Jonathan Werth, Managing Director at LiFE Residential, London based estate agency

We are just about a month away from the infamous Tenant Fee Ban, set in the Tenant Fees Act, which is coming into effect 1st June 2019. There has been plenty of talk of how the new law will benefit renters across the country and ‘punish’ estate agents, but its impact on those in the middle – the landlords – is not discussed as widely. For those of you who may not fully understand the implications of the Tenant Fee Ban, let me say it will be only as irritating as your our monthly WiFi bill increase, bringing long-term benefits to both property investors, and the entire property sector.

The Tenant Fees Act prohibits landlords and agents to force any charges onto a tenant, other than the rent and deposit. The agents cannot charge any admin and agency fees, which include costs for tenant referencing and inventories a tenant is usually charged with. The new law also reduces the amount of deposit the agents can hold, from six weeks to a maximum of five weeks rent.

Historically, estate agents have been able to increase their revenue by charging both tenants and landlords for specific fees. By charging tenants the admin and agency fees, estate agents were able to offer landlords a lower fee and still maintain good level of service and grow their business.

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But times have changed, and the UK Government now wants landlords to be accountable and pay all the fees necessary, which means that estate agents are having to increase their letting and management fees. The first time in 19 years of operating in a highly competitive London market, we here at LiFE have just informed all of our landlords with lower fees about the changes that come with the Tenant Fee Ban, and what fees they can expect to increase from the 1st of June. I am confident, if not yet, that soon other agents will follow with the same announcements. 

Naturally, some of our landlords questioned why they must accept the increase, as they didn’t realise that some of the estate agents’ revenue comes from charging the tenant fees. We, as estate agents, are guilty of not properly explaining this to landlords.

The percentage of fee increase landlords can expect to pay will vary with every estate agency and also be influenced by the original amount of fees the landlord is currently paying. For example, let’s say a landlord charges £1,500 a month for his rent, with a fee increase of 1%, they will only have to pay an extra £15 a month. When you divide the fee increase per week, the amount is minimal. Some people, however, may expect to see bigger increases due to the historically low fees they are on.

To combat the fee increase, landlords are having to increase their monthly rents, which we are already seeing. In most places, such as London, where demand overrules supply, the market will allow for the rents to increase as a way of paying for the extra fees charged to the landlord.

The Tenant Fee Ban will, without a doubt, make tenants happier and they will enjoy the renting experience more, because when they must move, they’ll only have to pay their rent and deposit, with no extra fees. During their tenancy, tenants will then be more positive towards the landlord and estate agent and will be more inclined to renew their tenancy with annual rent increases.

The most important implication to the landlord and the entire industry, to my opinion, is that the loss of revenue from tenant fees will clean up the industry from rogue and incompetent agents. It will simply make it harder for anyone to start up an estate agency without any knowledge, experience of qualifications.

Faced with all this pressure, amateur agents and landlords are already leaving the industry, whilst professional landlords have more room to grow and receive a better service from their agents. Ultimately the new law is setting higher standards across the board for both landlords and agents.

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