Thu 07 Sep 2017
The government decided towards the end of 2016 that too many letting agents could not justify their charges. From early 2018, agents will be banned from requesting any payment as a condition of a tenancy other than the rent, refundable security deposits no higher than one month’s rent and holding deposits equivalent to one week’s rent as well as tenant default charges.
Rents are likely to rise where affordability allows and tenants with, for instance, less than first class references or owning pets may suffer as those considered more risky by landlords will no longer be able to offer a larger deposit. Tenants’ lower financial commitment to security deposits may result in an increase in end of tenancy disputes over damage.
Landlords are likely to bear at least some of the extra cost but tax changes as well as stricter legal and lending obligations are already putting pressure on their finances so some may be tempted to let and manage property themselves.
Landlords have a choice as to whether to use an agent whereas tenants usually don’t – particularly when stock is limited.
The new rules could upset the wider property market if too many investors decide to sell or transfer properties into short term holiday lets , prompting a larger fall in values.
But if landlords decide to go it alone, will they have the resources, knowledge and expertise to match the high quality service provided by many agents?
Self-managing property can be a false economy. Landlords will have to provide inventories and references, keep up to date with the latest legal and other responsibilities, comparable rents and market movements as well as deal with and source tenants, reconcile accounts, carry out advertising and viewings - not to mention maintain properties via a network of reliable plumbers, electricians etc!
Recent independent research of 500 landlords by insurer Endsleigh revealed that a considerable proportion use letting agents, not just for peace of mind, but to save on average about £1,900 per tenancy mainly by not having to chase rent, find tenants and minimising void periods - apart from offering many other services.
So how have landlord and agent responsibilities increased? Under the Immigration Act 2015, landlords or their agents – even those accepting ‘rent a room’ lodgers, licensees, sharers and tenants who sublet – are legally obliged to confirm prospective adult tenants have a ‘Right to Rent’ in the UK. Appropriate documents, visas etc must be provided otherwise a civil penalty of £3,000 per illegal immigrant or up to 5 years imprisonment may result.
Checks must be undertaken on ALL tenants to avoid accusations of discrimination. The rules have to be followed even if the tenant is overseas, original documents cannot be seen at the relevant time or some occupants arrive later and/or are about to turn 18. If any Agreement between landlord or agent does not specifically state who should perform the verification, the landlord will be responsible. Typically, these procedures can take an hour and agents will probably require special training to avoid mistakes.
References can be taken by the agent, landlord or referencing company and involves contacting previous landlords, former and current employers, credit searches etc – an exercise which may involve around 3 hours on average depending on the number of applicants and their history.
The Housing Act obliges landlords/agents to prepare a detailed inventory - often carried out by a specialist company and typically of 20+ pages – including meter readings, photos, descriptions of décor, age/condition of the property as well as furniture and effects. The inventory alone can take an additional 4 hours or more to complete for larger properties.
The Deregulation Act sets out revised procedures for landlords serving a section 21 Notice – usually not in the first four months of a tenancy - to regain possession. This relatively new arrangement removes the need for a landlord to specify all new assured shorthold tenancies in England which started on or after 1st October 2015 must end on the last day of a rental period.
The Notices are generally only valid for six months from the date of issue.
Landlords must also prove tenants have been issued with the latest ‘How to Rent Guide’ which sets out their rights and responsibilities, or otherwise find Notices cannot be served and possibly face a substantial penalty too.
Landlords - or agents acting on their behalf - should provide an ‘adequate response’ to tenants’ written complaints about repairs within 14 days to ensure a section 21 Possession Notice can be served.
If a tenant makes a written complaint to the local authority about repairs, the landlord may not be able to serve a possession notice for 6 months or the first 4 months of a tenancy if the complaint is ignored and repairs not dealt with. The problem is that confusing rules mean landlords are serving the new Notices for old Agreements so wasting potentially thousands of pounds and considerable time in recovering property.
Landlords could also unwittingly issue Tenancy Agreements which are not legally compliant by perhaps adapting previous agents’ agreements or templates found online. Failure to notify tenants of their landlords’ name and address, details of an accredited dispute resolution service or tenancy deposit protection scheme, even though it is a legal requirement, are other common mistakes.
Considerable time is required to ensure Agreements are in the correct format and in accordance with latest regulations so have to be created individually. If not served in the right way, landlords could experience difficulty re-gaining possession.
Wording on Agreements may need to be changed regularly just to keep up with new rules, regulations and case law!
Agents or landlords who do not provide prescribed terms to tenants in relation to deposit handling can expect heavy financial penalties. It is also the agents’ responsibility, acting on behalf of landlords, to include accurate details of the term, rent, deposit paid, names and addresses in the correct format for service of notices, any special arrangements or clauses such as for pets or break clauses etc. This part can involve up to 3 hours work alone by the time relevant information is collated and the Agreement is signed but could take longer if a non-Housing Act, License Agreement or guarantees are required.
Tenants’ deposits must be protected in one of 3 government-backed schemes within 30 days of receipt. Again, landlords or their agents cannot serve a section 21 possession Notice unless the deposit is fully protected and, if not, may have to pay the tenant up to 3 times the value of the deposit!
Landlords are legally responsible for the health and safety of their tenants. Gas certificates, electrical checks, fire safety, smoke and carbon monoxide alarms as well as House in Multiple Occupation (HMO) rules - if relevant - must be followed by landlords or their agents which can mean allowing at least an extra two hours. All private residential tenants now have the right to request energy-saving improvements whereas landlords cannot refuse if no upfront costs are involved.
Under the Smoke Alarm and Carbon Monoxide Act 2015, landlords and/or agents have to prove smoke alarm and carbon monoxide detectors were tested ON THE MOVING-IN DAY! Such an obligation may prove to be a logistical nightmare for agents and add over an hour alone to the job, especially if tenants want to take occupation of other properties from the same agent at or around the same time.
A copy of the latest EPC, deposit registration, gas safety certificate, inventory, standing order forms, tenancy, lease and ground rent notices (if relevant)as well as keys and contact details for landlord/managing agents usually have to be provided. Tenants will need time to review documents and ask questions, bearing in mind English may not be their first language.
That is to say nothing of arranging property viewings, checking keys, arranging access to the property, parking, abortive visits, unforeseen issues, etc etc!
There is still an obligation on letting agents to advise landlords of all offers and their status. And what about the cost of abortive transactions, belonging to a recognised trade body, professional indemnity insurance and client money protection which can help agents comply with latest rules and carry out specialist staff training?!
Hopefully, landlords will appreciate letting and managing a property is not just a question of agents making a few phone calls and copying documents then expecting to be paid. Letting and managing property successfully is neither cheap nor easy!
By way of compromise to the lettings fee ban, agents could offer landlords more comprehensive property management in pre-tenancy administration or arrange other services such as WIFI or digital i.e. one stop full compliance or no upfront but end of tenancy fees?
Independent professional agents like Jeremy Leaf & Co not only provide a first class service which can save landlords considerable amount of time, money and effort but protect money received in separate client accounts, offer professional indemnity insurance and are members of the Royal Institution of Chartered Surveyors (RICS) and ARLA.
Clients should have confidence that their interests are fully protected at all times. Agents that provide a sub-standard and/or expensive service will soon find themselves forced out of business.