A possible flaw has been spotted in the Tenant Fees Bill, which could mean that letting agents throughout England could unknowingly break the law after the ban comes in.
It was spotted by lawyers helping a tenancy referencing firm review its terms and conditions.
The legal experts are warning that agents could be caught out by using other industry services as part of their lettings process – for example, repairs reporting systems and inventory firms.
Tony Williams, managing director of UKtenantdata, said: “Reviewing our terms on an annual basis is standard practice for our company and with the tenant fee ban on the horizon, it made sense to identify changes that may be required.
“Our lawyers identified an issue that could place every single letting agent in England in a position where they are unknowingly breaking the law.”
Williams explained: “The current Bill states that an agent cannot charge a tenant a fee, nor force an applicant to contract with a third party.
“However the agent would still be in breach of the proposed legislation because the applicant would still have to agree to our terms pre-application and therefore would be contracting with us.
“So in short this would prevent an agent from performing any due diligence checks on tenants.
“If the Bill goes through in its current form, this will create a major issue for agencies.”
The Bill is due to have its third reading in the Lords tomorrow (January 15).
This is what the Bill says:
Prohibitions applying to letting agents
(1) A letting agent must not require a relevant person to make a prohibited
payment to the letting agent in connection with a tenancy of housing in
(2) A letting agent must not require a relevant person to make a prohibited
payment to a third party in connection with a tenancy of housing in England.
(3) A letting agent must not require a relevant person to enter into a contract with
the agent or a third party in connection with a tenancy of housing in England
if the contract is—
(a) a contract for the provision of a service, or
(b) a contract of insurance.
Williams said that point one is clear: “As an agent you simply can’t take any money from the tenant if it’s connected to the grant of a tenancy. That is clear.”
“Again, point two is clear.”
However, he said point three is problematic.
Either the agent or the landlord will have absorbed the cost of the due diligence process after the ban comes in, so that there are no cost implications for either the prospective tenant or guarantor.
However, it is what happens next that could cause difficulties.
Williams said: “The applicant receives their application link, enters the application area and before proceeding agrees to our terms and conditions.
“Now, believe it or not, the applicant has just contracted with us (the third party) and the agent has broken the law.
“It really is that simple.”
Williams believes other providers will be affected.
He said: “The Government’s proposed legislation doesn’t just affect the applicant due diligence process.
“It will knock on to other areas of the industry where an agent outsources to third-party providers where there is no cost involved to the tenant.
“These services could include inventory providers, who require the tenant to access their platform to view the property inventory and post back comments; or where agents have property issue reporting systems in place as part of their process.”
He said that contracts are created when they require the tenant to agree to the third party terms.
“To both myself and our lawyers it looks like the Government hasn’t thought this through. Looking at the legislation now it really is glaringly obvious that this is a potential issue and frankly I can’t understand why this hasn’t been picked up previously.
“This really is an area of concern and will potentially cost letting agents thousands in fines.”