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Fee ban: Update and consultation

Posted on 2017-06-09

It's the most significant challenge currently facing letting agents and the proposed ban on up-front fees charged to tenants moves closer to becoming official with every month that passes.

Since it was announced as part of the Autumn Statement in November, and confirmed in the recent Spring Budget, there have been several developments, plenty of campaigning and numerous updates focusing on the proposed ban.

With all this information flying around, we've put it all together in one place to provide a definitive update on what is going on.

The consequences of the fee ban will affect the vast majority of letting agents, so it's important that everyone is up to speed and aware of the possible implications.

Industry campaigning

As you might expect, the Association of Residential Letting Agents - now known as ARLA Propertymark - has been leading the campaign against the proposed ban on fees. To coincide with its annual conference in March, ARLA Propertymark released research carried out with business consultancy Capital Economics which looked into the possible implications of the ban. The report suggested that up-front fees paid by tenants currently account for around a fifth of letting agents' revenues.

ARLA Propertymark said that once the ban has been introduced, up to 16,000 of 58,000 lettings sector jobs could be at risk.

It predicted, however, that agents will pass on 75% of the costs to landlords, which could result in job losses of around 4,000.

The conference research also suggested that agent fees in England are much cheaper than in other countries such as France and the United States.

Alongside the extensive research project, ARLA Propertymark has also encouraged its members to lobby their local MP about the possible impact of the ban. To help agents with this task, the association created a template letter and toolkit. The key message that ARLA Propertymark was keen for agents to get across to their MPs is to 'look beyond the headlines' and remember that it is not a 'black and white issue'.

More recently in response to Theresa May's calling of a snap General Election, towards the end of April, ARLA Propertymark made a public plea for the Government to extend or scrap the official consultation on the fees ban.

The organisation said it was concerned that the fee ban will become a manifesto pledge and therefore a political issue in the weeks leading up to the election on June 8.

ARLA's call for a suspension or extension of the consultation was backed by 20 lettings sector groups, including high profile agencies Belvoir, Countrywide and Savills.

Earlier last month, ARLA Propertymark released a note to its members which was also sent to the press. The message argued that tenant referencing fees should be exempt from the ban.

The trade body's argument is that referencing reduces the risk of landlords taking on tenants who will fall into arrears. What's more, it says that referencing is a time consuming and complex process for agents.

Since the consultation opened, ARLA Propertymark has been requesting that agents send the association their detailed responses. It said on May 4 that it had already received over 700 submissions from letting agents.

We can see from the above that as the main trade body for letting agents, ARLA Propertymark has been very active in its campaigning against the fee ban.

It's likely that ARLA's feedback, combined with all the agents' responses, will be taken into consideration as part of the Government's consultation response.

Cancelled Government workshops

As part of the consultation process, the Department for Communities and Local Government (DCLG) had organised a series of workshops for letting agents, with the aim of discussing the fee ban.

The workshops had been scheduled between April 28 and May 11. However, on April 20, it emerged that the sessions had been cancelled.

A letter was sent to attending agents, notifying them that the workshops had been cancelled due to the impending General Election.

The communication confirmed that the consultation would remain open until June 2 and that the sessions may be reorganised for later in the year.

CMA investigation?

In the aftermath of last year's Autumn Statement, the Fair Fees Forum - which was launched by the National Approved Letting Scheme (NALS) - requested that the Competition and Markets Authority (CMA) review lettings fees.

At the end of March the CMA responded, confirming that it would not be able to carry out a review as there was not sufficient time for them to do so before the Government intends to introduce a ban.

The authority said it may review the consultation, while NALS described its decision not to carry out a review as a 'missed opportunity'.

The Fair Fees Forum

As mentioned above, the Fair Fees Forum was set up by NALS and includes representatives from several high profile letting agents. At its latest meeting, the group outlined four concerns regarding the proposed fee ban.

It says the ban may encourage more self-management by landlords, while some tenants may be affected by not having access to a guarantor.

The group also identified the prospect of not being able to charge for referencing as a problem, as well as cost implications due to the loss of the paralegal role of the agent in negotiating clauses.

When might the ban be introduced?

It's been clear for a while that there is little to no chance that the fees ban will be introduced this year. And, according to the Residential Landlords Association (RLA), it's much more likely that it is introduced later in 2018.

This is because the ban will need primary legislation, which means it will take longer to implement.

The RLA also says that it doesn't see this changing, regardless of the General Election result in June.

The Consultation

After a fairly lengthy delay, the Government finally released its official consultation document in early April.

The eight-week consultation commenced on April 7 and is due to be closed on June 2.

In its consultation document, the Government stated that the ban will 'recognise the stronger market position of landlords', allowing them to 'shop around' for the agent that provides the quality of service they are seeking.

It also says that tenants will instantly be able to see what a given property will cost them without the prospect of any 'hidden cost'.

You can read the 36-page document in full here and here is the link to the online consultation survey:

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