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Scotland slams the door on ‘rip-off’ letting agent fees

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Profile photo of Louisa Darian Louisa Darian Policy, Higher Education and Housing
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The Scottish government has ruled that letting agents and landlords shouldn’t charge upfront fees to tenants outside of their deposit. With rents rising and evidence of high fees, should the rest of the UK follow?

After a period of consultation, the Scottish government has confirmed that letting agents and landlords should not be charging tenants any upfront fees outside of the rent and refundable deposit.

This means that it will be illegal in Scotland to charge fees for things like referencing, credit checks or inventory fees. It has always been illegal to charge a premium on top of the rent in Scotland, but there has been confusion about what this meant, leaving agents to continue charging fees.

The Scottish government will make amendments to its renting laws by the end of November to address this problem.

Tenuous tenancy charges

Extra letting agent fees have long been a source of discontent for tenants. In a previous Conversation I highlighted the huge charges some tenants face, such as a £400 in administration fees. When you consider that this often largely involves editing and printing off an agreement, and that the agent may also be charging the landlord for this too, it’s no wonder that many tenants think such charges are a rip-off.

Also, while some agents allow tenants to move on to a rolling contract at the end of a tenancy, others charge another fee of up to £100 just to reprint a revised agreement. Is that really a reasonable and fair fee for tenants to pay?

What about landlords?

While the fees letting agents charge landlords are also a bone of contention – we saw this with the Office of Fair Trading’s investigation into the renewal fees charged by Foxtons – at least landlords have the power to choose who lets their property.

Landlords are buying a service and so they presumably have greater bargaining power in negotiating what they’ll pay. And arguably they should be the ones paying, rather than the tenant.

In contrast, with the vast majority of properties now let through an agent, and a lack of private-rented housing generally, tenants have no choice but to pay up and may end up paying such fees frequently. That’s because the average length of time someone stays in the same private-rented home is one year, compared to 12 years for someone who owns their home. And with many agents not displaying their fees clearly on websites or in adverts, shopping around can be a time-consuming task.

What do you think about letting agent fees? Are they fair or a rip-off? Should the rest of the country follow in Scotland’s footsteps?

Comments
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Geoff Fimister says:
30 August 2012

This should remove a real burden from tenants who generally have no choice but to pay and may already be under financial pressure. It sets an example to the rest of the UK.

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Dean says:
30 August 2012

Yes definitely.

Add the cost of 2.5 months rent to all the fees and you can see why agencies are making it more and more difficult for tenants to move. It may not surprise you that landlords are also charged these fees every time a new tenant moves in, plus various others that you haven’t mentioned on here.

Just another example of over-charging when in fact they are just charging it because they can, as everyone else does it

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skeptictank says:
30 August 2012

Yes definitely.
Scotland generally has more laws to protect tenants than England and Wales, as does France and Germany where tenancy is more common than ownership. There is a housing shortage in England, particularly in the South East. This scenario makes tenants tenants ripe for exploitation & they need all the protection they can get.

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m. says:
30 August 2012

NO. The industry need regulation, not destruction!
Of course there are rogue agents, just as there are rogue solicitors, bankers. MPs etc… Why punish a whole industry for the misdeeds of a few?

It is illegal for agents to charge viewing fees, and if an agent refuses to reveal their administration charges, or asks for money up front, the tenant can walk away. No one is forcing a tenant to use a particular agent, but it is advisable to use an genuine, established, professional agent who will generally have fees towards the bottom end and will gladly tell what they are doing to earn it.

The deposit is not a fee, it is security bond returned to the tenant at the end of the tenancy, unless they cause damage or do not pay utility, council tax bills, neither is advance rental a fee.

Tenants need protection as do landlords [there are more bad tenants than bad landlords, but we hear little about them], the reasons for using a lettings agent is because the law is now so complex the majority of tenants and landlords have no idea what their rights and obligations are, the government changes the law on aspects of rental frequently, and many times without informing the industry, or anyone else. They have just altered the ‘Estate agents act’ to allow Tesco & Sainsburys to act as estate agents, by removing the safeguards necessary to protect the public, all without informing the industry.

Tenants need proper legal assured shorthold tenancy agreements, they need deposit protection, they need to be aware of repair obligations, insurance, rights of entry, saftey requirements, licensing for rentals, tenants need professional inventories, many landlords require credit and external reference checks, and tenants need to provide them, the list grows daily. Most landlords are also unaware of the myriad of regulations, and can unknowingly walk into disaster.

All these things take time and cost money, so who is to pay?
The landlord can stand all the tenants costs, and the tenant then changes his mind, or the references are no good and the landlord cannot accept them, why should the landlord pay for this?

And of course If the landlord has to bear all these costs, they will end up tagged them onto the rent anyway.

I would never ever let any of my properties without using my agent, because I just don’t have the time or knowledge to do it properly, just as I would use a solicitor or accountant for legal or financial matters, to do otherwise is courting disaster.

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Kate says:
30 August 2012

@m in reality a tenant is forced to use a particular agent. Renters are basically stuck with whichever agent the landlord of their preferred property opted to sign a contract with. I’m sure I speak for most people when I say I make my decision based on the home I will be living in for 12 months (often picking from a very limited pool) and not the body handling the initial contract. Only once have I been able to choose between two agents both letting the same flat, and funnily enough on that occasion they agreed to waive their fees as a sweetener!

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G says:
1 September 2012

As a letting agent, I agree fully with the landlord “m” who posted above. Many of those on the other side of the debate believe that agents only work for the landlord, and that all agents are treating tenants badly.We treat our tenants as clients, just as much as our landlords. It’s in the interests of both the landlord and the agent that tenants are happy in the property.

We have only been charging the tenant for referencing, precisely to prevent the problems mentioned by “m”, i.e. prospective tenants changing their mind late in the process or tenants failing our checks. I can guarantee that both of those problems will increase because of what the Scottish Government is doing.

So the loss of fees is not the real problem, it will be the significant additional cost of processing people who fail our checks or who do not take up an offer.

Shelter, as the main campaigners for this change, seem to think we are in the social housing business. Instead of punishing all agents and landlords in the private sector, they should be spending their funds on persuading councils and housing associations to step up to the plate!

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Jennifer Davis says:
4 September 2012

I am in the position of being both a landlord and a tenant. However, I was shocked by the fees I was made to pay as a result of my recent move.

My partner and I had viewed a house we loved and made it clear we’d like to move in. When I rung the agent to let her know, she cheerily said, “that’s fine – can I take your debit card number to hold the property – it’ll cost £280”. Apparently, this was to cover our reference checks, but we had to pay up immediately. As far as I can tell – the checks simply involved emailing our employers and our previous landlord for proof that we had jobs and didn’t cause trouble.

Following that, I probed them further and they admitted we’d have to pay a £180 ‘check out’ fee as well – which is to take a closing inventory of the property when we eventually leave. Apparently you have to pay up-front, as many tenants would leave without paying. So, on top of the 6 weeks rent as a deposit and a month’s rent in advance, we had to fork out £3085 to move into this house. That’s not small change.

I don’t have an issue with the existence of fees per se – but I certainly have an issue with the amount of work that appears to get done in return for them. Our referencing was a breeze and took one afternoon – how can this represent £280 of work? And why are we paying to ‘check out’ from our house anyway? Surely the cost of a closing inventory would be covered in the fees that the landlord has to pay?

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G says:
4 September 2012

Well Jennifer – unless you are already there, perhaps you should move to Scotland where all those fees will be illegal. Referencing is not quite as straightforward as you suggest – we charge £75, which is more or less at cost, including our time. This will have to stop now, so the landlord will have to pay and rents will rise. So in order to deter people who will fail referencing checks, everybody has to suffer.

Our landlords pay for the inventories, although some agents believe that tenants should pay a share since the inventory helps to protect their deposit against false claims by the landlord/agent.

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Jennifer Davis says:
4 September 2012

Hi G, I’m not in Scotland I’m afraid, and not sure the move would work for me at the moment!

If referencing costs are around £75 as you suggest, then I could accept that. But if that is a representative cost, the agent I went through made approximately £130 out of us at a time when money is understandably tight.

I’m pleased to hear you charge the cost to your own tenants, and it’s an interesting point you make about whether or not tenants should pay for exit inventories. Again – perhaps I wouldn’t be so hesitant about this if I hadn’t had to pay £180 for it. I was present for the initial inventory, which was fairly easy as the property was largely unfurnished. They took a few photos of cracks and damages and wrote down everything that was marked. To do this again when we leave doesn’t seem to represent £180 of work, in my mind.

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G says:
4 September 2012

@Jennifer
The inventories you describe do sound a bit perfunctory. Even before the advent of tenancy deposit schemes in Scotland, we arranged very detailed inventories by professionals. They are primarily about the condition of the property rather than the contents.

Although they are very detailed, we charge less than you were asked for, and the landlord pays.

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Sheila McAulay says:
22 November 2012

S.cotland. Letting agent wants admin fees of £80 for a new flat. 8 days until it becomes illegal, do I have to pay it ?

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G says:
22 November 2012

If the fee is for referencing checks, I contend that is probably not illegal. You would have to go to court to prove otherwise in your specific circumstances.

I recommend that you ask the agent if they are planning to stop this charge after the 30th November – if they say no, go elsewhere. If they say yes, then ask them if they would waive it in your case.

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Louisa Darian says:
22 November 2012

Hi Sheila

I would certainly try and challenge it. I was just having a quick look at Shelter Scotland’s website – might be a good idea to speak to them. They are supporting people to try and reclaim agent fees.

http://www.reclaimyourfees.com/

My understanding is that charging these fees is already illegal, but that the new law will clarify it. But I must add I am no lawyer! This is the wording on Shelter’s website.

Current legislation explicitly prohibits charges for drawing up a tenancy agreement and furthermore it is an offence to require any premium as a condition of the grant or continuance of tenancy. This comes under section 82 of the Rent (Scotland) Act 1984 (imported into the Housing (Scotland) Act 1988 in respect of assured tenancies by section 27 of the Act). In accordance with Section 90, a premium includes any fine or other sum and any other pecuniary consideration‘ in addition to rent.

Best of luck!

Louisa

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G says:
22 November 2012

Hi Louisa,

Neither am I a lawyer. However I believe “require any premium as a condition of the grant or continuance of tenancy” in the Rent (Scotland) Act 1984 referred to the long-established principle that banned the requirement for “Key Money”.

In fact, requests for premiums (colloquially called “Key Money”) were first outlawed in the Increase of Rent and Mortgage Interest (Restrictions) Act 1920, s 8 to prevent landlords circumventing rent control measures by demanding capital sums of rent in advance.

If you look at the House of Lords proceedings in Hansard on the Housing (Scotland) Bill, which became the Housing (Scotland) Act 1988, you will see that –

1) there was no reference to premiums in the bill as first published;
2) an amendment to include the clause on premiums was passed back to the Commons, and was then included in the Act;
3) during the Lords discussion on the amendment, it is clear that the term premium is equated with “Key Money”, as it had been in the 1984 Act, and long before that Act.

Referencing fees are not Key Money.

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Craig Cummings says:
3 January 2013

While I’m against ripping people off with excessive fees which a lot of agents have been doing for years, as a private landlord I feel the government is unjust in making it illegal for a landlord to charge a prospective tenant the cost of a credit check..

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Steven P says:
11 January 2013

I have recently left a rented flat to buy a house (sorry – apartment – they use that word to make flats sound better). In my experience letting agents are out for all that they can get. People don’t move unless the accomodation that they live in is unsuitable and agents know this – and so prey on vulnerabilities of people so add on extra charges, some are unlawful in Scotland – but the vulnerable tenant to be won’t argue – they need to move. So the charge is added and paid. I don’t blame the agents, if I could earn money from changing an address ona document, charge £100+ then I would do that too. If the tenants reclaim this the practice will stop all it needs is a few cases in the sherifs court to refer to and agents will have no option but to repay all these fees (I bet most of the reclaimyourfees success stories were settled outof court for this reason).

Landlords are complaining that they need reference fees to protect their investment. Hmmmm. Well I am sorry but with great rewards comes great risks and if you are not prepared to take a risk then don’t expect the rewards.

A typical landlord will have invested £20,000 to buy a property that in 20 years time will be theirs – paid for buy their customers rent – and will be worth 10x and more their initial investment. No other investment will offer these returns in such a short space of time with a minimum of effort. So high rewards for high risk…. the risk being that one or 2 of their tennants in this time will be bad costing the landlord only a couple of thousands to put the problem right – out of a return of £180,000+ this is a small amount.

So why are they complaining?

Last part of the problem is that the letting agents charge both sides for the same thing in many cases and neither side know it.

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LonePony says:
21 June 2013

I was charged £125 to renew a fixed term contract. I would be grateful if someone could explain how a letting agent would arrive at this figure and what costs are entailed that I am covering.
If I don’t renew the fixed term and stay on a monthly rollover I can be told to vacate the property with one month’s notice (it says this in my contract), although, legally I believe the landlord would have to give me two month’s notice.

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Mike says:
12 August 2013

I am currently moving from a rented flat into a rented house. Unfortunately, the house is with a different agent and so far I have had to pay:

£225 – for what they call an application fee
£60 – “Administration” fee
£50 – Guarantor check fee

When I sign the agreement, I will have to pay one months rent + £100 for the deposit (understandable), then a months rent on top (which I knew about anyway) but then a further £60 for a copy of the inventory and another £60 in 6 months for a “tenancy renewal fee”.

I have also had to pay £30 to my current agency to provide a reference. They even charged 45p to pay by my DEBIT card as I couldn’t get into their shop to pay at the time.

I’m thinking of going to trading standards, but I’ll have to pay up and move into the property first as I don’t want to kick up a fuss and have it withdrawn, otherwise I’ll lose everything I’ve paid so far. I’m angry though.,

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VJ says:
17 October 2014

USA vs UK: I had moved from USA to Scotland and troubled seeing such a sloooow Process for renting. I don’t understand why the owners have depended on agents so and so much and can’t rent on their own. Rental offices are not working on Saturdays is really aching, where as newly on job need to make some time out of Office time on weekdays. Some times, you don’t have good manager, who don’t like giving time off. God bless such a lazy process.

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