Understanding the Tenant Fees Act 2019
I am sure a lot of you by now have heard about the Tenant Fees Act 2019. Currently, the act only applies to landlords, agents and tenants in England. However, do you understand what it means and what payments are permitted?
Here we have created this basic guide to give you a brief understanding of the Act. All residential landlords will need to ensure that their current practices regarding fees, comply with the Act. For more information, please visit the Government website. Please click here.
What is the Tenant Fees Act?
The Tenant Fees Act came into effect from 1st June 2019. Any tenancy that is signed on or after the 1st June 2019 must adhere to the new regulations. If you charge a fee that is not allowed under the Act, then this will be a prohibited payment. With contracts that have been signed and executed before the 1st June 2019, a landlord or agent will still be able to charge fees up until 31 May 2020 (only where these are required under an existing tenancy agreement). From 1 June 2020, the ban on fees will apply to all assured shorthold tenancies, tenancies of student accommodation and licences to occupy housing in the private rented sector.
"An Act to make provision prohibiting landlords and letting agents from requiring certain payments to be made or certain other steps to be taken; to make provision about the payment of holding deposits; to make provision about enforcement and about the lead enforcement authority; to amend the provisions of the Consumer Rights Act 2015 about information to be provided by letting agents; to make provision about client money protection schemes; and for connected purposes."
The Act bans payments of fees in connection with:
- All assured shorthold tenancies
- Tenancies of student accommodation
- Licences to occupy housing in the private rented sector
What Fees Can Be Charged?
There are a number of fees that are permitted under the Act. However, the aim of the Act is to reduce the "hidden" costs that a tenant sometimes faces at the start of their tenancy. The only permitted payments are as follows:
The most obvious payment you are permitted to ask a tenant to pay is the rent (phew). The rent should be paid in regular specified intervals. A rent payment that is higher than the payment due for a similar period later in the term, is not permitted.
For example - a landlord or agent is unable to charge £700 in month one and £500 in month two and onwards. The surplus of £200 will be a prohibited payment.
Within the first year of a tenancy, a landlord or agent is unable to reduce the rent unless this has been agreed by the tenant. This must be done after the tenancy has begun or under a rent review clause in the tenancy agreement. This allows for both a rent increase and decrease.
You are not legally required to request a deposit from a tenant. However, you may ask the tenant to pay a refundable tenancy deposit as security for the performance of any obligations (damage to the property, unpaid rent etc). As part of the Tenant Fees Act, the amount that can be requested has been capped depending on the total annual rent for the property.
If the annual rent is less than £50,000, you are only permitted to request up to 5 weeks rent.
If the annual rent is more than £50,000, you are only permitted to request up to 6 weeks rent.
Any deposit amount which exceeds the permitted amount will be a prohibited payment.
Any deposit that a landlord or agent requests for an assured shorthold tenancy, it must be protected in one of the three Government back tenancy deposit schemes. Please click here to see our previous article which discusses deposits.
You may ask a potential tenant to pay a holding payment as evidence of their intention to complete the tenancy. Under the Tenant Fees Act, you are only permitted to accept one weeks rent. You are only able to hold one holding deposit for one property at any one time.
Once you have received a holding payment, you should stop advertising the property.
You must refund the holding deposit where the tenant enters in to a tenancy agreement, the landlord decides to no longer let the property and when the agreement is not reached before the deadline (14 days).
The landlord or agent may retain the holding deposit if the tenant provides unsatisfactory or misleading information and if they fail the right to rent checks. If the letting process is not completed within the 14 days and the landlord or agent has taken all reasonable steps to enter the tenancy before then, then the landlord or agent is able to retain the holding deposit.
If as a landlord or agent you wish to retain the holding deposit, you must set out in writing the reason for this.
If you wish to extend the deadline for agreement, this needs to be agreed with the tenant in writing.
You can only charge tenants a default payment where this has been written into the tenancy agreement. The Act recognises two common circumstances of default; loss of keys and late payment of rent (more than 14 days overdue).
Any payment for loss of keys must reflect the reasonable costs incurred by the landlord or agent. This must be in writing and given to the tenant.
As stated on the Government website, any payment as a result of a late payment:
"The fee will be a prohibited payment where this exceeds interest at more than 3% above the Bank of England’s annual percentage rate for each day that the payment is outstanding (for a late rent payment) or the reasonable costs incurred by the landlord or agent (for a replacement key/security device). The Act does not affect any entitlement to recover damages for breach of contract."
Payments to Vary or Assign a Tenancy:
Where a tenant wishes to change the tenancy agreement or assign an existing tenancy, you are entitled to charge up to £50 for the work involved. If you wish to charge more than £50, you should provide evidence to demonstrate the reasonable costs of carrying the work out.
Early Termination of a Tenancy:
If the tenant wishes to leave the property before the end of their tenancy, you are entitled to charge a fee. This must not exceed the financial loss that a landlord has suffered or reasonable costs that the agent has incurred by the agent in arranging for the tenant to leave.
Council Tax and Utilities:
Under the Tenants Fees Act, tenants are still responsible for paying bills in accordance with the tenancy agreement. However, there is consumer protection legislation which prevents landlords and agents from over charging for these services.
Penalties for non-compliance of the Act are clear and severe. A landlord or letting agent that requires a tenant to make a prohibited payment may face prosecution and a fine of up to £5,000.
If a similar offence has been committed within 5 years, the payment of a fine can be increased to £30,000.
Any prohibited payment that you may have taken inadvertently, must be paid back to the tenant within 28 days. If a landlord is in receipt of a prohibited payment, they will be unable to serve a Section 21 notice until the payment is repaid back to the tenant.
For more information, please visit the Government website which has a useful advice guide. Please click here.