The government has published its impact assessment on the Renters’ Rights Bill, and letting agents may want to sit down before seeing the cost.
According to the estimates, agents will face a total bill of £391.7 million over the next decade. On a per agency basis, that’s around £1,700 per year.
To put the number into context, that’s significantly more than the £275 million cost that was estimated for the previous government’s Renters (Reform) Bill. On the other hand, it’s less than the Tenant Fees Act, which was projected to cost letting agencies almost £1.7 billion over 10 years, plus familiarisation costs.
However, the estimated cost of the new bill to agents is based on fewer tenants moving, meaning fewer one-off placement fees. But is that such a bad thing? Forward-thinking agencies may well be able to adapt their business models to beat the bill – and even come out ahead.
“Key strategies include converting let-only landlords into fully managed clients, which will shift earnings from one-off placements to monthly recurring service fees,” says Reapit’s commercial director Neil Cobbold.
“Providing value-added services such as compliance management, rent collection, and tenant communication can help mitigate the potential revenue loss associated with reduced tenant turnover and increased operational demands.”
The additional compliance burden of the bill on private landlords may also convince more of them that they need an expert agent in their corner.
How much will landlords lose?
Adjusting letting agencies’ income streams is only half the battle. Converting let-only landlords into fully managed clients won’t work if landlords quit the market due to high costs, so to gauge the likelihood of that, how much can landlords expect to pay under the new regulations?
The impact statement says let-only landlords will pay around £12 per property per year, made up of £22 per property per year in costs, such as registering for the mandatory ombudsman scheme, minus savings of around £9 per year on letting agency fees.
According to the statement, this is around 0.1% of the average annual rent, and could potentially be passed on to tenants – although if landlords move to more expensive fully managed services, this saving could be lost.
But private rented sector experts have questioned the government’s maths. The cost estimate assumes that the mandatory private rented sector ombudsman scheme will cost £6 per landlord per property, and estimates the registration cost for the new private rented sector database at £28.58 per property for three years. But by comparison, the equivalent scheme in Scotland costs landlords more than £80 to register, plus another £18 fee per property.
The impact assessment further only covers the cost of the primary legislation. Planned secondary legislation, such as extending the Decent Homes Standard to privately rented homes, will also come with costs to landlords.
Until the actual costs are published and the secondary legislation is financed, there will be no way to work out the final bill attached to the bill. However, David Smith, property lawyer at JMW, has already calledit a “gross underestimate”.
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