02.05.2015

Why We Charge Tenants’ Fees

If you have landed here from our wider election blog then thank you for sticking with me. If you have joined us from another avenue then welcome, I hope you find this information useful.

To quickly recap on where I left off, I felt it might be an idea to explain why FleetMilne charge the fees we charge to tenants, as the Labour party seek to abolish letting agent’s despite the vast majority of the industry advising them that this may not be the most advisable course of action in the long-term.

I saw a quote in an article recently really puts things in perspective as Labour attempt to dress up a short-sighted idea in the best light possible: “a ban on letting agent fees charged to tenants, which Labour claims will save the average renting household £625 over the next parliament.”

Brilliant, no? No. The key part of that sentence I want to highlight is “over the next parliament”. I don’t disagree that in the short-term these drastic measures could definitely save tenants money. However, the Labour proposals will force rents up and the cost to the end-user, the tenant, will actually increase as time goes on. So, after “the next parliament” tenants will either be paying more than ever in rent or, simply, not have anywhere to live.

Why? Allow me to elaborate.

Undertaking a thorough background check on anyone wishing to take a tenancy is an absolutely crucial part of a letting agent’s job. Today it is even more complex than ever, with Birmingham currently part of the test area for the “Right to Rent” checks which the current government imposed to align with their immigration controls.

Every background check we undertake costs us money. We pay to train staff on what to look for and how, we pay them to process a tenant’s application, we pay third party suppliers to verify an individual’s creditworthiness. We must check their employment status, their previous behaviour in rented accommodation and the authenticity of their documentation. These are real, hard costs that will not just evaporate with the abolition of tenant fees.

At FleetMilne, we have retained the services of the agency who designed the entire system for the production of driving licences for the the DVLA, to assist us in checking that none of the documentation we are given is forged. A good forgery is undetectable to the naked eye and even some machines, so I can tell you that this service is not cheap. We have absorbed this cost ourselves, whereas many agencies have chosen to transfer the additional associated cost to the tenant.

But under a new Labour government who impose a ban on fees for such things, is it their suggestion that we should no longer run any checks on potential tenants? Because that would be an unmitigated disaster, as I am sure you would agree.

If we are agreed that checks need to be done then we are agreed that there is a cost to be covered. The question is, how? As I see it, there is only one way for agencies to continue to ensure that they are investing appropriately in the right staff and systems to sufficiently protect their landlord clients. The landlord would need to pay the fees instead.

The utterly inevitable net result of this will be landlords recovering this additional cost through increases in rents. With the average length of tenancy on the increase, there is no question that this will end up costing tenants more in the long run, and possibly restricting them from considering better properties which would presently be in their price bracket.

To counteract this risk, Labour also wish to impose inflation-linked caps on rents in order that people can “plan their finances”. But who knows what the rate of inflation will be even a year, or two years from now. In my opinion, this will simply lead to an expectation from landlords that the rent will go up annually, whereas a reported 60% of tenancies currently extend with no increases.

To avoid such fees, many landlords may choose to operate their portfolios privately but this places a huge emphasis on them, rather than a professional agent, to remain compliant throughout the process and may, in time, require them to undertake qualifications to do so.

Within the last 12 months, there have been new layers of compliance regarding legionella bacteria, carbon monoxide alarms, EPCs, immigration, deposits and Section 21 notices. FleetMilne have even created a role with the sole purpose of ensuring and monitoring our landlords’ compliance at all times.

Most landlords are landlords second, but teachers, doctors, farmers or footballers first; they have their own careers and families to focus on and lettings compliance could quite quickly become a secondary, pesky issue which then puts tenants at risk.

So, hopefully, that illustrates why I am more than a little worried about the long-term implications of abolishing tenants’ fees. As I hope I’ve stressed, I am not actively seeking to influence anyone’s political persuasion or tell you which way to vote. I am just trying to ensure that, if you are allowing the impact on the property industry to influence your decision, you have the benefit of all the facts required to make an informed decision.

In the meantime, enjoy the circus surrounding the election on the 7th May and may the best party win, whoever that may be…

#politics #Labour #tenantfees

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Ben Davis

Posted by: Ben

Ben is our Managing Director; if Nicola is the ideas behind where the business is going, then think of Ben as the sat nav which helps us get there. Being more office based than Nicola, if there’s anything the team needs technical advice or support with, Ben provides it. He is also the main point of contact for our large corporate clients and is charged with delivering them an easy life as landlords.

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