The new Act will:
- Ban ALL payments unless expressly permitted
- Limit new tenancy charges to £50
- Introduce new caps on security and holding deposits
- Impose hefty financial penalties and criminal sanctions for breaches
James Brokenshire MP says Tenants should not be stung by unexpected costs. However, the Act will have a huge financial impact on landlords' right across the residential sector. Landlords must now get their houses in order and prepare for the changes before 1 June.
Not a week goes by without the plight of generation rent hitting the headlines.
In February however the Tenant Fees Act 2019 received Royal Assent. It will bring into force sweeping changes to letting fees for assured shorthold tenancies, licence agreements and student lets.
James Brokenshire MP heralded in the Act saying “Tenants across the country should not be stung by unexpected costs from agents or landlords”.
But this will be a major blow for landlords in the private rented sector where margins are often tight. It will affect all landlords, from those operating large portfolios right through to those with a few or less units.
Landlords and agents must plan ahead now and prepare for these changes before 1 June 2019. The Act will apply to all new residential assured shorthold tenancies, licences and student lets including those which are renewed after 1 June 2019. Existing tenancies, licences and student lets will be brought under the new rules from 1 June 2020.
What Payments Will Be Banned
The Act bans all payments in connection with a tenancy, licence or student let in England unless permitted under the Act. Any provisions in a tenancy/licence agreement to the contrary will be void.
Prohibited payments include payments for the preparation of contracts, inventories, referencing and credit checks. Requiring a tenant to arrange for a property to be professionally cleaned at the end of the term or to engage a gardener to keep the garden tidy during the tenancy are also prohibited.
The Act contains a list of permitted payments. However, landlords will need to demonstrate such payments are reasonable before passing them on to the tenant. Payments on variation or assignment of a tenancy or on termination of a tenancy by the tenant are permitted but are severely restricted. The Act caps the amount that can be charged for a change to a tenancy to £50 unless the landlord can demonstrate that greater reasonable costs were incurred.
The Act also limits the scope of default payments to two situations only: loss of keys and failure to pay rent within 14 days of the due date. If the landlord wishes to recover payment for loss of keys, then she will need to demonstrate that the costs were reasonably incurred and evidence them in writing. In addition to the payment of rent itself, the Act provides that the landlord can only charge interest on late payment of rent at 3% above the Bank of England Base Rate.
Landlords may charge for payment on termination of a tenancy only if it is at the tenant’s request and provided the amount does not exceed the loss suffered by the landlord/ or the reasonable costs to the letting agent as a consequence of that termination.
Payments in respect of council tax, utilities, television licences and communication services will all continue to be permitted payments but with certain qualifications. Payments for damages (such as repairs) for breach of an agreement are permitted and The Consumer Rights Act 2015 requires that any term of a tenancy is fair.
Caps on Deposits
The Act caps security deposits to no more than 5 weeks’ rent where the annual rent is less than £50,000, and to no more than 6 weeks’ rent where the rent is £50,000 or more. Holding deposits will be limited to 1 weeks’ rent and are fully refundable to the tenant except in limited circumstances.
Impact on Rent
In light of these new rules, many landlords may try to offset the ban by increasing rent for an initial period. However, the Act expressly prohibits this. Landlords will not be allowed to set rent at a higher level at the beginning of the tenancy and then lower it for the remainder of the term. That’s not to say that landlords can’t charge a higher rent than normal for the duration of the entire tenancy (and many may feel they have no choice but to do so) provided that rent is reasonable and in line with the market rate for the area.
Repayment and Tribunals
If a prohibited payment has been made, then the landlord should return the payment failing which the tenant will be entitled to seek to recover such payments via the First Tier Tribunal (Property Chamber).
Hefty Financial Penalties and Criminal Sanctions
Landlords who breach the rules for the first time may be fined £5,000 whereas repeat offenders could face a criminal conviction, a financial penalty of up to £30,000 and a “ban for life”. Enforcement will be via the local Trading Standards office.
Impact on Recovery of Possession of Property
The Act introduces a further hurdle for those landlords seeking to recover possession of their property via the Section 21 Housing Act 1988 procedure. Landlords will not be able to recover possession unless and until any prohibited payments have been repaid to the tenant.
The Government estimates that the new rules will save tenants £270 million year or up to £70 per household. As there are thought to be more than 5 million households in the private rented sector, this is undoubtedly a significant benefit to cash strapped families and individuals.
At the same time however, it will be more important than ever for landlords to ensure that they keep accurate records and have in place all the necessary checks prior to the grant of a new tenancy. In our view, whilst landlords may still recover damages for repairs at the end of the tenancy, if the security deposit is limited to just 5 weeks’ rent, it may then be necessary to apply to Court to make up any shortfall.