The issue of unfair administrative fees charged by landlords and agents has long been a hot topic in the private rented sector.
The Tenant Fees Act 2019 (the Act) is designed to tackle the imbalance of power and increase transparency and competition in the lettings market. It introduces significant changes limiting the fees agents and landlords can charge tenants and brings in a range of sanctions for non-compliance. Note that the changes only affect assured shorthold tenancies, student lettings and licences – they do not affect social housing or other long leases. The changes come into effect for all new lettings from 1 June 2019; they will also apply to all existing lettings from 1 June 2020.
Only ‘permitted payments’ can be charged to a tenant or prospective tenant. Any fees that do not fall within one of the categories of permitted payments listed below are banned.
The rent charged for the first (and any further initial) rental periods (e.g. week/month/quarter) should not be more than the rent charged for any subsequent rental period. This avoids a situation where the early rental payments are increased to disguise what would otherwise have been a banned fee.
The amount of any tenancy deposit is limited to the equivalent of five weeks’ rent where the annual rent under the tenancy is less than £50,000 (or six weeks’ rent if more than £50,000).
Any fee charged to a tenant in order to hold or secure the property pending the grant of a tenancy agreement should not exceed one week's rent. The holding deposit may (with the consent of the tenant) be applied to the first month's rent or the deposit.
Event of default
The only ‘events of default’ for which a fee may be charged are i) the loss of a key or security device needed for access to the property and ii) failure to pay rent in full within fourteen days of the due date. This only applies if the tenancy agreement specifically states that the landlord may charge a fee in these circumstances. Otherwise, such fees are prohibited.
Payment on variation, assignment or novation
The landlord (or its agent if the agent makes the arrangements) may charge a fee for providing its consent to the variation, assignment or novation of the tenancy agreement at the tenant's request. This should not exceed £50 or the reasonable costs of the landlord or managing agent for considering or arranging the transaction.
Payment on termination of a tenancy
If the tenant ends the tenancy before the end of the contractual term the landlord may charge the tenant an amount equivalent to the loss suffered by the landlord as a result of the early termination (or the reasonable costs of the agent if the agent is arranging this).
Payment for utilities, television licence and communication services
A tenant may be charged for utilities, a TV licence and for communication services provided the tenancy agreement requires the tenant to pay for these. For the purposes of the Act, utilities means i) electricity, gas or other fuel and ii) water and sewerage. Communication services means a telephone, the internet and cable and satellite television.
Breach by a landlord or managing agent
There are a number of potential legal and financial consequences if the Act is breached.
- The tenant will not be bound by any term of the tenancy agreement which requires the tenant to make a prohibited payment (but the remainder of the tenancy agreement will still be enforceable).
- A financial penalty of up to £5000 may be payable for the landlord’s / agent’s first breach of the Act.
- A criminal offence will have been committed if the landlord / agent has already had the financial penalty mentioned above imposed on them for the same breach in the previous five years.
- If a criminal offence is committed a financial penalty of £30,000 may be imposed or the landlord / agent may be liable on summary conviction to a fine.
- The landlord is prevented from serving notice to terminate the tenancy under s.21 of the Housing Act 1988 until it has paid back any banned payments first. In practice this may be the most powerful sanction for compliance as it prevents the landlord getting back possession of the property to re-let it.
As with previous residential lettings regulations, enforcement of the new rules will be in the hands of local authority trading standards departments.