Tenant Fee Ban
For the most part, the Act has brought about new restrictions on the imposition of fees payable by tenants entering into, renewing or exiting a tenancy at the end of an agreed contract. No longer will landlords and letting agents be able to bolt these kinds of additional fees onto their letting agreements, which have been declared unnecessary and unjustified. This restriction also extends to fees imposed in the event that tenants are required to enter into a contract with a third party for a payable service.
The Act includes a complete rundown of payments that are permitted, which include the rent, tenancy deposit, holding deposit, additional payment in the case of rent arrears, fees for early termination of a tenancy agreement, payment for provision of utilities, council tax payments and other general household bills. However, all payments not covered in the list are now disallowed by the Act. In addition, landlords retain the right to specify the communications and/or utility provider their tenants use – letting agents are prohibited from doing so.
Landlords and letting agents will still be able to pass certain costs and expenses on to their tenants, but are only permitted to do so by spreading the costs over the total term of the tenancy. Requesting lump-sum payments at the beginning of the tenancy will no longer be allowed – the costs must be spread over the term of the tenancy by way of an elevated monthly rent payment. However, the new legislation does not specify the extent to which this restriction applies in the event that the tenant breaches their tenancy agreement. For example, the costs of professional cleaning if the tenant breaches a clear no-smoking policy.
Calculating Rent Arrears
In the event that rent payments fall into arrears of more than 14 days, landlords and letting agents are entitled to impose penalties of no more than 3% above the base rate (0.75% at the time of writing). Should rent remain in arrears several months, it is the responsibility of the letting agent or landlord to consider:
- Any changes to the Bank of England base rate during this time
- The fact that every subsequent rent payment missed after the first can only attract interest after it has been in arrears for more than 14 days
- All terms and conditions specified in the tenancy agreement regarding obligations on both sides in the event of rent arrears
It’s important to note that any interest charged that goes beyond the 3% permitted in the Act will be considered a prohibited payment on the part of the landlord or letting agent.
Tenancy Deposits and Holding Deposits
New restrictions have also been imposed on holding and tenancy deposits. In the vast majority of instances, a tenancy deposit must be calculated at no more than five weeks’ rent, while holding deposits should total no more than one week’s rent.
These new restrictions will apply to all new tenancy agreements and renewals dated June 1 and onwards. In the event that a tenancy is renewed wherein the previous deposit payment exceeded this new limitation, the difference must be refunded to the tenant in a timely manner. There is no allowance for either of these caps to be exceeded by consent, though the landlord or letting agent may increase the monthly rent price to compensate if required.
The terms within the new Tenant Fees Act place no significant restrictions on the recovery of costs incurred in the event of a breach of contract on the part of the tenant. Specifically, the Act states that “A payment of damages for breach of a tenancy agreement or an agreement between a letting agent and a relevant person is a permitted payment.” Therefore, there are no significant changes to the rights or obligations of letting agents and landlords as far as recovering damages or losses is concerned, with regard to breaches of contracts.
As of June 1, new legislation states that it is permissible for the tenant to pay a fee, or to enter into a third-party contract that attaches a fee if it’s given as a genuine and reasonable alternative to compliance with a requirement in the tenancy. In a working example, a tenant provides a tenancy deposit (which is an authorised payment) with the option to enter into a paid deposit replacement scheme (at their own expense) if preferred.
Holding Deposit Refunds
One of the more complex aspects of the Tenant Fees Act concerns the calculation and collection of holding deposits. For example, unless an extended timetable is agreed in writing by both parties, all holding deposits should be refunded no later than seven days from the commencement of the tenancy. In the event that the applicant/client is not granted a tenancy, the holding deposit must be refunded no later than seven days after the decision is reached.
Exceptions apply, should it be discovered that the prospective tenant submitted inaccurate, incorrect or deliberately misleading information as part of the application process. The seven-day refund rule is not applicable when the tenant withdraws from the perspective tenancy before it is granted. Likewise, the new rules do not apply in instances where a tenant is declined tenancy on the grounds of their immigration status.
In all instances, landlords and letting agents are advised to exercise extreme caution, should they wish to withhold a holding deposit beyond the seven-day allotted period. Unless there is a clear case for which evidence can be provided, it may be considered a prohibited payment and lead to sanctions being imposed.
Differences Between the Act and the Guidance
There are a handful of notable discrepancies between official government guidance and the terms outlined in the new Tenant Fees Act. One example of which being a questionable prohibition in the government guidance, which states that a tenancy agreement must not contain a clause requiring damages to be paid on the part of the tenant upon breaching the tenancy agreement. Whereas the Act makes it clear that collecting damages from tenants in the event of a breach of contract is permitted.
In addition, government guidance also states that a letting agent or landlord cannot continue to advertise a property publicly, after collecting a holding deposit from a prospective tenant. This completely contradicts the terms of the Act, which state that there are no restrictions imposed on the landlord or agent’s authorisation to market their property for up to 14 days after receiving a holding deposit. However, the agreement signed when collecting the holding deposit must state clearly the intention to continue advertising the property.
Sanctions for Non-Compliance
Trading Standards will enforce the rules of the new Tenant Fees Act and enforce penalties and fines where necessary. The first offence committed by a letting agent or landlord is considered a civil matter, with a maximum penalty payable of £5,000. The decision to appeal would take the case to the First Tier Tribunal.
Repeat offenders – i.e. landlords and letting agents who break the rules within five years of a previous penalty – will be liable for criminal punishment. Trading Standards is authorised to issue fines up to a maximum of £30,000 and can direct cases to the magistrates’ court. Should the landlord or letting agent be successfully prosecuted, they may face an unlimited fine and could be temporarily or permanently prohibited from letting properties. Company directors may also be prosecuted if it is determined that the offence was committed either with their consent or knowledge.
Agents and landlords are therefore urged to tread carefully and to ensure they fully understand their legal position, should an issue regarding payment in either direction be encountered.