Abolish Letting Agency Fees
Plenary Wednesday 7th December 201617:28:32
Some of the expense incurred in moving is largely unavoidable. However, there are also added expenses that are not only questionable, but often downright unfathomable. These are letting agency fees.
Spoken Contribution – 14:10:31
Watch this contribution on Senedd TV | View this contribution in the Record of Proceeding document
Diolch, Lywydd. Thanks for the opportunity of bringing this debate today. As many of us know, moving from one rented property to another can sometimes be difficult. I do understand this, as I have never had a residential mortgage, and hence have never been an owner-occupier. So, I have spent a lot of time in my life living in the private rented sector. Oddly, though, I do also have a buy-to-let mortgage, so I have also been a landlord. Hence I have also dealt with tenants from the other viewpoint. So, I do need to declare an interest when I deal with housing issues. But I also, hopefully, have a slight theoretical advantage in that I have been able to view the whole issue of property ownership and renting from both sides of the fence.
To go back to what I was saying at the start, moving is usually a difficult and sometimes traumatic time. This this can apply to private renters, some of whom, of course, are entire families, as much as it does to owner-occupiers moving up or down the property ladder. Increasingly, in a UK facing a housing shortage, there can be problems with finding the right property and then securing it before it gets snapped up. Allied to this difficulty is the expense involved. Some of the expense incurred in moving is largely unavoidable. However, there are also added expenses that are not only questionable, but often downright unfathomable. These are letting agency fees.
In England and Wales, this is a largely unregulated area. In the 1980s, when property prices began to become an exciting topic of conversation for more and more so-called upwardly mobile people throughout the UK, it was often sniffily remarked that, while solicitors and accountants required some kind of examination process to become qualified, there was no such requirement for estate agents and letting agents.
Although, since 1981, we have had the trade association called the Association of Residential Letting Agents, or ARLA, that situation of non-regulation remains largely the case today. ARLA attempts to set a required code of conduct for letting agents, but the crucial difference here is that one does not have to become a member of ARLA to practise as a letting agent. It isn’t like the Bar Council or the British Medical Association. To quote a report from the House of Commons library from March 2015,
‘There is no overarching statutory regulation of private sector letting or managing agents in England or any legal requirement for them to belong to a trade association, although many letting and managing agents submit to voluntary regulation.’
The situation here in Wales is slightly different, in that we have already passed the Housing (Wales) Act 2014. This introduced a compulsory registration scheme covering both private landlords and letting and management agents, overseen by the new public body called Rent Smart Wales. This licensing system provides a useful starting point for the subject that we are looking at today, since we now already have the regulatory framework in Wales to deliver further standards regarding the precise issue of letting agency fees. Why is this now such a burning issue? Well, with a dearth of available council housing and social housing, more people are having to go into the private rented sector to find suitable property to move into. This brings more and more people into the world of the letting agent. So, perhaps it is time to consider some kind of regulation for this sector, regulation that might perhaps complement some of the aforementioned measures that the Assembly introduced during the fourth Assembly term to regulate private landlords.
Of course, there is no point bringing in regulation if there is nothing wrong with the sector. Unfortunately, the experience of a significant number of renters in Wales is that there are many charges involved in moving, in renting, even in renewing a tenancy, which add to the cost and which they often simply do not understand. Shelter Cymru, in a recent report, found that one in three tenants using letting agencies paid more than £200 in agency fees to begin a tenancy. Taken with the advance rent and bond, this means that the cost of moving into an average three-bed home in Cardiff is pushed up to more than £1,600. These are significant costs. Of what do these fees consist? Well, often they are covered simply by the catch-all term of ‘administration charges’. Before moving in, prospective tenants would expect to have to submit to various checks on referees and personal credit. However, many of these checks are not particularly costly to carry out, hardly justifying the sometimes exorbitant fees that are in some cases levied upon the prospective tenants.
A report on the situation in England by the House of Commons Communities and Local Government Committee revealed many sharp practices that are probably equally prevalent in Wales. One of those cited in the report was drip pricing, a sales technique whereby charges are only revealed gradually to the prospective buyer, or, in this case, the prospective tenant. ‘Fees may apply’ is the operative phrase here. There can sometimes be double charging, where both landlord and tenant are charged by the agency for carrying out the same checks. In some cases, the landlord doesn’t know that the agency is charging the prospective tenant. In cases where there are multiple applications for the same property, the agents can make money from a number of prospective tenants, most of whom don’t actually move in. And prospective tenants looking for a new home can find themselves forking out for credit checks and other administration fees several times over before being able to finally, hopefully, move into a property. Perhaps the most pernicious types of these fees are repeat charges for sitting tenants who are simply renewing their existing tenancy. In this case, credit checks and personal references should no longer be required, but the more unscrupulous kind of letting agent will still apply a highly mysterious charge. Of course, letting agents do face costs, but their staple source of income is supposed to come from their percentage commission on the monthly rent on a property, which they rightly take from the landlord. So, excessive administration fees are simply a healthy bonus payment for them.
In November 2015, the Consumer Rights Act 2015 came into law, a piece of Westminster legislation that also applied to Wales. This was supposed to force letting agents to be transparent when displaying their charges, so that consumers— in this case, prospective tenants—could make an informed choice as to which agent they wanted to use. Unfortunately, when Shelter Cymru investigated how well this was operating in the early months of 2016, they discovered a widespread flouting of the law. They carried out a mystery shop of 85 letting agents across Wales to see how they displayed their charges and whether or not these charges remained consistent. The law requires agents to show a full list of fees in the office and on the website. More than half—52 per cent—of agents did not display an actual fee or indeed any way in which the fee could be calculated. More than half the agents stated a different fee when contacted by telephone to what was stated on their website.
So, what needs to be done now? Well, I am sometimes slightly dismayed by the extent to which we seem to follow Scotland’s path here in the Assembly. On this occasion, though, if we do look north, then we find that there is a legislative course that we could perhaps follow. In November 2012, the Scottish Parliament voted to approve new legislation that outlawed all tenancy charges, apart from rent and a refundable deposit. This move then impacted on England. In July 2013, the Commons’ select committee on communities and local government compiled a report on the private rented sector. Following Scotland’s lead on letting agency fees was considered at that point, but the committee sensibly decided to wait for more evidence to emerge from Scotland as to what effect the Scottish legislative changes had had on the Scottish private rented sector.
In March 2015, the same Commons committee published a report in which they gathered together the evidence from Scotland and had another look at the situation. A major worry was that if letting agents were no longer able to charge tenants for various check, then they might charge the landlords instead, and the landlords would simply pass the fees onto the tenants in the form of rent increases. However, the Commons investigation found no clear evidence that rents had risen as a result of the abolition of letting agency fees. The committee’s recommendation was that there should be a comprehensive impact assessment of the effects of introducing a similar ban in England. Since then, in the recent autumn statement, the Chancellor stated that Ministers will bring in a ban as soon as possible.
Is a blanket ban on fees what we want, though? Will such a ban be enforceable? And, if such a ban does come in, will it simply push up rents? In terms of enforcement, we need to go back to the example of Scotland. There, it was actually illegal to charge premiums—that is, fees charged at the start of a tenancy—after the housing Act (Scotland), passed by the Westminster Parliament back in 1984. However, the 2012 law passed by the Holyrood Parliament clarified this and led to enforcement action finally being taken. This near 30-year gap does demonstrate the danger of passing poorly drafted and subsequently unenforceable legislation, of which of course we have to beware.
What about the issue of charges being passed on to tenants as increased rents? Well, Generation Rent, the campaigning group, looked at Scotland before and after the ban and concluded that abolishing fees did not necessarily drive up rents. However, the evidential problem was that rents did go up in the period under review and Generation Rent was unable to separate the agency fees issue from other factors in the housing market. So to be frank, they simply didn’t know. The Commons select committee also concluded that the evidence was inconclusive, and that more research needed to be done on this while the National Landlords Association believed that, in Scotland,
‘the letting fee still exists but has been transferred into the rent; tenants are now paying a higher rent.’
PricedOut, another pressure group, opined that even if some of the fees were passed on in the form of higher rent, this would mean that the charges were spread across a tenancy, which was preferable to tenants being hit with a huge lump sum when they wanted to move to a new place. ARLA, the Association of Residential Letting Agents, has been critical of the proposed ban in England. They claim that the average charge is actually £202 per tenant and that this is broadly a fair fee to cover agents’ costs. The Residential Landlords Association says that it would have been better to improve the transparency of fees charged by agents by forcing them to publicise their charges and what the charges actually cover rather than have a blanket ban. The problem with this is that the consumer Act legislation already did this, covering England and Wales, and Shelter Cymru’s evidence seemed to conclusively reveal that it had had little effect on the commercial behaviour of many letting agents.
So, if you want to deal with this problem, you have probably got two options. You could call for complete transparency. This would mean agents having to publish a full breakdown of fees alongside any property advert. It would also forbid double charging and would force letting agents to reveal all of the tenancy charges to the landlords they were working for. But this is already provided for in the consumer rights Act and, in actuality, probably doesn’t really function very well in the housing sector. The other option is to have a blanket ban and to make all fees and charges, other than rents and deposits, unlawful when charged to the prospective tenant. There could be a case for either option. But, as earlier legislation has failed, it seems to me that we may now need to address this as a legislative issue, targeted purely at the letting agents. Hence the debate that UKIP Wales has brought here today.