A possible flaw has been spotted in the Tenant Fees Bill, which could mean that letting agents throughout England could unknowingly break the law after the ban comes in.
It was spotted by lawyers helping a tenancy referencing firm review its terms and conditions.
The legal experts are warning that agents could be caught out by using other industry services as part of their lettings process – for example, repairs reporting systems and inventory firms.
Tony Williams, managing director of UKtenantdata, said: “Reviewing our terms on an annual basis is standard practice for our company and with the tenant fee ban on the horizon, it made sense to identify changes that may be required.
“Our lawyers identified an issue that could place every single letting agent in England in a position where they are unknowingly breaking the law.”
Williams explained: “The current Bill states that an agent cannot charge a tenant a fee, nor force an applicant to contract with a third party.
“However the agent would still be in breach of the proposed legislation because the applicant would still have to agree to our terms pre-application and therefore would be contracting with us.
“So in short this would prevent an agent from performing any due diligence checks on tenants.
“If the Bill goes through in its current form, this will create a major issue for agencies.”
The Bill is due to have its third reading in the Lords tomorrow (January 15).
This is what the Bill says:
Prohibitions applying to letting agents
(1) A letting agent must not require a relevant person to make a prohibited
payment to the letting agent in connection with a tenancy of housing in
England.
(2) A letting agent must not require a relevant person to make a prohibited
payment to a third party in connection with a tenancy of housing in England.
(3) A letting agent must not require a relevant person to enter into a contract with
the agent or a third party in connection with a tenancy of housing in England
if the contract is—
(a) a contract for the provision of a service, or
(b) a contract of insurance.
Williams said that point one is clear: “As an agent you simply can’t take any money from the tenant if it’s connected to the grant of a tenancy. That is clear.”
“Again, point two is clear.”
However, he said point three is problematic.
Either the agent or the landlord will have absorbed the cost of the due diligence process after the ban comes in, so that there are no cost implications for either the prospective tenant or guarantor.
However, it is what happens next that could cause difficulties.
Williams said: “The applicant receives their application link, enters the application area and before proceeding agrees to our terms and conditions.
“Now, believe it or not, the applicant has just contracted with us (the third party) and the agent has broken the law.
“It really is that simple.”
Williams believes other providers will be affected.
He said: “The Government’s proposed legislation doesn’t just affect the applicant due diligence process.
“It will knock on to other areas of the industry where an agent outsources to third-party providers where there is no cost involved to the tenant.
“These services could include inventory providers, who require the tenant to access their platform to view the property inventory and post back comments; or where agents have property issue reporting systems in place as part of their process.”
He said that contracts are created when they require the tenant to agree to the third party terms.
“To both myself and our lawyers it looks like the Government hasn’t thought this through. Looking at the legislation now it really is glaringly obvious that this is a potential issue and frankly I can’t understand why this hasn’t been picked up previously.
“This really is an area of concern and will potentially cost letting agents thousands in fines.”
Comments (23)
Meanwhile they will be running wild and unrestrained in Wales…..as looks like the legislation has partitioned the 2 countries
“partitioned”
Seems to be a common theme at the moment!
Wales is soon to be hit by its own Rental Legislation and all licensed letting agents in Wales were apparently contacted and invited to consultation process.
https://beta.gov.wales/sites/default/files/consultations/2018-02/180226-fees-charged-to-tenants-responses.pdf
I thought that for a contract to be valid there had to be an element of consideration (payment). As there is no payment how can there be a contract?
consideration does not necessarily mean payment, for example, in the rental world. a guarantor.
And I’m not sure how using a maintenance reporting system will be an issue? There will be no payment requested or made by the Tenant, simply that to report an issue it must be done via (app).
As the contract for referencing and systmes for maintenance are a service offered to the Agent and they are paying for it, how will this be covered under the ban? It shouldn’t be as there is not a cost to the Tenant, so therefore no fee. Forcing them in to a contract there they have to pay something would a breach, no issue there, but these are simply things to do with a tenancy!
(a) a contract for the provision of a service, or
(b) a contract of insurance.
(a) = The provision of a service is for the agent, not the tenant; the tenant is simply agreeing to the terms of collection and storage of information.
(b) = Simply stating an agent cannot insist that a tenant take out insurance. What I am unsure about is whether an agent can still receive insurance commission if a tenant, without pressure, took out insurance. Also, how many agents have reviewed their tenancy agreements, as I am aware a number insist that tenants take out liability cover.
The tenant does not contract with the referencing company and the referencing company is not providing them with a service. The referencing company is providing a service to the letting agent and the tenant is simply giving them authorisation for their information to be checked. The tenant fee ban will actually strengthen and clarify this arrangement, not complicate it, as the tenant will no longer pay any fee to any party in relation to ‘tenant referencing’.
Offer, acceptance, consideration = contract
I don’t think it is authorisation, because the applicant is agreeing to the terms of contracts with the third party provider, such as GDPR and that the information provided is true and accurate to the best of their belief.
Is the correct answer.
Who pays for failed references especially where an applicant is economical with the truth?
The bill outlines that where the tenant can be shown to have been dishonest the allowable holding fee may be retained against costs I believe.
Being dishonest and proving it may not be that simple and failing references are often two different things.
There hasn’t been a well-drafted legislation change in years…however lets hope that ARLA steps up and seeks clarification on this point as nearly all its members will be affected. Ros perhaps you can seek ARLA’s view point on this???
Don’t hold your breath with ARLA, too busy looking after their own interests to worry about agents!
It’s difficult to have much sympathy. This bill has been around in draft form since November 2017, and the clause highlighted since May 2018.
There have been numerous consultations and opportunities for the industry to engage. The bill is simply too far along in the process now for any change.
I’d suggest the apparent pigheaded refusal to admit that this bill is happening in every agent I’ve spoken to means that engagement has been limited to flat denial and vague threats of ‘rents rising’. How many here have actually read the bill?
For an industry whose business is negotiation, this is deeply niave and a real failure by the industry bodies.
Put it this way, because we can’t charge tenants for insurance for accidental damage caused by their pets, we no longer accept pets. Our final tenancy with pets was formed on 14th December.
The 5 week deposit cap means anyone on benefits where it is deemed there is a slight risk or where landlords are expected to be paid in arrears,
And our rents are going up by around 15% when the tenant fee ban comes in, but hey, at least you don’t have much sympathy for the tenants we will be evicting next year for rent arrears after our tenants who claim benefits can’t afford the rent increases; unfortunately, neither us nor our landlord clients are charities and I’m certain the government will have more than enough social housing for these individuals, after all, no competent government would deliberately cause a surge in homelessness without the social housing stock to support them, would they?
Any tenants who pose a slight risk, because we can’t charge for guarantor replacement insurance, nor rent guarantee insurance, guess who won’t be accepted to live in our properties? We won’t be taking any high risk tenancies on, that’s for sure. For us, how we assess and deal with tenants is going to become very robotic, no empathy or compassion. No discounts, no leeway for late rents.
Sorry…wrong button. I meant to thumb that up!
Good luck letting properties 15% above market rates. You can scream and shout about raising rents, but it’s a market out there and you don’t set the prices.
My point – object all you like. It’s happening.
There is little thought leadership or vision coming from the sector. The political impetus for change is now, and other issues – like S21 – are getting attention.
The entire sector seems hell-bent on maintaining the status quo instead of suggesting solutions to genuine problems. For example – a genuine reform of evictions could tackle the endless problems with arrears and problem tenants whilst benefitting genuine good tenants.
As per my original post, if the sector doesn’t engage someone else (shelter etc) will do it for you. The outright refusal to accept there were problems with outrageous fees created this bill.
Your reply seems quite angry.
Where did it say that anyone was looking to increase rents by 15% above market rates?
Some of our tenancies have been continued without any kind of increase for over 5 years and if any of these are increased by 15% it won’t be above market rate it will be in line with market rates.
I have tried to communicate with the powers that be and no one is really interested in the actual tenants. It seems to be all about the vote for the generation who do rent. Do you think they really care about the tenant? I no longer think they do. It’s turned into a ‘them and us’ situation.
I wrote to my MP pointing out (she has a dog) that tenants will find it difficult to rent a property if the bond was reduced to 5 weeks rent if they have pets. Stock reply. No interest. She doesn’t care she won’t ever have to rent. I’m alright Jack.
I wanted to get Shelter, Generation Rent, Landlords and Tenants in the same room. Never seems to happen.
Corporate Agent in my town charges rip off tenant fees hence why we are in the situation we are in.
Every tenant I’ve spoken to with a pet is happy to pay an additional £100 for their beloved animal because if there’s no damage they’ll get it back but sadly it will no longer be an option.
Tenants should be allowed to pay penalties to buy themselves out of any contract if they choose to do so and if it’s beneficial for them.
‘a genuine reform of evictions could tackle the endless problems with arrears and problem tenants whilst benefitting genuine good tenants’ – this I completely agree with. Won’t happen though. Those making the decisions seem to wake up in the morning thinking let’s make 3 year minimum tenancies and let’s get rid of the Section 21 no fault eviction. Why not start with a 6 month tenancy and then increase by 3 years? Why not tighten up the S21 instead of getting rid of it. It’s all or nothing.
Meanwhile back in the real world there are lots of landlords and tenants who are happy to compromise.
@mat109 – Thanks for your pearls of wisdom. The industry has engaged via ARLA and other industry bodies….. and has been completely ignored.
I agree evictions need reforming, they need to be quicker and cheaper, good tenants rarely ever get evicted, usually only in an emergency. But again, the government has an ulterior motive to avoid dealing with the fact they have failed to build adequate social housing (while allowing unrestricted mass immigration).
With regards to tenant fees, some may be outrageous, they majority are fair. Regardless of one’s perspective, as you rightly point out – the market decides the price. However the government felt the need to intervene to distract from their failures.
None of the current problems are the fault of the private rental sector, most private landlords have small to medium portfolio’s and a number of official reports show they provide better (yes better) accommodation and service than the large housing authorities. In fact, with large tax cuts and relaxed planning rules, small private landlords could very well be the short term solution to the housing crisis.
How absurd! Do you not know how many different organisations have been communicating with government in the last 10years about the sector? How many agents have written to their MPs? How many open letters to the government have been written?
Sorry, but to say the industry has not been pro and re active is ignorant.
7 April 2017The Government launched an eight-week consultation seeking views on the detail of how a ban should be introduced. The consultation closed 2 June and 4,724 responses were received from a range of individuals and representative bodies. The responses to the consultation have informed the Government’s approach and publishing the Bill in a draft will ensure that there is scrutiny of the Government’s proposals by parliamentarians and stakeholders before introducing legislation.