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

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

Under the terms of the Act, landlords and letting agents in England will be banned from charging letting fees to tenants. Letting fees are already banned in Scotland. While for now they’re still legal in Wales and Northern Ireland, a ban was put before the Welsh government in June 2018.

What is the aim and likely impact of banning letting fees to tenants?

Forming part of a wider package of measures introduced by the government, the ban is aimed at rebalancing 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.

“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

 

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

Some in the industry fear that the new legislation may contribute to an increase in rents, which would obviously be detrimental to tenants, as landlords and agents look for alternative ways in which to maintain their income. In Scotland, where fees are already banned, rents have increased slightly, but there has also been a rise in agents entering the market, so it is difficult to say with any certainty whether the ban is a factor. Housing minister Heather Wheeler has said that the government will review the impact of the ban in the future if rents do rise in England following the introduction of the legislation.

For now however, landlords and letting agents need to ensure that they are prepared and have a solid understanding of how they will be affected from 1 June 2019.

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What will change when the tenant fee ban comes into force in England?

Up until now, tenants have been 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 right down to administrative things like phone calls and postage.

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

This will all change once the tenant fee ban comes into force, when landlords and letting agents will be banned from charging fees to tenants signing a new tenancy or renewing a tenancy after 1 June 2019.

This includes fees for:

  • Referencing
  • Credit and immigration checks
  • Administration
  • Renewing a contract

 

What fees are permitted under the tenant fee ban?

The key point to note 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. You cannot evict a tenant using the section 21 eviction procedure until you have repaid any unlawfully charged fees or returned an unlawfully retained holding deposit.

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Who does the tenancy fee ban apply to?

The new regulations apply to new and renewed tenancies beginning on and following 1 June 2019. Tenancies will only fall under the ban if they are renewed for a new fixed term.

Tenancies that become contractual or statutory periodic tenancies will not be affected.

However, the ban will apply to most private tenants, including those who have an assured shorthold tenancy, are in student housing and lodgers.

 

What are the key features of the tenancy fee ban?

In addition to the ban on fees, there are a number of other features to the tenancy 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)

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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 will 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.

An 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 prepare for the upcoming changes.