It has been the case for some time in Scotland that charging a fee to a tenant as a condition of granting them a tenancy was unlawful. This was what the case law described as “key money” in reference to the unlawful practice of charging tenants a fee for the supply of keys to the property, supposedly for the cutting of a new key if you are wondering! However, over time the position has become unclear with agents finding ways to charge fees which were not so obviously unlawful. Now, following a campaign by Shelter, the Scottish Government has stated that it will clarify the law to make absolutely clear that all charges to tenants other than rent and deposit are unlawful. The next question is what will happen South of the border?
Shelter, with the success in Scotland behind it, is mounting a strong campaign in England to have all fees made unlawful here too. They are starting with a survey but are unlikely to stop there.
The reality of the situation is a bit more complex. Some letting agents charge excessive fees for very simple work. Sometimes these charges are made to both tenants and to landlords. In many cases the work is unnecessary or done to such a poor standard that it would have been better if it had not been done at all. However, other agents, certainly the most of the reputable ones I have come across, make a reasonably fair charge which reflects their time and costs in carrying out a particular item of work such as a credit check or the preparation of a tenancy or renewal document. This work is quite often wasted as the tenant fails the credit check or pulls out of the deal and so the cost is not recoverable as landlords are only charged for a successful deal that results in a letting. This part of the letting agency business cost, the difficulty of charging by commission is one which is poorly understood by government and advocacy groups.
It is tempting to say that this is part of the business risk that an agent takes. However, this is unrealistic. Lettings agents are often relatively small businesses and these risks are not ones they can afford to take as a routine part of business. The current charging structure, when operated properly, provides an acceptable balancing of risk and cost between all three parties to the transaction, landlord, tenant and agent. Simply pushing more of these charges onto agents will mean that they will seek to pass them on to landlords in higher rental commission and that increased cost will then be passed straight back to (you guessed it) tenants, in higher rent.
In fact, I would suggest that more legislation is not really needed. The Consumer Protection From Unfair Trading Regulations 2008 already make it a criminal offence to conceal charges and to operate a charging regime which is contrary to good faith and accepted industry norms. This legislation provides all the power needed to take action against rogue agents charging excessive or unfair prices and using this legislation would be a far more sensible method of dealing with the problem than simply adding yet another piece of legislation to the statute books.