In a move that will send shivers through the entire UK lettings industry, the Scottish government has announced that legislation will be toughened up to ban all up-front fees.
Scottish housing minister Keith Brown has confirmed that letting agents should not be charging the fees and said that the Rent (Scotland) Act 1984 will be clarified to become unequivocal on the matter.
While this move has been played out north of the border, it is being seen as a worrying precedent for the rest of the UK.
What now looks like a crisis for many letting agents in Scotland followed a vociferous campaign by Shelter to ban any and all tenant fees – for example, reference checks, credit checks and inventory fees.
The Scottish law will now be clarified so that all tenant charges, other than rent and a refundable deposit, will be deemed illegal.
Housing minister Keith Brown said: “The majority of letting agents operate in a thoroughly professional manner and play an important role in the Scottish private rented sector.
“However, numerous cases of tenants across the country being ripped off were uncovered by Shelter Scotland.
“As a result of this consultation, we will make it crystal clear to tenants, landlords and their agents that all premium fees, over and above rent and a deposit, are unlawful.
“We will now commence the necessary legal provisions to come into force later this year.”
Gordon MacRae, head of communications and policy at Shelter Scotland said: “This is great news for everyone who has been ripped off by unscrupulous letting agents. It will finally put an end to this unlawful practice and ensure that tenants are no longer exploited.
“Shelter Scotland has been campaigning all year for these fees to be outlawed.
“Our reclaimyourfees.com website has proved so popular that already more than £100,000 worth of claims against letting agents have been made using our free step-by-step toolkit.
“Moves like this can only strengthen Scotland’s private rented sector and help make it a fairer and more secure place to live for the 270,000 households that now call the sector home.”
The change in the law, due in November – the same month as the tenancy deposit deadline – is likely to hit some agents extremely hard.
Ian Wilson, managing director of Martin & Co, said: “As a business we collect around 7% of total revenue in Scotland from the fees being banned.
“It’s bad news for letting agents generally in Scotland, but if you were being charitable you could say that at least it provides certainty and establishes a flat playing field for all agents.
“Agents will no longer be able to discount tenant fees in order to pull applications towards them. The agents with the best selection of properties, presented to the highest standard on the most visible websites, will attract more than their fair share of the available tenants.”
He said that he thought most firms would continue to do referencing and credit checks, even if they were unable to recover the fees from the tenants, rather than risk allowing dodgy tenants into properties.
Wilson said that landlords would face an increase in their costs, rather than agents absorbing them in their tight margins, which would in turn mean landlords pushing up rents.
He said: “We reckon that a 5% across the board rent increase would recover the lost income for landlords, working on the basis that agents pass on 100% of the cost increase they face.”
He added: “The effect of the changes will be multiple. Marginal agents will go bust and agents in Scotland who are already stressed by complying with Tenancy Deposit Protection legislation, which was enforced in the summer, will feel the pinch even more. Landlords will feel pressure on fees from agents, and rents will rise.”
Wilson suggests: “The beneficiaries will be tenants who are new to the market or who move home a lot. The losers will be long-term renters who are ‘sitting ducks’ for rent increases.
“It would be a rough justice if the benefits bill rises for the Scottish Parliament due to increasing rents to compensate landlords and their agents for lost cost contributions from tenants.”
There is little point in hunting for a loophole in the new regulations: the Scottish Parliament will make sure that there isn’t one. LAT is left wondering whether letting agents and landlords south of the border can also be conveniently scapegoated because they are perceived as being commercially successful and attract envy in an age of austerity.