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Government’s proposals concerning banning letting agent’s fees and client money protection schemes

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Summary: Government has launched consultations on banning letting agent’s fees payable by tenants and mandatory client money protection schemes. This blog sums up the key points from both consultations.

Banning letting agent’s fees payable by tenants

Government proposes an absolute ban on letting agents charging fees in relation to “facilitating the granting, renewal or continuance of a tenancy”. Effectively, this would mean that fees commonly paid by tenants such as referencing fees, administration fees, preparation of tenancy fees etc would cease to exist. In addition, the consultation also seeks to prohibit landlords or third parties from charging these fees to tenants.

The benefit to tenants from these proposals is clear and means that costs associated with letting a property are transparent. From a lettings agent perspective, the proposal will likely result in a review of the charges levied by letting agents and potentially increased fees payable by landlords. This, in turn, could have a knock on effect on rents.

Exemptions

The Government has proposed some exemptions to the above proposals, which would result in fees continuing to be paid by tenants:  

  • Holding deposits – these are deposits paid by tenants  to take a property off the market whilst reference checks are undertaken. These would be refunded if a tenant proceeded with a letting or if a letting did not proceed (save for the fault of the tenant); and
  • Property management charges – these are charges for services carried out at the request of the tenant or as a result of a tenant actions (i.e. if a tenant were to wilfully damage a property). 

Penalties

The potential enforcement action for a breach of the proposals could be a fine (proposed at £5,000 or potentially higher) or criminal prosecution and a banning order under the Housing and Planning Act 2016. A banning order would mean that the offending agents would be banned from operating and running a letting agency.

Other points to note

The consultation also raises the potential for:

  • wider regulation of the private lettings sector; and
  • a review of deposits and whether they should be capped or an alternative approach to payment should be considered.

Mandatory Client Money Protection Schemes for Property Agents

This consultation concerns making client money protection schemes mandatory. This type of scheme is to protect money paid by tenants or landlords to lettings agents. For example, rent or money paid on account for services to be carried out. This type of scheme does not apply to deposits which fall under the Tenancy Deposit Regulations. 

The purpose of a client money protection scheme is for a tenant, landlord or both parties to have the security of knowing that they will be compensated if all or part of the money held is not repaid (for example, if an agent goes bust). Currently, the membership of a client money protection scheme is not mandatory. However, about 60% of agents are members of this type of scheme and Government proposes that all agents who hold client money become a member of a protection scheme. Government proposes that a client money protection scheme should be either (a) a scheme approved by the Secretary of State; or (b) a scheme which is government administered and designated by the Secretary of State. 

Conclusion

Banning the payment of letting agent’s fees is great news for tenants. However, landlords will need to consider how any additional fees will be borne. It may be that business models permit such fees to be absorbed into current rent levels, or these figures will need to factored into future rents.

The proposals concerning protection of client money would put an increased burden on letting agents. However, they do provide the extra level of protection for landlords and tenants that their money is safe. Given that deposits have their own form of protection scheme, it seems sensible that other money paid to letting agents is protected in the same way. 

 

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