’s financial history, so having to pay when I am unsure if they can rent the property sticks in my throat slightly.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
And when someone applies for a mortgage are they going to ban fees … no, but then they are using the clap trap of who is the client that carries the liability from another perspective to suit themselves. The whole sorry saga over fee’s and direct or indirect commission is going to blow up into one hell of a mess by some very short sighted idiots in Parliament who do not have to live with the misery they create.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Take a holding deposit.
Make sure your referencing questionaire is very detailed and covers everything that could come up in the reference. Also include a catch-all question such as: Is there anything you think is relevant to your application for this house that hasn’t been covered by any other question?
Make sure you have told the prospective tenant that anything found to be incorrect on their form will result in the witholding of £x from their holding deposit.
Make sure you serve a notice explaining why you are witholding some of the holding deposit.
Where there are multiple tenants, you may not cover all your costs as I don’t think you can withold all the deposits if one person has lied (although you should be able to withold all their deposit).
(3) Subject as follows, the person who received the holding deposit must repay it if—
(a) the landlord and the tenant enter into a tenancy agreement relating to the housing,
(b) the landlord decides before the deadline for agreement not to enter into a tenancy agreement relating to the housing, or
(c) the landlord and the tenant fail to enter into a tenancy agreement relating to the housing before the deadline for agreement.
(5) (1) The person who received the holding deposit must repay it if—
(a) that person believes that any of paragraphs 8 to 12 applies in relation to the deposit, but
(b) that person does not give the person who paid the deposit a notice in writing within the relevant period explaining why the person who received it intends not to repay it.
(2) In sub-paragraph (1), “the relevant period” means—
(a) where the landlord decides not to enter into a tenancy agreement before the deadline for agreement, the period of 7 days beginning with the date on which the landlord decides not to do so;
(b) where the landlord and tenant fail to enter into a tenancy agreement before the deadline for agreement, the period of 7 days beginning with the deadline for agreement.
(8) Paragraph 3(b) or (c) does not apply if—
(a) the landlord is prohibited by section 22 of the Immigration Act 2014 (persons disqualified by immigration status) from granting a tenancy of the housing to the tenant,
(b) the landlord did not know, and could not reasonably have been expected to know, the prohibition applied before the deposit was accepted, and
(c) if the landlord has instructed a letting agent in relation to the proposed tenancy, the letting agent did not know, and could not reasonably have been expected to know, the prohibition applied before the deposit was accepted.
(9) Paragraph 3(b) or (c) does not apply if the tenant provides false or misleading information to the landlord or letting agent and—
(a) the landlord is reasonably entitled to take into account the difference between the information provided by the tenant and the correct information in deciding whether to grant a tenancy to the tenant, or
(b) the landlord is reasonably entitled to take the tenant’s action in providing false or misleading information into account in deciding whether to grant such a tenancy.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
The obvious outcome to this is that only squeaky clean tenants with a proven credit history will be offered affordable homes. Anyone who presents a smidgen of risk will pay MUCH higher rent to allay any risk. (Often those that can least afford it). Either way the tenant’s still pay! The landlords still profit! The agents suffer! The tenant’s suffer more from a stripped back service and higher costs!
I just hope that when the bill goes for royal assent, the Queen remembers her own estimated £13 billion property empire, and she spares a thought for any leaseholders who may have a mortgage on their property but never own the land it sits on, but instead pay rent for it.
There is much that needs changing, but change things for the better, not so it appears to be better when in fact it makes things worse.
Again I refer to the forced BBC tax which allows it’s loveys over inflated, astronomical pay!
The passport, which I need to exit and enter my own country, for which I must even fund the photograph. I pay for them to check me out, to see if I’m eligible, how is this not the same as charging a fee to see if a tenant is eligible so that a landlord can meet the terms of his mortgage?
Mortgage; I pay a mortgage fee so the bank can lend me money from which they profit by way of interest, how are they different than a letting agent or landlord?
Finance fee to buy a car, the dealer wants the checks done, why are they not paying for them, as a landlord is now expected to?
Double standards everywhere!
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register