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.
Comments
I can see the intention is a good one. But there is clear naivity in relation to a full appretiation of the housing market. I agree that there is a need to halt the unscrupulous agents that are in existence. However, there are better tools to achieve this. Simple regulation of the letting industry with a national qualification that MUST be achieved before operating is the only way forward. A powerful governing body to monitor the activities and stiff punishments for failing to aplly the procedures will negate any of these fly by nght deposit stealers. This will be achieved one day but then we will have a miriad of legislation that will need to be revoked and overturned due to uneducated pressure from organisations such as Shelter. This group is the cause of more harm than good in the housing industry through uneducated petitions to uneducated ministers.
At long last we will have an even playing field.......no longer will regulated Agents be undercut on Fees due to unscrupulous agents making up their margins through illegal charges to Tenants.
Good luck to these 5 & 6% fee agents along with those who have illegally spent their Landlords/Tenants Deposits.
I don't know why Letting Agents are being picked on when mortgage lenders appear to be able to charge what they like for arrangement fees. I have personally been quoted anything from nothing to £1900 for the arrangement fee plus a valuation fee and a valuation administration fee, whatever that is!
I thought that such fees had to reflect the work involved so why are they not being investigated by the FSA.
@Industry Observer on 2012-08-30 10:03:59
I tend to agree with you in a lot of things but not your latest post.
You seem to be quoting the extremes. Most agents charge enough to cover their tenant vetting costs. Registration fees are illegal - not genuine costs.
10+ years ago there was not the amount of compliance, regulation etc. etc. - all costing time and money.
Level playing field - who pays? The landlord? Then it wil be the tenant in increased rent?
Does anyone seriously think Landlords are going to stop letting in droves because of this?
Anyone worried about the lower paid or unemployed should be rejoicing - no more rip off £400+ fees for a joint application (plus inventory share, agreement preparation share, check-in fee, showing where the dustbin goes fee etc etc.
It is only in the lat 10 years or so, 15 at most, that agents have let fee charges to tenants becme the norm by 'charges creep'. It was always illegal, just never enforced. Now it will be, level playing field, where is the issue?
Once again a poorly thought out change in the legislation will effect the lower income or unemployed most. Generally they need to reference both partners and even a guarantor and still may fail to be acceptable. Who pays.
Net result will be less properties available for this type of tenant.
Been warning about this for a decade. It has always been illegal in Scotland and there are actually some buried regulations in E&W already too.
This is a problem with as usual a very simple solution - the landlord who is the one who after all really wants an agreement, inventory, referencing check etc (the tenant will often just hand over money and take the keys quite happily) so the Landlord pays those costs.
Problem for agents of course is they are already maximising fees to Landlords in every conceivable way with a fee for anything from a check-in to a check-out and all in between.
Interesting - pigeons coming home to roost perhaps?
Worry not though the Jocks were daft enough to adopt three TDP schemes instead of one, so why should E&W copy them in this?
Another pronouncement from those who would seem to know nothing of running a business or an understanding human nature.
In my view the bottom line is that SOMEONE has to pay for the actual services provided - Shelter Scotland? The Scotland Government? I think not! It will be the tenants in the form of increased rents - and that only if properties are still available.
What a wonderful idea from Shelter to increase rents across the board! Why are they getting involved in a private business? If tenants do not wish to pay agents' fees then they can use those landlords who advertise in shop windows or Gumtree. They are not forced to use an agent. Agents are running a business and are not charities, unlike Shelter who run as a business and are a charity getting all tax breaks etc that they can.