What can be learned from the 2012 tenant fee ban in Scotland?

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Letting agents in Scotland are unaffected by the upcoming fee ban legislation making its way through Westminster but we are well aware of the implications and get a sense of the shockwaves reverberating across the sector south of the border. A tenant fee ban is old news in Scotland because in 2012 it became illegal for Scottish agents to charge the tenant anything but the rent and a refundable deposit. When the Scottish fee ban was introduced, agents were charging on average less than £100 compared to the average tenant fee in England of over £300 so in this sense, Scottish agents felt less of a loss than our English counterparts, but we still felt the loss of this revenue and had to adapt.

What happened when fees were banned in Scotland?

The first thing we did was increase our fees to our landlords and we explained why. The tenant fee ban in Scotland coincided with the introduction of the Tenancy Deposit Schemes (TDS) where, as the agent, we no longer held the tenants deposit and we were no longer in a position to decide how dilapidations would be paid for at the end of the tenancy. The introduction of TDS increased the amount of work we had to do administering a deposit deduction at the end of the tenancy and we had to adapt our processes accordingly (this led to changes in our inventory, inspection, end of tenancy and client accounting processes). This double-whammy of the fee ban and the introduction of TDS saw many letting agencies exit the market and started bigger agency consolidations such as the one led in Edinburgh by Lomond Capital. Due to these legislative changes, the Edinburgh sector changed in 2012 and there are fewer, but larger agencies now as a result.

How did agents adapt?

For the letting agencies that remained, they had to adapt. The lost income was somewhat replaced by fee increases to landlords and rents continuing to rise. Even though less agencies remained in the market, competition seemed to increase as the remaining agents raised their game and got more out of their businesses. The use of new technologies became more prevalent as did the trend of letting agencies offering new add-on services such as maintenance departments, investment services, holiday letting, insurance services and tenant utility tie-ups.

Will it be a similar story in England?

I believe it will. Over the next few years, I expect some letting agencies in England to exit the market leaving fewer, bigger agents in the market – the PRS is expected to keep growing after all.

Agents will adapt their pricing and their services to reflect the new market conditions. Agents will have to adopt new technologies and solutions quicker and their businesses will be the better for it. Tenants and landlords will eventually benefit from this as the agents left in the market will have to improve at a faster rate.

There will be more diversification and new revenue streams for agents such as financial services, holiday-letting, block-management and tenant utilities.

In Summary

If what happened in Scotland is anything to go by, the fee ban in England (plus the upcoming CMP legislation) is going to have a significant impact on the private rental sector and agencies will need to adapt quickly to prosper. This is a great opportunity for the best prepared letting businesses.

Neil McInnes

Managing Director, Umega Lettings 

www.umega.co.uk

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