Posted:02-July-2013
A Lettings Agent's rebuke to Shelter over the proposed ban on tenant fees
Shelter successfully petitioned the Scottish Parliament last year to ban all tenant fees in Scotland. It has now started a campaign south of the border to have tenant fees banned in England & Wales. We are a nationwide lettings agent and we think Shelter is mistaken, but then we would say that wouldn’t we?
How would you feel if independent solicitors, accountants, hairdressers and other personal service businesses were squeezed out of your local High Street? Where there was once a family owned business there is now a shop in a chain with a young Manager instead of a proud proprietor in charge?
Lettings agent numbers have increased significantly over the last ten years as the number of private rented properties has rocketed – from around 10% of the countries housing stock to 17% at the last census. The private rental sector has overtaken the social housing sector without any Government intervention being necessary; no Local Authorities were called on to divert funds from schools and road maintenance. No hospital Departments had to close to fund an increase in rental choice. A free market has delivered the sort of properties that people actually want to live in (rather than be “allocated” to them by a bureaucratic process) in the places where the demand is strong. No national planning body had to be set up – private individuals simply bought properties for investment in their hundreds of thousands and letting agents sprang up to service their needs.
So if letting agents charge their landlord clients fees, how can they justify charging tenant fees as well? Well first let’s correct a few of Shelters misconceptions; it is already illegal in England & Wales to charge fees to find people accommodation. A law was introduced after the Second World War to stop landlords circumventing rent controls by charging a “premium” for handing over the keys and to stop accommodation agencies for charging simply to register would-be tenants and show them accommodation. The great shortage of private rented properties at the time (no great surprise since landlords had to accept both rent control and the right of tenants to stay in the property all of their natural lives) was chronic.
Fast forward to the noughties and there is a plethora of private rented properties in every city, town and hamlet in the UK. A quick search on the Zoopla or Rightmove property portals will result in instantaneous viewing of suitable properties in a matter of seconds. Letting agents will willingly take down your requirements, search for and match you to properties and whip you out in their car to have a look at the three or four best prospects. For every four tenants who are provided with this free chauffeur service, only one will typically rent through that particular letting agent so a great deal of time and effort is “speculative” by the agent. Many agents will offer evening viewings and at the weekend.
But doesn’t the landlord pay the letting agent a fee to find them tenants? Yes and also to manage the property in many cases and deal with repairs and maintenance issues. The benefit to the tenant is that the letting agent will ensure the landlord is complying with a rigid and extensive set of laws relating to fire, gas and electrical safety, financial safeguards to protect the tenants deposit and is on call when the tenant has a problem. Just to repeat – the landlord pays the agent to provide these services.
So why should tenants pay too? Because they want to be admitted into an expensive asset that would cost them literally thousands of pounds in mortgage application fees, surveyors fees, legal fees and stamp duty if they wanted to buy it (and take months to gain entry) or they can pay a few hundred pounds (less in many places) and get entry to enjoy the same asset but in a few days. I know tenants who we have moved in within 24 hours! The only alternative that is anywhere near so flexible as a way of dealing with job relocations, relationship breakdown, is hotel accommodation and look how much that costs and it’s still not suitable for ordinary living!
Letting agents have to identity check the tenant, take up references and conduct a credit check. Some tenants, sadly, are fraudsters with no intention of paying the rent so agents like ourselves run very sophisticated credit checks and monitor the tenant’s credit status throughout the tenancy as well. The tenant wants to get into the property so they have to prove that they are a suitable person and it’s only fair that this is their cost.
The cost of drawing up a legally watertight tenancy agreement and a professional inventory describing precisely the condition of the property at the start of the tenancy (to avoid disputes and false claims later) are all of as much benefit to the tenant as the landlord and many agents split the cost between the parties.
Across all of our 187 Martin & Co offices (but excluding Scotland where the ban has been imposed) we make 15% of our revenue from tenant fees. We are a franchise so every one of our offices is privately owned and managed by a local person. They make profit margins of around 25% on average so the loss of tenant fees as an income stream will sorely affect their margins. It’s just too glib to say they should absorb the loss or pass it on the landlords. Not all landlords are wealthy, the vast majority of our clients are ordinary people where they either own the property as a pension plan or they are letting because they have not been able to sell.
Some commentators have said that rents will upsurge to meet the landlords increased costs if Shelter succeeds in a tenant fees ban. I think the early evidence in Scotland is that the small independent letting agents go to the wall or are bought out by much larger companies.
Finally, as someone who has donated before, I’d like to ask Shelter what they think any of this has to do with their charitable objective of helping the homeless? Letting agents generally don’t deal with homeless people although I know some of our franchisees who go out of their way to work with homeless agencies and some big-hearted landlords who welcome those who are down on their luck. So Shelter – how about you stick to the charity and we’ll stick to running one of the most vibrant and responsive parts of the UK economy. We don’t expect the Queens Award for Industry; just leave us alone to get on with the job of providing a real choice of properties to rent.
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