As part of the government's drive to improve transparency and fairness within the lettings market, the Tenant Fees Bill has recently been introduced in Parliament. A key provision of the Bill is the prohibition on landlords and letting agents charging unnecessary and potentially unfair fees to tenants. The contents of the Bill will therefore be of interest to anyone involved in the private rented sector in England.
This note summarises the main provisions of the Bill.
The key provisions
1. The Bill will only apply to housing in England.
2. For the purposes of the Bill, "tenancy" means assured shorthold tenancies (other than ones of social housing and certain long leases) and also licences to occupy (excluding holiday lets). The inclusion of licences in the definition of "tenancy" is a clear anti-avoidance provision designed to stop those involved in the letting of housing exploiting the lease/licence distinction to avoid complying with the new provisions.
3. Under the terms of the Bill, a landlord or letting agent can only require tenants to make the following permitted payments in connection with the grant, renewal or continuance of a tenancy of housing in England:
- a refundable tenancy deposit capped at no more than six weeks' rent;
- a refundable holding deposit capped at no more than one week's rent; and
- default fees – for example, on late payment of rent – provided these are required by the terms of the tenancy agreement.
All other payments, or requirements to enter into contracts for services or loans, are prohibited (Prohibited Arrangements). So, for example, the common practice of charging tenants for inventory services would not be permitted under the terms of the Bill.
It is worth noting that, where any payment of rent is greater for one period than the amount of rent payable for any later period under the tenancy, the extra rent initially paid may also constitute a Prohibited Arrangement. As such landlords and letting agents will not be able to "front load" the rental payments to recoup their costs. This appears to be another anti-avoidance provision.
4. Schedule 2 of the Bill makes provision for the treatment of holding deposits (i.e. deposits paid to reserve a property prior to the signing of a tenancy agreement). The Schedule sets out a timetable for dealing with holding deposits, for example requiring the holding deposit to be refunded to the tenant within seven days of the parties entering into a tenancy agreement (although there is also provision for the holding deposit to be applied to the first instalment of rent or towards any permitted security deposit).
5. The Bill restricts the circumstances in which a holding deposit can be retained by a landlord. Circumstances in which a landlord might be able to keep the holding deposit include:
- if it transpires the tenant does not have the right to rent the property pursuant to the Immigration Act 2014 and the landlord or letting agent did not know, and could not be expected to know, that prior to accepting the holding deposit;
- if the tenant provides false or misleading information that affects the tenant's suitability to rent the property; or
- if the tenant decides not to enter into a tenancy agreement of the property or fails to take all reasonable steps to enter into a tenancy agreement.
6. Where a Prohibited Arrangement has been required, or the provisions relating to holding deposits have been breached, the potential consequences include:
- any Prohibited Arrangement in relation to a tenancy will not be binding on the tenant; the enforcement authority may take steps to force the repayment of any prohibited payments together with interest;
- the tenant may apply to the county court to recover any prohibited payments together with interest;
- the landlord/letting agent may face a fine of up to £30,000 (depending on the circumstances); and
- where the landlord or letting agent in breach is a repeat offender, they may be committing an offence which is liable on summary conviction to an unlimited fine. In turn this could result in the local authority applying to ban the landlord and/or letting agent from letting housing for a year or more.
Companies should note section 10 of the draft Bill. This provides that an officer of a body corporate (such as the director of a company) can be personally liable for an offence committed by the body corporate where it can be proved that the offence was committed with "the consent or connivance of, or to be attributable to any neglect" on the part of that officer.
7. The new provisions will be enforceable by local weights and measures authorities (i.e. Trading Standards). The Bill authorises the enforcing authority to use the proceeds of any financial penalty levied towards meeting that authority's enforcement costs in relation to the private rented sector. As such, the local weights and measures authority may have a financial incentive to enforce the provisions of the Bill once enacted.
8. The Bill envisages the establishment of a lead enforcement authority being either the Secretary of State or a local weights and measures authority nominated for the task. The lead enforcement authority would be responsible for, among other things:
- overseeing the operation of the relevant letting agency legislation; and
- providing information and advice to relevant authorities in England as well as the public.
In addition, the lead enforcement authority will be able to enforce the legislation where it thinks necessary.
9. The Bill amends the Consumer Rights Act 2015 so that, once enacted, letting agents who advertise on third party websites have to publish the following on that website:
- details of any relevant fees; and
- details of any client money and redress schemes of which the letting agent is a member.
10. The Bill will only have prospective effect – any Prohibited Arrangements entered into before the coming into force of the relevant provisions will not be subject to the new legislation.
We will provide further information, particularly in relation to the likely date of implementation, in due course.