One Week rent as reservation fee for landlords is not enough
One Weeks Rent as a Reservation Fee is not Enough
For some time now, us landlords have been limited to charging just a one week Reservation Fee, once we have agreed to let to a tenant.
This is too low as we recently found out – and it increases the risk a tenant will change their mind and walk away leaving us with a void, (an empty property), that could easily be four weeks long, before we find another tenant.
As noted in other posts, we use the OpenRent online letting agent to get our adverts to let up on Rightmove, Zoopla and the other portals. We then screen all the enquiries that some through, do the viewings, referencing and affordability/ID checks, tenancy agreement signing and all the other multiple bits of admin. We are very “hands-on” landlord.
Over the last year, we have been very busy with a higher level of tenant churn at our mid-market South East London properties, which has been caused by the Plandemic, making people assess their priorities about where they want to live.
Some observations from our recent experiences are as follows:
I like OpenRent, who we have just started using, but I don’t like the Tenant Screening tool they impose on us landlords when they think we have had too many enquiries. I would like to be able to say, “No” to that. But it appears to be “baked-in” to their systems, “Computer Says No” style.
95% of our enquiries come from people who are non-UK passport holders. Despite the fears of mass exodus, it is clear that many have stayed, taking furlough and not going back home. The main countries they hail from are in order: Poland, Lithuania, Romania, Slovakia, Bulgaria, Spain and Italy. Less than 5% of these are on benefits. Of the 5% of the enquiries which come from people with UK citizens, 75% need benefits to help pay the rent.
Rents are down 15-18% in our more central London properties compared to pre-Plandemic times. They are unchanged a little further out, in Zones 2/3. And they are about 5% higher in the outer London fringes and in the outlying Kent towns.
Once we have completed all our checks and made an offer to a tenant, we, of course, want them to commit to taking our property. The actual move in date could still be two or three weeks away if the current tenants are still in occupation.
Some years ago a new law was passed requiring landlords to only charge one week rent as a Reservation Fee, (we used to charge 3 weeks). But this means the risk increases that a tenant can change their mind for any reason. They only risk losing a weeks’ rent, if they walk away at the last minute!
Well, this finally happened two month ago – with the incoming tenants telling us, by text, that for “personal reasons” they were not going to be moving in, after all. This was six days before they were supposed to move in.
Luckily, on this occasion, we found another lovely set of tenants who were very flexible, who could move in in just eight days time and whose references and other checks were all fine.
One Week Reservation Fee Increases Void Risk
But I cannot always expect to be so lucky. Normally, most decent tenants have to give at least 4 weeks notice, so we could well have been facing a 4 week void as a result of the first tenants walking away. So 4 weeks void less the one weeks rent as Reservation Fee we kept, would leave us three weeks out of pocket.
Whoever in government had the daft idea that us landlords can now only charge a one week Reservation Fee fails to understand how our market works.
So, now, after this recent experience, we have changed our policies and procedures.
Back in the old days we would actually ask for 3 weeks rent as a Reservation Fee, with the balance of the first months’ rent and the deposit of 5 weeks payable on signing the tenancy agreement (on move in day). We have been forced to abandon this.
Going forward, as soon as we make an offer to a tenant, we will be signing the tenancy agreement the very next day (even if the start date is still 3 or 4 weeks away) and we will require the first months rent and deposit in full that very next day too.
Thus, the tenant has their cash flow hit, but it is the only way that we can work and avoid getting a tenant walking away at the last moment.
I will bet I’m not the only landlord who has changed procedure in the face of this one week Reservation Fee law, which has also ultimately backfired on tenants too.
Stupid laws often have unintended consequences. This did!
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