Tenants helped by clarification of law on fees may instead be hit by rent hikes

Experts have predicted rent increases of up to £25 a month, with the move on fees coming as a new deposit protection scheme threatens to create new costs for landlords that could feed through to rental prices.

The warning came after the Scottish Government this week clarified rules set out in the Rent (Scotland Act) 1984 concerning the fees that letting agents can and cannot lawfully charge. Landlords and letting agents are only allowed to charge rent and a refundable deposit, but tenants have often been forced to pay fees covering costs including credit and reference checks and inventories.

The move follows a consultation on how to deal with illegal and unfair charges.

Keith Brown, the housing minister, said: “As a result of this consultation, we will make it crystal clear to tenants, landlords and their agents that all premium fees, over and above rent and a deposit, are unlawful.”

The Scottish Government believes that while most letting agents have abided by the rules, others have treated tenants unfairly.

However, Shelter Scotland has claimed that up to 90 per cent of letting agents have charged “extortionate and unlawful” fees. The housing and homelessness charity’s Reclaim Your Fees campaign, launched earlier this year, has already attracted more than £100,000 worth of claims from tenants seeking to recover fees they felt they were charged illegally.

It revealed that it has seen a 15 per cent increase this week in the number of people visiting its www.reclaimyourfees.com website in an effort to recover their money.

Gordon Macrae, head of communications and policy at Shelter Scotland, said: “The numbers speak for themselves and go to show that charging excessive and unlawful premiums is endemic in the sector. This must now stop.”

Tenant campaigns also welcomed the move, including the Edinburgh Private Tenants Action Group.

Spokeswoman Alyson Macdonald said: “We don’t believe that the existing law was unclear – the Rents (Scotland) Act 1984 states that a landlord or letting agent may not charge a tenant for anything other than their rent and deposit – but that it has been deliberately ignored by letting agents because they discovered that they could get away with it.”

Low-income tenants will particularly benefit from lower upfront costs, she said.

“It can be difficult for those on low incomes to find the extra money to pay fees that can exceed £100 per adult, in addition to a deposit and advance rent payments, when they need to move home.

“Even good tenants can be asked to leave a property at two months’ notice, so some can be forced to move every few years through no fault of their own.”

The move comes as a new Scottish tenant deposit system beds in. The scheme, which began operating in July and with which all landlords must comply by November, means that any deposit given to a landlord must be transferred to an approved scheme within 30 days of the start of the tenancy.

Landlords have to provide the tenant with confirmation of the amount paid in deposit and the scheme in which it is held. The money will be held by the scheme administrator in an account set up for the purpose, with disputes over withheld deposits being settled by an independent dispute resolution service.

The rules come into force five years after a similar system was introduced south of the Border, where deposit schemes now protect more than £2 billion in deposits.

But faced with the costs of complying with the scheme – such as more detailed inventories – landlords and letting agents may simply increase rents.

The clarification of the charges they are allowed to levy may mean that is increasingly likely, according to David Alexander, owner of letting agency DJ Alexander. He believes it is inevitable that landlords forced to pay for services previously charged to tenants will recover those costs through higher rents.

“Indeed, this new legislation could end up costing tenants more than it does at present because the one-off charge will be replaced by a higher monthly rental over the entire length of each new lease signed,” he said.

He predicted that the average rent would rise by between £10 and £25 a month as a direct result of the impending legislation, depending on the type of property and the location.

Colette Murphy, director at Edinburgh letting agency Braemore, agreed that tenants could ultimately pay the price for the changes meant to help them.

She said: “The implications for the market can only be increased rent levels as agents and landlords will require to cover the added costs. Fees to reference tenants may be passed on to the landlord, who will look to recoup them through increased rent levels.”

The new deposit rules could also force some landlords out of the market – with further implications for tenants, said Murphy.

She said: “Given the wider regulatory changes on their way, this could potentially result in landlords struggling and leaving the market place and selling their investment. This is not the desired result when there is a shortage of housing which is expected to be filled by the private rented sector. Again, less stock equals increased rents.”

Rents are already on the rise in Scotland, thanks largely to increased demand from would-be buyers frozen out of a moribund housing market.

However, Macdonald at Edinburgh Private Tenants Action Group said landlords and agents should absorb the new costs.

She said: “We hope that it will give them more incentive to provide a good service and perhaps even longer leases, rather than maintaining a high turnover of tenants.”

The tenancy deposit scheme has also given rise to an increase in illegal check-out fees, with some letting agents in Scotland charging tenants up to £500 just to ensure they get their deposit back when they leave the property.

If you have been asked to pay a check-out charge or have already paid one, call Shelter Scotland’s free helpline on 0808 800 4444 for advice.

Tenants need to be on their guard for unscrupulous letting agents and landlords seeking to circumvent the new deposit requirements and the clarification of charges.

Marieke Dwarshuis, director of Consumer Focus Scotland, said: “An important next step will be making sure that prospective tenants know about the new rules so they can secure the keys to a new home without worrying about being ripped off by extra charges.”