The Tenant Fees Act will come into force on 1 June 2019. The Act will apply to Assured Shorthold Tenancies (ASTs) granted on or after 1 June 2019 and will apply to all ASTs (including those predating the Act) with effect from June 2020.
The stated aim of the Act is to reduce the “hidden” costs that a tenant can face at the start of its tenancy by enabling a tenant to see, at a glance, what a given property will cost.
Whilst the Act will, undoubtedly, impact on “rogue” landlords and agents, it will affect all parties involved in residential lettings as many of the payments that will be prohibited under the Act are of a nature commonly charged by reputable landlords. All residential landlords will therefore need to ensure that their current practices regarding payments of holding deposits, rent deposits, inventory fees, penalties for late payments and other “in tenancy” fees comply with the Act.
The Act does not set out details of the payments that will be prohibited under the Act. Instead, it lists the payments that will be a “permitted payment” and any payment that is not a permitted payment will be deemed a “prohibited payment”. It should be noted, in particular, that commonly charged fees for services such as inventory checks and reference checks will be prohibited payments.
- Rent: A rent payment that is higher than the payment due for a similar period later in the term is not permitted. This is presumably intended to prevent the landlord from including a rent “spike” at the start of the term to offset its costs in granting the tenancy. The Act does not, however, prevent the parties from agreeing stepped rent increases or periodic rent reviews during the term.
- Tenancy Deposit: A deposit paid by the tenant at the start of the tenancy to secure the performance of its obligations in the lease is permitted provided that it does not exceed five weeks’ rent (if the yearly rent is less than £50,000) or six weeks’ rent (if the yearly rent is more than £50,000).
- Holding Deposit (sum): A holding deposit, of the type commonly paid by the tenant to a landlord or agent before the grant of a tenancy as evidence of the tenant’s intention to complete the tenancy, is permitted provided that it does not exceed one week’s rent, and provided that the landlord or agent does not already hold a deposit for the same property from the same tenant (for example in the case of a renewal).
- Holding Deposit (return): Any holding deposit must comply with the detailed provisions of Schedule 2 to the Act. In brief, a holding deposit may be held by a landlord or agent for a maximum of 14 days (or longer if agreed between the parties) and should be repaid to the tenant within 7 days of the tenancy being completed.
- Holding Deposit (retention): The landlord may retain the deposit if the tenant fails the “right to rent” checks or provides unsatisfactory or misleading financial or other information or withdraws from the transaction. The landlord may also retain the deposit if the tenant has not completed the transaction within the 14 day (or other agreed) period, provided that the landlord has taken all reasonable steps to enter into the tenancy before that date and provided further that the landlord, or its letting agent, has not behaved towards the tenant in a way that it would be unreasonable to expect the tenant to enter into the tenancy agreement.
- Default payments: The Act recognises three common circumstances of default, namely loss of keys, the late payment of rent and breach of the tenancy agreement, and each of these events may trigger a permitted payment. Any payment for lost keys or other security devices must reflect the reasonable costs incurred by the landlord and details of these costs must be given to the tenant in writing. Any payment as a result of late payment of rent must allow a “grace period” of 14 days but may then provide for interest from the due date to the date of actual payment provided that the interest rate does not exceed 3% above the then current base rate of the Bank of England.
- Payments to vary or assign a tenancy: A payment by the tenant to the landlord as consideration to vary or assign an existing tenancy will be a permitted payment but only if the fee is less than £50.
- Payment on termination of a tenancy: A payment by the tenant to the landlord as consideration of the tenant being able to terminate the tenancy before the end of its fixed term or without the requisite period of notice is permitted, but only so far as it reflects the actual loss (if any) suffered by the landlord.
- Council tax and utilities: A payment to cover council tax and/or utilities (electricity, gas or other fuel or water or sewerage) is a permitted payment.
- TV Licence: A payment for a TV licence is a permitted payment, provided that the tenancy agreement requires the payment to be made.
- Telecommunications: A payment for communication services is a permitted payment, provided that the tenancy agreement requires the payment to be made and provided that, where the payment is to a landlord, the amount does not exceed its reasonable costs incurred in connection with the provision of the services. Communications is defined to include telephones (not mobile), the internet, cable television and satellite television.
Penalties for no compliance
A provision in a tenancy agreement that purports to recover a prohibited payment from a tenant will be unenforceable (the reminder of the tenancy will remain in force).
A landlord or letting agent that requires a tenant to make a prohibited payment may face prosecution and payment of a fine of up to £5,000, or up to £30,000 if that person has committed a similar offence in the previous 5 years.
A landlord that is in receipt of a prohibited payment will not be able to serve a section 21 notice (to terminate the tenancy as a result of the tenant’s breach) until the prohibited payment is repaid to the tenant.
Timing and retrospective effect
The Act will apply to new tenancies initially, but will have retrospective effect after a one-year grace period, presumably to allow landlords to review their practices, and will therefore apply to all ASTs with effect from 1 June 2020.
New tenancies: The Act will apply to all new ASTs granted on or after 1 June 2019 (with the exception of new periodic tenancies granted after that date in respect of an AST granted before 1 June 2019).
Existing tenancies: The Act will apply to all ASTs with effect from 1 June 2020. After this date any contractual provisions that purport to require the tenant to make a payment that is prohibited by the Act will be of no effect and a landlord or letting agent that accepts a prohibited payment and does not return it with 28 days will be treated as having received a prohibited payment.
Application of the Act
The Act defines the term tenancy by reference to the Housing Act 1988 to include all ASTs (excluding those granted for more than 21 years, social housing, certain student lettings and licence to occupy housing.)
Whilst it is likely that landlords will want to apply the same provisions to all residential tenancies, it should be noted that a tenancy will not be an AST unless: (i) the tenant is an individual or individuals and uses the property as its only or principal residence and (ii) the yearly rent exceeds £250 or, if in London, exceeds £1,000 and is less than £100,000.
Review and prepare
The Act does not come into force until June, however landlords, their agents and advisors should take steps now to review current practices and address any current practices or payments that will amount to prohibited payments.
Standard form documents should be reviewed and updated to ensure that all new lettings commencing after 1 June 2019 comply with the Act. The required changes are relatively straightforward, however, sufficient time should be allowed to ensure that all documents are updated, and all internal practice and procedures are agreed and communicated, in good time for the introduction of the Act on 1 June.