How do you handle the Tenant Fees ban?

[kelbol]

Now that LL can't charge for on-boarding fees such as inventory and credit checks, how do you handle these fees?
Do you absorb them? increase the rent? Ask tenants to turn up with their own credit checks in hand?

I found asking potential tenants to pay a (reasonable) fee for a credit check helped get rid of time wasters.
If I have to pay for all these credit checks, it's going to become expensive.
I don't think it's that easy to increase the rent either as it may end up too high.

I didn't read the exact wording of the legislation but the gist seems to be to avoid tenants to pay fees.
But they are not tenants until they sign the AST, so a credit check fee prior to that is not a tenant fee, just a fee.
I'm sure though that lawmakers have thought about this, a bit too obvious...

[JK0]

Presumably, the only problem arises if someone you charged a fee to becomes a tenant? I wonder if you could reimburse the successful applicant, but not the others?

[islandgirl]

What if you charge at cost (which is what I do anyway?) ie no profit for me and tenant pays the company themselves

[jpkeates]

...they are not tenants until they sign the AST, so a credit check fee prior to that is not a tenant fee, just a fee.
I'm sure though that lawmakers have thought about this, a bit too obvious...

They have:

“tenant” includes—
(a)a person who proposes to be a tenant under a tenancy,
(b)a person who has ceased to be a tenant under a tenancy,
(c)a licensee under a licence to occupy housing,
(d)a person who proposes to be a licensee under a licence to occupy housing, and
(e)a person who has ceased to be a licensee under a licence to occupy housing;

What if you charge at cost (which is what I do anyway?) ie no profit for me and tenant pays the company themselves

That's also a "Prohibited Payment"
You can't require a tenant to pay a 3rd party or enter into a contract with a 3rd party.

Which I think rules out asking them to turn up with a credit report of their own.
Plus, the credit report would have a lot more information than you'd get from a normal credit check (and is also susceptible to being changed).

The legislation is quite well thought out in terms of what it's intended to do.
Which is shift the cost to the landlord.

[boletus]

From the government's site;

You may ask a tenant to provide information which supports you to carry out a reference check, such as:
• bank statements – to assess a tenant’s income and ability to pay rent
• a reference from a previous landlord (you cannot ask a tenant to pay for this)
• proof of address history (usually up to 3 years)
• details of current employer – an employer can verify a tenant’s income and confirm whether they are trustworthy, reliable and honest

There are several third-party organisations, including agent and landlord associations, which will carry out professional referencing checks for you at a small cost – typically a full tenant reference check should cost no more than £30. You could also pay a small fee to check the Register of Judgments, Orders and Fines to see whether a tenant has received a County Court Judgement (CCJ) in the last six years. A CCJ is a judgement that a county court issues when someone has failed to pay money that they owe - a CCJ could indicate money problems or trouble paying bills. You should not rely wholly on this information alone as tenants may be fully able to meet the terms of a tenancy even if they have a CCJ. You can also search the bankruptcy and insolvency register for free – this will tell you whether a tenant has gone bankrupt or signed an agreement to deal with their debts in England and Wales.

You can also ask leading questions such as;
Why should I let my property to you?
I carry out a full credit check on all tenants, is there anything untoward I might find with you? And are there any mitigating circumstances that explain it won't be a problem going forward?
What's the most amount of debt you've ever had?
Is your credit rating good?
Would you qualify for a mortgage?
Have you ever used payday loans or been refused credit?
What is your Experian/Equifax/etc credit rating like?

And I obviously bung my rents up as much as the market allows, all this comes at a cost and I'm not paying it.

[leaseholder64]

My impression is that the aim is not so much to shift the cost onto the landlord as to avoid an effectively forced single tender situation, and therefore make the market work. I think that is is clearer in relation to the end of the tenancy. You cannot insist that the tenant use your cleaner, but you can insist that the property be well cleaned. That leaves the options of spending their own time or finding a professional cleaner, in a competitive market.

Referencing is rather more difficult, because there isn't really an option that doesn't involve taking out a contract, and I suspect that there will be case law clarifications. However, arguably, referencing is for the benefit of the landlord, so it seem reasonable that the costs come from the profits.

Incidentally, a side benefit, for public policy, seems to be that it will encourage more security, because it will increase the cost to landlords of copping and changing tenants, or assuming there is some uplift in rents, increase the profits of those landlords that keep tenants for a long time. The latter also puts market pressure on the landlord to treat the tenant well, so it isn't the tenant that is doing the chopping and changing.

[boletus]

Point to note;

You could also pay a small fee to check the Register of Judgments, Orders and Fines to see whether a tenant has received a County Court Judgement (CCJ) in the last six years. A CCJ is a judgement that a county court issues when someone has failed to pay money that they owe - a CCJ could indicate money problems or trouble paying bills.

If someone has a CCJ against them for being evicted for rent arrears it is highly unlikely to have been entered on the CCJ register.

[JK0]

From the government's site;

[B]You may ask a tenant to provide information which supports you to carry out a reference check, such as:
• bank statements – to assess a tenant’s income and ability to pay rent
• a reference from a previous landlord (you cannot ask a tenant to pay for this)

Who is is not allowed to ask a tenant to pay for a reference though? The person losing a tenant? Then why would he give one at all?

[kelbol]

The spirit of the law is to stop these excessive fees. Asking tenants to turn up with their own credit report/check which they can get for free or for a small fee is not against the spirit of this law. I wouldn't want to be the first one to try it but I hope to see this being allowed in the future.

It is inevitable that landlords are now going to try to pass on these costs into the rent as much as possible, If all or most landlords do this, then tenants won't have a choice of looking elsewhere.

[jpkeates]

My concern is that an inadvertent side effect of the ban will be that tenants with no hope of passing a credit check or affordability test will try it on (for multiple properties) in the hope of finding a landlord or agent who won't carry out the checks with any diligence.
Which increases the cost of acquiring a tenant.

That aside, if a landlord's rental business can't take the cost of a credit check (or even a few) and a slight increase in admin or the fees paid to an agent/check, the business isn't in anything like the right shape.

[boletus]

However, arguably, referencing is for the benefit of the landlord, so it seem reasonable that the costs come from the profits.

Incidentally, a side benefit, for public policy, seems to be that it will encourage more security, because it will increase the cost to landlords of copping and changing tenants, or assuming there is some uplift in rents, increase the profits of those landlords that keep tenants for a long time. The latter also puts market pressure on the landlord to treat the tenant well, so it isn't the tenant that is doing the chopping and changing.

Good tenants now pay for bad tenants, long term tenants now pay for short term tenants, doesn't seem reasonable to me.

It's a fallacy that landlords chop and change tenants, it is both expensive and time consuming. If a landlord has evicted a tenant and replaced them with another, there will be a good reason for it.
-And it won't be to increase the rent, there is a perfectly adequate section 13 procedure for that.

[boletus]

My concern is that an inadvertent side effect of the ban will be that tenants with no hope of passing a credit check or affordability test will try it on (for multiple properties)

Yep, nailed it there. It should have been a low cap rather than a kneejerk outright ban.

On the bright side, I'm looking forward to sharing in the profits of the large chain estate agents who were the main culprits of this.

[jpkeates]

It's a fallacy that landlords chop and change tenants, it is both expensive and time consuming.

I believed this (and argued it) until someone showed me a map correlating the areas of the country with the highest rent increases per annum and the highest number of s21 notice based possession hearings.
The correlation was uncanny (although the regions with high rent tend to be areas with a lot of people).

I think that what happens (broadly) is that some landlords increase the rent until the tenant can't afford another increase and then serve notice to the tenant.
Most tentants given notice who have been able to afford an already high rent will move out without a court hearing, and some of those that don't go to court.

In my part of the world (the West Midlands) rents don't increase at anywhere near the rate that they do in (say) London and Cambridge and aren't as high to start with, and, for me, the cost and void period would wipe out the benefit of a rent increase for a long time.
To the point where the idea had never really occurred to me as a possibility.

But a 10% annual increase on a monthly rent of £1500-£2000 plus per month changes the economics.

[AndrewDod]

Good tenants now pay for bad tenants, long term tenants now pay for short term tenants

^^^ That's the crux of the thing. And marginally risky tenants won't get tenancies at all. I certainly won't bother going through hoops. A 20% increase in rents across the board would balance the risks for me -- obviously that won't happen in a single step, but it is the net long-term effect.

[JK0]

Even for my London property, I cannot imagine a situation where it would be to my advantage to kick them out to replace with others paying more rent. The place is going to look tired when tenants move out, and the last lot of interior decorating cost £10k, and took a month. New carpets also would be about £5k. Then it will probably take a further month to find new tenants. It would have to be a hell of an increase to make that worthwhile JPK. I think maybe you misinterpreted the figures.