LANDLORDS - The Private Rental Sector is Changing.................
How do this affect you, your property & your Agent?
For some time one of the Governments main focus’s for change has been the private rental sector. Their goal has been to make things fairer and more cost effective for tenants while ensuring good quality, energy efficient properties and eliminating ‘rogue’ Landlords.
To this end they have already bought in:
MEES - From 1st April 2018, the Minimum Energy Efficiency Standards (MEES) were introduced. This is where a property must have an EPC rating of E or above to be advertised for rent and from 1st April 2020 any occupied property that falls below an E must have the necessary works carried out to bring it up to an E or above rating. Phoenix Lettings and Property Management Ltd will have already notified you if your property is affected by this legislation. Further information about this is available on our website www.phoenixlets.com under the ‘Blogs’ section.
CLIENT MONEY PROTECTION - From 1st April 2019 it becomes law that all Letting Agents and Property Management Companies must become a member of a Government approved Client Money Protection Scheme. Phoenix Lettings and Property Management Ltd have joined CMP Client Money Protect with the Membership Number CMP003609.
REDRESS SCHEME - From 1st October 2014 it became a legal requirement for all Letting Agents and Property Management Companies to be part of a Government approved Redress Scheme to impartially adjudicate a complaint if the Agent is unable to resolve an issue with a Tenant or Landlord directly. Phoenix Lettings and Property Management Ltd are a member of The Property Ombudsman Scheme with the Membership Number D13883.
Moving Forward …..
The following subjects have been earmarked for legislation and will shortly be introduced:
ELECTRICAL SAFETY INSPECTIONS – This will eliminate the grey areas surrounding electrical safety that has clouded the industry for years. At the moment the suggestion is for 5 yearly checks and will bring it in line with the required annual gas safety certificate. Phoenix Lettings and Property Management Ltd are suggesting that we start looking at and instructing this straight away on marketed properties because once the law is introduced Electricians will be very hard to come by and their prices could well increase due to demand.
REGULATING AGENTS – This would ensure all Agents are working to the same ‘Code of Practice’ and are regulated by one ‘all-encompassing’ body. It would likely involve training, ‘fit and proper’ person testing and industry qualifications. Phoenix Lettings and Property Management Ltd already subscribe to Training for Professionals for legally accurate and up to date paperwork. We also regularly attend courses for updates on Property Law. Once regulation of agents becomes law, both Julie and Katy will partake in any required training and testing to gain the qualifications needed to ensure compliance.
TENANT FEE BAN – On the 12th February 2019 the ‘Tenant Fee Ban’ Act received royal assent making it law. As of yet there is no definitive commencement date, however, most are predicting this will happen on 1st June 2019. The main purpose of the Act is to:
- Make renting fairer and more affordable for tenants by reducing the costs at the outset of a tenancy.
- Improve fairness, competition and affordability in the lettings sector.
- Improve transparency and competition in the private rental market.
- Ban letting fees paid by tenants in England.
This Act will cause an unprecedented shake up of the private rented sector and will change the face of lettings permanently. Loopholes in the original draft legislation were tightened so much that rent and deposit couldn’t even be charged by Landlords - Thankfully this has been amended! But other than that and a very small list of permitted charges, neither Landlords or Agents will be able to charge applicants/tenants for anything including (but not limited to):
- References and Credit Checks
- Any Services including Pest Control
- Guarantor Checks
- Right to Rent Checks (Required in conjunction with the Immigration Act)
- Check In or Check Out Fees
- Renewal Fees
- Extra Deposits for Pets etc.
- Deposits in excess of 5 weeks rent
At the moment, ‘Lettings’ costs are generally split between Applicant/Tenant and Landlord, however, there are a lot of (greedy) Agents out there that are taking advantage of the situation and charging both parties for everything which is the main reason that this law has been passed. Many Agents are currently struggling with the financial implications of this change in law and the general feeling in the industry is that Landlord Fees are going to have to increase to balance this deficit.
This Act has had the support of all political parties and as such would not be affected by Brexit negotiations or a general election.
Phoenix Lettings and Property Management Ltd have never charged extortionate fees to tenants or charged both parties for the same service. Renewal fees nor Check in or Check out Fees have ever been charged. Our standard deposit has always been a months’ worth of rent, but we have, in the past, charged and extra £100 as an additional pet deposit. In preparation we will no longer be charging more than 5 weeks’ worth of rent if a pet is agreed and if you have agreed to a pet in the past, we will be re-calculating the deposit we hold and releasing anything over the 5 weeks amount back to the tenant.
Fortunately, Phoenix Lettings and Property Management Ltd do not have the overheads that bigger Agents have and, consequently, are not intending to pass Referencing costs back to Landlords or increasing our charges to you currently. However, to enable us to keep our service at the same price we are making a few small changes. We will no longer be posting tenancy packs to you to save costs, however, scanned copies can be emailed to you upon request. We also have plans to change our referencing agency over the next few weeks and outsource utility management to generate more income sources.
NIL DEPOSIT OPTION – Even without the changes in law, the private rented sector is evolving and to ensure your property is consistently rented, you, as a Landlord and us, as an Agent, need to look at all options to adapt accordingly.
In the last six months there has been a significant move by Agents away from the traditional deposit taken at the start of the tenancy towards properties advertised with a ‘No Deposit’ option. There appears to be three types of ‘No Deposit’ option:
- An insurance policy purchased by tenants for a fraction of the deposit value.
- An additional percentage paid on top of the rent each month that creates a ‘slush’ fund for the Agent should they need to pay out.
- A set amount paid directly to the company who is covering the deposit value with a small renewal due every 6 months.
However, with the Tenant Fee Ban coming in a Landlord cannot dictate that a tenant must use the ‘No Deposit’ option as that is insisting that a service is used and this will not be allowed come 1st June 2019 (if this is confirmed as the start date for the ban). It can only be given as an option, with the traditional up-front deposit option as the ‘free’ alternative.
Phoenix Lettings and Property Management Ltd have spend considerable time weighing up the pros and cons of the different options and reading the associated fine print. Going forward, we have decided to offer option 3 through a company called LetAlliance and we will be transferring our referencing to them also.
Please be assured the ‘Nil Deposit’ option is not as reckless as it first sounds. With a traditional deposit you are currently covered for a months’ worth of rent or the equivalent in damages. If you want to deduct money from the deposit the cost has to be agreed by the tenant. If the tenant does not agree we have to wait a period of time and then have a declaration signed by a solicitor before the amount can be paid back to us and this usually takes anything up to 2 months from the end of the tenancy. Or, in the worst-case scenario, the tenant disputes the claim with the DPS and detailed evidence has to be supplied by both parties for an independent adjudicator to make a judgement, we have known this to take up to 4 months after the end of the tenancy. The adjudicator can either agree with our claim completely, agree with our claim but say tradesmen invoices are too high, uphold part of our claim or deny the claim altogether and the tenant gets the deposit back. Some of you may have already experienced these circumstances.
With the ‘Nil Deposit’ option you will be covered for 6 weeks’ worth of rent, meaning you could claim for a months’ worth of rent and still have some left over for any damages, cleaning etc should it be needed. We have been advised that should we need to make a claim, the ‘payout’ date is only 30 days rather than the drawn-out process with the DPS. Finally, there is less scrutiny over the tradesmen invoices because LetAlliance understand that different tradesmen have different minimum call out costs, hourly rates etc, however, they will still expect official invoices and evidence.
Please find below a financial example of the 2 different deposit options, this is based on a monthly rental of £495 pcm:
Traditional Monthly Deposit (as we are going to be allowed to charge 5 weeks rent under the new ‘Tenant Fee Ban’ we are going to change our advertising to reflect this to ensure more deposit cover if this option is chosen)
£571.15 taken at the start of the tenancy, this will be held by the Deposit Protection Service.
£685.38 – This is the amount you would be covered by the scheme. But it will only cost the tenant £137.08 including VAT and then £15 including VAT every 6 months while the tenancy is in place – With this option the tenants would need to live in the property for 11 years before they have paid the amount due for a traditional deposit.
We have been advised that should LetAlliance not be able to get payment for the renewal it will not affect your cover. Also, do not think your tenants will get away ‘scot free’ and not be financially responsible for any rent arrears or damages when they vacate – LetAlliance have their own in-house legal team who will pursue them through the courts should they not pay what they are billed for.
Also, please beware there are some people who can’t be considered for the Nil Deposit option such as foreign students, people who have been in the country for less than 6 months, anyone on benefits or anyone with adverse credit.
CLARIFICATION – We appreciate there has been a lot of information thrown at you over the last few pages, please take your time to digest the information and if you have any questions please do not hesitate to contact the office. If you currently have a property available, we will be in contact with you shortly to discuss the ‘Nil Deposit’ option, otherwise, we will wait until your tenants give notice and then contact you to discuss marketing.