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May 13

2019
by Millie Wickens
The tenant fee ban and the deposit cap

After nearly three years in the making, the tenant fee ban is almost upon us in England. Letting agents and landlords should by now have their paperwork in order. After all, there has been no shortage of advice for those keen to steer clear of the severe penalties for non-compliance.

Unless you have been taking steps to avoid the news in recent months, you will be aware of the main features of the ban – principally, that under the ban, every fee is illegal unless it is expressly stated as a ‘permitted payment.

You will also know that the ban limits the amount a tenant can be charged for a holding deposit and a security deposit. But what exactly does this mean in practice?

The deposit cap in practice

Deposits will be capped at the equivalent of five or six weeks’ rent. Where the annual rent is up to £50,000, the deposit will be capped at a maximum of five weeks’ rent. Where the annual rent is over £50,000 and up to £100,000, it will be capped at a maximum of six weeks’ rent.

Much of the focus of commentary around the tenant fee ban has been on the banning of fees, yet it is this impending legislation involving the deposit cap that has been a source of confusion for many of our mydeposits customers. As is generally the case when it comes to implementing new legislation, the devil is in the detail. Are you tenant fee ban ready?

In mydeposits’ new guide, The tenancy deposit cap – what you need to know, we provide full guidance, including step by step advice on adjusting deposits for the deposit cap. From 1June our deposit calculator will be available on the mydeposits website as a free to use tool to work out the maximum deposit amount you can take based on the annual rent and the five / six week deposit cap. Meanwhile, here we offer some quick top tips to help you stay on the right side of the law.

The deposit cap – top tips

1 – Remember, the primary trigger for new tenancies is when the tenancy agreement was signed, not when the tenancy starts

2 – The transition period 1 June 2019 to 31 May 2020 will only affect deposits where the tenancy is renewed or a new fixed term starts

3 – If a tenancy rolls into a statutory periodic tenancy, the deposit remains as is, until renewed or a new fixed term starts

4 – Once a tenancy is renewed, or a new fixed term agreement is signed, after 1 June 2019 any excess deposit over the five or six week cap, proportionate to the new rent, must be refunded.

5 – Some grounds on which the holding deposit can be withheld are:

a. If the tenant pulls out of the tenancy before the contracts are signed
b. If the tenant fails a Right to Rent check
c. If the tenant provides false or misleading information
d. If the tenant doesn’t enter the agreement by the deadline
e. If the tenant agrees that it can be put towards the first months’ rent

6 – You will no longer be able to take an increased deposit if the tenant has a pet.

7 – You can charge an insurance premium for a deposit replacement scheme, but this must not be compulsory. The tenant must be given the choice between paying a five week refundable deposit or a non-refundable insurance premium for an alternative product.

When it comes to the tenant fee ban, it pays to be informed – enforcement authorities have been told to prosecute those who fail to comply and the level of penalties involved means that there will be a huge incentive on local authorities to enforce the legislation. For more information on the nitty gritty of the ban, you can hear ARLA CEO David Cox responding in detail to a Q&A from letting agents in Goodlord’s webinar here or read his answers here. As he emphasises, “There are no loopholes.”

Need more guidance on the Tenant Fees Act 2019?

Hamilton Fraser’s ‘HF Academy’ is running a series of workshops offering property professionals advice and strategies to help navigate the tenant fees ban. You can find out more and sign up for our events here.