Jeff Salway: Fairness for tenants comes at a cost

Scottish Government reforms aimed at cleaning up the sector are well overdue, yet they are loaded with potential for unintended consequences and conflict.

Take the proposed change to laws governing letting agent charges. The timing of Shelter Scotland’s campaign against “unlawful and exploitative” fees has clearly not been picked at random.

The homelessness charity last week launched a website (www.reclaimyourfees.com) where tenants can get advice on what letting agents can and cannot charge for, plus sample letters for those seeking a refund.

Within 24 hours of the campaign kicking off, it helped more than 70 people begin proceedings to reclaim nearly £11,400 in potentially unlawful charges.

It wants to highlight the widespread charging of service or administration fees (purporting to cover credit and reference checks and even inventories), a practice that is illegal north of the Border.

Graeme Brown, director of Shelter Scotland, described pre-tenancy charges as “extortionate and unjustified” and shocking.

Is that excessive? Letting agents do incur costs during the process that they have a right to recover. The real problem is inconsistency: I’ve heard of upfront fees of almost £200 for doing little more than a credit check, whereas others have charged only a nominal fee or nothing at all.

That’s simply exploitative and unfair to tenants, who typically feel they have no choice but to cough up, at a time when the Scottish Government wants to raise standards in the private rented sector.

Shelter Scotland’s campaign comes during a consultation, ending on 28 May, on the legality of upfront premiums. That may well result in agents being allowed to charge “reasonable” premiums.

But with the Scottish Government’s new tenancy deposit scheme coming into force over the next few months, any change has to be carefully timed.

The scheme will require deposits to be held by an independent administrator and there will be a dispute resolution service to handle disagreements over deposit returns.

Landlords holding on to deposits is a major source of disputes, and complaints have risen sharply in Scotland over the last year, so the scheme is a logical step.

As always, however, there will be unintended consequences. One could be fresh rent increases as landlords pass on the costs of complying with the scheme (such as more detailed inventories and condition reports) to their tenants.

The last thing tenants need in the current climate is a new surge in rental prices, but that’s exactly what could be on the cards. That’s why the timing is all-important: allowing letting agents to legally charge service fees at a time when the new scheme is bedding in is a recipe for conflict.

Both landlords and tenants have cause for concern over the developments of the coming months.

The deposit scheme is long-overdue good news for tenants – the equivalent in England and Wales is well established and works well. However, it may well drive rents up, while some landlords and letting agents may feel the new requirements mean they are better off out of the market.

And while allowing letting agents to levy upfront fees may not please tenants, they will find a way to do it anyway and a crackdown will simply result in the costs being reflected instead in higher rents. What we need is transparency, consistency and a limit on the charges to ensure they reflect the cost to the letting agent.

These reforms could be the overhaul that Scotland’s private rented market has long needed, but they won’t be painless.