The Tenant Fees Act comes into force on Saturday 1st June 2019 with the aim of banning many fees paid by private rental tenants and placing a cap on security deposits. But how will the government implement this, what do they think it will achieve and what does it mean for landlords and letting agents? Find out more from Executive Property Management’s guide to the Tenant Fees Act.
Tenant Fees Act Background
In May 2018, the government introduced the Tenant Fees Bill to Parliament. Officials claimed this would cause a “rebalancing of the relationship between tenants and landlords to deliver a fairer, good quality and more affordable private rented sector”. The idea was that tenants would only pay the rent that was advertised and wouldn’t be asked to shell out for fees and services that, in the government’s eyes, should be the responsibility of the landlord.
Many in the lettings industry warned that this tenant fees ban would lead to more expensive rents, as landlord’s readjusted their business model to cover the outgoings. However, the government countered that the fees for services such as referencing and credit checks had previously been inflated by lettings agents and, with landlords now shouldering the cost, the agents would have to charge a more realistic rate in order to capture their business.
In January 2019, it was announced that the Tenant Fees Bill would apply to all new tenancies that begin on 1st June 2019 or later. On 12th February 2019 it passed into law as the Tenant Fees Act.
What Does the Tenant Fees Ban Involve?
The Tenant Fees Act applies to both landlords and letting agents and prevents them from charging tenants for a range of services relating to the tenancy. It will initially only affect new tenancies that begin from the 1st June, but after a year it will spread to pre-existing tenancies, essentially making clauses that refer to banned fees null and void.
It bans tenants from having to pay fees other than a few that are exempted because they are required for the “grant, continuance, assignment, termination or renewal” of an assured shorthold tenancy or licence agreement. Many of the banned fees are payments to third parties for a range of related services. Here are some examples of banned payments under the Tenant Fees Act:
Which Tenant Fees Aren’t Banned?
There are only really four main types of tenant fees not banned under the Act. These are holding deposits, security deposits, rent and charges for defaulting on the tenancy agreement. However, there are a number of restrictions being placed on all of these different fees.
Landlords can also still charge fees for tenants who want to change the names in the tenancy agreement or if they opt to leave the tenancy early, but even then there are restrictions on how much they can be charged. It is allowable to require tenants to pay for Council Tax, utilities and communications services, such as broadband and satellite TV.
Restrictions on Allowable Fees
Landlords are prevented from raising the rent initially to cover the fees and the dropping it again. Although there is nothing stopping them charging a higher level of rent for the entire tenancy than they would have before the tenant fees ban comes in. This is one reason that many in the industry believe rents will go up after 1st June.
Holding deposits are to be limited to one week’s rent, with more strict rules about decision-making deadlines and repayments. You can still recover costs for damages as a result of the tenant breaking the tenancy agreement, either through courts or the security deposit, but fees for defaulting on rent or losing keys will be regulated more strictly than currently.
If a tenant loses their keys, landlords can only charge “a reasonable fee” and only then if they can provide written evidence for the claim, along with receipts. When it comes to late payment of rent, you can charge just 3% above the Bank of England’s interest rate and are no longer allowed to charge for sending a reminder letter.
Security deposits will be limited to five weeks’ rent (six weeks if the annual rent exceeds £50,000). Initially the government suggested capping deposits at one month’s rent.
Penalties for Breaching the Tenant Fees Act
There are some severe penalties for landlords and letting agents who charge a banned fee after the Tenant Fees Act comes into force. You will pick up a £5,000 fine for an initial breach and could face criminal charges if you are convicted of the same type of breach within five years. There is the chance of landing fines worth up to £30,000 as an alternative to prosecution.
In addition, in cases where the landlord or letting agent has requested a prohibited payment and the tenant has paid it, they will not be able to issue a Section 21 notice to recover their property until the fee is repaid.
Need More Help With the Tenant Fees Act?
If you have any questions or concerns about the tenant fees ban and what it means for you business, get in contact with Executive Property Management Solutions today. You can call 0208 5757630 or fill in the box below to contact us with your queries.