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Turning the screw on private landlords

30.06.2017

For obvious reasons the Queen’s Speech setting the coming parliamentary agenda skirted most controversial issues, but it also offered no relief for private landlords hoping for a more measured approach to the thorny issue of tenant fees.

The speech sent further shockwaves through the residential property sector. Not only did it confirm plans for a complete ban on the set up fees charged to tenants by letting agents, but also proposed to limit the deposit required in advance to a single month’s rent, and all holding deposits fully-refundable, effectively ensuring that no real commitment is required from a potential tenant until the lease is signed.

These proposed measures substantially ignore industry views, or the potential costs and losses to private landlords. But perhaps this should come as no surprise, since the government has apparently decided to make life as unattractive and uncomfortable as possible for private landlords. Not only has it been making an investment in property far less tax-efficient; it’s also increasing the financial risks to landlords associated with bad faith or bad behaviour by tenants.

There are three serious problematic areas for private landlords.

First, the new legislation will outlaw any fees to be paid by the tenant, other than the deposit and the rent. Industry research suggests the business of referencing and administering tenant agreement takes an average of eight hours (in our experience it can be quite a lot longer, especially for first time UK tenants). These are real costs, and agents are either going to have to offer a cut-down service (increasing risk) or pass the costs to landlords themselves. The probable consequence is that these costs will then be loaded into rents, so all that will be accomplished is a reduction in transparency.

Secondly, if pre-contract deposits are made fully refundable (as the legislation proposes) tenants will be empowered to make “frivolous” offers with impunity. I’m thinking particularly of where tenants might be interested in several properties from different agents and seek to hedge their bets by initiating the contract process for each one. They’d then be able to pull out of the process for the unwanted properties leaving the agent or landlord with costs they cannot recoup.

Finally, limiting the total deposit to a single month’s rent could be problematic if a tenancy does not go well, and there’s either damage or payment arrears (or both). With only a single month’s rent on deposit tenants who have damaged the property might feel tempted to withhold the last month’s rent, leaving the landlord with nothing to cover the cost of repairs.

Rest assured as the proposed changes near implementation we’ll be working through all options to help keep landlords’ costs down and their position as secure as possible. We’ll keep you updated with progress but if you have any concerns about the effects of the legislation please call me and I’ll be happy to discuss the implications for your portfolio.

 

By Jaimie Beers

Jaimie Beers is Managing Director of Madley Property.