The Tenant Fees Act 2019 commences from 1 June 2019 and applies to England only and introduces some significant changes to what payments a landlord or letting agent may charge in letting a house and restricting what third-party contracts a tenant or guarantor may be required to be bound by for services and insurance.
It is important to understand that ALL payments are essentially prohibited unless the payment is expressly “permitted” under the Act. The changes apply to any property that is let on an assured shorthold tenancy, a licence (such as a lodger letting) and student lettings.
They take effect from 1 June 2019 and will apply to all new tenancies and renewals granted from that date onwards.
Under the Act, a landlord or letting agent must not require a relevant person (tenant, guarantor or anyone acting on behalf of a tenant) to-
· make a prohibited payment to the landlord or an agent in connection with a tenancy of housing in England
· make a prohibited payment to a third party in connection with a tenancy of housing in England
· enter into a contract with a third party in connection with a tenancy of housing in England if that contract is a contract for the provision of a service, or insurance (except utilities or communication services, see later), or
· make a loan to any person in connection with a tenancy of housing in England.
The requiring of a prohibited payment, entering into a third party contract or making a loan applies if the landlord or agent requires any of those things in consideration of the grant or renewal of a tenancy. It’s also prohibited if it requires the person to do any of those things in consideration of providing a reference in relation to that person in connection with the person’s occupation of housing.
As stated above, effectively ALL payments in connection with a tenancy of housing in England are prohibited unless they are specifically permitted under the Act.
It’s not only an offence for a landlord or letting agent to require a prohibited payment but it’s also an offence for a landlord or letting agent to require a relevant person to make a prohibited payment to a third party (for example asking a tenant to pay directly to a referencing company is prohibited).
Enforcement is by local trading standards. The penalty for a first offence is up to £5,000. If a person commits a second offence within 5 years, a penalty of up to £30,000 is payable. In addition, a second offence is a criminal offence. Furthermore, a second offence is a banning order offence. Any financial penalty is on top of being required to repay any prohibited payments or holding deposit received.
Landlords should also be aware that if they breach the legislation then they may be restricted on their ability to serve a section 21 notice gaining possession of the property.
So what payments are permitted? They are:
· Tenancy deposit
· Holding deposit
· Payment in the event of a default
· Payment on variation, assignment or novation of a tenancy
· Payment on termination of a tenancy
· Payment in respect of council tax
· Payment in respect of utilities etc
· Payment in respect of a television licence
· Payment in respect of communication services
Each one has restrictions and limitations:
Payment of rent is a permitted payment but you can not charge a higher than normal rent for month one (for example) and then a reduced rent for the remainder of the term in order to try and gain a payment for granting the tenancy. For example, if we say a tenancy starts on 1 July and we say the rent for July is £900.00 (P1) and then from 1 August it’s £700 per month (P2), as the amount for P1 is greater than P2, the difference is prohibited (in our example the difference is £200 and it is that which is the prohibited payment – the £700 being a permitted payment).
If a landlord or agent tries to delay a higher amount, that’s covered too! There are various scenarios that could be attempted to secure an additional payment, and further advice can be given, but the legislation is very effective in making any additional payments prohibited.
A rent increase or reduction according to circumstances specified in the tenancy is allowed. Also, an agreement to increase or reduce the rent after the tenancy has been entered into can be made.
A tenancy deposit (which is taken to secure the performance of the tenancy) is a permitted payment. No change is made to the requirements of protecting and prescribed information etc. However, the amount that can be requested by a landlord or agent is changed.
Where the annual rent is less than £50,000 per annum, the maximum tenancy deposit allowed is five weeks. Where the annual rent is equal to or greater than £50,000, up to six weeks deposit is allowed. If you normally charge more because pets are allowed, this is no longer allowed, but you are not under an obligation to accept pets.
Under the Act, any term that requires a prohibited payment after 1 June 2020 ceases to be binding and any prohibited payment received must be repaid within 28 days. It is uncertain whether a deposit higher than 5 or 6 weeks (depending on the rent) that was taken in respect of a tenancy granted before 1 June 2019 needs to be repaid within 28 days from 1 June 2020. It seems that the safest option will be to refund any excess amount either before 1 June 2020 or certainly within 28 days.
Occasionally landlords take a holding deposit whilst the landlord or agent takes steps to grant a tenancy to the payer (such as referencing etc). This is a permitted payment but there is a strict procedure to be followed under the Act in relation to accepting and repaying a holding deposit.
The maximum holding deposit allowed is up to one week’s rent calculated the same as the tenancy deposit (annual rent divided by 52).
Only one holding deposit may be held at any one time for the same letting unit and from the time a holding deposit of up to one week’s rent is received by a landlord or agent, there is a deadline for agreement which is fifteen days from the date the holding deposit was received. A deadline for agreement can be shortened or extended but only by agreement in writing with the tenant.
The holding deposit must be repaid by the person who received it if:
· the landlord and the tenant enter into a tenancy agreement relating to the housing and in this case, it must be repaid within 7 days from the date of the tenancy agreement
· the landlord decides before the deadline for agreement not to enter into a tenancy agreement relating to the housing and in this case it must be repaid within 7 days of the decision, or
· the landlord and the tenant fails to enter into a tenancy agreement relating to the housing before the deadline for agreement and in this case it must be repaid within 7 days from the deadline for agreement date.
If the landlord and tenant enter into a tenancy agreement (not just agree to do so at some future date), the holding deposit doesn’t have to be repaid to the tenant if the payer consents for the holding deposit to be applied towards the first payment of rent under the tenancy or towards the payment of a tenancy deposit in respect of the tenancy. It’s important to note that the payer must consent for this to be allowed otherwise the holding deposit must be repaid (and then simply take the full rent and tenancy deposit in respect of the tenancy).
OTHER ALLOWED CHARGES
Certain defaults under a tenancy agreement can be charged for with restrictions.
Firstly, a landlord (or an agent acting on behalf of a landlord) may seek payment for a “relevant default” which means:
· the loss of a key to, or other security device giving access to, the housing to which the tenancy relates, or
· a failure to make a payment of rent in full before the end of the period of 14 days beginning with the date (“the due date”) on which the payment is required to be made in accordance with the tenancy agreement.
Payment of damages for breach of a tenancy agreement or an agreement between a letting agent and a relevant person (tenant, guarantor or person acting on behalf of a tenant) is a permitted payment.
Variation or termination (at the tenant’s request) charges
Only if the tenant requests to a landlord or letting agent a variation, assignment or novation is a payment in consideration for performing the request a permitted payment. But, if the amount exceeds the greater of £50, or the reasonable costs of the person to whom the payment is to be made in respect of the variation, assignment or novation of the tenancy, the amount of the excess is a prohibited payment.
A payment is a permitted payment if it is a payment to a landlord or letting agent in consideration of the termination of a tenancy at the tenant’s request.
That can be a request by the tenant either before the end of a fixed term or in the case of a periodic tenancy, without the tenant giving the period of notice required under the tenancy agreement or by virtue of any rule of law.
However, in order to be a permitted payment, the amount cannot exceed the loss suffered by the landlord or the reasonable costs to the letting agent as a result of the termination of the tenancy and any excess is a prohibited payment.
A payment to a billing authority in respect of council tax is a permitted payment.
Note: only a payment of council tax to a billing authority is permitted. It’s not permitted for a council tax payment to be made to anybody else (including landlord or agent).
A payment for or in connection with the provision of a utility is a permitted payment if the tenancy agreement requires the payment to be made and “utility” means—
· other fuel
· water, or
It’s also a permitted payment towards energy efficiency improvements under a green deal plan. There appears to be no reason why a landlord or agent cannot receive payment directly for a utility. Unlike the council tax prohibition before, this part does not require payment be made to the utility supplier.
A payment to the British Broadcasting Corporation in respect of a television licence is a permitted payment if the tenancy agreement requires the payment to be made.
Similar to the council tax before, the payment is only permitted if made to the BBC.
A payment for or, in connection with the provision of a communication service is a permitted payment if the tenancy agreement requires the payment to be made and “communication service” means a service enabling any of the following to be used:
· a telephone other than a mobile telephone;
· the internet;
· cable television;
· satellite television.
However, if the payment is made to a landlord and if the amount of the payment exceeds the reasonable costs incurred by the landlord for or in connection with the provision of the service, the amount of the excess is a prohibited payment.
A landlord or letting agent must not require a tenant to enter into a contract with a third party in connection with a tenancy if that contract is —
· a contract for the provision of a service, or
· a contract of insurance.
The only exception allowed is if the landlords contract term is for the provision of:
· a utility to the tenant (electricity, gas, other fuel, water or sewerage, Green Deal plan) or,
· a communication service to the tenant (a telephone other than a mobile telephone, the internet, cable television or satellite television).
Other Prohibited Charges
Any term in a tenancy agreement requiring the tenant to use a specific inventory clerk for check out or check in is prohibited and, in any event, the charging for an inventory is prohibited.
Likewise, commonly there are rent guarantee insurance schemes or zero deposit schemes available where the tenant is asked to pay. This too is prohibited. It will still be okay for a landlord or agent to enter into a contract themselves (and pay themselves) for the insurance or warranty.
And for the avoidance of doubt, tenancy application or referencing fees are prohibited.
The content of this article is for general information only. It should not be relied on and action which could affect you should not be taken without appropriate professional advice.