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Tenant Fees Ban (England)

Overview

The Tenant Fee Act 2019 (“the Act”) came into force in England on 1st June 2019. Referred to generally as the Tenant Fees Ban, the new legislation prevents landlords and letting agents from charging tenants a number of fees for new or renewal tenancies signed on or after 1st June 2019. A breach of the Act could result in substantial civil penalties as well as criminal sanctions.

The purpose of the Act is to crack down on unexpected fees from landlords and letting agents and to reduce the costs that tenants face at the outset and throughout a tenancy. For the majority of tenancies, all fees associated with renting a property such as credit checks and referencing are passed on to the tenant but this will now be prohibited under the Act. The legislation is seen as a means of protecting tenants from unexpected and unfair letting fees that can contribute to housing unaffordability; however, some have speculated that the Act will lead to an increase in rents as landlords attempt to offset a reduction in their income from fees.

Below we set out answers to the key questions we face from our landlord and agent clients:

What types of tenancy does the legislation apply to?

The ban applies to all new tenancies entered into or renewed on or after 1st June 2019. The Act covers all assured shorthold tenancies (excluding long leases granted for more than 21 years), student accommodation tenancies and licences to occupy housing. The ban applies to the private rented sector only, with social housing tenancies being excluded.

When do the provisions come into force?

Initially, the ban will apply to prohibited payments or arrangements required by landlords or agents after 1st June 2019, however, from 1st June 2020 the prohibition will extend to all pre-existing provisions which contravene the Act.

What fees are prohibited?

The Act bans all payments that landlords or letting agents require tenants (or someone acting on their behalf like a guarantor or parent) to pay as a condition of the ‘grant, continuance, assignment, termination or renewal’ of a licence or assured shorthold tenancy. The ban also extends to requiring tenants to enter into a contract with a third party for provision of a service for which a fee is payable.

All fees are prohibited unless expressly provided for in the list of permitted payments set out in the Act. The following are examples of payments which will be prohibited under the Act:-

  • Viewings
  • Credit checks
  • Referencing
  • Preparation of inventories
  • Inventory checks at termination
  • Cleaning services
  • Administration charges
  • Tenancy check-out fees
  • Charging for a guarantor form

What fees are permitted?

The following payments are permitted under the Act but are subject to strict limitations:-

(1)        Holding Deposits (to reserve a property) – Any holding deposit must be capped at 1 week’s rent. This cap applies globally to all tenants in the case of joint tenancies and not per individual tenant. The landlord has 15 days in which to make a decision once the holding deposit is taken which can be extended to a future date by the mutual agreement of both parties in writing. Once a decision has been made by the landlord, they must notify the applicant of their decision in writing within 7 days.

The Holding Deposit should be refunded in full in the following circumstances:-

(i)         the tenant enters into the tenancy (unless it is set off against the first month’s rent or tenancy deposit which will need to be expressly agreed by the tenant);

(ii)        the landlord decides not to rent the property;

(iii)       an agreement is not reached before the deadline for agreement (15 days) through no fault of the tenant;

(iv)       the landlord or letting agent act in such a way that it would be unreasonable to expect the tenant to enter into the tenancy agreement/licence.

The holding deposit may be retained in the following circumstances:-

(i)         the tenant provides false or misleading information which would impact the decision to let the property to them;

(ii)        the tenant withdraws from the agreement before the tenancy is granted;

(iii)       the tenant fails right to rent checks (and it was not reasonable for the landlord or agent to know they would fail);

(iv)       the tenant fails to take reasonable steps to enter into the agreement.

Where one or more of the above apply, the landlord must set out in writing the reason for withholding the holding deposit to the tenant within 7 days of making that decision.

(2)        Tenancy Deposits – The tenancy deposit must be limited to five weeks’ rent (or six weeks’ rent where the annual rent is £50,000.00 or more). For renewal tenancies, where a deposit was taken at the outset of the original tenancy which is in excess of this cap, the difference will need to be refunded to the tenant upon renewal otherwise the excess will be classed as a prohibited payment. Landlords do have the option of using the difference as a part payment of rent for the first month after renewal, but this would have to be agreed by the tenant.

(3)        Rent – Rent should be split equally across the duration of the tenancy. The Act prevents landlords from recovering lost fee income as rent by charging a higher rent at the start of a fixed term tenancy to that due in later months. For example landlords cannot require the tenant to pay £900.00 in month one and then £700.00 in month two onwards. Landlords can however charge a higher rent for the whole duration of the term of the tenancy.

(4)        Default Fees – Landlords and agents are only able to charge the following default fees where they are expressly provided for in the tenancy agreement. There are two specific types of default payments with these being loss of keys and late payment of rent.

For the loss of keys the landlord is entitled to charge the ‘reasonable costs’ of replacement of a lost key or security device but these must be evidenced in writing with receipts.

With regard to late payment of rent, the landlord can charge a default fee where the rent has been outstanding for 14 days, which must be limited to interest at a rate of 3% above the Bank of England base rate per annum (currently 0.75 %). When calculating rent arrears, landlords should be mindful of any shift in the prevailing base rate as overcharging interest will constitute a prohibited payment.

(5)        Damages for breach of Tenancy Agreement – Landlords may still seek compensation where the tenant has breached a term of the tenancy agreement and caused damage as a result. Such compensation is not subject to a limitation. Landlords are not, however, permitted to insert a clause into the agreement which sets a fixed fee for any damages incurred.

(6)        Changes to the Tenancy Agreement – Payments by a tenant for assignment, novation or variation of the tenancy agreement are permitted, but are capped at the greater of £50.00 (including VAT) or a higher fee if the landlord or letting agent can prove they are reasonable and are able to evidence such costs in writing. The guidance to the Act makes it clear that £50.00 will be considered the norm for landlords and agents.

(7)        Early Termination Payments – If the tenant requests to leave the property prior to the expiry of the fixed term or does not give sufficient notice, then an early termination fee may be charged. This fee must not exceed the financial loss the landlord will incur in permitting the early termination (i.e. loss of rent) or the letting agent’s reasonable costs of arranging the termination.

(8)        Third Party Payments – A tenancy agreement may validly require a tenant to make payments in respect of utilities, communication services and council tax. Where a clause requires the tenant to pay the landlord’s costs for a specific service provider or communication service, then the Landlord cannot charge more than the billed costs for these services as any amount charged in excess of the billed costs will be a prohibited payment.

What are the penalties for breaching the provisions of the Act?

Local Trading Standards will be required to enforce the legislation along with District Councils.

Breaching the ban will constitute a civil offence which will incur a financial penalty of up to £5,000 per breach. If a further breach is committed within 5 years of a financial penalty being imposed, this will constitute a criminal offence. The landlord can be fined up to £30,000.00 as a civil penalty or be subject to criminal proceedings in the Magistrates’ Court where there is no limit to the fine that could be imposed. A successful prosecution will also mean that the landlord or letting agent may be subject to a banning order pursuant to the Housing and Planning Act 2016, preventing them from renting property or carrying out property lettings and management work.

In addition to the above, tenants will be able to take enforcement action themselves by applying to the First Tier Tribunal for the repayment of the prohibited payment plus any interest due.

What are the implications for serving a Section 21 Notice?

Landlords and lettings agents will not be able to issue tenants with a Section 21 Notice under the Housing Act 1988 until they have repaid the tenant any unlawfully charged fees or returned any unlawfully retained holding deposit. This is likely to be the most common method of enforcing the Act, as tenants are likely to use it as a defence in possession cases to prevent or delay a possession order being obtained.

What measures should landlords take to ensure compliance?

It is now crucial that landlords and lettings agents ensure that one week holding deposits, five week tenancy deposits and all default fees are properly defined and calculated. It is a good idea for landlords and lettings agents to have a ‘tenancy agreement health check’ by a specialist Landlord and Tenant Solicitor to remove any prohibited payments from the agreement and ensure that it is compliant with the Act.

Our Landlord and Tenant team have a proven track record of supporting landlords and letting agents through legislative change. We have provided many clients with the peace of mind of a comprehensive review of tenancy documents at a low, fixed, cost.

If you have any queries or to arrange a review of your tenancy documents, please contact our friendly and knowledgeable team today on 029 2080 8666 or email: info@kearns.co.uk

Disclaimer: The above information is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties express or implied. It is recommended that specific professional advice is sought before acting on any of the information given.