Residential tenants in the private rented sector in England currently pay on average £300 – £400 in administrative fees such as application fees, viewing fees, tenancy set-up fees, referencing and credit-check fees, fees for contract negotiations, renewal fees, inventory check fees, check out fees and fees for professional cleaning services.
The Tenant Fees Act 2019 (the “Act”) introduces a prohibition on charging fees to most residential tenants with effect from 1 June 2019.
What fees are banned by the Act?
The starting point to understand is that all payments in connection with a tenancy will be prohibited unless expressly permitted by the Act. This includes charging fees to a tenant’s guarantor or to any person acting on their behalf and charging a tenant fees through a third party such as a third party reference service. In addition it shall no longer be possible to require tenants to make a loan or enter into contracts with third parties for the provision of services (with exceptions for landlords in respect of utilities and communications) or insurance in connection with a tenancy.
The amount that landlords and agents can charge tenants in respect of rent and deposits is also restricted.
What tenancies does the ban apply to?
The Act applies to the following types of tenancies and licences that are granted or renewed on or after 1 June 2019:
· Assured shorthold tenancies (ASTs)
· student lettings provided by educational institutions
· licences to occupy (excluding holiday lets and certain home share (live-in carer) licences)
The Act does not apply to long leases, assured tenancies, social housing tenancies or licences or to contractual tenancies such as company-lets or tenancies where it is not to be the individual’s only or principal home.
The Act will not immediately apply to tenancies or agreements that were entered into before 1 June 2019 (even if after that date they become statutory periodic on the coming to an end of the fixed term), so unless the tenancy is renewed (new fixed-term tenancy) on or after 1 June 2019 any fees payable pursuant to an existing tenancy agreement can still be charged. However from 1 June 2020 all fees will be prohibited regardless of the tenancy start date.
What is the penalty for failing to comply with the Act?
Landlords and agents need to understand the changes because they could face a financial penalty of up to £5,000 for a breach of the legislation, and a criminal record resulting in a potential further unlimited fine if they commit a second breach within 5 years of the initial offence. Two financial penalties within a 12 month period could also result in Landlords and agents being entered into the Database of Rogue Landlords and Letting Agents.
Any financial penalty is on top of being required to repay any prohibited payments or holding deposit received.
A tenant may also apply to the First-tier Tribunal (Property Chamber) for the recovery of any prohibited payments that the tenant may have made to the landlord or the agent.
A landlord will also be unable to evict a tenant using the s.21 procedure (non-fault based ground for possession) until they have repaid any prohibited fees that have been unlawfully charged to a tenant.
What costs can landlords and agents charge?
The Act expressly states what payments are permitted and these are detailed in the table below. If landlords or letting agents are in any doubt as to whether or not a fee is permitted it is advisable for them to seek advice before charging the tenant.
- Rent (which can still be upwards only or stepped and / or increased by agreement or under a rent review clause in a tenancy but it must not include a rent spike i.e. landlords cannot charge a higher than normal rent for the first month(s) and then a reduced rent for the remainder of the tenancy or a higher than normal rent for one or more particular months of the tenancy term)
- Council tax (unless a valid exemption applies)
- Payments for utilities (electricity, gas, other fuel, water or sewerage), communication services (telephone, internet and cable or satellite TV), and television licences are permitted if the tenancy agreement requires the payment to be made.
- Certain payments towards energy efficiency improvements under Green Deal plans if the tenancy agreement requires the payment to be made.
- Tenancy Deposits taken as security for the performance of any obligations of the tenant or the discharge of any liability of the tenant arising under or in connection with the tenancy will continue to be permitted but the amount that can be held shall be capped at five weeks’ rent where the annual rent in respect of the tenancy is under £50,000 or six weeks’ rent where the annual rent in respect of the tenancy is £50,000 or more.
- Holding Deposits (to reserve the property before the grant of the tenancy whilst the landlord takes up references etc.) provided that the amount of the deposit is capped at one week’s rent and is refundable. The procedure for dealing with and repaying holding deposits is strict so landlords and letting agents should seek advice if they are in any doubt as to their legal obligations.
- A payment may be charged by a landlord in consideration of or by a letting agent in consideration of arranging the variation, assignment or novation of a tenancy agreement at the tenant’s request. Such payments are capped at £50 or reasonable costs.
- A payment to a landlord in consideration for or to a letting agent in consideration of arranging early termination of the tenancy (termination during the fixed term of a tenancy or without giving the required notice) at the request of the tenant is permitted. Letting agents may only charge reasonable costs and landlords may not charge more than the loss caused to them by early termination i.e. they cannot charge a penalty payment for an early release.
- Reasonable costs may be charged to the tenant in respect of loss of keys or other security devices by the tenant. As this is a default fee circumstances in which it may become payable should be clearly set out in the tenancy agreement.
- Interest may be charged to a tenant at a rate not exceeding an annual percentage rate of 3% above the Bank of England base rate may be charged where there is a failure to pay rent in full within 14 days of the date on which the tenancy agreement requires the rent to be paid. Again, as this is a default fee circumstances in which it may become payable should be clearly set out in the tenancy agreement.
Duty to display Fees and Client Money Protection Schemes
The Act makes minor amendments to the Consumer Rights Act 2015 (CRA) in relation to the duty of letting agents to publicise their fees. Whilst letting agents will no longer be able to charge fees to tenants, they will ultimately continue to charge fees to their landlord clients who may be consumers under CRA. Letting agents should therefore ensure that they are aware of their legal obligations under the CRA and the Act as a breach could result in a financial penalty of up to £5,000.
The Act also makes minor amendments to the Client Money Protection Schemes for Property Agents (Requirement to Belong to a Scheme etc.) Regulations 2019 (SI 2019/386) which came into force on 1 April 2019 and which make it mandatory for property agents to join a government approved or designated client money protection scheme and publicise details of such membership (transparency requirements). Again letting agents need to be aware of their legal obligations as they risk financial penalties of up to £30,000 for breaches of the membership requirement and up to £5,000 for breaches of the transparency requirements.
If you are a landlord or letting agent requiring advice concerning the changes in law or guidance on updating your standard tenancy documentation please contact Penni Gibbs or Paul Harrington at our Worthing office on 01903 228200
By Penni Gibbs