Tenant Fee Ban Confirmed for 1 June 2019

The latest in a series of legislative changes that bash Oxford’s landlords will come into force on 1 June 2019.  From 1 June neither landlords nor their agents will be permitted to charge fees to tenants for anything.  Historically, the cost of credit reference checking and tenancy agreement drafting has been shared by the tenant and the landlord.  In future these costs will be solely the responsibility of the landlord.

MP’s of all parties have supported this new legislation in the mistaken belief that it will reduce the cost associated with renting for the more than 5 million voters who rent their homes from private landlords.

This new law comes hot off the heels of the 3% stamp duty surcharge levied on landlords when they invest in a new buy to let property, and the tightening of tax laws that no longer allow landlords to off-set mortgage interest payments.  These changes have already undermined landlord profits prompting many to sell properties, reducing the number of private rented properties available for tenants at the very time that demand for such homes is at its highest-ever level. 

The ban on tenant fees will further increase the costs borne by landlords, further eroding their returns, and will prompt even more to sell their properties, further reducing supply.  There is already evidence emerging from London that indicates that house prices are falling, but rents are rising at a higher rate than inflation.  Why?  Because the reduced availability of private rented properties at a time of peak demand is driving up rents.  Simple supply and demand economics!

With the government bashing Oxford landlords, they have just 3 choices if they are to protect their returns: 1. sell their property and target investment return from other assets; 2. Increase rents to cover their increased costs; or 3. Change their portfolio to achieve the enhanced returns that HMO properties offer.  The first will exacerbate supply constraints causing excess demand to push rents higher.  The second will further increase rents.  The third, will distort the supply of 3 and 4 bed family homes to rent, causing additional supply constraint in parts of the housing market.

As normal, Government intervention in the market is having unforeseen consequences – although this blog and many others warned of them as the legislation was drafted and debated.  Far from making private renting more affordable for tenants the banning of a one-off fee of £275 to £300 will result in higher monthly rents which in turn will make passing rental reference checks harder, and security deposits larger.

Without a massive increase in the supply of new affordable starter and second homes in Oxford, house prices will force many people to rent.  The properties being sold by landlords exiting the Oxford market will continue to be unaffordable to young couples and many families.  Whilst Brexit is having a drag on property sales, to date Oxford prices have held firm.  The only solution is to increase the supply. 

Until then, Oxford needs private landlords, and should create an environment that values high quality rental properties provided by good landlords and which recognises the vital role they play in the City’s housing market.  Without the private rented sector, people will be forced out of Oxford to Bicester, Abingdon, Didcot and Kidlington.  In turn increasing commuter journeys, worsening road congestion and pollution in and around the City.

Fighting against the rising tide

The rising tide of legislation impacting landlords shows no sign of abating.  Just as global warming is causing sea-level to rise, lettings legislation is causing landlords to drown.

From mandatory HMO licencing, to mandatory information for tenants and minimum EPC standards the burden of rules is ever-increasing.  It is now all too easy for good self-managing landlords to forget something and find themselves in breach of their obligations.  For others, they are being let down by their agents, who have not kept up to date themselves.

The most recent example of this is was recently reported in Property Industry Eye which reports that landlords inadvertently granting assured tenancies rather than the Assured Shorthold Tenancies they had intended.

It means that they will always be unable to use Section 21 notices for repossession.

Judgment in a court case last year has led to what could be ‘thousands’ who thought that they had complied with the law – but now find that they haven’t.

Furthermore, attempts to put right a simple administrative error would be out of the question.

In last February’s case, Caridon Property Ltd v Monty Shooltz, it was ruled that a landlord who failed to give the tenant a current gas safety certificate before the start of the tenancy, could not put it right by issuing it after the tenancy began.

The judge ruled that under the Deregulation Act 2015, failure to issue a gas certificate before a tenancy begins invalidates any subsequent Section 21 notice. The mistake cannot be corrected.

In Caridon Property Ltd v Monty Shooltz, District Judge Bloom ruled that because the tenant had only been served a gas safety certificate 11 months after the tenancy began, a prescribed requirement had not been complied with.

The landlord had served a Section 21 notice on the tenant, but the Judge ruled this invalid.

Normally, rulings in county courts are not treated as binding or as legal precedents. But it is reported that the ruling in Caridon Property Ltd v Monty Shooltz is likely to be considered definitive by other courts.

Until the case, landlords – and agents – who had failed to issue a gas safety certificate at the prescribed time, would do so later before serving a Section 21 notice.

Following last year’s case, the legal community and landlord bodies had widely expected the Government to address the issue by amending the AST and Gas Safety Regulations, arguing that it had never been intended to impose such draconian requirements on landlords.

Many self-managing landlords’ will be well advised to appoint a reputable letting agent that is a member of a professional body such as The Association of Residential Lettings Agents (ARLA) so that they are properly advised and through their agent ensure that they remain on the right side of the law.

It seems that Government just can’t stop meddling in the buy to let sector – the abolition of mortgage interest rate relief, the ban on fees charged to tenants, ever-draconian requirements of landlords to protect tenant interests.  None is well considered, do nothing to improve the market but do appeal to the 5million voters who privately rent their home.