Understanding the Tenant Fees Act 2019
In the Autumn Statement of 2016, the Chancellor announced that he would introduce a ban on charging fees to residential tenants taking Assured Shorthold Tenancies (ASTs). As such, the Tenant Fees Bill started its journey through Parliament as of 2nd May 2018. On 12th February 2019, the Tenant Fees Act 2019 received Royal Assent in the House of Lords and is now passed into law. This means that the ban on charging tenant fees will apply to all residential tenancies commencing on or after 1st June 2019.
What does this mean to landlords?
The purpose of the original Bill was to ban lettings agents and landlords in England from:
1. Requiring tenants in the private rented sector to pay fees or other charges on top of the rent, except for a capped refundable Tenancy Deposit, a capped refundable Holding Deposit and tenant default fees;
2. Requiring tenants in the private rented sector to secure and pay for services or insurance from any third party or to make a loan, for example paying for referencing when moving into a property or the check-in or check-out at the start and end of a tenancy.
This ban will only apply in relation to an Assured Shorthold Tenancy or Licence to occupy a tenancy entered into after the legislation comes into force and will not apply retrospectively to agreements entered into prior to 1st June 2019. It will, however, apply to Statutory Periodic Tenancies that arise after the legislation is introduced.
The list of fees that are permitted to be charged to tenants is as follows:
1. Rent – the tenant’s regular payment as per the tenancy or Licence agreement.
2. A refundable Tenancy Deposit of not more than 5 weeks’ rent – it was proposed that this should be 6 weeks but was disallowed. However, if the annual rent is over £50,000 the Tenancy Deposit is capped at 6 weeks’ rent.
3. A refundable Holding Deposit of no more than one weeks’ rent – this is the payment made by a tenant to reserve a property. This can only be held for 15 calendar days and agents and landlords can only take one Holding Deposit at a time. This Holding Deposit should be used towards the first months’ rental payment rather than the Tenancy Deposit as this will start the clock ticking for the 30 days requirement to register the deposit with the deposit protection provider. Additionally, if the tenancy agreement is not complete and tenant moved in by this time agents and landlords may fall foul of the timescales for registering of deposits.
4. Payments in the event of default by the tenant – this is where the tenant is in breach of the tenancy agreement or licence or, for instance, if the tenant loses keys and they need to be replaced. The fees and conditions need to be stated clearly in the tenancy agreement or licence. The amount charged cannot exceed the loss suffered by the landlord.
5. Charging to vary a tenancy – where a tenant makes a request, landlords will be able to charge to vary, assign or replace a tenancy, for instance where there might be a change of tenants in a property. These fees will be capped at £50 per charge.
6. Late payment charge – this can be charged to tenants where rent is overdue by 14 days or more. This is capped at 3% above the Bank of England base rate. If the arrears are less than 14 days this charge can be deducted from the deposit at the end of the tenancy from the deposit. Landlords may also be able to charge for their time in dealing with late payment, however, this is likely to be capped and could be between £15-£16 per hour, again to be deducted at the end of the tenancy.
There are certain circumstances under which Holding Deposits do not need to be returned to tenants where:
- The tenant withdraws their offer
- The tenant fails a Right to Rent check
- The tenant provides false or misleading information
- The tenant misses a move in deadline
However, if the landlord decides not to rent the property to the tenant or fails to take reasonable steps to enter into the tenancy agreement by the deadline for agreement, then the Holding Deposit must be refunded within seven days of that decision or the deadline for an agreement. The deadline for an agreement is 15 days after the Holding Deposit is received for the landlord to enter into an agreement with the tenant.
Changes to existing legislation:
Consumer Rights Act 2015:
The Bill amends the Consumer Rights Act 2015 to require letting agents who advertise on a third-party website (such as a property portal) to publish details on that website, of any relevant fees, Client Money Protection and Redress Scheme memberships or a link to the correct part of the agent’s website that lists those details. This is in addition to the current requirement to publish on their own website and in their offices.Housing and Planning Act 2016:
The Bill amends the Housing and Planning Act 2016 to give District and County Councils the ability to enforce mandatory Client Money Protection scheme memberships.
Penalties for non-compliance:
As with all new legislation that has come in recently with regarding the Private Rented Sector there are serious consequences for landlords and agents not complying with the new Tenant Fees Act 2019.
1. A landlord will not be able to serve a Section 21 Notice for repossession of their property in relation to an Assured Shorthold Tenancy if the landlord has, firstly breached the requirement to repay a Holding Deposit to a tenant and secondly, if the landlord has previously required a tenant to make a prohibited payment and failed to repay this payment or apply it to rent on the Tenancy Deposit. The landlord will be required to repay any unlawfully charged fees before being able to serve this Notice.
2. Tenants can recover unlawfully charged fees through the First-Tier Tribunal.
3. Local authorities will be responsible for enforcing this new Act and will be able to retain the money raised through financial penalties with this money reserved for future local housing enforcement.
4. A breach of the fees ban will be a civil offence and may result in a fine of up to £5,000.
5. Successive breaches within five years (where a financial penalty has been issued or conviction secured in respect of the earlier breach) would be a criminal offence with an unlimited fine. The Enforcement Authority may impose a financial penalty of up to £30,000 as an alternative to criminal prosecution.
6. Enforcing Authorities can also apply for a Banning Order under the Housing and Planning Act 2016 which will result in the landlord or agent being placed on the Database of Rogue Landlords and Letting Agents.
What to do now?
Landlords and letting agents need to review their current Assured Shorthold Agreements regarding fees being charged and amend accordingly.
They must also ensure that they have conditions in place for fees where there may be a breach of tenancy so that it is clear to tenants what they may be charged for. Landlords and letting agents also need to ensure they have adequate procedures in place for ensuring that Holding Deposits are dealt with appropriately and can be refunded within the 15-day deadline set. If they are charging for unpaid rents, landlords and lettings agents should make sure there are adequate and simple procedures in place for doing this as landlords may find it is not worth the effort in calculating the charges that would be payable by the tenants.
Please contact Sharon or Zita on our Residential Lettings Management team with any questions and they will be happy to help.