How can buy-to-let landlords protect their profits with this new law?
The Tenant Fees Bill is making its way quietly through Parliament. However, we believe that buy-to-let landlords (and letting agents) should be listening very closely. When implemented, the new law will give tenants more protection and, critically, cap or ban some fees that tenants are currently charged – fees that could be essential to the financial viability of a landlord’s buy-to-let business.
In this article, you’ll learn what impact the Tenant Fees Bill may have on buy-to-let landlords and letting agents, and how any financial impact can be mitigated.
What does the Tenant Fees Bill propose?
There are now more than 11 million people living in rented properties in the UK. This number has doubled over the past two decades and is likely to continue growing. Tenants’ associations and representatives have argued that there must be more financial restrictions placed on landlords and letting agents, especially in the areas of ‘hidden and additional costs’.
The Tenant Fees Bill proposes to tackle the issue of hidden costs, by either limiting what can be charged or banning those charges completely.
What are hidden and additional costs?
We first wrote about this Bill in our article ‘Ban on Tenant Fees – an urgent update for buy-to-let landlords’. Now that the Bill is passing through Parliament, the extent of its reach is clearer.
Some fees and costs are considered acceptable, while others are being challenged by the proposed law. For example, acceptable charges include the deposit and requesting a month’s rent in advance. The deposit, of course, must be held in a suitable tenancy deposit protection scheme and returned to the tenant when the tenancy ends (subject to any costs for damage, unpaid rent, cleaning, etc).
There are also hidden costs which are charged to tenants before they can rent a property. For example, whether a landlord or a letting agent, these costs might include:
- Administration costs
- Referencing charges
- Inventory check-in fees
- Letting agent fees
These costs add a significant amount to a tenant’s charges before moving in. Yet, without charging them, a letting agent would find it hard to exist. DIY landlords will similarly face tougher finances: vetting tenants, conducting reference and credit checks, compiling inventories, etc. all take time and resources. The new law may force landlords and letting agents put a zero value on their time, and consider resources required to be free. (Yes, it is crackers!)
You may still be able to charge extra fees
There are loopholes in the new law that may allow landlords and letting agents charge ‘default’ fees. These may include charges for making repairs or conducting cleaning, and charges for damage after the tenant has vacated the property. It is also claimed by Shelter that the law will not regulate charges such as:
- Hourly rates for a landlord’s time
- Charges to replace domestic items
- Cleaning charges
Shelter’s view is summed up by one of its tenant ambassadors, Polly Neate, who said:
“Letting agents are running a business and their business is managing properties. So they ought to be able to calculate the general costs that they will incur in the course of their business and not charge people surprise fees.
“What we need is clearer guidelines on what tenants can and can’t be charged for, otherwise agents and landlords could keep finding additional things that they can charge tenants for, so we want it to be a bit tighter.”
However, when a tenant requests a maintenance technician to attend their home it is likely to cost the landlord £40 or £50 in a call-out charge alone.
How can you comply with the new law?
Complying with the new law will mean all landlords and letting agents being open about the charges they may impose. This could include updating tenancy agreements, and making charges more explicit, as well as ensuring you maintain a good relationship with tenants – be fair and open.
An unintended consequence of the Tenant Fees Bill
The government may have the intention of removing fees that may come as a surprise to some tenants, but the aim of reducing the costs of renting is likely to be missed. These costs need to be recouped. Letting agents will charge landlords the fees that tenants would otherwise have paid. To recoup these extra costs, landlords are likely to seek to raise rents.
The unintended consequence of the Bill is therefore likely to mean higher rents, and this could cost tenants more money in the longer term. For those tenants who wish to buy their own home in the future, higher rents will make saving for a deposit more difficult.
It’s a clear case of misguided legislation – good intentions, poorly considered. Instead of making renting more affordable, it’s likely to make it more expensive. As the Bill moves through Parliament, landlords would be well advised to prepare to increase rents sooner rather than later.
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