Thousands of tenants in Scotland are owed more than £125m as ‘part of an illegal letting fees scam’ that could ‘trigger an avalanche of PPI-style payouts’.
The claim was made at the weekend by the Scottish Sunday Express newspaper. Meanwhile, a petition to ban fees in England has been launched on the Downing Street website.
The petition calls for all fees charged to tenants to be banned, including for referencing, admin and inventories.
In Scotland, the Sunday Express story follows what it described as the legal enforcement of a little known 28-year-old law which makes it illegal for tenants to be charged any fee other than rent and a refundable deposit.
The legal clarification came into force last week.
According to the Express, the move by ministers attracted little attention, but followed a campaign by the homeless charity Shelter Scotland, whose head of policy, Gordon MacRae, said: “This is the newest mis-selling scandal to hit Britain – you could say that this is going to be the new PPI.”
According to Shelter’s Reclaim Your Fees campaign, 1,500 tenants have already reclaimed more than £280,000, and 90% of Scotland’s 500 letting agents were illegally charging fees on around 135,000 lets per year.
Shelter has produced a standard letter for tenants, including former tenants, to send off to agents, and advises that if their claim is rejected, they can take it to a small claims court.
The Express acknowledges that some letting agents may be forced to close, while ARLA says jobs could be lost.
According to the story, Countrywide, has made it clear it will resist claims, saying: “The amendment to the legislation does not amount to a statement of law from the date of the original Act and certainly does not attempt to make the provisions apply restrospectively. Any fees charged prior were lawful.”
But a spokesman for the Scottish Government advised: “The rights of people who may wish to claim back illegal charges are not affected by the clarification of the law.”
Last night, a spokeswoman for Countrywide said that the tenant featured in the newspaper as a case study would be refunded.
The full story is in the first link. The second link leads to the e-petition for Westminster politicians to follow Scotland’s lead and outlaw fees.
http://tinyurl.com/cudk2ks
http://epetitions.direct.gov.uk/petitions/37757
%20-%20IMAGE%20Client%20Accounting%20%E2%80%93%20what%20are%20your%20options.jpg)
Comments
@ Only Me
Don't suppose you'll see this now I thought I had deleted this thread and moved on but as it was still in my system.............
See definition 10 at start of s45 of 1988 Act which deines a tenancy including an intention to enter into a tenancy. Clkearly any money paid in connection with that intention, whether verbal or written, is a deposit.
We can have opposing views of course. Mine are with no axe to grind makes no difference to me either way as I am a consultant not an agent. Most agents oppose any view like mine (which is gathering support from people far cleverer than me) simply because it doesn't suit them, or is inconvenient. Especially on the student front.
Yes the student one is about rent in advance - but is related because it depends on whether or not it is a deposit as defined in the 2004 Act (irt most definitely is and no matter what you call it to try and get round the Act).
We agree to differ -- difference is take my advice and it may be incovenient and awkward, but it ain't got any risk attached to it.
Take your view and a s214 claim looms large - and remember they are still Part 8 Claims so costs not limited as in Part 7 Claims under CPR.
IO, like any sensible person I am always open minded enough to learn new things and humble enough to thank those whom would educate me but...
You quoted s45 of the Housing Act 1988 but I fail to see how this supports what you are saying. I've included the link but it would be great if you could clarify exactly where it supports the theory that a holding deposit is a deposit?
http://www.legislation.gov.uk/ukpga/1988/50/section/45
Clearly we have opposing interpretations of the law and it's probably best we agree to disagree but thats why I pointed out the gov.co.uk link that provides clarification. Obviously this could be tested in court but so could pretty much any other Act, however your intimation to err on the side of caution is duly noted.
Can you give any further details on the 'student case' as I thought that was about rent in advance, well almost certainly...
@But
You are almost certainly wrong on the holding deposit courtsey of s45 of 1988 Housing Act. Up to you if you want to take the risk but sooner or later a big student case is going to be tested in Court and I wouldmn't want to be on the Landlord side of that case.
There has been a lot of specylation about holding deposits including originally an article in Agreement mag I think in 2008 about it by Lawrence Greenbergh.
If the money paid is a deposit, no matter what anyone calls it, then the Landlord/agent are vulnerable.
Doesn't matter what you, me, CLG, TDS, ARLA, TPO or anyone else thinks. All that matters is what a Judge thinks in Court and there is ample, more than ample, counter argument against what you and others who think holding deposits are "safe" say in support of them.
Eventually we'll see.
@Season of Goodwill
As stated above anyone can offer any interpretation they like, including the actual Statute drafters via CLG. But none of it counts as a can of beans until it is clarified and even then only in a Court of Record.
Meanwhile the danger lurks - so why take the risk?
Jeez it must be Christmas because even I agree with IO but how could the person called 'But' not win a court case when even the government say the same thing, the gov.co.uk hyperlink clearly states it's not a deposit.
We're not arguing the interpretation of the law as the government have provided a concise clarification so are we erring on the side of caution just for the sake of it?
Oh no, I have to agree with IO again.
The person called "But" MIGHT win a court case with his arguments, but far better to avoid using the "d" word in the first place.
I agree wholeheartedly with Ray Comer's most recent post and add that unless you can take a financial commitment from a tenant (in the form of an application fee or similar) your fall-through rate will increase dramatically because the tenant has nothing to lose if he has second thoughts.
In the early days of my business I'd naively offer "no application or reference fees" as an incentive to shift certain properties. We'd have applicants for them in no time, spend money referencing them etc, only to have them pull out before signing the contract. We very quickly learnt to offer "application fee refunded against first month's rent".
Its just struck me that what I've just described is a bit like taking a holding deposit without using the "d" word . . .
Hey IO, I think we're on the same page except for the holding deposit. s213(8) defines a deposit as "a transfer of property intended to be held (by the landlord or otherwise) as security for (a) the performance of any obligations of the tenant, or (b) the discharge of any liability of his, arising under or in connection with the TENANCY".
As no tenancy has been signed then it cannot be a deposit, also, again as there is no tenancy then the payment cannot be held as security for any breach of it. The 'intention' of a holding deposit is to procure a tenancy whist the 'intention' of a deposit is security for the actual tenancy. If you won't take my word for it, what about the have a look at the gov.co.uk link below which bears me out on this, I even included their write up.
https://www.gov.uk/tenancy-deposit-protection/overview
Holding deposits
Your landlord doesn’t have to protect a holding deposit (money you pay to ‘hold’ a property before an agreement is signed). However, once you become a tenant, the holding deposit becomes a deposit, which they must protect.
@Ray
Outstanding post
@But
First never use the D word anywhere in writing and especially not on receipts to tenants unless it is the actual deposit you are talking about. Holding Deposits of any kind are almost certainly a deposit under TDP and have to be treated as such.
But your popint on charges in connection with failed applications is correct provided:-
1. You have made any such charges crystal clear in advance to the applicants
2. That they have signed your T&Cs to that effect
3. You are only charging actual costs of services used - the rest goes back to the applicant
4. That none of it goes to the Landlord in liewu of alleged loss of rent because they could have let quicker to someone els (could they?!!) Prove it!!)
Good point Raymondo and an unfortunate by-product of this area of commerce. Similarly, every time I place an ad in a local paper I have to pay for it, whether it sells or not.
I feel for this guy but to run up such a bill and yet only let 3 houses in a month does show a little naivety. On the positive side he did increase his tenant base purely on the absence of fees. A good agent will always weed out theTom, Dick & Harry's and maybe this is where he needed your help the most.
It's not unreasonable to limit such a risk, when taking a holding deposit when it is done so on the specific written basis, that if it fails due to misleading information or omission, then the tenant can be held responsible for this specific cost.
This is not a fee but a penalty for attempting to deceive but it is also not an opportunity to charge by the back door, any penalty must directly reflect the cost of the actual service undertaken.
If tenants fail references on genuine unforeseen issues then this should be viewed as an inherent expenditure of being a landlord, not a tenant.
I'm sure I've bored you all with this one before but its probably worth repeating.
We had a young well meaning chap open an agency in town a few years back now; I helped him out with advice, set up his accounting and property management systems, trained him on it all etc but the only thing I could't persuade him from what his idea to charge the landlords for the tenants referencing. he had a very low commission rate so thought it would even it out; the half a dozen landlords he had agreed at first until he hit one of them with a new tenant PLUS 8 failed references fees. The landlord quite rightly told him to go away in decidedly more anglo saxon terms.
I asked him to show me his Homelet reference history; because he had advertised no credit check costs he had been inundated with every tom, dick and harry tenant who fancied their chances; in a little under a month he had run up a £1500 reference bill and let 3 houses.
Back then we were renting around 20 properties per month and our bill was half of that.
Adding the cost of referencing onto the rent isn't as easy as it might seem when you have to take into account all the failures. This will end up being the same as car insurance; the good drivers will pay for the bad. The good tenants will pay the price of bad tenants applying for property in the safe knowledge that it won't cost them anything.
I know were not unique in having perhaps a dozen applicants a month who pull out because they don't want to pay a fee - even a reasonable one. They won't pull out if they are getting it for free.
Shelter will get its way eventually but at what cost to tenants, that's the real question. Like any politically led group, they won't worry about a bit of collateral damage to reach their target.
scottavinabeer -
'Its the tenants who want to lease the property. Part of that process is that they have to prove themselves viable tenants'
- I'm not trying to be argumentative fella but The tenant has'nt asked for these checks, the landlord has. Natural justice decrees the tenant is innocent until proven guilty and so is therefore not obliged to 'prove' their own innocence. I just think we're on weak ground if we're putting the blame on tenants. Rightly or wrongly, If we assume every tenant un-creditworthy, its a bit unfair to demand they pay to prove otherwise. It's a bit like asking a Teacher to pay for their own CRB check every time they apply for a new job
'If you lease a car in Scotland then you will pay for a credit & reference check, same goes if you lease I.T equipment or a photocopier or indeed a T.V. and it is all perfectly legal'
- Again, I don't mean to start a ruck but I currently have a lease a car and have also leased IT equipment in the past, though not a TV but I have never been charged for a credit check or been asked for references. I could also apply for pretty much most forms of credit, for free. Sure some may hide the charge as 'Admin Fee' and thats probably what 'free for all' meant by assigning but none have outrightly charged me for a credit check.
'if the tenants cannot afford the fees then they have immediately failed the affordability criteria'
- Agreed but we're talking about who should pay and not whether the tenant can afford to or not, the affordability criteria is not the issue.
Look, we all know that the cost of these checks are minimal and we also know that the various streamlined services on offer have drastically reduced the man hours needed to implement them. Any changes to the AST are at the behest of the landlord as indeed, its drawn up in order to protect their interests. All of this is designed specifically to adhere to the instruction of the landlord so why shouldn't they be charged for it?
Time for a sweep up
@Steve from Leicester.
Glad to see we are friends again, sorry missed your posting just after my last one.
However there really is no difference between PPI and this fees business, except one was mis-selling and the other taking fees that should never have been taken in the first place. Yes the banks are bigger than the agents, but it is all fees or commission and all have to be repaid.
@Roach
Yes the charges should and need to be passed on - as they should have been originally.
@Scottavinabeer
I think you miss the point. The issue is not ability to afford the fees and a crisis over the tenant affording them. The issue is who should pay them, NOT how much.
On your other point yes the tenant has to prove themselves - but who wants the proof? The Landlord does - so why shouldn't they pay for that proof?
@Free for All - you are dead right 100% bang on
@Anonymous Coward
Re the check-out the tenant is NEVER your client and in Scotland you can NEVER charge them
@Michael Edwards
The Statute makes no discrimination between who is charging the tenant. What is states is the tenant cannot be charged anything in connection with the preparation or renewal of a lease. So how does this no fees clause help - indeed I'd suggest it simply hangs the agent.
As does taking the RA commission.
Can we all please just realise and accept that all that has happened here is that the Law has been reinforced as a reminder of what has always been the situation. Hell I'm just about as far South from Scotland as you can get and I have known for 20 years - why didn't all these agents?
shelter need to be seen in public domain...sadly if that increases homelessness or the threat of homelessness that seems to fit into their long term strategy
Shelter are a charity in name only and have been for some time; they've gone the same way as the unions in the 70's and 80's, they now believe they are a political force rather than a charity helping people who ask for it. They now want to 'help' people whether they want it or not
When I set up my small, home run 'agency' I decided to donate 10% of my profit to a relevant charity. I approached both the Society of St James' Homelessness Charity (SSJ) and Shelter.
SSJ came straight back to me and were really grateful and positive about me donating anything I could with no need to sign into a contract as they wanted me to donate because I wanted to not because I was contracted to.
Shelter took over a month to reply. Their first point was that my company wasn't established enough for them to see my "performance history" to use as "evidence for the potential of the partnership".
Secondly, they stated "we ask that all corporate partnerships we enter in to aim for a minimum fundraising target of £25k per year and we would require some degree of underwritten commitment. This puts a value on the benefits associated with using our brand and marketing channels and ensures that the net income of the partnership far exceeds the resource we invest in terms of account management time and resources. It also ensures we make the most of our limited resources by focusing on partnerships that have the best return for our beneficiaries".
Two years on and I'm not even close to paying myself a salary of half their minimum target but I'm still happily donating at least 10% of my profits to SSJ (often donating more than I pay myself).
Shelter seem to be sat on the head of the highest horse around. Maybe it is time someone started digging around their financial dealings as a "charity" who actively turn down donations.
I understand some Agents in Scotland are getting around the no fees clause by asking the Tenant to pay the Credit Referencing Agency direct and agent is then refunded the normal commission he receives from the RA!
And how many have signed the petition..........
A grand total of 328
Let's hope it does go over the 100k signatures required to be debated in the House of Commons. This will then add to the clamour for the Government to actually do something about regulating the industry.
I favour a Levenson style of self regulation with a Statute backing it up except joining being made mandatory rather than voluntary. NALS should be the Regulator.
Nick
If you increase a rent by £50.00 per month, as an agent, you will not benefit by £50.00 per month. You will recieve between 10% to 15% + VAT of the increase. The landlord recieves the balance.
The fact is that if an agent wants to cover the tenant referencing fees from a landlord then it will mean an increase of fees. The landlord will then drive the rent increase to recoup the increased fee.
Anon Cow
Both of the fees that you have illustrated have been outlawed by the Scottish government.
Here's a thought for Shelter.
There's talk of this being the "new PPI". Anyone spot the difference? PPI claims are against large financial institutions who can in most cases afford to pay up (and if they can't the taxpayer will pay up because, as we all know, banks cannot be seen to fail).
Regardless of the rights and wrongs of charging tenant fees the simple fact is that there aren't millions of pounds set aside to fund these claims against letting agents, there's just a bunch of small businesses who will go bust if they have to pay five years worth of tenant fees back.
If that happens the agencies will close, the business owners will lose their livelihoods and possibly their homes, the staff will lose their jobs - and the tenant will get a few pence in the pound back. That'd be a great result. Not.
As I mentioned in an earlier posting, if I was a Scottish agent I'd be investigating whether I could legitimately close down my company now, buy the goodwill (but not the liabilities) and start up with a fresh company.
Shelter should be careful what they wish for.
We will tell landlord increase the tenants rent or pay us a bigger upfront fee, emmmm which one will the landlord go for? Landlord say's increase the rent and make your extra bit on top so tenants rent increase by £50 a month for the whole time they are in the property, great for us.
Our normal agency fee is £150 we have minimum 6 months contract so £300 from tenant thank you shelter!
Shelter won't care one little bit if/when rents rise due to fees being outlawed if it comes to it; they'll be too busy celebrating their defeat of the letting agent.
Eventually they will start to notice the increase in the number of tenants in financial hardship and will start to bring pressure on the government to bring in rent controls to reduce the increase they have been instrumental in bringing forward. That's when the fun will really start.
If the PRS reduces by even 10% because of it, the pressure on local authorities would be catastrophic. If investors see their income being threatened they will do what they always do; pull their money out and find something new.
The landlord should be paying everything except 2 things.
The first is for the reference - professional referencing companies (Homelet et al) only charge £15-£25 per person. This is FAIR, after all, without it the owner has to trust them at their word, it is good for them to be able to back it up. Plus, you wouldn't expect that the owner of a property being sold to pay for the credit checks, booking fees and survey on the mortgage...
The second is the "check out" part of the inventory. The landlord pays to set it up and compile it when they move in - the landlord is the client. The tenant pays when they leave - the tenant is the client. That way there is no conflict of interest and everyone is working in the correct manner.
Other than that, what's to pay for that shouldn't be in the commission?
Free For All
Its the tenants who want to lease the property. Part of that process is that they have to prove themselves viable tenants.
So the tenants should pay for the referencing & credit check fees.
I could go further, if the tenants cannot afford the fees then they have immediately failed the affordability criteria.
Shelter seem to want everyone on board the charity bus. Property rental or leasing is a business and should be treated as a business at all levels.
Point 1/ If you lease a car in Scotland then you will pay for a credit & reference check, same goes if you lease I.T equipment or a photocopier or indeed a T.V. and it is all perfectly legal.
But but if you lease a property then you cannot be charged as it is illegal.
Cost of a car circa £25k cost of a photocopier circa £10k cost of a property circa £120k.
Not only is it a ludicrous situation but it is clear discrimination.
Point 2/ If the long standing law which outlawed the charging of "premiums" was clear then why did we require an admendment to the bill (effectively new legislation) on 30.11.2012.
Point 3/ The Scottish Governments own steering commitee concluded that credit check & referencing fees should not be classed as "premiums". It was Shelter that pushed for the inclusion.
It's the landlord who wants credit checks, referencing & AST and so the landlord should be charged. Its not difficult to do and if rents increase to cover this, Rob's £150 + vat over 12 months isn't a big deal.
Agents just re-assign the costs so they still get paid and it goes a long way to restoring some credibility to our reputation.
Maybe we just need to stop seeing tenants as an income stream...
I think Rob has hit the nail on the head. The main point with all of this is that if agents cant charge any fees to ingoing tenants, then the charges will have to be passed some way onto the landlord and as landlords wont want to loose out, then in the long run it will be the tenants who suffer in the form of higher rents.
Why the likes of Shelter and Government dont have enough common sense to realise this is beyond belief.
Should we start a campaign to get Shelter to declare where their funding comes from? Are they Shelter Limited?
@Rob
If that is £150 no matter how many joint tenants I agree with you.
But you are missing the point here Rob - in Scotland it was always illegal and Landlords used to be charged for everything and tenants nothing.
Then some 'wise'(?) agents realised they could work both sides of the fence and charge tenants as well.
Mortgage fees have never been illegal in E&W though as an ex NBS man I do have to say I wonder how and when anyone ever dreamt up the notion of charging a 'funding reservation fee' or whatever else you'd like to call it.
Mortgage fees are the real home related finance scandal of our times.
IO - I actually agree with almost everything you say.
There is a case to be made for saying that collectively, as an industry, Scottish agents made a rod for their own back.
The trouble is that any individual business trying to do it the "right" way would be swimming against the flow, and as any salmon will tell you, not only is it hard work but there's a pretty high chance that you'll leap straight into the jaws of a hungry bear.
Plan B is a plan for when the tide turns, not a phoenix plan to rise from the ashes.
I really must go and do some work now . . .
This is just crazy in my opinion. Yes regulate fees but don't ban them. What this charity doesn't seem to get is that we are in business to make profit. That's what business is about and this drives the economy giving people jobs so they can afford to have a home!
Ban this fee and it will just be applied elsewhere. Fees to landlords will go up and so they will have to charge a higher rent making the tenant worse off in the long run.
Are you going to ban mortgage application fees? These are huge at present as banks fight to make their interest rates more attractive by applying fees elsewhere. And what would happen if these fees were banned? Interest rates would go up to compensate.
Well done to the charity promoting this for helping make families worse off in the future. Perhaps we should start looking at the incomes, fees and charges you make in the pursuit of helping vulnerable people.
I would just like to add that we charge £150+VAT to a tenant and this covers everything. I do not feel that this is unreasonable.
@SfL
Oh dear Steve and there was me thinking you were such a decent fellow, when your Plan B is a Phoenix job!!!
I have been counselling this for years. For the article to make reference to the Law as being "some obscure 26 year old legislation" is disnigenuous to say the least. There is legislation gong back way beyond that which makes all this illegal in Scotland for decades.
All that happened is that "fee creep" came in with a few agents charging, getting away with it, then more and then it became 'the norm' - except that it isn't.
Mine may be consultant advice Steve but it is also good business sense. It always was imprudent for Scottish agernts to make these charges and those pigeons have come home to roost. Whether the application of the Law should be retrospective is arguable i agree - but then it has always been the Law.
I would advise as I have been for at least 10 years, possibly a lot longer. Do not overegg the pudding on what tenats are charged.
No existing legislation in E&W - have a look at The Cost of Leases Act 1958 we can probably get away with that one - but Shelter may not think so in terms of explicit enough statements in terms of Business for apportioning costs.
In fact it may even help agents in E&W but I wouldn't like to be arguing it.
IO - your first posting is, in my opinion, exactly what a consultant would say.
It sounds like a perfectly reasonable observation and in theory it is.
In the real world we operate in a competitive market. If all our competitors are cross-subsidising landlord fees by charging tenants we're going to win very little business by taking the moral high ground and telling landlords they'll have to pay more so that we (the agent) can be seen to be doing the right thing.
I do agree that prudent agents in England and Wales will need a Plan B to avoid being caught with their pants down. Luckily there's no existing legislation in England & Wales hence no risk of backdated claims.
If I was a Scottish agent I'd be investigating whether I could legitimately close my company down and start a fresh company which buys the goodwill (but none of the liabilities) of my previous company.
Can we have some guidance from ARLA & RICS as to what is acceptable. We charge fees and we don't think we are unreasonable, but what is reasonable???
Sorry meant to add
Countrywide - make a note New Year Resolution change Scottish solicitors and get better advice.
If it wasn't Law and enforceable does anyone think any agent would cough up - especially if as per the article it meant going out of business? Still Countrywide has deep pockets so a good thiung if they take the test case to Court.
Seen it all before with bank charges in England.
But E&W agents take note this will come so start gradually shifting the balance of your charges now from tenant to landlord and in 2-3 years you should be on safer ground.
Any agent anywhere that has to close because of repaying tenant fees was charging tenant fees that are too high.
Or put another way was over reliant on tenant fees as an income stream for too long.