Clarification of the Rent Act could cost Scottish letting agents up to £125 million

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In August, Shelter Scotland announced the success of their ‘Reclaim your Fees’ campaign, which resulted in a promise from Scottish ministers to clarify the law with regards to the illegality of letting agent fees.

The Rent (Scotland) Act stipulates that it is an offence to charge fees or make them a condition of protected tenancies. The Housing (Scotland) Act 1988 extended this provision to assured tenancies.

After a public consultation the Rent (Scotland) Act 1984 (Premiums) Regulations 2012 came into force on 30 November, making it clear that any ‘premiums’ (as defined by the Private Renting Housing (Scotland) Act 2011) as “any fine [or] sum… other than the rent, [including] any … administration fee or charge”) could not be charged, although it is still acceptable to levy a refundable deposit.

Shelter Scotland claims that 90% of Scottish letting agents were flouting the 28-year-old law and charging illegal fees to tenants. As part of their campaign they urged Scottish tenants to reclaim said fees; if refused, a small claims court will consider cases dated within the last five years.

Almost £280,000 has already been reclaimed by some 1,500 tenants; it is anticipated that, with 700,000 private tenants in Scotland claiming, the full cost to agents might be as much as £125 million.

Head of Communications and Policy at Shelter Scotland, Gordon McRae, said:

“Some letting agents have been trying to attract custom from landlords by cutting their fees and moving the charges on to tenants. In some circumstances, they have been charging both tenants and landlords.”

This has significant implications on the manner in which Scottish agents will attract business. Managing Director of Martin & Co. Ian Wilson commented:

"“Agents will no longer be able to discount tenant fees in order to pull applications towards them. The agents with the best selection of properties, presented to the highest standard on the most visible websites, will attract more than their fair share of the available tenants.”

Wilson also predicted that landlords would face higher costs as a result of the lost revenue, and that rents would consequently rise.

This news comes as Rightmove releases the results of their latest Consumer Confidence Survey, which shows that 61% of landlords are planning not to raise rents in 2013.

Rightmove’s Director and Housing Market Analyst, Miles Shipside, said:

“…the majority of landlords now seem to be prepared to exercise constraint and are planning a ‘rent freeze’ for 2013. Lettings agents still report consistently high demand but more are warning landlords of the risks of squeezing tenants’ finances too hard.”

Whether or not the recent revelations in Scotland will change this North of the border, and what implications they have on the rest of the UK, is currently uncertain.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.

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