Tenant Fees Act 2019

TENANT FEES ACT 2019 – NO MORE HIDDEN CHARGES

The Tenant Fees Act 2019 comes into force in England on 1 June 2019 and landlords need to be aware of the new rules.

The Act controls what payments a landlord or letting agent may require in connection with a tenancy of housing and restricts what third-party contracts a tenant or guarantor may be required to be bound by for services and insurance.

What are the main provisions?

The key provisions of the Act are as follows:

• ‘Tenancy’ means an Assured Shorthold Tenancy (AST) other than a long lease, tenancy of social housing, student letting or licence to occupy housing.
• Landlords and letting agents must not require tenants to make any payment or loan as a condition of the grant, renewal, continuance, variation, assignment, or termination of a tenancy. This includes fees for securing references or inventories and ‘frontloading’ the rent to recover costs, by charging a higher initial rent.
• The only payments permitted to be charged to tenants are:
  • Rent
  • A refundable tenancy deposit
  • A refundable ‘holding’ deposit
  • Default fees.

Any other payment requested will be classed as a “prohibited” payment.

This means it is no longer possible to ask tenants to cover the cost of obtaining references. Tenants will no longer be charged for check-in, inventory or set up fees as these will be deemed prohibited by law.

The only two exceptions are two forms of ‘default’ fee. These fees are chargeable during the tenancy in the following circumstances, provided the relevant clauses are written into the tenancy agreement:

1. Late Rent Fees

Fees will be charged for rent payments that are over 2 weeks’ late. The fees can be up to 3% over the Bank of England base interest rate. Because this is an annual interest rate, the amount will need to be calculated for the pro rata interest accrued on the outstanding rent.

For example:

The tenant is 30 days late for one £1,000 rent payment.

The base rate of interest is currently 0.75%, therefore the amount the tenant can be charged for is the outstanding rent plus a fee of 3.75% of outstanding rent, pro rata for the 30 days. (3.75% of £1,000 is £37.50.) 30 days is 30/365 of the yearly rate. Therefore, the pro rata amount is calculated by multiplying £37.50 by 30/365, which is £3.08.

Landlords will of course still be able to serve Section 8 notices for late payment of rent provided the rent is 2 months or more in arrears or for any discretionary ground such as constant delay in paying rent.

2. Lost Keys

Tenants can be charged for losing their keys (or other security device) but the charge must be a reasonable amount for which evidence must be provided.

Both default fees will need to be included in the tenancy agreement to be able to charge them, and previous rules about fair clauses will still apply.

It has also been suggested that landlords will be able to continue to charge:

• up to £50 for a change of tenant, and
• for any unexpected void period where a tenant requests that they leave the property early.

What tenancies does the Act apply to?

As mentioned above, the Act defines a tenancy as:

• ASTs
• Licences i.e HMO’s
• Student lettings.

The Act does not apply to contractual tenancies which would be used for example, where the tenant is a company or where the property will not to be the individual’s only or principal home.

The provisions concerning landlords requesting prohibited payments will not apply to the following:

• Tenancies entered into before 1 June 2019, or
• Periodic tenancies arising after 1 June 2019.

However, any provisions in these tenancies requiring such payments will cease to be binding after the end 1 June 2020. So, landlords effectively have one year from the 1 June 2019 to review any current ‘prohibited payment’ arrangements and put alternative plans in place.

Refundable deposits

The deposit amount that can be requested is reduced to 5 weeks for AST’s and licences where the rent per annum is up to £50,000, and up to 6 weeks for those tenancies where the rent is over £50,000 per annum. This applies to all tenancies regardless of the reason a higher deposit was taken previously i.e. if there was poor credit. The ability to request a higher deposit due to the applicant having a pet has also been removed, but if landlords will consider a pet when marketing the property, the property can be advertised at 2 rental amounts i.e £1,000 pcm. or £1050 pcm to include a pet.

Holding deposits

Holding deposits will be limited to one week’s rent. The holding deposit can only be held for 15 calendar days unless another date is agreed in writing between the parties. After that deadline, the holding deposit must be repaid within 7 days. The holding deposit must be returned to the tenant via a refund or by being put towards the first rental payment if agreed in writing. There are some exceptions. In the following cases, the holding deposit shall be forfeited but a reason must be given in writing to the tenant within 7 days:

• The tenant withdraws
• The tenant doesn’t take all reasonable steps to enter the tenancy in the required time
• The tenant fails a right to rent check, or
• The tenant provides misleading information which materially affects their suitability to rent the property.

Landlords will be able to charge a small fee if a tenant requests a variation or assignment of its tenancy, but this is limited to £50 unless the landlord can show a greater cost was reasonably incurred.

What are the penalties to landlords who charge tenant fees?

There will be sanctions in place for breaches of the Act including the following:

• Landlords will not be able to serve notice under Section 21 of the Housing Act 1988 to obtain possession of tenanted properties until they have repaid any prohibited payments.
• The Act is enforceable by local authorities. They may impose a fine of up to £5,000 if a landlord or letting agent has charged a prohibited payment, and they may require the prohibited payment to be repaid with interest.
• Local authorities can prosecute or impose a fine of up to £30,000 if an ‘offence’ under the Act has been committed, such as where a landlord or letting agent has been fined or convicted for a breach within the last five years and commits a further, different breach.
• The local authority must notify the landlord/letting agent of the intention to impose a fine within 6 months of becoming aware of a potential breach. The landlord/agent has 28 days to respond to the notification, after which the local authority will decide whether to impose the fine. If imposed, a final notice will be issued giving 28 days for payment. There will be a right of appeal to the First Tier Tribunal against a final notice.
• Tenants can apply to the First Tier Tribunal to recover prohibited payments and payments that should have been refunded. Local authorities may help tenants apply to the Tribunal or recover any amounts ordered by the Tribunal to be repaid by, for example, conducting proceedings or giving advice to the tenant.

Amendments to other legislation already in force

• The Housing and Planning Act 2016 will be amended to say that an offence committed under the Act is a banning order offence. This means that a local housing authority can apply to court to ban the landlord/letting agent from letting housing and/or acting as a letting agent and/or property manager for at least a year and an entry will be made in the database of rogue landlords and property agents under that Act.
• Section 83 of the Consumer Rights Act 2015 will be amended to require letting agents to publish details of their fees and client money and redress scheme memberships, both on their own websites and on third party websites where they advertise.

Do you require further advice?

For further information call Jill Lawton on 01689887855 or by email jill.lawton@cwj.co.uk.