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William Keating

Partner - Brighton & Hove

19th June 2019

New tenant fee ban could see landlords fined up to £30,000

With the much hyped Tenant Fees Act 2019 coming into force on 1 June 2019, landlords and letting agents should now be reviewing their existing tenancy agreements to ensure that they do not allow for any Prohibited Payments under the new tenant fee ban. Landlords and agents found charging a Prohibited Payment can be prosecuted and face fines of up to £30,000 so what do landlords and agents need to be aware?

What types of tenancies fall under the new tenant fee ban?

The Tenant Fees Act applies to any new or renewed:

  • Assured Shorthold Tenancies (ASTs)
  • Licences to Occupy

The ban applies from 1 June 2019 for all new and renewed ASTs and Licences. It will only apply to pre-existing tenancies from 1 June 2020 so charges under existing tenancies can still be made.

The Act does not apply to long tenancies or social housing.

What types of fees are now prohibited?

As a general guide, the following are consider Prohibited Payments under the new Tenant Fee Act:

  • Fees for obtaining references
  • Fees for preparing an inventory
  • Fees for the preparation of the tenancy agreement
  • General administration fees

The Government has said that landlords are better placed to negotiate and pay these fees and they cannot be recharged to tenants.

What can landlords charge for under the tenant fees ban?

Rather than specify what are Prohibited Payments, the Tenant Fees Act sets out a list of payments which are Permitted Payments which Landlords can charge. These include the following:

  • A tenancy deposit. However, this must not exceed 5 weeks’ rent, if the yearly rent is less than £50,000 or 6 weeks’ rent if the yearly rent is more than £50,000
  • The rent itself
  • An initial holding deposit to reserve a property
  • A Tenant default payment which is made clear in the tenancy agreement
  • Payments to cover, Council Tax, utilities telecommunications (telephone land line but not mobile) and the internet but this must, once again, be stipulated in the tenancy agreement.

Deposit payments under the new Tenant Fee Act

Any holding deposit under the new Tenants Fee Act must be no more than one week’s rent. This deposit is held by the landlord confirming its intention to accept an individual as a tenant (subject to a satisfactory completion of reference checks etc.). The holding deposit must be returned to the tenant within 7 calendar days of the signing of the tenancy agreement or from the date the landlord decides not to let the property to the tenant. This decision must be made within 15 calendar days of payment of the holding deposit unless the parties otherwise agree. This initial holding deposit can be set off against the first payment of rent by agreement by the parties.

When does a landlord not have to refund the deposit?

If the tenant:

  • Withdraws
  • Does not take all reasonable steps to enter into the tenancy agreement
  • Fails a right to rent check
  • Provides false or misleading information which materially affects the tenant’s suitability to rent the property

Tenant default payments

Tenant default payments are Permitted Payments under the tenants fee ban. An example of this would be replacing a lost key or a late rent payment fine. To be payable, this must be stipulated in the tenancy agreement. Any default payment must be reasonable and reflect the actual cost incurred by the landlord. In the case of rental default, allowing for a 14 day period of grace this will be interest on the rent not paid at a rate up to a maximum of 3% over the Bank of England base rate from the due date for the payment of the rent until payment.

Varying or assigning the existing tenancy

A payment by the tenant to the landlord for varying or assigning the existing tenancy will be permitted but only if the fee is not more than the greater of £50 or the actual cost incurred by the landlord in making the variation.

What happens if landlords or agents breach the tenants fee ban?

Enforcement of the Tenants Fees Act will be through the local Trading Standards Office of the Local Authority. Landlords and agents found charging a Prohibited Payment can be prosecuted as follows:

  • For the first offence: fine up to £5,000 per offence
  • Subsequent offences: fines up to £30,000; or a Court Order banning them from letting properties for a year or criminal prosecution if the same offence is committed within 5 years.

A landlord may also be required to repay any prohibited payment which it has received. Of practical significance is that a landlord cannot recover possession of a property, such as by a Section 21 Notice for an AST, if they have not repaid any Prohibited Payment which they have received.

How does the tenant fee ban affect lettings agents?

The Tenant Fees Act also requires that all letting agents must:

  • Be regulated in order to practice by registering with an appropriate organization
  • Satisfy minimum training requirements
  • Abide by an industry code
  • Demonstrate compliance with legislation

These requirements also apply to landlords who let their own properties.

All tenants and agents should review their tenancy agreements

Clearly all landlords and their agents should review existing tenancy agreements to ensure that they are compliant with the Tenant Fees Act and do not allow for any Prohibited Payments.

The intention behind the legislation is to improve fairness, competition and affordability in the letting market. We will have to see whether this will happen and whether the loss of these Prohibited Payments will have a knock on effect in terms of rent charged in order to make up for the loss of income which they formerly produced.

For more information on reviewing tenancy agreements email williamkeating@rixandkay.co.uk

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