Tenant Fees – The changes Landlords need to know

On 1 June 2019 the Tenant Fees Act 2019 (‘TFA 2019’) came into power changing the fees landlords or letting agents are permitted to charge tenants.

The TFA 2019 marks the end of upfront fees and costs that were typically recovered from tenants by landlords and letting agents when renting a property.

Below we set out a brief guide to the changes and how they will apply to landlords and letting agents:

What does TFA 2019 do?

TFA 2019 will ban letting agents or landlords from requiring the tenant to make certain payments in connection with their tenancy.

Tenants will no longer be required, and landlords will be prohibited from requiring them, to enter into a third-party contract for services or insurance.

TFA 2019 also places restrictions on deposits, how they can be held and places obligations on letting agents.

When does it come into force?

It will apply immediately to any tenancies created on or after 1 June 2019 and to all tenancies, whenever granted, from 1 June 2020.

All tenancies signed prior to 1 June 2019 that contain a provision that would breach TFA 2019 (see below for more details) will continue to be binding until 31 May 2020.

From 1 June 2020 the restrictions in TFA 2019 will apply to all and any agreement containing provisions that would be a breach. Whilst the term of the agreement will no longer be binding on the tenant it will not invalidate the remainder of the agreement.

On 1 June 2020 if a tenancy deposits being held is in excess of the cap (see below for more details) it will not be required to be returned immediately but must be at the end of the tenancy.

If after 1 June 2010 a landlord or agent accepts a prohibited payment under a tenancy agreement, they have 28 days to return this before they will be found to be in breach (breaches set out below).

Who does it apply to?

The TFA 2019 will apply to all new assured shorthold tenancy agreements, student lettings and licences in England.

It will not apply to social housing, statutory periodic tenancies (which become periodic before 1 June 2019) or other long leases.

If a tenancy commenced before 1 June 2019 and it contains prohibited payments,  landlords and agents will be able to claim any prohibited payments until 1 June 2020 when the transitional period ends.

So, What can a landlord charge tenant’s?

There is a list of ‘permitted payments’ contained in Schedule 1 of TFA 2019. We set out the most prevalent below:

  1. Rent

This is, however, not so simple. Within the first year of a tenancy a landlord will be prohibited from charging more at the start of the tenancy than for a later rental period. This is to prevent landlords from charging more rent in the first few months to recover the cost of banned fees (and thus avoid the new provisions).

An exception to the rule is that rent can be reduced in the first year (after the tenancy has commenced) with the agreement of the tenant or, under and downwards (not just upwards) rent review clause.

  1. A (refundable) Tenancy Deposit

This is money held as security for the tenant’s performance of their obligations.

There are now restrictions on how much can be retained, as follows:

  • If the annual rent is < £50,000 – landlord can charge 5 week’s rent
  • If the annual rent is £50,000 or more – landlord can charge 6 week’s rent

NB – For all assured shorthold tenancy agreements the landlord must comply with tenancy deposit scheme legislative requirements.

  1. Holding Deposit (to reserve a property)

Money paid to reserve a property whist checks are carried out may be obtained. Only one deposit per property is permitted to be held.

The deposit must be refundable and no more than 1 weeks rent (based on the agreed rent for the property).

Details for when the deposit is to be repaid can be found in Schedule 2 of the TFA 2019 and we refer you to the Government guidance for more information which is outside the scope of this article.

  1. Default payments

The following can be charged by landlords and letting agents, only if expressly stated in the tenancy agreement:

  1. Replacement keys – the charge must be reasonable and supported by evidence (invoice).
  2. Late payment of rent (where it is more than 14 days overdue) – this is capped at the amount payable if the tenant was charged interest on the unpaid rent at 3% per annum above the Bank of England base rat for each day ren is unpaid.

TFA 2019 does not prevent the landlord from recovering damages for breaches of the tenancy agreement.

  1. Variation, assignment, or novation of the tenancy – at the tenant’s request

For any amendments made to the tenancy agreement which alter or vary the obligations of the agreement the landlord may charge £50 or a reasonable cost, if they are higher.

If the costs are more than £50 the landlord will be expected to provide evidence of the costs.

  1. Payment for early termination of the tenancy – at the tenant’s request

If a tenant wishes to leave the property before the end of the fixed term or before their notice period, the landlord can recover their losses or reasonable costs incurred by the agent for arranging for the tenant to vacate early.

If there are no missed rent payments the Guidance suggest that the landlord is not permitted to  charge an early termination fee.

  1. Council Tax, Utilities, TV Licence

These costs are recoverable if they are payable by the tenant under the terms of their tenancy agreement.

What cannot be charged?

Anything that is not in or exceed the amount specified in Schedule 1 of the TFA 2019.

Some of the most common examples that are not on the list are: credit-checks, inventory fees, fees for professional cleaning.

 

What are the implications if I fail to comply?

  1. Effect on the tenancy agreement

From 1 June 2019 any term in new tenancy agreements, that breach the TFA 2019, will not be binding on the tenant.

If the agreement already exists on 1 June 2019, the TFA 2019 will be binding and enforceable after 1 June 2020 after which point the term will not be valid.

  1. Sanctions

If you fail to comply with the TFA the following sanctions may apply:

  • For prohibited payments and holding deposits you may be fined up to £5000 for a breach of the requirement it related. Each payment will constitute a breach and a fine could be imposed for each breach.
  • It is a criminal offence if a landlord commits a breach within 5 years of having a financial penalty imposed or being convicted of a previous criminal offence under TFA 2019. An offence could result in an unlimited fine.
  • There is a banning order offence under the Housing and Planning Act 2016. Repeat offenders could be banned from being a landlord, letting a property or being placed on a database of rogue landlords and property agents.

 

  1. Repayment of fees

An enforcement authority man require the landlord or letting agent to return any prohibited payments, together with interest, to the tenant. A tenant can apply to the First-tier Tribunal for these to be returned.

  1. Restrictions on serving valid Notices

A landlord will be prohibited from serving a valid Section 21 Notice under the Housing Act 1988 so long as they remain in breach of TFA 2019.

Any unlawfully obtained payment will need to be returned to the tenant or with the tenants consent, applied towards the rent or tenancy deposit.

From 1 June 2019 a new Section 21 Notice prescribed form will reflect the changes.

 

What to do now?

We suggest that all landlords and agents review their standard tenancy agreements to ensure any new tenancy agreement complies with the requirements of the TFA 2019 and that those existing agreements are updated in advance of 1 June 2020.

If a payment is made by a tenant, check it is permitted. If it is, keep evidence so that it can be relied upon (if required) at a later date.

Read the Government guidance and TFA 2019 to be fully informed of the changes.

Should you require advice on any aspect of Landlord and Tenant law, please contact Aileigh Brough on 0207 703 5034 or abrough@meaby.co.uk.