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Letting agent fees - Everything you need to know

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As news came round last week, announcing what might be the end of letting agent fees to tenants, we decided to take a deeper look at things, do some research and try to unravel if this sudden move by the government is really for the better, or not.

No more letting agent fees ?

“The government will ban letting agents’ fees to tenants, to improve competition in the private rental market and give renters greater clarity and control over what they will pay. The Department for Communities and Local Government (DCLG) will consult ahead of bringing forward legislation. “

This was announced last week in the government’s Autumn Statement for 2016.

It’s the biggest news for tenants in 2016, as the measure can easily save 4.3 million households hundreds of pounds off of every move.

Philip Hammond, who delivered the statement, never did mention for when exactly this ban will happen officially. However, this measure being officially published by the treasury gives tenants hope that within an year’s time, they may reduce moving costs by more than 25% in certain areas.

Following Scotland’s example in 2012, England might ban letting agent fees to tenants. Wales and Northern Ireland, however, will continue to allow letting agents to charge fees to both tenants and landlord.

What letting agents have to say ?

As one of the hottest dispute subject in the renting industry, it makes no wonder that all sides reacted energetically. Letting agents united in the shared opinion that banning lettings fees to tenants will only cause more problems, and ultimately increase rents reversing the effect of the ban.

David Cox, Managing Director, Association of Residential Letting Agents (ARLA):

“A ban on letting agent fees is a draconian measure, and will have a profoundly negative impact on the rental market.

It will do little to help cash poor renters save enough to get on the housing ladder. This decision is a crowd-pleaser, which will not help renters in the long-term. All of the implications need to be taken into account.

If fees are banned, these costs will be passed on to landlords, who will need to recoup the costs elsewhere, inevitably through higher rents. The banning of fees will end up hurting the most, the very people the government intends on helping the most.”

Read the full statement – here

The Association of Residential Letting Agents (ARLA) is one of the most prominent regulatory body for letting agents in the UK, bringing together more than 8,500 agents under one roof.

The membership applies some ground rules about how letting agents should act and treat landlords and tenants. It guarantees tenants can contact somebody if their letting agent doesn’t play by the rules. In short, an ARLA letting agent is as professional, as ethical and as law-abiding, as they come.

ARLA boasts that the average fee charged per tenant, by their members is ‎£202.

However, averages are not fixed prices, meaning that even professionally acclaimed letting agents, like the members of ARLA, may end up charging huge amounts of money for the same services, others are charging less than £100 for.

This seems to highlight the main problem with letting agent fees – the bad few villainise everybody else.

What protection tenants have against a bad letting agent ?

The government made several attempts over the years to regulate letting agents before, but has so far made a very little impact on the way agents trade.

Consumer Protection from Unfair Trading Regulations 2008 replaced, updated and simplified a handful of other laws in order to tighten the grip on bad commercial practices.

Essentially, it states that traders should act ethically, uphold good trading and service standards and not charge misleading or hidden fees or in any way scam or fraud their customers. The regulation lists a number of aggressive and misleading sales tactics / commercial practices, which are outright banned from use.

However, in reality, it does little to help tenants against letting agent fees. As the regulation targets the most vicious and unscrupulous acts, most of the letting agent fees fall short of being a target for it.

As such, this regulation has been mostly ignored following its announcement.

In 2013, the Advertising Standards Authority (ASA), ruled against a letting agent for charging hidden, unannounced fees after the renter had already signed a contract and moved into occupation.

The ruling made it clear that advertisers need to display all their fees and charges upfront before any contract is signed or a sale is finalised. Fees need to be clearly displayed on any advertisement online or off.

However, the ASA doesn’t have any authority outside of advertising, so provided the fees are displayed, a letting agent has no limitation to what they can charge for and how much.

The Redress Schemes for Lettings Agency Work and Property Management Work Order 2014 made it a legal requirement for all lettings agents and property managers in England to belong to a Government approved redress scheme from 1 October 2014.

The only government approved redress schemes are:

If you have problems with your letting agent, check the above websites and find which redress scheme they are members of. The redress scheme will help you resolve problems and protect your rights against unscrupulous agents.

Consumer Rights Act 2015 was another attempt by the government to establish transparency in the lettings market. The act makes it compulsory for all letting and managing agents (in England and Wales) to publicise their fees. Furthermore, the act made it a rule that letting agents should display and publish the redress scheme of which they are members.

An extensive research by Letting Fees UK (more below), shows us that 30% of letting agents don’t display a redress scheme on their website, and 14% don’t publicly show their fees.

This indicates that the Consumer Rights Act had a notable effect on transparency in the lettings industry. However, it to fails to impact the amount of fees being charged on tenants and the inevitable costs of moving.

The is not enough regulation

Letting agent’s total cost is based largely on the number of features the landlord opts in as part of the service. Most of the agent’s activities are granular and a landlord can choose to purchase them or not, depending on how much they need to research a tenant, or how complicated the administration of the property is.

However, landlords don’t usually pay the move in costs – the tenant does. That makes landlords care little about the cost of the agent and may order the full package with little thought about how much it affects tenants.

Furthermore, the letting agent chooses their own prices for each service / feature. The landlord is not paying and therefore competition does not affect prices.

At the end, tenants pay for services they have not commissioned at prices they can’t control or negotiate since they don’t employ the letting agent. Renters can’t shop around and choose another agent, as property search happens on properties, not letting agents.

How much do tenants really pay ?

Letting Fees UK, is a comprehensive database of more than 900 letting agents, and the various fees they charge.

This data gives us incredible insight into the state of the lettings industry and what are the realistic figures we should discuss.

One of the most interesting things to see is the broad overview of all 914 letting agents, which proves the huge discrepancies in pricing from one agent to the other:

Number Letting agents Fees charged for two tenants
17 £0 – 99
36 £100 – 199
101 £200 – 299
249 £300 – 399
231 £400 – 499
89 £500 – 599
66 £600 – 699
4 £700 – 799
Total letting agents: 914 Average fees: £399

The research concludes that on average two tenants entering a rented property must pay £400. A good thing to keep in mind is that when multiple tenants share the same property, it gets cheaper for everybody. Some letting agent fees have fixed prices, or are charged per property, not per tenant.

This makes us believe that a single tenant would have to pay more than £200 in lettings fees on average. And, as we previously said, averages are not fixed prices.

For example, tenants need to pay for the core administration tasks of the agent:

  • Inventory fee in a furnished tenancy – £130 Avg.
  • Tenant reference fee – £144 Avg. for two tenants
  • Tenancy agreement fee – £212 Avg. for two tenants
  • Administration fee – £306 Avg. for two tenants

However, these are just the core charges paid by every tenant, assuming the absolute standard procedure is used. In reality, every additional detail, like getting a pet in the property, or using a guarantor, or making any changes to the contract is being charged on top.

According to Letting Fees UK, there are 135 different fees that letting agents in the UK are charging to tenants, including some really preposterous ones like:

Overpaid Rent Refund Fee – a fee the tenant has to pay when they want a refund of overpaid rent.

Deposit Protection Fee – a fee that covers the expenses of protecting the tenancy deposit with a scheme. By law, this is a legal right of tenants and responsibility of the landlord. A charge to do this work in completely unfair and should NOT be permitted.

Periodic Tenancy Renewal – a fee paid when the fixed term expires and rolls into a periodic tenancy. This actually happens automatically by law and doesn’t require any extra work.

Non-returnable Holding Deposit – a deposit, equal to hundreds of pounds, which is attributed to your rent, once you move into the property. However, if you decide not to move in for any reason, like discovering unfair terms, or bad disrepair in the property, this deposit is lost. Many tenants pay this deposit before even seeing the property, as agents usher them around.

And all these charges come before the 4 – 6 weeks of deposit and first month’s rent that’s going to the landlord.

Even when prices are in line with whatever we might call reasonable, the situations at which letting fees are applied sometimes completely disregard common sense. Some tenants are forced to pay unnecessary fees simply because the letting agent has the upper hand, or the tenant is unaware of their rights or doesn’t know how to stand up for themselves.

Here are some of the stories shared in our community.

What tenants have to say about their experience?

Case study: Suzanne

Hello,

I privately rent my current property for 14 years. My current landlord, who is charming by the way, has decided to put the property with a letting agent of his choice, mainly, I believe, because his partner’s daughter has a senior position at this agency.

This agency now wants to charge me £150 for renewing my tenancy agreement in April 2017.

I did not choose to change agents, as I would never choose an agent that charged £150 to renew a digital agreement. This letting agent actually takes no responsibility for the property whatsoever. All dealings are direct with the landlord at their home address. This letting agent has not visited the property, has not done home checks, in fact, has not ever done anything. So, why am I expected to pay this £150, which I’m going to refuse to do, but then, of course, there will be a backlash of unpleasant feelings with the landlord.

I’m waiting to have damp resolved in my bedroom and living room since 2011. The property has no ventilation bathroom and kitchen, no CH. The company that looked into this advised CH and to have vents put in to remove moisture from the air. It was supposed to be done during 2014 – still waiting.

New carpets were agreed back in 2013, as they are extremely worn, no new carpets as yet. I have always looked after the property as if it’s my own. This year, three leaks, one in the loft from the overflow pipe to the outside, one in the toilet cistern, and one from the sink pipe to the outside of the property, all of which I’ve dealt with without worrying the landlord. He is aware of this.

Lastly, I have had regular rent increases over the last 5 years. One year it was as much as £25 per month increase, which I feel is extortionate. The property is owned by the landlord outright, no mortgage.

The rental market in the UK needs to change considerably. As far as I’m concerned letting agents work for landlords, not tenants, especially if a tenant has not even approached them for services.

You can find the original version on the forums.

Of course, this letting agent is perfectly entitled to charge this fee, as all of the problems Suzanne has with the property have nothing to do with renewing the tenancy agreement. They are just two separate things. Also, the agent can choose their own price, regardless of how much work is required to complete the service or what costs need to be covered.

As the discussion went on, it was concluded, that if the landlord takes the letting agent’s side (which they had already done), and they are absolutely serious about making the tenant pay, they have all the legal instruments to do so.

The landlord may threaten not to renew the agreement, and she’d be making a choice between paying £150 and moving, which costs 10 times more. The landlord may also try to deduct the money from her deposit, which has every chance to succeed, as it’s widely accepted that tenants pay for these things.

And all the disrepair and failed agreements, have no argument over this matter. The law doesn’t justify not doing your part of a deal, just because the another party has not done their part of another deal. It’s just the way it works.

So, what options does Suzanne have ? She needs to be confident and negotiate like she has some leverage over the dispute, but she really has nothing.

Of course, no good landlord will try to evict a tenant over a stupid £150, as a change of tenant will cost both sides a lot of unnecessary expenses, when things have been going well for a lot of time, well, sort of good.

Suzanne is a great example of a tenant who knows their rights and knows how to stand up for herself and not allow anyone to push her around. We’re proud to have her on our community.

But, what about other tenants ?

Case study: Richard Bailey

Hi all,

My wife and I applied for a private rental property 10 days ago via a letting agent and was told of the usual admin fees ie £200 for a credit check via the The Landlord Hub. We were told at the time of application that it would be hard dealing with them and that we would have to chase them for an answer to whether we could rent this particular house or not.

Well, after countless emails and phone calls, which have lead to my wife becoming very upset, we are still no closer to knowing if we can move or not. I feel we have been taken for a ride in this situation and for £200 fee, we deserve far better communication. Has anyone else had issues with this credit checking company ?

You can find the original version on the forums, as well as another thread full of bad reviews and experiences from the same credit referencing company.

For reference, the statistics at Letting Fees UK’s database list an average price of £144 to perform credit reference on two tenants. Open Rent charges £20 per tenant for referencing.

While the service is obviously over priced, even against the industry’s average, that’s not even the biggest problem. Other users report that credit checking may sometimes take more than 3 weeks, which is excessive for tenants who are moving, as moving schedules are very narrow.

If you give a standard month’s notice to leave and it takes 3 weeks to get the most important part of your tenant application, that leaves a pretty short margin for error, before you have to leave your current property.

It’s not always about the money, but also about the stress tenants have to endure for something they pay for and have never event asked in the first place. It’s about the anxiety of moving and worrying if you will find a property to live in before you have to move. It’s also about the security and having your word taken into account on matters that regard your home.

A home is supposed to be a sanctuary for the people living inside – a place to relax and rejuvenate from the stressful life around us.

Letting agents don’t always seem to remember that. On the contrary, some letting agents are encouraging tenants to move frequently, to make a profit from the fees they charge.

What have we learned from Scotland ?

Scotland actually banned letting agent charges to tenants in 1984. However, the law wasn’t enforced until 2012, when the Scottish Government clarified the law to make sure it accounts for letting agents and landlords.

Housing charity Shelter commissioned an independent research, following the 2012 clarification, to assess the impact of the ban on letting agent fees to renters in Scotland.

Key findings in that research are as follows:

Impact on letting agents:

  • The majority – (76%) of letting agencies said that the clarification in the law on fees had either ‘no impact’ – (59%) or ‘a positive impact’ – (17%) on their business.
  • Less than a quarter – (24%) said it had ‘a negative impact’, and all of these said this was a small rather than large negative impact.
  • Not one agency manager interviewed said it had a large negative impact on their business.
  • Less than one in five (17%) agencies surveyed claim to have increased fees to landlords as a result of law clarification.
  • 54% of letting agency managers said that the clarification of the ban on fees was positive for the sector.

Impact on landlords and rent increase:

  • Landlords in Scotland are no more likely to have increased rents than those in other areas of the UK during the last 2 years, and fees-related factors are very low in their list of reasons for increasing rents.
  • Minimal evidence of a link between fee clarification and any increase in rental levels.
  • Fewer than 1 in 10 (8%) landlords in Scotland disagreed that ‘banning fees improves the rental sector’.
  • Only one landlord in 120 surveyed said they had noticed an increase in agency fees and had passed this on in full to their tenants.

Although rents in Scotland did increase in 2013, the research by Shelter used statistical modelling to assess that only between 1% – 2% of the rent rises in Scotland during 2013, have been influenced by the law clarification.

These figures are very optimistic for the experiment that England is about to embark on. Of course, England and London in particular, are very different markets, driven by a huge and increasing demand for housing. The results in Scotland in 2013 may be very different from the results in England 2017.

Shelter England, who have been campaigning against letting agent fees to tenants ever since 2013, greeted the news of the Autumn statement with enthusiasm:

“We are truly delighted the government is bringing forward a ban. This is an immediate expression of the prime minister’s promise to take on vested interests to help working class families. Because tenants have so little consumer power, we have never believed transparency will be sufficient to end abuses.

A ban on fees is the fairest, most transparent way to improve private renting for just managing families and we are delighted the government agrees.”

…and so should all renters !

What would happen when the fees are gone ?

Well, the fees are not really gone, just gone for tenants. Letting agents will still need to get paid for their services. So, in theory, how would this change affect the renting industry when it rolls out officially.

Letting agents will absorb most of the cost

It’s unlikely that the wide range of prices is related to a wide range of actual costs. The discrepancies in pricing are mostly what letting agents hope to turn into profit.

In fact, according to the Guardian, Foxtons have a profit margin of 30%.

This is not hard to believe when you consider that they charge £96 for tenancy renewal (Avg. is about £113 for two tenants and goes up to £250), which is basically printing a ready template contract to sign.

If the costs are banned for tenants, letting agents must think twice before charging landlords the same fees.

You can make a tenant pay almost anything to keep a roof over their head (and their families). Landlords don’t. Landlords are free to shop around and choose an agent whose costs are down to earth and whose services are up to scratch.

If landlords didn’t have the incentive to be picky over their agents before, a ban on fees to tenants will certainly provide one. Letting agents will need to be competitive and to do that, most will have to shave off the profit they currently make from fees.

Just a reminder – letting agents still get a commission for finding a tenant and setting up the tenancy on behalf of the landlord. This one is not going away, so it’s not like agents will go home with empty pockets – just not so full.

Landlords will take a SMALL hit if any

The bulk of the letting costs will be absorbed by the letting agent, however, a portion of these fees is legitimately the actual cost of performing the service.

Letting agents will need to charge somebody with a bill. If not the tenants, the landlords will be the ones paying.

However, landlords are already paying commissions that should cover administration, checks and set up the tenancy. The simple fact is that many agents charge both landlord and tenant for the same work.

Charging the landlord twice for the same work will not keep many letting agents afloat. So, if anything is passed down to the landlord, it would be a minimal portion of the fees tenants are paying today.

Rents might rise, but just a tiny little bit

Even if the worst case scenario occurs and rents go up, it likely won’t be half as dramatic as letting agents and landlords try to make it sound.

In many places, especially in London, rents are already as high as people are going to pay. Tenants can’t afford huge rent increases anymore. There is a limit to where you can push things and many landlords are already pushing the breaking point.

Tenants are soon going to refuse higher rents, even at the face of homelessness. As scary as eviction sounds, people already pay up to 72% of their income for housing at places – they simply don’t have any more money to spend on rent.

When faced with a choice to either evict a tenant over them refusing to sign a rent increase or keep the property occupied, landlords need to consider the economical factors.

How much does a full blown eviction cost ? How much does it cost to remarket and re-let ? How much damage can a miserable tenant cause ? Is it worth it for the £15 on top of each month ? Unlikely.

Rents are already being raised every chance there is, so if there is any resulting rent rise, it’s probably going to follow Scotland’s example and just blend in with other economic factors.

Renters will gain flexibility, leverage and confidence

Many tenants live in subpar accommodation because their landlords fail or disregard their duties to repair and maintain the property. According to Shelter, as much as 43% renters live in homes which fail to meet the ‘Living Home Standard’.

Tenants put up with a lot of things simply because it’s too expensive to move. Moving costs can easily overshoot £2,000, a quarter of which can be attributed to letting agent fees. When you’re just managing, this is not the kind of money you can easily get your hands on.

Not paying these fees will allow tenants to move more often and enable them to seek more affordable and more quality accommodation. Just giving them the ability to move, will give them a much stronger negotiation leverage – what landlords fear the most are empty properties.

This will raise living standards somewhat as unhappy tenants will have more confidence to voice their concerns and take more affirmative action against their landlords.

Renters get to have a simpler, more predictable moving experience. As they only need to worry about rent price and deposit, tenants will be able to better calculate their expenses and make better decisions about their future accommodation.

Tenants get the chance of fair treatment. Paying rent is everything a tenant should pay. Administration, reference checks, tenancy renewals – this is all a responsibility of landlords. If the landlord wants to hire an agent to do it for them, it’s okay, but why are tenants expected to cover the bill ?

Renting without letting fees is a big win for tenants, even if it doesn’t save them money !