With mere days to go before the private rental sector is turned on its head, Residential People has spoken to ARLA agent and Red Brick Sales & Lettings owner Patrick Sullivan, to learn what the upcoming ban on tenant fees means for his company, landlords and illegal estate agencies.
Coming into effect on June 1st, the Tenant Fee Act will fundamentally alter the private rental sector with the elimination of fees charged towards tenants.
The new rule change will have drastic consequences for landlords across the country who will see their fees rise, as well as agents who will lose a significant portion of their income from tenants.
As part of our exclusive series of interviews highlighting the Tenant Fee Act, Residential People learned what the upcoming act means for the Coventry & Rugby estate agent Red Brick Sales & Lettings, as well as what ramifications could occur for those suspect ‘agents’ that have prospered on the back of an unregulated tenant fee regime.
Residential People: Thank you, Mr Sullivan, for taking the time out of your busy schedule to conduct this interview with us – Could you give our readers a bit of background on yourself career so far?
Patrick Sullivan: Certainly, My name is Pat Sullivan, I’m the owner of Red Brick Sales & Letting, who are a part of ARLA Propertymark. Before becoming an estate agent, I was a professional engineer for Jaguar cars for 20 years, and I’m also an ARLA member, as well as a portfolio landlord in my own right.
RP: How do you market your properties at the moment and & where do you get the bulk of your tenants from at present?
PS: We market on Rightmove, Zoopla and OntheMarket as well as on Facebook, Twitter and Instagram.
At the moment, we are at the point of not having Rightmove anymore because we are finding it outdated and old, and we get a lot more leads from Facebook.
RP: How will the Tenant Fee Act alter the property sector?
PS: Up to now, agents played on a different playing field from what I call ‘dark agents’.
There are three types of agents in operation today:
Firstly there are ARLA member or similar level agents – these cost the most amount of money to use [as a tenant] and cost more to run from a business perspective.
The second is the agents who operate off-the-cuff, they look smart, have a nice company car, nice office etc. but who really knows how legit they are?
The third and final type of agents is what I call ‘Dark Agents’ These agents are on Facebook and social media only, they don’t have websites, and those that do are not professional websites in the slightest. Essentially they’re a one-man band working from home with no compliance, no litigation, no redress schemes, no client money protection, no nothing.
RP: Don’t all agencies have to be regulated?
PS: No. While under the current UK law, every agent who collects rent on behalf of a third party must be a part of a redress scheme, dark agents often get away from this. However, pretty much every agent who operates on the high street will have this in place.
From April 1st 2019, the Client Money Protection Act came into force, which means every single person/company must have Client Money Protection (CMP) accounts as well as a CMP scheme itself. The reason for this is if you managed 1,000 properties and your rent was £600 per month, then you are collecting £600,000 per month into your bank account, which is a lot of money. For example, if you went ‘pop’ and bust, then a lot of people would be out of pocket, so the idea behind CMP is that:
A. It is in a recognised client account that the bank recognises (which many companies haven’t got – or think they have and just made this feature up)
B. You must also have one of the UK’s five recognised CMP insurance schemes.
In my personal opinion, CMP was rushed in this year because the Government recognises that between 20 -30% of agents will go bust in the next 12 months because the effects of the Tenant Fee Act will force them to close them down.
RP: You mentioned that the tenant fee ban would cause considerable problems in the industry, could you give me an example of issues you foresee arising?
PS: From my perspective – not that of ARLA – on the tenant fee ban, agents have been reducing reference fees down & down & down; and if you’re an ARLA agent then a lot of [your] hard work goes unrecognised. [As a result] Companies with no regulation and up to anyone up until April this year can just turn up and say “I’m an estate agent” get a redress scheme and website, and take away your customers. In the face of this, as a [legitimate & regulated] agent, we sort of bottled it and reduced our prices [to match the unregulated agencies] while increasing our workload.
A lot of agents relied on tenants paying their fees without question, and throughout the country, they would take one, two, three, or sometimes four fees from tenants and then keep the whole lot, which is of course really unfair.
Our policy when we did fees (we have since stopped) would be to take maybe two or three applications, and those that were the best match for a property would get the property, while those who paid fees but were unsuccessful would see their fees returned to them. However, that’s not always the case with other agents. At Red Brick, our fees have been reflective of the amount of work involved across the whole package.
RP: Are there any other effects of the tenant fee ban you wish to highlight?
PS: Another issue that I suspect, is that a lot of rogue agents -and there are lots of rogue agents- use tenants money to buy properties or to run their business.
I believe that some of these rogues have £300,000 – £400,000 in the bank and they’ll use this to find a great deal on a house to buy for cheap. They’ll then use the rent gathered by tenants to bridge it, and then remortgage or refinance the house internally and then put the [tenants] money back into their accounts – which is obviously completely illegal and is just vile. Put simply; it’s not your money, its clients’ money, and you should never be able to use it.
I also fear that agents still aren’t using the bond schemes correctly, and are in fact keeping them for themselves. There have been issues in Coventry recently were agents have been telling the landlord the rent is £500 and then their sister agent is charging tenants £1,000 and keeping the remaining £500 for themselves.
RP: What positives can we draw from the tenant fee ban?
PS: As an agent I would say that this is one of the most exciting times to be an agent as laws are changing in favour of tenants, which means that agents will have to be compliant and the same standard as I [Red Brick] am; and [agents will] have to have CMP schemes, and ultimately they’ll have to act in a professional manner to all their customers, not just when they feel like.
The Tenant Fee Act will benefit both tenants and landlords. Obviously, landlords don’t see the positives at the moment because their fees are going up, but this means it will wash out all the rogue agents on the internet and put all agents on a level playing field.
Tenants who feel that they couldn’t go near agencies because they would be ripped off will now be able to apply to properties they weren’t necessarily able to do so for before due to the money saved on tenant fees. In general, tenants will be able to come out of the dark and will be able to access better quality properties (and agents) because of the ban on fees.
RP: Do you foresee many agents losing the battle with landlords and tenants post-June 1st?
PS: I think it will be a bit a bloodbath, to be honest as I think Many agents will disappear, but it is a cull that I ultimately believe the industry has required for quite a long time.
It’s an exciting time to be an agent, but it would be nice to get rid of all the disgusting rogue agents that are around. We [Red Brick] do a lot of work every month taking bad agents properties and sorting the issues, calming all tenants and parties, so this might sound wrong but the fact that there are so many terrible agents out there, helps us to get work.
RP: The question that many renters want to know is will rents go up?
PS: Yes, I think rents will go up because landlords fees and their expenses will go up.
The big issue adjacent to this is Section 24, which will produce a big change to Income tax allowable expenses to landlords. This new ruling removes the tax allowance on a mortgage, ultimately resulting in landlords making less money.
RP: Thank you very much for the chat with Residential People today, before you go – is there anything else you would like to add?
PS: I really enjoy being a landlord, it’s good fun we get to house and help people, and the majority of people you meet are quite nice and genuinely grateful.
I also enjoy being an agent now that it’s gone more technical, legal and professional. It’s a lot more fun, but you gotta work for it and earn it. I’m also really proud to be a prop mark agent and ARLA member.
Featured Image: Aidan Biltner