The Tenant Fees Act 2019 – how will it impact tenancy deposits?
From 1 June 2019, the Tenant Fees Act comes into force, prohibiting landlords and agents from charging any fees to tenants, other than those ‘permitted’ by the Act. Any tenancy that is signed on or after 1 June must adhere to the new regulations.
Who does the act apply to?
The Tenant Fees Act applies to assured shorthold tenancies, occupation contracts, student accommodation tenancies and licences to occupy housing in the private rented sector.
The act only applies to landlords, agents and tenants in England.
Letting fees are already banned in Scotland and, while they are currently still legal in Wales and Northern Ireland, a ban was put before the Welsh government in June 2018 and is intended to commence this September.
What fees can be charged?
There are a number of fees that are ‘permitted’. These include:
- Rent
- A refundable holding deposit (up to one week’s rent per property)
- Tenancy deposit (exclusions apply, see below for more information)
- Changes to the tenancy (for example, introduction of a pet, permission to run a business from the property or other amends that change the contractual responsibilities. This is capped at £50 per change unless the landlord is able to prove that the resulting cost was higher AND is reasonable)
- Utilities (electric, gas, water)
- Council tax, TV licence fees, communication fees (e.g. telephone, broadband etc.)
- Fee for early termination of tenancy/surrender fee – the landlord must be able to show reasonable loss has been suffered, for example as a result of referencing, re-advertising and can charge rent until the next tenant moves in
- Default fees which should be written into the tenancy agreement for:
- late payment of rent – this can only be after 14 days have passed and interest at a maximum of 3 per cent above the base rate
- replacing locks/security fobs. The Guidance states, for example, that a new standard door key could be valued between £3-£10, a specialist door key between £5-£20 or a replacement key fob up to £50; there may be circumstances where it is necessary to pay more and ALL claims must be supported by evidence from the landlord of costs and be reasonable
What fees are prohibited under the act?
Any fees not listed on the government’s ‘permitted’ fees list are prohibited. Landlords and agents are NOT able to charge fees for:
- Property viewing
- Referencing
- Administration charges
- Guarantors (this can be a condition of the tenancy but you cannot charge fees for meeting this condition)
- Inventory checks (both check in and check out)
- Right to Rent checks (the landlord or agent are liable for this cost, unless the tenant fails the check)
- Pet fees/deposits
- Renewal/exit fees
- Interest on permitted payments
- Professional end of tenancy cleaning – as a special clause (breach of contract ONLY)
- Third party fees (unless the tenant chooses to undertake the services themselves)
- Gardening services (unless included within the rent)
For a full list of permitted and prohibited fees please visit the GOV.UK website for guidance.
Changes to tenancy deposits:
As part of the Tenant Fees Act 2019, the amount of tenancy deposit that a landlord or agent can request will be capped and dependent on the total annual rent for the property.
If the total annual rent is less than £50,000, landlords and agents are only permitted to ask tenants to pay up to five weeks’ rent.
If the total annual rent exceeds £50,000 and is below £100,000 then landlords and agents can request up to six weeks’ rent from tenants as a tenancy deposit.
Any deposit taken from a tenant must be protected in one of the three government backed tenancy deposit protection schemes, such as mydeposits, within 30 days of the payment being taken.
GOV.UK advise that you are able to calculate the total annual rent by using the following formulae:
- total monthly rent x 12
- total weekly rent x 52
You can also calculate the total weekly rent using one of the following formulae:
- (your monthly rent x 12) ÷ 52
- your annual rent ÷ 52
What are the penalties for non-compliance?
Penalties for non-compliance are clear and severe. It is therefore important to understand what fees are permitted and remind yourself that if a fee is not on this list, IT IS PROHIBITED.
Breach of legislation will usually be a civil offence carrying a financial penalty of up to £5,000 per fee. Despite this, if a further breach is committed within five years of a financial penalty or if there is a conviction for another breach, this becomes a criminal offence.
The penalty imposed for a criminal offence – a banning order offence under the Housing and Planning Act 2016 – is an unlimited fine.
According to GOV.UK “Where an offence is committed, local authorities may impose a financial penalty of up to £30,000 as an alternative to prosecution.” It is down to the local authority’s discretion as to whether they wish to prosecute or impose a financial penalty.
Failure to repay a tenant’s holding deposit will be treated as a civil offence and carries a penalty of up to £5,000.
In addition, landlords and agents who have charged an unlawful fee will not be able to evict a tenant until they have repaid these fees. Failure to comply with the legislation can therefore have serious ramifications. Penalties will be enforced by trading standards and tenants have the ability to apply to the First Tier Tribunal for a refund of a prohibited fee.
If in doubt it is advisable to seek clarification from GOV.UK. In addition, landlords, letting agents and tenants can read the government’s comprehensive ‘Tenant Fees Act 2019: guidance’ here.
Need more guidance on the Tenant Fees Act 2019?
Changing regulation and the introduction of new Acts, such as the Tenant Fees Act, can be confusing but as with all new legislation it is imperative to get it right from the start. From 1 June 2019, all landlords and agents will be expected to adhere to the government guidelines.
Hamilton Fraser, parent company to mydeposits, recognises that knowledge is key and as a result the ‘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, including signing up for the events, here.