In his Autumn Statement today the Chancellor Philip Hammond announced plans to ban letting agent fees in England “as soon as possible” which may be save 4.3 million households hundreds of pounds.
Currently many tenants face charges to draw up tenancy agreements, conduct immigration and credit reference checks in addition to the payment of a non-refundable holding deposit paid before signing up to the deal.
The move comes as numerous reports have indicated that many tenants living in sub-standard housing are discouraged from moving out because of extra fee charges. A report published by the English Housing Survey covering April 2014 to March 2015 found that 69% of tenants living in poor quality homes are discouraged from moving out because of agent fees.
Nonetheless, landlords groups have claimed that banning letting fees will not necessarily reduce rental costs with landlords and letting agents increasing rental values to offset loss of income. However, renters groups assert that the ban will make it easier for tenants to compare the cost of different properties and reduce the incentive for letting agents to replace tenants.
The move is a culmination of greater regulation of the letting market and will move England further in line with Scotland where lettings agency fees to tenants have already been banned. Since 2015 lettings and managing agents in England and Wales have legally been obliged to clearly publicize their fees.
Since the entry into force of the Tenancy Deposit Scheme many landlords and letting agents have devised ways of evading and ignoring deposit protection rules.
One common tactic which renters should be aware of is issuing tenants with a “licence to occupy” in place of an “Assured Shorthold Tenancy”.
A licence gives the right to occupy and is typically used for bed and breakfasts, hotels, holiday lets and some HMOs. Often tenants only discover that a license has been issued when attempting to recover their deposit at the end of their occupation. However, despite being called a license, you may still have an Assured Shorthold Tenancy (AST) in the eyes of the law. In this event it may be possible to use typical AST measures to recoup moneys owed.
Do I have a License or a Tenancy?
A tenancy is created automatically if someone moves in and starts paying rent. Some landlords incorrectly issue licenses, either through inexperience or design to give tenants less rights than they would usually expect with an AST. A tenancy cannot be turned into a license merely by both parties signing a piece of paper headed ‘license agreement.’ A landmark case which defined the requirements for a tenancy as opposed to a license was Street v. Mountford in 1985. This stated that one has a tenancy if one:
pays a rent
occupies the property for a term
enjoys exclusive possession of land / property
These conditions do not apply if one does not pay rent or if the occupier does not enjoy exclusive possession such as in a shared room or if cleaning and meals are provided as in a hotel.
The clearest way to identify the difference between the two [license and Assured Shorthold Tenancy] is exclusivity. If a tenant has exclusive use of at least one room in the property, and that room(s) is specified, this will usually be classed as a Tenancy Agreement. If the property is shared with more than one individual, this is more likely to be a Licence.
I believe I have been incorrectly issued with a license and my landlord has not protected my deposit, what should I do?
It may therefore be possible to claim damages from your landlord if they incorrectly issued you with a licence and failed to protect your deposit. According to current deposit protection rules, your landlord must register your deposit in one of the three government-approved deposit protection schemes within 30 days of the start of your tenancy. The penalty for non-compliance is a fine of between one and three times the deposit amount.
The National Renters Alliance has recently noticed an uptick in the incidence of the fake property rent deposit scam and is warning students and foreign nationals to be vigilant when looking for properties.
The scam which in the past gained notoriety from its association with the listings website Gumtree, works by offering to let properties in prime areas at below market rates and asking for a deposit. Extreme examples often ask prospective tenants to pay for 6 months or 1 years’ rent in advance to secure the property prior to visiting it. Payment of large sums of money in advance targets foreign nationals who are frequently required to pay 6 month’s rent in advance by established letting agents in London and student towns such as Cambridge and Oxford.
In the scam, prospective tenants are convinced to part with either credit card details, cheques or cash before seeing the property which does not exist. Further ,since the fraudsters leave no legitimate correspondence address it is almost impossible for victims to pursue fraudsters in court. Other variations include instances where fraudsters do access the property and show around prospective tenants. The property already be rented or has been rented to multiple victims at the same time.
The National Renters Alliance recommends several measures which tenants can take to help protect themselves from falling victim to this scam.
Never pay money upfront before visiting a property. Always be suspicious if anybody refuses to let you visit the property before paying a deposit.
Ask to see identification such as a driving license and/or passport from the prospective landlord or letting agent. If you are dealing with a company ask for a correspondence address.
Prospective tenants can also check whether the landlord is a member of the National Landlords Association (NLA) using the NLA accreditation website www.landlords.org.uk
If you are still a student, you can often uses your student union or accommodation office to check whether a landlord is on an approved housing list.
If dealing with a letting agent check whether the agent is accredited by organization. Examples of such bodies include the Association of Residential Letting Agents (ARLA). the Royal Institution of Chartered Surveyors (RICS) or the National Approved Letting Scheme (NALS),
Use commonsense. If the property looks too good to be true, too cheap for the location then it possibly is.
Before paying a deposit ask the landlord or agent which government-backed deposit scheme is being used. Currently there are three: mydeposit, The Dispute Service (TDS), The Deposit Protection Service (TDPS).
If the property is shared ask the current occupants how they found the property and how they pay their rent. If the landlord or agent collects only cash or regularly changes bank accounts this should warrant further vigilance.
If possible use a credit card to pay for a deposit after the letting agreement has been signed. Be wary if you are asked to transfer money via money transfer agents such as Western Union or Money Gram. Only use these services to send money to people you already know and trust.
Always check the legitimacy of an advert. This is especially true for a non-property website such as Gumtree, Avoid adverts with no photographs or ones with photographs used on multiple adverts.
New research has shown that London renters looking to save money by moving into shared accommodation are paying an average of £2,000 in agency fees. The figure, mostly made up of up-front deposits and letting agent fees is almost £1,000 more than the national average. On average London renters moving into a flat-shares have to pay £2,043 on top of their deposit compared with the national figure of £1,175. Around 20% of these fees are paid to letting agents according to the flat-sharing website Spare room.
A further impediment to moving also includes a six-week deposit which is now normal across large parts of the UK, up from an average of a four week deposit a decade ago. Often tenant cash-flow problems may be exacerbated by deposit disputes between landlords and tenants despite the introduction of deposit protection dispute resolution schemes in 2007.
Foreign tenants are at a particular disadvantage also in this regard with many reporting being required to pay a holding deposit in addition to paying six months’ rent in advance. The National Renters Alliance is particularly concerned that this may encourage letting agent intimidation of tenants who have sometimes committed the equivalent of 8 month’s rent and substantial agency fees before occupying a new rental property.
Despite calls to ban or impose tighter regulation of letting agent fees as in Scotland, the government has been unwilling to impose new legislation in this area. Letting agent charges can include drafting and amending tenancy agreements, credit checks, references and administration costs. Across the UK 95% of people who used a letting agent paid fees. Many letting agents also charge prospective tenants holding fees for reserving rooms in shared houses.
The issue of letting agent fees is leading to more tenants to look for properties managed directly by landlords. However, this might be a luxury for some with many areas particularly in places with high student populations where managed properties dominate the rental housing stock.
Letting agent Foxtons is facing an £80m “class action” over letting agent fees which could see the company forced to pay back hundreds of pounds to current and former tenants.
The case, launched by the social entrepreneurial firm CaseHub, claims that Foxtons’ fees could be illegal under the Unfair Terms in Consumer Contracts Regulations 1999, and its successor the 2015 Consumer Rights Act. CaseHub’s founder, Michael Green, claims that “service charges” such as £420 for administration, £300 for name changes and £165 for checking out a property are vastly inflated. Green states that fees for such services should instead range between £10-£55.
The Foxtons’ case comes at a time when the issue of letting agent fees and regulation has attracted increasing Parliamentary attention. In May the Conservative MP for Lewes, Maria Caulfield, secured an Adjournment Debate in the House of Commons to discuss the Government’s actions in relation to letting agent fee capping.
Miss Caulfield reported research from Seaford and Lewes Citizen’s Advice Bureau which found that letting agent fees can range from £175 to £922. This is in addition to an average of a six-week rent deposit. During the debate Conservative MP Kevin Hollinrake, co-founder of Hunters Estate Agents, argued against fee capping. Hollinrake claimed that agents may choose to decline tenancies to prospective tenants with inferior credit histories or increase rents should fees were scrapped.
Green states that the proposed class action against Foxtons is about extravagant, gratuitous and hidden fees. These include overcharging, double charging landlords and tenants and introducing fees at the last minute.
Foxtons dismisses the claim, saying its fees are “open and transparent” and that tenants have full visibility of charges before renting a property.
Landlords in the UK may soon find it easier to track renters’s private social media content using software developed by a UK startup. The company, Score Assured, uses a program to scan prospective tenants’ social media profiles and private posts to record information such as relationship and family status. Also recorded are key words such as “no money,” “poor” and “staying in” which the company claims may indicate how reliable a tenant may be in maintaining rent payments.
The company’s co-founder, Steve Thornhill, has rejected claims that the program breaches privacy laws saying that the software is more innocent than it appears. “It’s about giving the tenant more opportunity to get the property they want,” he says. “A lot of people now, millennials, for example, don’t have credit scores — so how they can get a property when the answer from the traditional credit score is going to be no?”
Supporters of the program claim that a tenant must consent to a landlord running the program on their social media profiles before it can be used. Thornhill claims that such consent means that the program, Tenant Assured, is no different from a traditional credit check.
Others say that often tenants have no other option than to accept the download of their social media information to secure a property and hence tenants will be forced to accept an invasion of their privacy. Also consumer protection laws regulate credit checks because of their potentially large impact on consumers. Regulators also have recognized that although such checks may technically be “opt in,” they’re effectively not optional for those who don’t have the luxury of only choosing landlords, jobs or loans that don’t require them, or who work in industries or live in areas where such checks are standard practice.