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News & opinion

22 MAY 2018

Tenant Fees Bill reaches second reading

RICS welcomes any attempt to improve standards and consumer outcomes, however, it must be done in a holistic way and not be implemented through piecemeal legislation.

Yesterday was the second reading of the Tenant Fees Bill which the government introduced into Parliament to bring further transparency to the lettings sector. This bill follows from the ‘Banning letting fees paid by tenants’ consultation released in April 2017.

This bill is not a banning of fees outright, but is likely to produce a shift from tenants to landlords; the burden of fees being put onto the party with the choice of agent. The aim of this switch of burden to those making the choice it is hoped should create a better market with more competition. This represents a subtle change of emphasis which now defines the agents’ customer as the landlord rather than the tenant.

It does not mean however that on-costs will completely disappear from tenants. There is also a possibility that landlords will pass the fee on through rent increases as there is no justification needed of how rental prices are developed, with the market covering several constituent elements.

Increasing landlord's costs

An increase in the landlords’ costs could easily be absorbed into the rent. The financial burden is however, taken off the tenant upfront, at a time when they have abnormal costs to cover such as having to pay a new deposit before they have received back their previous one. It also potentially improves transparency for the tenant at the outset. The bill also restricts the type of fees landlords can charge tenants, including a cap on other fees such as those for change of tenancy and for a holding deposit.

The government’s ‘Protecting consumers in the letting and managing agent market’ consultation concluded that regulation of the industry is needed. The government are consequently now looking at creating and introducing their own regulatory framework. RICS, in partnership with a coalition of sector organisations, have drafted a code of practice, which will be submitted to the government for adoption. This will also be embedded into our own guidance and standards.

The role of the trade bodies and sector institutions is becoming more important as regulation of the industry becomes more likely. Local authorities who are increasingly resource challenged, are not viewing enforcement of regulation as a top priority. Some local authorities are beginning to introduce rogue landlord databases like that in place in London, which today announced that all 33 boroughs had signed up to the register, as part of greater powers given to them in the 2016 Housing Act.

Landlord licensing is still being sought by many local authorities as a potentially more effective option to tackle rogue landlords. It is yet to be assessed which are the most effective measures to achieve higher standards. Regulating organisations such as RICS are better able to enforce regulation and ensure that standards are met.

The government is currently taking evidence to the Public Bill Committee regarding this bill, if you would like to contribute to RICS’ submission please email Tamara Hooper by Monday 4 June 2018.