Charging of Premiums in the Private Rented Sector - Analysis of Consultation Responses

Executive Summary

Introduction

Although it was intended that existing legislation should prevent charges being applied to tenants other than rent and a refundable tenancy deposit, evidence suggests that additional charges are being made to tenants.

The Private Rented Housing (Scotland) Act 2011 will change the law on premiums in the private rented sector. Firstly, it will amend the existing definition of a premium and secondly, it will provide powers to Scottish Ministers, through secondary legislation, to outline permitted charges.

This consultation sought views on three potential options:

• embarking on a consumer focused communications exercise to clarify the definition of a premium;
• developing secondary legislation which specifies categories of sums which are permitted to be charged for providing services to a tenant, with maximum allowable amounts for each charge; and
• developing secondary legislation which specifies categories of sums which are permitted to be charged for providing services to a tenant, without maximum allowable amounts for each charge.

The report provides an analysis of responses received to the consultation.

Overview of the response

There were a total of 424 responses to the consultation, including two petitions. These included 300 responses which were submitted as a result of a publicity exercise by Shelter, of which 201 were identical responses. In addition, ten identical responses came from the Edinburgh Private Tenants Action Group (EPTAG), five identical responses from private individuals and two identical responses from letting agents. For analytical purposes, we therefore considered 210 responses.

Nearly two-thirds of responses came from private individuals and nearly one fifth from letting agents (although some letting agents described themselves as private individuals). Less than ten per cent of the estimated 500 letting agents in Scotland chose to respond. Other significant respondent groups included professional, representative or trade bodies (7%) and local authorities (4%).

Summary of responses

• Almost three-quarters of respondents (73%) supported option 1, (which would involve amending and publicising the definition of a premium through a customer focused communications exercise, in order to provide clarity). Two-thirds of all respondents (67%) indicated that it was their preferred option. However, only one letting agent and five local authorities (50%) responding identified it as their preferred option.
• For many, the key argument in favour of option 1 was that it would promote and reinforce their view of the existing law.
• Of those expressing a view, the majority felt that option 1 would have minimal impact on the sector as not all agents currently make such charges as part of their business model. They suggested that any costs incurred as a result of implementing this option would either be passed on to landlords or absorbed. Some argued that the charges currently made by some letting agents were greater than the costs involved and not charging fees would improve perceptions of the sector.
• However, others (in particular, those letting agents who responded) suggested that not charging fees could have an adverse effect, either on tenants as a result of increased rents - or on agents if they were to absorb the costs.
• One quarter of respondents (25%) supported option 2 (which would involve developing secondary legislation in order to specify charges that should not be classed as a premium, along with maximum allowable amounts for each charge), with all indicating that it was their preferred option. This was the most popular option among letting agents with around two-thirds of those responding (65%) selecting this option.
• Many letting agents supporting option 2 argued that there are legitimate charges they require to make to tenants in order to deliver an effective and quality service. Some argued that this approach was more transparent than including such costs within rents on an ongoing basis.
• However other respondents, both supporting and opposing option 2, suggested that setting maximum allowable amounts was not an appropriate task for Government and could stifle competition.
• The final option (developing secondary legislation to specify the charges without a maximum allowable amount) was least favoured with less than ten per cent of respondents indicating that they supported it. By far the most significant support for this option came from letting agents.