New law proposes ban on up-front letting fees



(Title Image: landlordnews.co.uk)

Rental Fees Bill
Introduced by Minister for Housing & Regeneration, Rebecca Evans (Lab, Gower)
Bill (pdf)
Explanatory Memorandum (pdf)

Why?

If you’ve ever rented a private property – about 15% of all homes in Wales are privately rented – you’ll know that as well as a deposit you often have to pay various letting fees. The fees are usually charged when starting a new tenancy, renewing a tenancy or leaving a tenancy early.

Letting fees are unregulated and usually justified by landlords and letting agencies in order to cover “costs” which may or may not be properly explained. These costs could include viewing a property, various administrative tasks, as well as reviewing or amending tenancy agreements. Additional charges may also be applied if there’s a fault of some kind on behalf of the tenant (i.e. a late payment).

A survey by Citizens Advice Bureau found 64% of private tenants thought fees were a problem and 21% had to borrow to cover the cost.

The Lowdown: 4 Key Proposals in the Bill

1. Up-front letting fees will be banned

Landlords and letting agents will be banned from charging fees for new tenancies, renewing or continuing a tenancy. They also can’t force people to enter into a contract for services or a loan as a condition of a tenancy.

It doesn’t appear to affect fees relating to ending a tenancy early or charges relating to late payments.

Landlords and letting agents will be banned from “hiding” fees in unannounced rent hikes, but will have flexibility to change rents as long as it’s in agreement with the tenant, the contract allows rent variation or it’s the result of another law/regulation.

2. Charging banned letting fees will result in fines

It’ll be an offence to charge such fees and offenders will be fined (though how much isn’t clear – it’s possibly unlimited) and will have to repay any illegal fees to the tenant, who will also have a right to apply for a repayment via the courts.

Local authorities will have to notify Rent Smart Wales as soon as a breach is suspected. Local authorities will have the power to issue on the spot fines of £500 as an alternative to taking landlords/agents to court. Failure to comply with the authorities during an investigation could lead to a fine of up to £2,500.

3. Deposits will be regulated

The Welsh Government will be given the power to regulate security deposits, including setting a cap – though it’s unclear whether they actually want to do this or not (the explanatory memorandum hints at them erring on the side of caution).

Holding deposits will be capped at one week’s rent and will be repayable within a week of a rental agreement falling through or the tenant moving in unless it forms part of the first rent payment or security deposit.

There are also a number of circumstances where the landlord/agent can keep the holding deposit, such as the prospective tenant breaching immigration laws without the landlord/agent knowing, the prospective tenant provides false information, or the prospective tenant doesn’t take reasonable steps to enter into a contract before a deadline.

4. Fees will need to be properly explained and advertised

The Consumer Protection Act 2015 will be amended to require landlords and letting agents to list fees and charges on third-party websites (i.e. a property website or estate agent).

How much will the Rental Fees Bill cost?

55% of people who responded to the public consultation expected rents to rise as a result, but they believed it would be negligible and was preferable to paying fees up-front. According to the Residential Landlords Association, the average fees range from £108-250 depending on the circumstances it’s charged (renewals are charged less on average than new tenancies). It works out as the equivalent of an extra £9-21 a month over a year.

The letting industry is expected to be hit hard, with the cost over the next five financial years estimated at anything between £18.5million and £42.4million, with around £1.7million to £3.7million of that being transitional costs.

Any cost to the industry is expected to be (effectively) passed on to tenants and, as said, rents could rise. The entire letting industry will have to reconsider its business practices which the explanatory memorandum bluntly states could see some letting agents – that are over-reliant on high fees – going out of business altogether.

The administrative cost to the Welsh Government, Rent Smart Wales and local authorities is expected to be up to £185,000.

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