The Tenant Fees Act 2019 (“TFA 2019”) will come into force on 1 June 2019 and will radically change the fees that a landlord is permitted to charge its tenants. As a result, many costs that have typically been recovered from tenants will be prohibited and must be borne by landlords. I have provided an overview of the key changes and highlighted some of the issues that landlords need to be aware of below.
The provisions will apply immediately to tenancies created on or after 1 June 2019 and to all tenancies, whenever granted, from 1 June 2020. As such, it is important that landlords familiarise themselves with the changes.
Landlords should immediately look to update their standard form tenancy agreements to ensure that any new tenancies will comply with TFA 2019 and review existing tenancy agreements to see whether any changes will need to be made.
TFA 2019 is part of a wave of recent reforms to the private rental market, with the aim of making it fairer for tenants and preventing perceived bad practices of landlords and letting agents. A key purpose of TFA 2019 is to make services payable by the person that contracts them.
The key changes and some of the issues that landlords need to be aware of:
WHAT DOES TFA 2019 DO?
TFA 2019 will ban a landlord or letting agent from requiring a tenant (or anyone acting on their behalf or guaranteeing their rent) to make certain payments in connection with their tenancy.
It will also be prohibited to require a tenant to enter into a contract with a third party for the provision of services (with the exception of utilities or communication services) or insurance or to make a loan to any person in connection with their tenancy.
TFA 2019 also restricts how holding deposits can be requested and dealt with and introduces additional obligations on letting agents (outside the scope of this blog).
WHAT TENANCIES DOES TFA 2019 APPLY TO?
A “tenancy” under TFA 2019 includes assured shorthold tenancies (ASTs), other than ASTs of social housing or long leases (effectively a lease over 21 years), student lettings and most licences to occupy housing in the private rental sector in England.
WHAT WILL LANDLORDS BE ABLE TO CHARGE TENANTS UNDER TFA 2019?
A landlord can only require a tenant to make a payment if it is on the list of “permitted payments” contained in Schedule 1 of TFA 2019. These are as follows:
There is a slightly awkward caveat to this. Within the first year of a tenancy, a landlord is prohibited from charging more at the start of the tenancy than for a later rental period. For example, if the rent is payable monthly, the tenancy agreement could not require the tenant to pay £1,000 in the first month and then £500 from month two (or even eleven) onwards.
This is essentially to prevent landlords from charging more rent in the first few months to recover the cost of banned fees in an attempt to get around the TFA 2019 provisions.
There is an exception to this. The rent can be reduced within the first year with the agreement of the tenant (once the tenancy has started) or under an upwards and downwards rent review clause (i.e. a clause allowing the rent to be decreased as well as increased in line with the market).
It is important to note that it would appear that a tenancy agreement will not be able to include an upwards only rent review within the first year. A staged increase in rent (where the tenancy agreement provides for the rent to increase to a set value or by a set amount) would be permitted.
B. A refundable tenancy deposit, but only up to the level set out in TFA 2019
This is money held as security for the performance of the tenant’s obligations under the tenancy. The maximum deposit that a landlord will be able to request is:
- If the annual rent is less than £50,000 – 5 week’s rent
- If the annual rent is £50,000 or above – 6 week’s rent
For properties let under an AST, landlords must continue to ensure that they comply with tenancy deposit scheme legislation.
C. A refundable holding deposit of no more than 1 week’s rent (based on the total agreed rent for the property)
This is money paid to reserve a property whilst pre-tenancy checks are being carried out or the tenancy agreement is finalised. A landlord is only entitled to hold one deposit in respect of each property.
Schedule 2 of TFA 2019 contains detailed provisions governing how long a holding deposit can be held and when this must be repaid. For further details on this, we recommend that you refer to the Government guidance.
D. A default payment for:
- the replacement of a lost key/security device;
The landlord or letting agent can only charge the reasonable cost incurred in replacing these and must be able to support this with evidence (e.g. invoices)
- late payment of rent (where the rent is more than 14 days overdue);
This is capped. The payment charged must be less than the amount payable if the tenant was charged interest on the unpaid rent at 3% per annum above the Bank of England base rate for each day that the rent remained unpaid.
However, the tenancy agreement must expressly permit these to be recovered.
Please note, TFA 2019 will not prevent the landlord from recovering damages for breaches of the tenancy agreement.
E. Payments for a variation, assignment or novation of the tenancy at the tenant’s request
This refers to amendments to the tenancy agreement which alter the obligations of the agreement (e.g. a change of tenant/sharer in a joint tenancy).
The landlord is permitted to charge £50 or its reasonable costs of amending the tenancy, if these are higher. Government guidance states that it is expected that charges will not exceed £50 and any increase should be supported with evidence.
F. Payment for early termination of the tenancy at the tenant’s request
This is where a tenant wants to leave before the end of the fixed term or, in the case of a periodic tenancy, before the end of their notice period.
This payment cannot exceed the actual financial loss suffered by the landlord or the reasonable costs that have been incurred by the letting agent in arranging for the tenant to leave early. If there are no missed rent payments, Government guidance expects that a landlord will not charge an early termination fee.
G. Payments for/in respect of council tax, utilities, a TV licence or the provision of communication services by the landlord, if this is payable by the tenant under the terms of their tenancy agreement.
WHAT CANNOT BE RECOVERED FROM THE TENANT?
Anything that is not listed in or exceeds the amount specified by Schedule 1 of TFA 2019 (summarised at (3.) above) is prohibited and should not be charged.
This means that payments, such as credit-check fees, inventory fees and fees for professional cleaning services are now prohibited.
However, a limited exception means that a landlord can charge a prohibited payment if the tenant is given the option of making this as an alternative to complying with another landlord’s requirement. This alternative requirement cannot also be prohibited under TFA 2019 and must be reasonable. This would allow landlords and tenants to make use of deposit replacement products, such as Reposit.
The Government guidance contains some useful examples of what can and cannot be recovered.
WHAT ABOUT TENANCY AGREEMENTS ENTERED INTO PRIOR TO 1 JUNE 2019?
A. Tenancies signed on or after 1 June 2019
The TFA 2019 requirements will apply immediately.
B. Tenancies signed prior to 1 June 2019
There is a 12 month grace period for existing tenancies.
Where a tenancy agreement signed before 1 June 2019 contains a provision that would breach TFA 2019, that provision will continue to be binding on the tenant until 31 May 2020. This will include provisions under statutory periodic tenancies which arise during the grace period following the expiry of a fixed term agreement entered into before 1 June 2019.
From 1 June 2020, that provision will cease to be binding on the tenant, but the remaining provisions of the tenancy will continue with full force and effect. Tenancy deposits in excess of the cap will not need to be returned immediately, but must be returned at the end of the tenancy. Holding deposits taken before 1 June 2020 are outside the scope of TFA 2019 (and no enforcement action can be taken in respect of these).
If a landlord or letting agent accepts a prohibited payment under a tenancy agreement after 1 June 2020, they have 28 days to return this before they will be found to be in breach.
WHAT ARE THE IMPLICATIONS OF NOT COMPLYING WITH TFA 2019?
A. Effect on the tenancy agreement
Following 1 June 2019 (or 1 June 2020 for existing agreements) any term of a tenancy agreement which breaches TFA 2019 will not be binding on the tenant (including anyone acting on their behalf and their guarantor). However, the agreement will continue to have effect in all other respects. If a prohibited loan has been made, the loan is repayable to the tenant on demand.
B. Sanctions for non-compliance
It is envisaged that Trading Standards will enforce the provisions of TFA 2019, although local councils may also undertake enforcement.
TFA 2019 provides the following sanctions for non-compliance:
- A fine of up to £5,000 for a breach of the requirements relating to prohibited payments and holding deposits. Each request for a prohibited payment will constitute a breach and a fine could be imposed for each breach.
- A criminal offence is committed if the landlord commits a further breach within five years of having a financial penalty imposed or being convicted of previous criminal offence under TFA 2019. A conviction could result in an unlimited fine. This is also a banning order offence under the Housing and Planning Act 2016 and repeat offenders could find themselves banned from being a landlord or letting property or on the database of rogue landlords and property agents.
- An enforcement authority has discretion to impose a fine up to £30,000 as an alternative to prosecution.
C. Repayment of fees
An enforcement authority can require the landlord or letting agent to return any prohibited payments made, together with interest. Alternatively, a tenant can apply to the First-tier Tribunal for these to be returned.
D. Restrictions on serving a section 21 notice to terminate the tenancy
A landlord will be prohibited from serving a valid section 21 notice under the Housing Act 1988 while they remain in breach of TFA 2019. Any unlawfully obtained payment or unlawfully retained holding deposit would need to be returned or, with the tenant’s consent, applied towards the rent or tenancy deposit. A new proscribed form of section 21 notice comes into force on 1 June 2019 to reflect these changes.
WHAT SHOULD A LANDLORD DO NOW?
We recommend that landlords read the Government guidance in detail as there are some subtle exceptions and limitations to what is permitted.
Landlords and letting agents should immediately review and update any standard form tenancy agreements and any tenancy agreements currently being negotiated to make sure that tenancy agreements entered into after 1 June 2019 will not breach TFA 2019.
It would also be prudent to start the process of reviewing existing tenancy agreements to ensure compliance by 1 June 2020.
It is recommended that landlords and letting agents ensure that they keep detailed records of any payments requested from tenants, including any supporting invoices, to ensure that they can easily justify these at a later date.