Tenant Fees Act now in force

The Tenant Fees Act sets out the Government's approach to banning letting fees paid by tenants in the private rented sector and capping tenancy deposits in England.  The aim of the Act is to reduce the costs that some tenants have to pay, and designed to re-balance the relationship between landlord and tenant to deliver a fairer, good quality and more affordable private rented sector. 

Landlords and letting agents are therefore no longer able to charge tenants so called "prohibited payments".  If such charges are made, the tenancy is unlikely to be binding on the tenant and until the payment is returned, the landlord will not be able to terminate an AST.    

What is the Tenant Fees Act?

The Tenant Fees Act effectively bars all payments in connection with a tenancy unless they are specifically permitted under the Act.  It applies to both agents and landlords and came into force for all tenancies signed on or after 1 June, including renewal tenancies.  It is not retrospective, but it does apply to all pre-existing tenancies after a one year transition and any banned payments made will have to be returned within 28 days.

Examples of the types of fees which are no longer permitted includes charging for a guarantor form, credit checks, referencing, inventories, cleaning and gardening services, admin charges and requirements to have specific insurance providers.

Holding deposits, rent deposits and charges for defaulting on the contract are exempted from these banned fees, however, there are additional restrictions now being imposed.  Holding deposits will be limited to one week’s rent and deposits limited to five weeks’ rent where the annual rent is below £50,000.  Landlords can still seek compensation via deductions from the deposit for breaches of the tenancy agreement (such as damage to the property) or take court action, but fixed fee clauses in the AST itself will now be prohibited, with two exemptions– loss of keys, where landlords can charge the reasonable replacement cost, and late payments, which will attract charges up to 3% above base rate.

Landlords and agents can also charge a fee of £50 where the tenant has requested a change in their tenancy or seeks an early surrender.

The ban also extends so far as to prevent the artificial increase of rent by landlords and agents seeking to compensate themselves for the inability to recover fees.

Where a breach has occurred and a banned fee is taken, tenants are able to recover the fees via the County Court.  Fines can also be imposed of up to £5,000 for a first offence.  Subsequent breaches are criminal offences or alternatively, the landlord can be fined up to £30,000 as a civil penalty and be subject to a banning order.  The landlord or agent may also be charged interest from the day that the prohibited payment was taken.  In the meantime, the landlord cannot serve a section 21 notice until the prohibited payment is returned (or, with the permission of the tenant, used towards rent or the deposit).

The prohibition will impact on some business models.  This is likely to lead to increasing rents (with tenants shopping around for the cheaper rented properties) or heavier costs to the landlord.  Tenancy agreements will need to be considered as many will no longer be fit for purpose.  After the transitional period, it will be for the courts to decide whether deposits higher than 5 or 6 weeks taken before 1 June 2019 will need to be repaid.  Our advice currently is to refund any deposits taken in excess of these figures within 28 days from 1 June 2020.

If you have any queries regarding the Tenant Fees Act, or you would like to discuss your current relationship with your tenants, you can contact Laura Blakemore on 023 8071 7412 or email laurablakemore@warnergoodman.co.uk. 

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.