The Queen delivered her annual speech in June, affirming her Government’s intention to move forward with plans to ban charging fees to tenants. While this is no major surprise, the announcement of a specific Bill – the Draft Tenant’s Fees Bill – through which the provisions will be laid, is significant because June’s election meant that the Government was forced to cancel many of the regional working group meetings that were arranged as part of the formal consultation on the changes.
Ultimately, a failure to properly consult could leave the Government open to a judicial challenge through the Courts, so they have opted for the belt and braces approach of committing the changes to an Act of Parliament. While the Bill will need to pass through each of The Lords and The Commons – such is the level of pre-legislative scrutiny afforded to an Act of Parliament – it’s likely to gain Royal Ascent without any major hitches.
A CAP IN HAND
You may have also noticed the inclusion of proposals to prevent landlords and agents from charging more than a month’s rent as a security deposit. Here it’s easy to see that the Government is keen to be doing as much as it can to bring down the initial cost of entry for tenants in the private rented sector. Targeting security deposits appears to make perfect sense – after all, most government departments already offer deposit loan schemes to staff looking to take up new tenancies in the sector, and workplace deposit loans are becoming more and more common especially in the Capital.
THE OBVIOUS PROBLEMS…
Whilst capping deposits at the equivalent of a month’s rent may well reduce the move-in costs for some, the major concern is that it will provide the temptation for others to revert to an all too often situation from pre-deposit legislative days, i.e. viewing it as the last month’s rent, leaving landlords out of pocket at the end of the tenancy if, for example, the property has been damaged.
New legislation will mean that you’ll need to tighten up the way you handle clients’ money if you don’t already adhere to best practice.
Furthermore, many landlords and agents ask for a higher deposit in some circumstances as it provides extra confidence when letting to ‘higher risk’ tenants – the exact kinds of people who are likely to be struggling with affordability in the first place – and the likelihood is that landlords and their agents by proxy could be deterred from offering properties to these people as a result. This issue becomes all the more acute when you consider that it hardly lays the foundations to incentivise longer term tenancies in the private sector. It could also reduce the number of landlords willing to accept pets into the property, where traditionally a larger deposit would have been an acceptable condition.
WHAT’S THE TAKE-AWAY MESSAGE?
This is another kick in the teeth for professional letting agents. It means it has never been more important to protect deposits. Furthermore, you’ll need to tighten up the way you handle your client money if you don’t already adhere to best practice.
In reality this means making sure you hold all client monies in a separate client money account, ring-fenced from your standard business account. Then get it protected with client money protection (CMP) insurance. After all, the likelihood is that mandatory CMP insurance will become law in the next year, so why wait? Don’t get caught out.
Luckily UKALA is here to help with both these aspects of running your business. Discounts on deposit protection with mydeposits, and Client Money Protection for those that don’t already have it, are just two of the many benefits of UKALA membership.
JOIN UKALA TODAY
We are the only association for letting agents to offer members a low-cost and more flexible monthly instalment plan to help manage the cost of running your business.
Join today by calling 020 7820 7900 or visiting www.ukala.org.uk to access our full range of benefits and services, including:
- Free telephone advice on landlord-tenant issues
- Unrivalled access to landlords through our unique relationship with the NLA, including free Recognised Agent Scheme status worth £2,500 per year
- Client Money Protection for landlords and tenants (if not already with an existing scheme)
- Membership of the Property Redress Scheme
- Tax Investigation Insurance (terms and conditions apply)
- Continued Professional Development and training
- Discounts on a range of products and services including deposit protection with mydeposits.