Clampdown on Tenant Fees is Now in Effect
In what some observers might see as merely the first step in the wider reform of the lettings and leasehold residential property markets, a number of fees routinely charged to tenants were abolished on 1 June 2019.
The new rules are likely to have some impact on landlords, who may find that the amounts they pay to their appointed lettings agents increase as their management charges are no longer passed to tenants.
The background
The Government pledged in its 2017 election manifesto to ban letting fees paid by tenants and generally improve fairness in the lettings sector. Its proposal to ban fees was formally announced in the Chancellor’s 2016 Autumn Statement.
Following a quite lengthy process in Parliament, the ban passed into law on 12 February 2019, receiving Royal Assent and becoming enshrined in the Tenant Fees Act 2019.
Official estimates state that the ban will save tenants around £240 million a year in letting fees.
What does the ban cover?
The ban will apply to both assured shorthold tenancies (in other words, most day-to-day short term tenancy agreements) and licences to occupy within the private rented sector.
It does not cover properties subject to ‘long’ leases, tenancies of social housing or holiday lettings.
Examples of the charges banned by the 2019 Act (“prohibited payments”) include:
- Upfront application/referencing fees
- Fees for check in/check out reports and inventories
- Tenancy renewal charges
The ban will apply to new tenancies and licences granted on or after 1 June 2019. It will, however, apply to all tenancies and licences, regardless of when they came into effect, from 1 June 2020.
Some fees (“permitted charges”) are not covered by the ban and usually stem from the actual tenancy itself once it has been created, such as default payments for loss of keys or late payment of rent and for the variation, assignment and/or premature termination of tenancies. Payments for council tax, utilities, TV licences, and communication services also fall outside the scope of the ban.
In addition, rent should be paid in equal instalments throughout the duration of the tenancy, i.e. weekly or monthly. Rent cannot be increased/inflated, for the purposes of the first payment and subsequently lowered for the remaining rent payment dates. The difference or excess will be classed as a prohibited payment.
What are the consequences of failing to comply with the ban?
They could be serious. It is possible that repeated failures to comply may amount to a criminal offence, which can potentially attract an unlimited fine. Fines of up to £30,000 can also be imposed by trading standards authorities and/or district councils.
In addition, landlords who retain any prohibited payments will not be able to serve termination (‘section 21’) notices on their tenants, until the prohibited payment has been returned. This will stop landlords from regaining possession of their properties and re-letting them.
This article gives only a short summary of what lies ahead. If you are a landlord, it is very important you review immediately the charges you and/or your managing agents typically make to your tenants and consider the consequences the ban may have on your financial returns/profit. Speak with your agents now, as we are aware many of them are repackaging the services they provide to their landlord clients as a result of the ban.
Crucially, do make sure all your standard tenancy agreements and application forms are up to date and compliant by checking with our property lettings specialists at Leonard Gray, John Appleby and Daniel Clarke. Contact us for a no-obligation review of your documents and for suggestions as to how they might be updated. For further information, you can also visit the gov.uk website.