MPs back ban on tenant letting fees

Housing Minister Phil Twyford said letting fees were unfair and had no economic rationale.

A ban on letting fees for tenants could be in place as early as December to protect renters during the peak summer period.

Under the present legislation, landlords can charge one-off letting fees, with no maximum, ostensibly to cover tenancy-related costs like viewings and background checks. However, they often charge a full week's rent, regardless of what the costs were.

Parliament's social services and community select committee recommended implementing a ban on December 12 so as to cover the seasonally high period of turnover among rentals between November and February.

"Our amendment would help to maximise the reduction in costs for tenants who sign up for new tenancies over the peak period," the report said.

The coalition government has a majority on the committee and recommended the House pass the Residential Tenancies (Prohibiting Letting Fees) Amendment Bill, which shifts the letting fee burden to the landlord rather than the tenant.

The committee, chaired by Green MP Gareth Hughes, also recommended the government consider introducing a regulatory regime for letting agents and property managers, as part of its wider review of residential tenancy law.

"We were concerned to hear about property managers checking potential tenants' bank statements and to learn that nothing in the act prohibits this," it said.

Opposition National MPs issued a minority view opposing the bill, saying it failed to recognise that costs will spill over into increased rents.

"The unintended consequences could be that landlords charge more weekly rental than they otherwise would and/or that landlords decide to quit the residential rental market and either sell, or turn to long-term Airbnb for the property, thereby avoiding all obligations of the Residential Tenancies Act," they said.

"An alternative is to make letting fees more transparent so that an actual fee for service could be charged."

In the bill's first reading, Housing Minister Phil Twyford said a ban on letting fees could save renters up to $47 million a year, and that the charges were unfair and had no economic rationale.

Ministry of Business, Innovation and Employment officials accepted there was a risk of fees being passed on to tenants, but said it would be easier for tenants to pay a higher rent than find a single upfront payment.

Consumer New Zealand supported the ban in its submission on the bill, saying letting fees make it difficult for some tenants to move, even if their rental is substandard or in a state of disrepair.

The New Zealand Property Investors Federation opposed a blanket ban, instead preferring a restriction on property managers from charging a letting fee to tenants when they're tasked with finding a casual tenant and imposing greater flexibility and transparency around payment.

The Real Estate Institute also opposed a blanket ban, saying regulating the property management industry would be a more effective intervention. The real estate agent industry group has held that position for more than 15 years, saying property managers aren't capable of self-regulation as an industry, and that legal recourse is expensive.

"In order to introduce measures that would have a significant effect on improving fairness for tenants in the rental market, we submit that urgent steps need to be taken to regulate the property management industry," REINZ said.

As well as reviewing residential tenancy law, Twyford is also consulting on the minimum health standards for rental properties.