Tenant Fees Ban
The banning of tenant fees under the Tenant Fees Act 2019 (“the Act”) will now come into force on 01 June 2019 in England and applies to both landlords and letting agents (or anyone acting as an agent on a landlords behalf).
The ban applies to assured shorthold tenancies (except social housing or long leases), tenancies of student accommodation and licences to occupy housing in the private rented sector in England.
There is a 12 months’ transition period from 1 June 2019 to 31 May 2020. This allows time for landlords and letting agents to renegotiate their agreements and become familiar with the new law.
From 1 June 2019, any provision which breaches the ban in a continuing tenancy agreement which was signed before 01 June 2019 continues to be legally binding on the tenant.
From 1 June 2020 however, any provision in continuing tenancies that breach the fee ban or deposit cap will no longer be binding. This includes continuing assured shorthold tenancies, tenancies of student accommodation, licences to occupy housing (referred to as “tenancy”) signed before 01 June 2019 and statutory periodic tenancy agreements arising during the transitional period from a fixed term signed before 01 June 2019.
What fees can I ask a tenant to pay?
You cannot require a tenant (or anyone acting on their behalf or guarantor) to make certain payments in connection with a tenancy. All permitted payments are set out in Schedule 1 of the Tenant Fees Act 2019, any payment not on the permitted payment list will be a prohibited payment.
The only payments you can charge in connection with a tenancy are:
- the rent,
- a refundable tenancy deposit capped at no more than five weeks’ rent where the annual rent is less than £50,000, or six weeks’ rent where the total annual rent is £50,000 or above,
- a refundable holding deposit (to reserve a property) capped at no more than one week’s rent,
- payments to change the tenancy when requested by the tenant, capped at £50, or reasonable costs incurred if higher,
- payments associated with early termination of the tenancy, when requested by the tenant,
- payments in respect of utilities, communication services, TV licence and council tax; and
- a default fee for late payment of rent and replacement of a lost key/security device, where required under a tenancy agreement
If the fee you are charging is not on this list, it is a prohibited payment and you should not charge it.
Where a prohibited payment is taken, it must be repaid to the tenant or relevant person (such as guarantor or person acting on behalf of the tenant) irrespective of whether they demand a repayment of the prohibited payment.
The Act does permit for the landlord (or agent) to agree with the tenant (guarantor or person acting on behalf the tenant) for a prohibited payment to be applied towards a payment of rent due under the tenancy in full or in part instead of repaying the prohibited payment. Note, where a prohibited payment is partly used towards rent due, the remaining balance of the prohibited payment must be repaid.
As expected, payment of rent under a tenancy is a permitted payment. However, landlords cannot charge a higher than normal rent for month one and then a reduced rent for the remainder of the term to circumvent the purpose of the Act.
In Schedule 1 of the Act it states:
If the amount of rent payable in respect of any relevant period (“P1”) is more than the amount of rent payable in respect of any later relevant period (“P2”), the additional amount payable in respect of P1 is a prohibited payment.
For example, if a tenancy commences on 01 January and we say the rent for January is £800.00 and then for February the rent is £600 the difference in those amounts, being £200.00, would be a prohibited payment.
Schedule 1 also goes on to state:
Where there is more than one later relevant period in respect of which the amount of rent payable is lower than the amount of rent payable in respect of P1—
(a) If different amounts of rent are payable for different later relevant periods, P2 is the relevant period for which the lowest amount of rent is payable;
(b) If the same amount of rent is payable for more than one later relevant period, P2 is the first of those periods.
For example, a tenancy starts on 01 January and the rent due is payable as follows:
01 January 2019 – £500
01 February 2019 – £500
01 March 2019 – £700
01 April 2019 – £500
The payment due for the period of March is £700 which is £200 more the earlier and late periods of the tenancy in which the £200 difference would be a prohibited payment.
Can I increase the rent?
Yes, landlords can still increase rent by either agreement with their tenant or by correctly following the rental increase procedure under s.13 of the Housing Act 1988 which involves serving a section 13 notice in cases of assured shorthold tenancy agreement.
For other agreements such as a license to occupy the licensor will need to increase rent by agreement with the licensee or follow any rent review clause in the agreement.
You are not legally required to take a deposit. In any case, where a landlord does take a tenancy deposit the amount of the deposit that can be taken depends on the annual rent:
If the total annual rent for the property is less than £50,000, the maximum tenancy deposit you can ask a tenant to pay is up to five weeks’ rent.
If the total annual rent for the property is £50,000 or above, the maximum tenancy deposit you can ask a tenant to pay is up to six weeks’ rent.
Any amount above the cap on tenancy deposits will be a prohibited payment.
Tenancy deposits must continue to protect with government authorised tenancy deposit scheme and prescribed information served within 30 days of the tenancy deposit having been paid.
You do not need to return any amount of tenancy deposit that is over the cap for tenancy agreements that were entered into before the Tenant Fees Act came into force. How the Act will be applied for agreement entered into before the Act came into force is set out below.
You may seek a holding deposit from a prospective tenant to reserve a property, however, such holding deposit must be repaid within 7 days of the landlord and tenant either:
- Entering into a tenancy agreement,
- The landlord decides not to enter into a tenancy agreement; or
- The landlord and tenant fail to enter into a tenancy agreement by the deadline.
The Act provides that the deadline for the landlord and prospective tenant to enter into a tenancy agreement is 15 days and where this does not happen the landlord will have to repay the holding deposit to the prospective tenant within 7 days. The Act does, however permit a landlord and prospective tenant to agree in writing a different deadline rather than 15 days.
You may only accept one holding deposit for one property at any one time. If you accept more than one, this will be a prohibited payment. You should stop advertising a property once a holding deposit has been agreed to be paid.
You can only retain a tenant’s holding deposit if they provide false or misleading information which reasonably affects your decision to let the property to them (i.e. calls into question their suitability as a tenant, this can include their behaviour in providing the false or misleading information), they fail a right to rent check, withdraw from the proposed agreement (decide not to let) or fail to take all reasonable steps to enter an agreement (i.e. responding to reasonable requests for information required to progress the agreement) when the landlord and/or agent has done so. Where you wish to retain the holding deposit, you must set out in writing the reason for this within 7 days of deciding not to enter the agreement or the ‘deadline for agreement’.
What about tenancies commencing before 01 June 2019?
If a tenancy agreement was entered before 1 June 2019, you can continue to require a tenant to pay fees written into that agreement (e.g. check-out or renewal fees) until 31 May 2020.
After 1 June 2020, the term requiring that payment will no longer be binding. Should you, in error, ask a tenant to make such a payment, you should return the payment 9 immediately and must return this within 28 days. If you do not return the payment within 28 days, you will be treated for the purposes of the Act as having the required tenant to make a prohibited payment (a payment that is outlawed under the ban).
You do not need to return any amount of tenancy deposit that is over the cap for tenancy agreements that were entered into before the Tenant Fees Act came into force. However, if the agreement is renewed the new tenancy would need to comply with cap on deposits.
If, after 1 June 2020, the landlord (or a letting agent) accepts a payment from a relevant person pursuant to a prohibited provision, the landlord or letting agent must return the payment within 28 days, otherwise the landlord or agent is to be treated as having required the relevant person to make a prohibited payment.
Consequences of Non-Compliance
If you take a prohibited payment in connection with an assured shorthold tenancy, you cannot serve a valid section 21 notice to terminate the tenancy until you have repaid any unlawfully charged fees or deposits. As stated above, by agreement of the parties a prohibited payment could be applied towards a payment of rent due under the tenancy as a remedy following which a section 21 notice could be served.
It is also worth noting that where an agent receives a prohibited payment in connection with an assured shorthold tenancy, the landlord will not be barred from serving a section 21 notice on the basis that it is the agent who breached the Act and not the landlord.
Where a prohibited payment is taken in connection with a license agreement however, there is no restriction on serving a notice to quit to terminate a license agreement.
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 and also constitutes a banning order offence.
Where an offence is committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, an officer of a body corporate, the officer as well as the body corporate commits the offence and is liable to be proceeded against and punished accordingly.
Under section 15 of the Act a tenant or relevant person can apply to the First-tier Tribunal for money from the landlord or agent for payments they have been required to make because of a breach of the Act. A tenant or relevant person will only be able to recover their actual loss via the First-tier Tribunal and cannot seek added compensation from landlords or letting agents. An application cannot be made to the First-tier Tribunal for repayment if an enforcement authority has, in relation to the relevant breach, commenced criminal proceedings or required the landlord or agent in question to repay the relevant person.
Tel: 020 – 3903 2000