Banning letting agents fees: who comes off the worst?

Mike White, lettings agent at Martin & Co, Norwich. Pic: www.edp24.co.uk

The Tenant Fees bill continued its journey through the House of Lords in the last quarter of 2018. The bill is due to have its third reading in the Lords in January 2019 and will then return to the House of Commons for consideration of Lords Amendments. An implementation date will be confirmed after the bill receives Royal Assent, most likely April 2019.

The bill seeks to amend the Landlord and Tenant Act 1985 by stopping letting agents from charging tenants or prospective tenants: admin fees; inventory check fees; reference check fees; renewal fees etc.

If this goes through to become law, that's fantastic news for tenants isn't it? Well let me pose the question; whose likely to come off worse; agents, landlords or tenants?

But, before I answer that, let's look at the dynamic between the fees agents charge to landlords and those charged to tenants together with the commonly held view that agents charge both parties for the same thing. In Norwich, your typical properly registered letting agent, will charge the landlord somewhere around £300 - £400 including VAT to find them a tenant, do the referencing, draw up the tenancy agreement etc. Although they may be described in a myriad of different ways, tenants on average get hit with total tenancy setting up fees of £325. Before anyone with an anti- agent bent starts shouting at me that both parties are paying for the same thing, agents are rip-off merchants and how can it possibly cost £625-£725 to set up a tenancy, hold on a minute. What each party pays is their contribution to the total cost and I believe this is fair as both receive a service and moreover, peace of mind. A good agent will only take on decent properties that conform to all legislative standards, having checked the bona fides of the owner, thereby protecting the tenant, while the landlord is assured their tenant has been appropriately checked. Both get a tenancy agreement properly conforming to the Housing Acts plus the security deposit gets protected etc. Interestingly, what letting agents do, fee-wise, is not hugely different from what a travel agent does, for example, they charge both the hotel company and the holidaymaker but this all gets bundled up in the brochure price of the holiday and no-one complains! The only difference is a letting agent is legally obligated to publish their individual tariff of charges for both landlords and tenants online.

Hang on, you didn't answer that other question; does it really cost £625-£725 to set up a tenancy? No, it doesn't but a letting agent is in business to make a profit and we do need to put beans on our toast. I can't speak for the transparency of other agents but you're very welcome to have a look at the annual audited report and accounts for Martin & Co Norwich which are a matter of public record at Companies House.

So, back to the original question, the anti-agent brigade have their way and tenants no longer need to pay fees – happy days for whom?

Well someone is going to have to pay that £600 odd, if it's the letting agent they'll be a lot of empty shop fronts in the city centre as they all start going bust at a rate of knots. This is not so good if, as a landlord or tenant you see the genuine value of an agent and what happens to the already dysfunctional housing market as the ability to source residential property further clogs up when the facilitators are no longer around?

Okay, so the cost is put onto the landlords' shoulders. Are they going to be able to absorb this? Sorry, that's a rhetorical question because the answer is so obviously, not a chance. The vast majority of landlords in the UK own one or perhaps two properties and don't make a heap of cash from them. Getting landlords to pay will simply prompt a huge percentage to stop playing the game and take their bat and ball home. No, the only sensible solution will be for rents to increase – using the £325 tenant fee, this means rents will need to go up by a minimum of £27 per month, assuming a tenant signs an initial agreement for 12 months (more if shorter). In all likelihood they'll go up by more than £27 to compensate the landlord for having wait up to a year to receive back the extra money they've had to pay the agent at the outset. How much more? I haven't a clue but for the purposes of this argument, let's say the rent goes up by £35 per month, that's an extra £420 over the course of a year. If the tenant wants to stay on at the property for a second or third year, that's another £420 per annum, all to have 'saved' £300 at the start. I agree, this bill would do more to harm tenants than help them.

If you're interested to see what different letting agents charge their clients and how these compare with what you're paying, it should be a simple matter of looking at the individual agent's website to see their published tariffs. As I mentioned, this is now a legal requirement.

You can contact Mike White at Martin & Co, column sponsors, in Norwich on 01603 766860.