The aim of an inventory (and interim and check out reports), is to protect the landlord against the results of damage or neglect and the tenant from unfair accusations of misuse or failure to care for the property.
Disputes often arise from disagreement over costs being levied against the deposit due to a lack of upkeep, maintenance or the tenant failing to behave in ‘a tenant like manner’ during the period of the tenancy.
And the whole point of a deposit is to provide landlords with the confidence that the tenant takes seriously their role of ‘guardian’ of the rental property as well as to protect both the landlord and their assets against potential damage or additional costs from non payment of rent.
So, with all the protection the deposit affords both the tenant and the landlord; where do inventory reports fit in?
Deposit background information
Deposit Protection was introduced in April 2007 as part of the Housing Act 2004 for all AST’s in England and Wales where a deposit is taken (Scotland have their own rules).
For absolute clarity – the deposit for any tenancy belongs to the tenant – end of, no discussion, not negotiable.
The ban on fees further solidified this position with the introduction of ‘The Tenant Fee Ban’ on residential letting fees that came into force on 1st June 2019.
The law clearly states that in addition to rent, lettings agents can only charge tenants (or anyone acting on the tenant’s behalf) the following permitted payments:
- Holding deposits (a maximum of 1 week’s rent)
- Deposits (a maximum deposit of 5 weeks’ rent for annual rent below £50,000, or 6 weeks’ rent for annual rental of £50,000 and above)
- Payments to change a tenancy agreement eg. change of sharer (capped at £50 or, if lower, any reasonable costs)
- Payments associated with early termination of a tenancy (capped at the landlord’s loss or the agent’s reasonably incurred costs)
- Utilities, communication services (eg. telephone, broadband), TV licence and council tax
- Interest payments for the late payment of rent (up to 3% above Bank of England’s annual percentage rate)Reasonable costs for replacement of lost keys or other security devices
- Contractual damages in the event of the tenant’s default of a tenancy agreement
- Any other permitted payments under the Tenant Fees Act 2019
The Act also states that agents and landlords don’t have to pay back any fees they have charged a tenant before 1st June 2019.
This means that whereas pre tenant fee ban, the landlord and tenant would (normally) share the cost of the inventory and checkout report; the financial burden of providing the reports now lies solely with the landlord.
What do Inventory Reports bring to the table?
The inventory serves as an official record of what is included in a rental property, and what condition the property is in, at a particular point of time prior to or on the day of the check in.
It helps identify the respective responsibilities of both the landlord and tenant for the care and maintenance of the property.
A comprehensive report serves as a key form of evidence in settling a dispute, especially if the landlord seeks to withhold some of the tenant’s deposit for perceived damages and or cleaning issues. Under the current regulations contained in the Tenancy Deposit Protection Scheme 2007, this is almost impossible to do if an accurate detailed inventory does not exist – hence why there is an increasing need for comprehensive inventories.
However; an emerging issue is that (some) providers feel pressured to reduce report costs as agents seek to recoup lost revenue. Landlords may also be looking to reduce overheads in light of extreme pressures on their finances, mostly due to increased legislation, taxes and the cost of maintaining the property whilst rent arrears, as a direct result of the eviction moratorium, continue to accumulate.
A recent poll by InventoryBase Academy has indicated that many providers feel that the report fee does not reflect the skill and detail required to provide a robust document. This further compounds the assertion that fees for property reports are often the main consideration when securing services instead of the protection they provide.
Has the pandemic impacted the Inventory reporting market?
Looking at the rental sector – it is already large and growing at an accelerated pace so any impact from the pandemic appears somewhat limited in terms of growth.
Figures for 2020 show that there are 5.4m houses in PRS with 4.4 million social renters and 2m landlords. An estimated £58bn was collected in rental payments alone in the past financial year. So, as it stands, the evidence points to a ‘healthy’ industry.
With the average length of a tenancy around 2 years; a quick calculation based on one inventory, one interim inspection and one check out per property every two years; the reporting market is generating around 6.6million reports (3.3 million each year). Multiply that by a conservative £60 per report; the (estimated) value of the property reporting market (PRM) is around £396m (£198m per year).
Although the rental market appears buoyant, there has never been a full scale study of the inventory supplier market so it’s difficult to really say whether there has either been an increase or decrease to reporting numbers or revenue. What an interesting insight that would be!
What is clearly in evidence, is a flourishing housing market that continues to increase in both stock and value. According to Savills (2021); the total value of the UK’s housing stock is estimated at £7.56trn; an eye watering increase of £380bn compared to 2019. Savills states that the UK Housing market now stands at four times the value of all companies in the FTSE 100.
* Savills – Property Industry Eye; March 2021
The number of households occupied by private renters in England are estimated at 4.44 million. This equates to around 18.7 percent of dwellings in England occupied by private renters in 2020, with around 16.7 percent of dwellings occupied by social renters.
* Number of households occupied by private renters in England from 2000 to 2020 – Statistica
As affordable housing still languishes behind need, the number of properties moving into the Private Rental Sector (PRS) is likely to increase. Finances remain tight because of the lack of jobs and lower incomes due to furlough. The inevitable pressures of the pandemic show little sign of easing, with long term effects largely unknown. What is clear, with known restraints on people’s ability to afford a mortgage; the numbers of people turning to renting is set to increase despite the Government’s efforts to turn Generation Rent into Generation Buy.
How much is spent on rent in the private sector?
The median monthly rent was £725 for England, recorded between October 2019 and September 2020; this is the highest ever recorded (ONS).
London figures are higher due to the location with a highest median monthly rent noted at £1,435; this is nearly double the median monthly rent for England.
* Average weekly rent of private renters in England from 2008 to 2020 – Statistica
So based on the average of £725; a rough calculation of 5 x weekly rent for England would mean a deposit of £836.54 (TDS Deposit Calculator)
With an average inventory report costing around £60 for a 2 bed house (unfurnished), the report cost v the deposit is less than 1% (0.8%) so this begs the question; are report costs too low and do they reflect the detail and skill of the inventory provider or service?
Are we not at risk of devaluing the benefits of property reports?
The sole purpose of the inventory is to protect.
To protect the tenants’ deposit; protect the landlords assets, so are we not putting at risk the benefits of inventories and devaluing the role they play in favour of penny pinching when, in fact, property reports are so often the key to a successful tenancy?
With any type of service or product; cost is always going to be a key consideration alongside service delivery. We are all feeling the strain on our finances during what has been a very difficult period which has inevitably developed our price-conscious attitude. That said, I don’t necessarily feel that this is a negative attribute; counting the pennies will save pounds but not if it is to the detriment of the landlord or tenant when the report fails to hold up its end of the bargain and protect the deposit.
I do, however, think that over the past year or so we have started to recognise that quality is as equally important as price if not more so!
My question to you, the industry is: should price continue to trump quality?