The tenant fees ban – what do you need to know?

The Tenant Fees Act, which came into force on 1 June 2019, set out the Government’s approach to banning fees paid by tenants in the private rented sector and capping tenancy deposits in England.

When it first came into force, the ban only affected contracts that were signed on or after 1 June 2019, which meant that landlords and agents could continue charging fees associated with a tenancy agreement signed before 31 May 2019. The Government gave landlords and agents a year-long transition period to prepare for the ban extending to all tenancies, regardless of their start date.

The transition period ended at midnight on 1 June 2020, so the ban has now been extended to cover all existing tenancies. This means that, from 1 June 2020, ALL fees, no matter when the tenancy agreement was signed, are banned, unless they are ‘permitted’ fees. The ban applies to most private tenants, including those who have an assured shorthold tenancy, are in student housing and lodgers.

 

What do landlords and agents need to do following the end of the transition period in June 2020?

Since the year-long transition period has now ended, it is important that landlords and agents check carefully that they are compliant with the Tenant Fees Act.

During the transition period, fees written into existing contracts could continue to be charged. But now that the transition period has ended, the ban applies to all tenancies (both fixed term and periodic), regardless of when the tenancy started. Any fees clauses in tenancy agreements will be invalid if you charge prohibited fees, so landlords and agents must check their tenancy agreements to make sure there are no ‘prohibited fees’ included, and that they are fully in line with the new legislation.

For example, tenants on existing contracts which involved paying check-out fees up front, will need to be refunded. These became prohibited payments on 1 June 2020 so agents and landlords who took these fees will be in breach of the new legislation and will need to return the fee to their tenants, whether the tenancy is ending or not.

Landlords need to be aware that they will be unable to evict a tenant using the Section 21 eviction procedure until they or their agent have repaid any unlawfully charged fees or returned an unlawfully retained holding deposit.

 

Get a landlord insurance quote

Get a quote online in under 4 minutes

Deposits are different

Although deposits held for existing tenancies agreed before June 2019 could now exceed the five-week cap that was introduced alongside the fee ban, in this situation you will not need to refund the excess deposit until such time as the tenancy is renewed.

LandlordZONE provides further clarification on deposit refunds for ongoing tenancies signed before 1 June last year, as this has been a source of confusion for landlords and agents who mistakenly believe all deposits must comply with the cap by the end of the Tenant Fees Act transition period.

You can find out more about how deposits are affected by the tenant fee ban in mydeposits’ guide, The tenancy deposit cap – what you need to know.

Get a landlord insurance quote

Get a quote online in under 4 minutes

What is the reason for banning letting fees to tenants?

 

“Tenants will be able to see, at a glance, what a given property will cost them in the advertised rent with no hidden costs.”

– The Government

 

Forming part of a wider package of measures introduced by the Government, the aim of the ban was to rebalance the relationship between tenants and landlords to make renting properties in England fairer and more affordable for tenants by reducing costs at the outset of a tenancy.

The Government hopes that the bill will improve transparency and competition in the private rental market. But it has had significant implications for landlords and letting agents, who have had to develop strategies to deal with the lost income due to the fee ban.

A recent letting agent focus group put together by LandlordZONE explored what was happening on the ground for letting agents following the tenant fee ban. Find out what they had to say here.

Get a landlord insurance quote

Get a quote online in under 4 minutes

What changed as a result of the tenant fee ban?

Until the Tenant Fees Act came into force, tenants could be charged fees for a range of services involved in setting up or renewing a tenancy; from referencing and credit checks, to carrying out an inventory and renewing a contract, right down to administrative things like phone calls and postage.

Since there were no rules setting out how much they could charge, different agents and landlords levied a variety of fees on their tenants for the same service, with some renters paying out excessive amounts to let out a property.

The tenant fee ban – what do you need to know?

What fees are permitted under the tenant fee ban?

The key point is that every fee is illegal unless it is expressly stated as a ‘permitted payment’. The only fees that landlords and letting agents can charge to tenants under the ban are:

  • Rent
  • A refundable tenancy deposit capped at no more than five weeks’ rent where the annual rent is less than £50,000, or six weeks’ rent where the total annual rent is £50,000 or above
  • A refundable holding deposit (to reserve a property) capped at no more than one week’s rent
  • Payments to change the tenancy when requested by the tenant, capped at £50, or reasonable costs incurred if higher
  • Payments associated with early termination of the tenancy, when requested by the tenant
  • Payments in respect of utilities, communication services, TV licence and council tax
  • A default fee for late payment of rent and replacement of a lost key / security device, where required under a tenancy agreement

If the fee you are charging is not on this list, it is a prohibited payment and you should not charge it.

Get a landlord insurance quote

Get a quote online in under 4 minutes

What are the key features of the tenant fee ban?

In addition to the ban on fees, there are a number of other features to the tenant fee ban that landlords and letting agents need to be aware of. These are:

  • A limit on refundable tenancy deposits to five weeks’ rent
  • A limit on holding deposits required to secure a property to one week’s rent
  • Fines of £5,000 for a first offence (civil)
  • Fines of £30,000 for a second offence (criminal)

Get a landlord insurance quote

Get a quote online in under 4 minutes

Financial penalties for a breach of the tenant fee ban

A breach of the legislation will usually be a civil offence with a financial penalty of up to £5,000. However, if a landlord or agent commits a further breach within five years of the first breach, this may be considered a criminal offence with a penalty of up to £30,000.

If you are convicted of an offence under the ban or receive two or more financial penalties within a 12 month period, a local housing authority has the discretion to include you on the database of rogue landlords and property agents.

The ultimate offence under the Tenant Fees Act 2019 is a banning order offence under the Housing and Planning Act 2016.

Given the severe penalties for non-compliance, it is vital that landlords and agents comply fully with the Act and are aware that it now applies to ALL existing tenancies, no matter when the tenancy agreement was signed.

Documents related to the Tenant Fees Act, which sets out the Government’s approach to banning letting fees paid by tenants in the private rented sector can be found here.

Read more about your responsibilities in ‘Legislation for landlords: Everything you need to know‘.

Letting fees are already banned in Scotland and Wales. For now, they’re still legal in Northern Ireland.