What is the Tenant Fees Act and what will it mean for lettings

The government have enacted a piece of legislation called the Tenant Fees Act. As of 1 June 2019, this new Act will make significant changes to the private rented sector in England (the legislation for Wales is separate and will come into force on 1st September 2019), but what does it say and what impact is it expected to have on landlords and tenants?

What is the Tenant Fees Act?

The Tenant Fees Act 2019 provides guidance for both landlords and lettings agents on what types of payments are still allowed to be requested from tenants, and what types of payments will now be prohibited.

In brief summary:

• It is now illegal for landlords and agents to charge tenants for referencing and some admin fees
• Tenancy deposits are now limited to based on the annual rental amount
• Holding deposits are now limited to one week’s rent
• Excluding contractual default penalties, any other payments are banned
• Fines for first offence are £5,000 rising to £30,000 for second offence

The act is aimed at reducing the initial costs tenants face when renting a property and will help them to see exactly what they are paying for and when. It will help landlords to provide fair, good quality and affordable homes for people to live, and the government believe the act will rebalance the relationship between landlords and tenants.

When does the Tenant Fees Act become law?

The Tenant Fees Act came into effect on 1 June 2019.

Which tenancies does the Tenant Fees Act apply to?

The Tenant Fees Act guidance applies to all of the following types of tenancy within England:

• Assured shorthold tenancies
• Licences (e.g. lodger lettings)
• Student lettings (those provided by a specified educational institution)

What does the Tenant Fees Act mean for landlords?

For landlords, the Tenant Fees Act limits what can be charged in connection with a tenancy and introduces some new rules about how charges can be applied. The Act applies to payments taken from a tenant or anyone acting on behalf of a tenant, such as a guarantor.

Below is a list of the fees that can still be charged by a landlord or agent. Any payments that are not included in the list below should be considered a ‘prohibited payment’. These prohibited payments are illegal under the terms of the Act and can result in penalties or fines.

Which fees can still be applied?

The payments landlords can charge in connection with a tenancy are:

• The rent
• A refundable holding deposit (to reserve a property). This is capped at no more than one week’s rent
• A refundable tenancy deposit. This is now capped at no more than five weeks’ rent where the annual rent is less than £50,000, or six weeks’ rent where the total annual rent is £50,000 or above
• Payments to change the tenancy when requested by the tenant. These are capped at £50, but if the costs are higher, they must be considered ‘reasonable’
• Payments associated with early termination of the tenancy, when requested by the tenant
• Payments for utilities, communication services, TV licence and council tax
• A default fee for late payment of rent and replacement of a lost key/security device

What penalties and enforcements are in place?

If a landlord or agent breaches the terms of the act, the first instance will be considered a civil offence, and this comes with a financial penalty of up to £5,000.

Any further offence that happens within five years of the first penalty is considered a criminal offence. The fine that comes with a criminal offence is unlimited, however local authorities can choose to impose a financial penalty of up to £30,000 as an alternative to prosecution for an offence at their own discretion.

What is considered a breach of the Tenant Fees Act?

Each individual request a landlord or agent makes for one of the prohibited payments is considered a breach of the Act. Some examples of these are:

• Charging former tenants to provide a landlord reference
• Exceeding the five weeks’ rent limit for a deposit
• Charging for pre-tenancy admin fees or for credit checks
• Charging viewing fees to potential tenants

The simplest way to view this is that unless the payment is listed in the list of payments allowed, it should be considered prohibited.

What does the Tenant Fees Act mean for tenants?

For tenants, there are now fewer charges that must be made at the beginning of a tenancy agreement. A limit has also been introduced for the maximum security deposit that a landlord or letting agent can take so the charges to tenants are clearer.

Which fees do tenants no longer have to pay?

The additional payments that have been possible for landlords to charge are now banned under the terms of the Act, these include:

• Credit checks
• Inventories
• Referencing fees
• Admin charges

What does the Tenant Fees Act mean for existing tenancy agreements?

The Tenant Fees Act introduces a transition period of 12 months, until 31 May 2020, during which any fees written into existing tenancy agreements can be charged.

The Tenant Fees Act Guidance for Tenants, published by the Ministry of Housing, Communities and Local Government states:

“If a landlord or agent requires you to make a payment under a term within a tenancy which was entered into before the ban came into force, such as check-out or renewal fees, they can continue charging those fees until 31 May 2020.”

This means that if a tenancy agreement began before 1 June 2019, fees can be charged until 31 May 2020, but only “where required under an existing tenancy agreement.” They must be written into this agreement they cannot be added after the Act becomes law.

For example, if a tenancy began on 1 February 2019 then the landlord or agent could charge any renewal admin fee included in the tenancy agreement if the tenancy was renewed before 31 May 2020. The renewal admin fee would not be a prohibited because the requirement to pay the admin fee was made before 1 June 2019.

Landlords and agents don’t have to pay back any fees charged to a tenant before 1 June 2019.

 

Who can enforce the Tenant Fees Act?

Trading Standards authorities have a duty to enforce the Tenant Fees Act. However, even though some district councils are not Trading Standards authorities, they may also enforce it at their discretion. The Trading Standards team from Bristol City Council has been announced as Lead Enforcement Authority for lettings agents and will co-ordinate Trading Standards enforcement across the country. 

Tenants can also recover prohibited fees through the First-tier Tribunal which helps to solve residential property disputes. The Act also prevents landlords from recovering possession of a property via the section 21 eviction procedure if they haven’t repaid fees or a holding deposit.

This guidance is based on the current Tenant Fees Act law. It is current as of June 2019 and will be updated if any further information or amendments are provided. For more advice and news on lettings click here.