Significant restrictions for landlords under new Tenant Fees Act

England, Wales

Summary

The Tenant Fees Act 2019 will limit the payments that a landlord can charge in connection with most short term residential tenancies entered into on or after 1 June 2019.

The Act’s purpose is to reduce the costs that tenants face at the start of and during the tenancy and is part of a wider set of measures aimed at rebalancing the landlord and tenant relationship, in order to deliver a more affordable private rental sector.

The new legislation will have a significant impact on landlords of residential properties and their advisors and there are substantial financial penalties for a breach.

The so called “ban” under the Act applies to all assured shorthold tenancies (ASTs), tenancies of student accommodation and most licences to occupy housing in the private rental sector in England. Since the majority of tenancies in the private rental sector are ASTs, the ban will be very impactful for landlords.

Permitted and prohibited payments

Landlords of such tenancies (and licensors of such licences) entered into from 1 June 2019 can only charge 7 types of payment in connection with a tenancy. All other payments are called “prohibited payments” and are outlawed under the ban.

The following payments can be charged:

  1. The rent (or licence fee), which should be agreed up front and paid at regular, specified intervals. In the first year, the landlord must not charge the tenant more at the start of the tenancy compared to a later period (to avoid frontloading), but a rent review clause that enables rent decreases and increases is permitted.
  2. A tenancy deposit that is refundable is permitted. Where the total annual rent is below £50,000, the deposit is capped at no more than 5 weeks’ rent. If the rent is £50,000 or above, the deposit is capped at 6 weeks’ rent. Any deposit amount above the cap is a prohibited payment.
  3. Legislation already requires protection of the deposit in one of 3 Government backed tenancy deposit schemes within 30 days of receiving the deposit.

  4. A landlord may ask a tenant to pay a refundable holding deposit to demonstrate a commitment to take a lease of the property while referencing checks take place. Such a deposit is capped at 1 week’s rent. Once the deposit is agreed to be paid, the landlord should stop advertising the property.
  5. The deposit must be refunded where:

    • the tenant later enters into a tenancy agreement, 
    • the landlord decides not to let the property, 
    • an agreement is not reached (without the tenant being at fault) before a date usually 15 days after the deposit has been received by the landlord or her agent, or
    • the landlord imposes a requirement that breaches the ban, or acts in an unreasonable way.
    • The landlord can keep the deposit if:

    • the tenant provides false or misleading information, which reasonably affects the landlord’s decision to let the property to the tenant, or
    • the tenant fails a right to rent check under the Immigration Act 2014, withdraws from the agreement or fails to take all reasonable steps to enter into the agreement when the landlord has done so.

    The landlord must set out in writing the reason for keeping the deposit within 7 days of deciding not to enter into the tenancy or the date usually 15 days after receipt of the deposit.  

  6. The landlord can charge a tenant a default fee for late payment of rent more than 14 days overdue, or a lost key/security device giving access to the property. The fee must be written into the tenancy, but will be a prohibited payment if it exceeds interest at more than 3% above the Bank of England’s annual percentage rate for each day of non-payment, or the reasonable costs incurred by the landlord or her agent for replacing the key/device. The legislation does not affect entitlement to recover damages for breach of contract.
  7. If the tenant requests a change to the tenancy, the landlord may charge up to £50 for the work involved or the landlord’s reasonable costs if higher. From 1 June 2019 landlords will not be able to charge for a renewal of a tenancy, but if the tenancy was entered into before 1 June 2019 and it included an agreement to pay renewal fees, then those fees can be charged for a new fixed-term agreement or statutory periodic agreement up till 31 May 2020.
  8. The landlord may charge an early termination fee if a tenant requests to leave before the end of the tenancy. The fee is capped at the landlord’s financial loss in permitting the tenant to leave, or the agent’s reasonable costs that have been incurred. This usually means a landlord must not charge any more than the rent they would have received up to the end of the tenancy.
  9. Tenants are responsible for paying bills in accordance with the tenancy including council tax and utility payments.

If the fee being charged by the landlord is not mentioned above, it is a prohibited payment and outlawed under the ban. Examples include viewing fees, charges for setting up a new tenancy and asking a tenant to pay for gardening services.

Importantly, a landlord cannot evict a tenant using the section 21 procedure until any unlawfully charged fee or unlawfully retained holding deposit is returned to the tenant.

Timing

The new ban is being introduced in 2 stages.

The prohibitions on payment apply to any tenancy agreement, student let or licence to occupy housing in the private rental sector entered into on or after 1 June 2019. Agents and landlords do not have to pay back fees charged to a tenant before 1 June 2019.

Where the tenancy was entered into before 1 June 2019, the landlord will still be able to charge fees until 31 May 2020 where they are required under the tenancy.

From 1 June 2020 the ban on fees applies to all applicable tenancies and licences to occupy housing in the private rental sector (whether newly entered into from that date or an existing tenancy/licence).

Enforcement

If the landlord in error asks the tenant to make a prohibited payment, she must return the payment to the tenant within 28 days. The landlord does not need to return any tenancy deposit that is over the cap for tenancies entered into before the Act came into force.

A breach of the legislation will usually be a civil offence with a penalty of up to £5,000, but if a further breach is committed within 5 years of the imposition of a penalty or conviction for a previous breach, this is a criminal offence with a penalty of an unlimited fine. Enforcement authorities (which are local authorities) have a discretion to issue a penalty of up to £30,000 (which is not a criminal conviction) rather than prosecute.

Also if a landlord or agent receives 2 or more financial penalties within a 12 month period, a local housing authority has discretion to include them on a database of rogue landlords and property agents. The authority can also apply to the First Tier Tribunal for a banning order under the Housing and Planning Act 2016 if the landlord commits an offence under the Tenant Fees Act, but guidance states this is reserved for the most serious offenders.

The Government has produced detailed Questions and Answers on the Act in their guidance for landlords and agents.

A ban on lettings agents and landlords charging tenant fees is pencilled in to take effect for Wales from 1 September 2019.

On 15 April, the Government published its response to the 2018 consultation “Overcoming the barriers to longer tenancies in the private rental sector”. Please click here for further details.

The Government is in the course of a significant overhaul of assured shorthold tenancies in particular, that affects not only unethical landlords, but all landlords. While the added protection for tenants will be welcomed by the tenant community, it causes very significant concerns for landlords including investors and funders.