The Tenant Fees Act 2019 comes into force on 1st June 2019.
Otherwise knows as The Tenant Fees Ban or The Tenant Fees Bill, the aim of the Act is to reduce the costs that tenants incur at tenancy application stage and throughout the tenancy. The legislation applies to Assured Shorthold Tenancies (ASTs) but not company lets.
The Government claims it’s rebalancing the relationship between tenants and landlords to deliver a fairer, good quality and more affordable private rented sector. Many landlords and letting agents may disagree with this claim.
What can landlords or agents charge?
The changes mean landlords will only be able to charge for:
Communication services (a telephone other than a mobile telephone; internet; cable or satellite television)
Tenancy amendments at the tenant’s request
Damages for breach of a tenancy agreement
Interest on late rental payments
Loss of keys
What can’t a landlord or agent charge?
All other fees are banned under the Act, including:
Credit checks and referencing
Essentially, tenants will be able to easily see what a rental property will cost them – with no hidden costs. The landlord will be responsible for paying for the letting service.
Control of tenant costs
Additional resolutions under the Act ensure that the tenant is not unduly or unfairly out of pocket:
Holding deposits taken by landlords or agents to reserve a property will be capped at the equivalent of one week’s rent. The landlord must make a decision on whether or not to proceed with the tenancy in fifteen days of receipt of the holding deposit.
If the landlord decides not to proceed, the holding deposit must be returned within seven days of the deadline being reached.
If the tenant doesn’t proceed with the tenancy, the landlord is permitted to make a reasonable deduction to cover costs incurred.
If the tenancy proceeds, the holding deposit can be used as part payment for the holding deposit or rent otherwise it must be returned to the tenant within seven days.
Security deposits will be capped at the equivalent of five weeks’ rent where the annual rent is below £50,000. Deposits for tenancies where the annual rent is £50,000 or more will be capped at the equivalent of six weeks’ rent.
Amendments to the tenancy agreement
Charges for amendments to a tenancy agreement must be reasonable. They will be prohibited if the amount of the payment exceeds the greater of £50 or the reasonable costs of the landlord or letting agent in respect of the amendment of the tenancy.
Breaches and damages
Where the tenant has breached the terms of the tenancy agreement, damages such as repairs, for example, may be claimed at the end of a tenancy. Naturally, any deductions from the security deposit must be agreed between the landlord and the tenant.
Landlords or agents will only be permitted to charge 3% above the Bank of England base rate for interest on late payments of rent. Charges can no longer be made for sending reminder letters.
Landlords or agents will be permitted to make a reasonable charge in the event that keys are lost. However, the cost must be evidenced in writing, i.e. receipts.
What happens if a banned fee is charged?
Tenants will be able to recover any wrongly charged and paid fees, possibly with interest, via the courts. In addition, the local trading standards office will issue a fine of up to £5,000 for a first offence. Subsequent infringements may incur fines up to £30,000 as well as a ban.
Furthermore, the Section 21 notice cannot be served if a banned payment is still being held by the landlord or agent. Landlords and agents must either refund the payment or, with the tenant’s permission, use that money as payment towards rent and/or the deposit.
Landlord and agent revenue and business models
One agent in the West Midlands charges a single tenant £360 in set-up fees with each additional applicant being charged £240.
That’s an eye-watering £600 for a couple before they even have to think about the rent and security deposit. And to think that a full reference can be obtained for as little as £18…
If this company lets 20 dual-applicant properties in a month, they have already lost £12,000 in revenue per month. This a substantial amount of revenue and will surely have an impact on the business. This will probably lead to higher costs to landlords (and rent increases).
Landlords and agents will have to carefully review their business models.