With the Tenant Fees Act coming into effect on June 1st, many estate agents are scrambling to find ways to keep their business afloat in a post tenant fee world.
Over the next few weeks, we will be publishing a series of interviews and articles focusing on the upcoming tenant fee ban and finding out how it affects agents, landlords and tenants alike.
Our second exclusive interview is with leading North East estate agent and property management firm Daniel Craig, who we previously featured last month In our extensive interview, we learn from Director Daniel Gibson about the firms unique approach to the Tenant Fee Act and their strategy to keep their business profitable after the ban comes into play; over the course of our conversation, we also focus on the ways in which their business model is changing in today’s always-online driven economy.
Residential People: Could you describe your journey and how you become involved in the property sector?
- Daniel Gibson: I originally started as a landlord, and built my own multi-million-pound portfolio. I set up Daniel Craig Residential around 7 – 8 years ago and I have run that ever since. Daniel Craig Residential now has over 1,000 properties on our books, we cover the whole of the market from luxury executives new builds and conversions, to low value/high yield housing, working from one central office but cover the whole of North East. Recently we have just completed a £3.5m Grade II listed building in Durham for 12 apartments, and we are just breaking ground on a new £6.5 mil project in Newcastle this June.
RP: You’ve mentioned previously that landlords with Daniel Craig Residential won’t be affected by the Tenant Fee Act, could you elaborate on this more?
- DG: Depending on the location of a property, we occasionally have other agents managing some of our own portfolio for us, and since January this year we have been receiving letters from various agents that basically say “The Tenant Fee Ban comes in on June 1st, so we can longer charge your tenant, as a result (of this) your fee as a landlord will be doubled”.
Admittedly, some of these agents have increased their fees by smaller amounts eg. 10% to 12% but one way or another, their losses are being passed on to me as a landlord. From a landlord point of view, we have had numerous taxes on landlords and license fees come in that make it harder for us as landlords to make money.
Through all of this, there has been no help from the agencies who have managed our properties. So with my letting agent hat on, I thought if I send this out to my clients – many of which aren’t cash-rich landlords- I would be making their situation a lot harder and would potentially lose their business because they would say “well, we can’t afford to keep the property” as we are being hit by charges too many times, and it would be more cost-effective to simply sell or manage the prop by ourselves.
What a lot of people don’t realise is that not all landlords make millions of pounds; while a lot of our landlords have 2 or 3 properties, we also have landlords who just have one property that they own because they can’t afford to sell it as they’ll lose money. A lot of these landlords can struggle, and they’re not living fancy lifestyles, so I know that if I went out to these clients and said: “we are increasing our fees”, then we would lose them for good.
RP: You’ve mentioned previously that Daniel Craig “were embracing new technology”, could you elaborate further on this?
- DG: At Daniel Craig Residential we’ve gone outside of the box and instead of increasing our fees – (DCR currently charge a standard rate of half a months rent for let fees & 10% for a monthly management fee)- we pledged that our fees will remain the same, meaning that we have had to find other ways to make up for the loss of income from tenants.
DCR often works with investors, and so we’ve recently taken a big push on social media and trying to connect to new investors who are looking to invest in property, and we are also taking our company down the route of working with investors to develop and build portfolios to increase their holdings.
We have had a very good response with several investors looking to invest with us, and through our press releases, and interviews like this, we are sending a clear message that not every agent is simply passing these fees onto landlords.
At DCR, we’re looking at ways to make ourselves more efficient and change our training standards, so that we can absorb those costs. One of the ways we’ve found is investor workshops, while another is an educational route we have gone down with some of our landlords, offering classes on certain aspects of the market which means that our ‘let only’ landlords get more benefits from our services in different ways.
Along with educational classes, we also looked at our outgoings; because we only operate as a high street agent from one location in Newcastle, we don’t really need our high street office. The footfall in our office has gone down, and the majority of our business comes from the internet, so as a result, we are halving our overheads by moving into a serviced office block, which has taken the strain of renting a shopfront.
In addition to moving, we have invested in technology, and our company is entirely cloud-based. We can do a tenancy agreement with a landlord in London or manage a property for someone in Australia, Dubai etc – so there’s no need in this day and age for us to have that expensive (shopfront) presence. In addition, this also means that our staff time is made more efficient as the system does a lot of their manual work, so instead of needing 3 or 4 people to manage 100 properties, you can have one person manage the system instead.
Along with streamlining and cloud-technology, we have just rebranded our website to be mobile-friendly which has increased the volume of business we receive and the number of inquiries has gone up dramatically – this again is a big bonus for us and shows that embracing that technological side can help to save those costs and ultimately save the business.
We’ve looked at this (the business post Tenant Fees Act) as a whole, and we haven’t just thought ‘we lost this fee where can we grab it back from’, we have actually broken down our whole business and built it back from the ground up, while analysing the way in which we were doing things.
RP: In regards to embracing technology, roughly how much of your profit is taken up by your portal fees?
- DG: I can’t give an exact figure, but there are very high costs for portals and Rightmove in particular, and if we could find a way to avoid them we would. We are advertising on FB market place and other similar portals, but we haven’t found a reliable way of moving away from those mains portals yet.
RP: If you were a tenant how would you feel about the tenant fee ban?
- DG: I rented for quite a long time while I was building my own rental portfolio, so I did get quite a good perspective from that angle. I’ve mentioned to a few family friends that they may as well wait until June (when the Tenant Fee Act becomes law) to move because you’ll save money in administration fees. In general, the laymen’s approach is ‘this is brilliant, we’re gonna save lots of money’ and it must be noted that some agencies do charge huge fees.
My personal approach towards the tenancy fee ban was that it was justified, but it should have been a reduction or a cap on admin fees rather than a blanket ban. As an estate agent, we have suffered a lot from those agents who charge huge fees. For the average tenant, they’ll believe that this is going to be a huge benefit and save them a lot of money… I don’t think that this will hold true in the long-term as I think there will be lots of knock-on issues in the private rented sector because of the fee ban such as the increase of rent.
Ultimately I do think rents will be impacted, but the bigger impact will be the poorer service tenants get (through the bankruptcy of a lot of letting agents and landlords managing themselves). Next year is going to be the biggest change in the private rented sector that I have ever seen. I don’t think Brexit will affect the market as much as the tenant fee ban. You will get landlords being fined and loosing houses over minute mistakes, I personally believe this will lead to a very poor private rental sector and a lot of landlords leaving.
RP: Do you feel that the penalty charges are excessive?
- DG: Yes. [The fees] are just insane. I have been to talks, and I have watched landlords when they’ve heard what they could be fined, and they are utterly shocked. I feel that the system is becoming very litigious if you make one small mistake the penalties are extreme.
RP: What are your opinions on organisations such as ARLA lobbying the Tenant Fee Act? Do you think they did enough to protect estate agents?
- DG: I don’t believe that the government care about the landlords perspective, and are treating the landlords as cash cows.The government are failing to meet their housing quotas for new build housing, and I think many of the purpose-built student accommodations have been built to tackle this issue to free up family homes, I also think we are about to see a lot of them (which are currently empty due to lack of demand) be converted into new affordable housing developments to further fill the gap. I believe that the government is ultimately trying to force landlords out of the market in order to allow more people to become homeowners, despite the fact that private landlords provide 20% of the properties in the UK.
Bodies such as ARLA charge very high fees to become members, and ultimately I don’t believe their positions or opinions on these things are considered by the government, so I have very little time for ARLA to be honest. I enjoy their news articles and updates on the industry, but I have been to places where people are fighting against licensing schemes, I’ve also signed the objections and shared links to all agents I know to try and prevent or appeal the ban, and nothing makes a difference. I’ve focused less on worrying about what is happening, and more on dealing with the impacts of what is to be introduced and adapting my business, the fact is the government will ultimately do what they want anyway.
RP: Do you think that there is a chance that agents lobbying will cause the Tenant Fee Act to be amended at a later date?
- DG: No, from what I’ve seen there has been very little listening to reason if anything, the
stuff I have seen has been very much unreasonable, and it’s been like using a sledgehammer to crack a walnut.
Ultimately landlords are always going to be looked at negatively because the majority of people in the UK rent, or aren’t landlords themselves, so I believe the personal position of landlords is overlooked.
I know this sounds a bit defeatist, but I don’t believe the petitions, and the events that I’ve attended are working, ultimately the government is not listening. They have put in a proposal for the tenant fee ban without consulting with anybody and waited two years to introduce it because they knew it would slip through. A lot of agents have landlords who aren’t even aware of the change or have not planned accordingly for the tenant fee act.