As part of the Government’s drive to make renting fairer and more affordable, and to improve transparency and affordability in England’s residential lettings market, the private rented sector in England faces further changes in the shape of the Tenant Fees Act 2019 (‘the Act’) which comes into force on 1 June 2019.
This Act prohibits landlords and letting agents in the private rented sector in England from charging certain fees to a tenant. Financial penalties apply for non-compliance and, for repeat offences, further fines and a possible criminal conviction. Landlords and letting agents will not be able to evict a tenant using the section 21 eviction procedure until they have repaid any unlawfully charged fees or returned an unlawfully retained holding deposit.
It is important that residential landlords and letting agents are prepared for these changes and should ensure that their business models, internal practices and procedures are compliant with the Act when it comes into force on 1 June.
Which Tenancies are Affected?
Assured shorthold tenancies, licences to occupy (excluding social housing), and student lettings in England granted on or after 1 June 2019 will be affected. If a tenancy was granted before 1 June 2019, payments which may be prohibited under the Act can still be charged but only until 31 May 2020. From 1 June 2020, all tenancies and licences (previously referred to) will be caught by the Act.
What Payments are Permitted Under the Act?
A tenant can be charged:
- A refundable tenancy deposit (capped at five weeks’ rent if the yearly rent is less than £50,000, or six weeks’ rent if the yearly rent is £50,000 or more).
- A refundable holding deposit (capped at no more than one week’s rent); strict time frames have been introduced for repayment.
- Certain ‘default’ fees, which must be written into the tenancy agreement – payment for a lost key and interest for late payment of rent (if the rent is unpaid for more than 14 days). The rate of interest must not exceed the rate of 3% above the Bank of England base rate.
- Utilities / Communication services / TV Licence / Council Tax (only the billed amount).
- £50 fee for the landlord’s consent to vary a tenancy agreement as requested by the tenant.
- An early termination fee (in the event the tenant wishes to terminate early, but not where the tenant is exercising a break clause).
What Payments are Prohibited?
Landlords, or letting agents on their behalf, are prohibited from charging tenants any fees which are not permitted payments (described above).
For example, letting fees (such as administration fees, obtaining references, preparation of inventories, credit checks) cannot be passed on to a tenant and must be fronted entirely by the landlord.
A common clause in a tenancy agreement requiring a tenant to pay for a professional clean at the end of the tenancy is now a prohibited payment. It is permissible to require a tenant to clean to a professional standard, but not to pay for a professional clean.
What are the Penalties and Consequences for Non-Compliance?
Landlords and letting agents can be subject to a fine of up to £5,000 for a first offence. If a further offence is made within five years of the first, this will be a criminal offence and a landlord or letting agent could be liable for an unlimited fine. Some local authorities may impose a financial penalty of up to £30,000 as an alternative to prosecution.
To find out more about the Tenant Fees Act, why not take a look at our all new Guidance Note? This new document is available here.
As a result of the wide impact the Act will have on the private rented sector in England, several of our template documents on the Property portfolio are being updated, most notably the Assured Shorthold Tenancy (AST) Agreements. These updates will be published before the Act comes into force.
In related news, the Renting Homes (Fees etc.) (Wales) Bill, has passed through the Welsh Assembly and is awaiting Royal Assent. Similar provisions to the Tenant Fees Act 2019 are proposed under this Bill. We will produce further guidance and updated documents once this Bill has passed into law.
As a landlord or letting agent do you believe these legislative changes will necessitate an increase in rent (even if this is a negligible increase) and therefore preferable to a tenant being charged up-front fees? Is Buy-to-Let less attractive now? Your comments are, as ever, welcome!