This must read report will teach you everything you need to know about the “Tenant Fees Act” and how to avoid incurring huge potential fines - - - - -
Tenant fees act 2019 summary
This Post Will Give You A Concise Summary Of The Tenant Fees Act 2019 – Which Was Introduced Into English Law On 1st June 2019. This follows the introduction in Scotland way back in November 2012. And also in Wales from 1st September 2019.
According to the UK government, the Tenant Fees Act 2019 was introduced to bring to an end the charging of exorbitant fees by letting agents and self managing landlords. These fees are mainly centered around letting property using Assured Shorthold Tenancy Agreements or AST's.
However we're wondering whether this bill has gone too far and tipped the balance in favour of tenants - to the detriment of landlords? Leaving letting agents and landlords out of pocket and unable to cover their costs of letting?
So please take a read of this concise summary of the tenant fees act 2019 - where you'll learn:
5 minute read
Tenant fees act 2019 summary
The tenant fees act covers the renting of property in England, Scotland and Wales and has been introduced to restrict the number of "additional fees" that letting agents and self-managing landlords can charge tenants.
It covers the following types of tenancy agreements:
- Assured Shorthold Tenancy agreements.
- Licences - for example letting to a lodger.
- Student lettings - provided by educational institutions.
It's claimed that tenants who are renting properties using the above agreements have been exploited by having large fees added on - which are seen as excessive - hence the legislation to restrict them.
NOTE the tenant fees ban doesn't apply to company lets where - for instance - a company (not an individual) rents overnight accommodation for staff to use when working away from home.
Tenant fees ban update
Firstly we'll give you a comprehensive list of which fees are STILL ALLOWED. And also let you know HOW MUCH you're allowed to charge.
We'll then go on to give you a detailed explanation of which fees are NOT ALLOWED any more.
Here's the fees you are STILL ALLOWED to charge:
- Rent payable - not really a fee, but listed anyway
- Holding deposit* - a refundable holding deposit (to reserve a property) capped at no more than 1 week’s (proposed) rent. Further Info Here.
- Tenancy deposit - a refundable tenancy deposit of no more than 5 weeks rent for annual rents of less than £50,000 OR no more than 6 weeks rent for annual rents of £50,000 or greater. This deposit needs to be protected within 30 days in one of the three Government backed tenancy deposit schemes.
- Payments for any changes to the tenancy - when requested by the tenant. These payments are capped at £50 (or reasonably incurred costs, if higher) An example here is when a tenant requests a change to allow for a pet or reassignment of tenancy. Etc.
- Payments for an early termination of the tenancy - when requested by the tenant. These payments cover the loss of rent and re-advertising. Note you can't overlap tenancies and take 2 payments - or ask for any final payment lump sums.
- Payments in respect of utilities, communication services, TV licence and Council Tax etc where the landlord initially pays.
- Late payment of rent - has to be more than 14 days late. Restricted to 3% above Bank of England base rate.
- A fee for the replacement of a lost key.
- Damage - where a tenant has caused damage to a property - letting agents and landlords can still seek compensation via deductions from the deposit - or court action.
Any other charges that landlords request - that are outside of the above guidelines - are classed as "prohibited payments".
Any charges that a landlord makes - that cannot be evidenced in writing with receipts - will also be considered a "prohibited payment".
*Holding deposits - further info
- As mentioned in the "list of allowable fees" holding deposits (to reserve a property) are capped at no more than 1 week’s (proposed) rent
- holding deposits can normally be held for a maximum of 15 days whilst the tenancy is arranged - unless otherwise mutually agreed (in writing).
- You're only allowed to take 1 holding deposit per property at a time.
- If a holding deposit is retained unlawfully then you risk a fine up to £5,000.
When a holding deposit must be returned
- Holding deposit must be returned within 7 days of a tenancy agreement being arranged. Alternatively the holding deposit can be used as part of the tenancy deposit or part payment towards rent (with written agreement).
- If the tenancy doesn't go ahead through no fault of the tenant then the holding deposit must be returned to them.
- The holding deposit must be returned if an unfair requirement is made by the letting agent / landlord that breaches the letting fees ban.
When a holding deposit can be part retained
- When tenants themselves back out of the tenancy agreement.
- If the tenant fails right to rent checks.
- If the tenant supplies false information.
- When the tenant fails to supply information within 15 days - despite being repeatedly prompted.
- The explanation for refusing a tenancy must be provided in writing within 7 days of declining. Or within 7 days after the 15 days deadline above. If reason for declining tenancy isn't given on time and in writing - then tenant entitled to full refund.
- Evidence of costs associated with partially retaining deposit must be given to the tenant - for example receipts.
Here's the fees you ARE NOT allowed to charge:
YYou can’t charge for anything apart from those on the previous list. So if the item you’re wanting to charge for isn’t listed then – DON’T CHARGE FOR IT.
If you do make an incorrect charge – you’ll be risking a HUGE fine.”
It’s not simply a case of saying: “well I think this is a reasonable thing to charge my tenant for – so I’ll charge them anyway.”
Here’s some examples of items that CANNOT NOW be charged for. I’m betting there’s quite a few things here you’ve routinely charged for in the past – that are now not allowed:
- Credit checks of tenants. If you credit check a tenant then it's now the letting agent / landlord's cost. Also you can't demand a tenant obtains and pays for their own credit check.
- Check-in / check-out fees.
- Referencing fees.
- Assessing guarantor credentials.
- Administration costs - for example drawing up the AST
- Charges for missed mortgage payments due to tenant being late with the rent.
- Services, such as cleaning or gardening
- And many more...
Tenant Fees Act 2019 - Penalties
There's a penalty of up to £5,000 for a first offence. Subsequent breaches within five years are considered criminal offences with an unlimited fine on conviction - and the possibility of a banning order.
Alternatively a landlord can be fined up to £30,000 by the local authority as a civil penalty.
Where a breach has occurred and a banned fee or payment is taken - tenants will be able to get any money wrongly taken paid back through a tribunal.
Disguising the fees
The letting agent / Landlord cannot simply disguise the lettings fees by - for example - charging a higher rent for the first month - and then charging less for subsequent months.
Note: you may still increase / decrease the amount of rent during the first 12 months but only if there is agreement to do so from the tenant or if there is a rent review clause.
Tenant Fees Act 2019 - Enforcement
Local trading standards will be able to enforce this legislation where available. And district councils will also be able to enforce where there is no trading standards in place.
Section 21 notices
Landlords will NOT be able to use a Section 21 notice to regain possession of the property until any unlawfully charged fee or withheld holding deposit is repaid.
What about existing tenancies signed before 1st June 2019?
Any tenancy contracts signed BEFORE 1st June 2019 REMAIN ENFORCEABLE (old rules apply) and any fees written into the contract CAN STILL BE CHARGED FOR.
However should there be any sort of change / update to the contract - then the new rules apply to this new fixed term.
For example - say you have a 6 month fixed term Assured Shorthold Tenancy (AST) that started BEFORE 1st June 2019 - and then a new fixed term contract is initiated AFTER 1st June 2019 - then the new rules apply to the new contract.
How long after 1st June 2019 will the old rules apply?
For existing contracts, the old rules will apply UP TO 1st June 2020. However from 1st June 2020 onward any existing contracts will convert to the new rules of the tenant fees act 2019.
So any fees that are written into this existing contract - that are not part of the tenant fees act 2019 - can no longer be enforced. And you can be fined if you try to charge for something incorrectly.
Our thoughts on the tenant fees act 2019
Here at Property Portfolio Sales we're portfolio landlords too. So all of these new rules affect us the same as for any other letting agent or landlord.
So here's our thoughts:
These new rules have undoubtedly come about because of excessive fees charged to tenants by certain letting agents and landlords. So we understand that something had to happen to bring fees down to realistic levels.
Public opinion is never on the side of landlords. And so any lobbying of the UK government by groups such as shelter will eventually bring about changes - as it has with this act.
Let's face it - us landlords are forever portrayed by the UK media as "fat cats" or "slum landlords" who rip off and exploit tenants. And in general there's little appetite for landlords concerns among the public.
However we think that these changes have gone too far in the favour of tenants - and will cost the vast majority of landlords who are in the business of providing clean, safe accommodation to tenants - extra money to go about performing their business.
Some landlords may ultimately decide this extra layer of bureaucracy - and increased risk of fines - means it isn't worth being a landlord anymore.
Some landlords may even decide to quit the business. Which of course doesn't help the rental housing shortage of UK plc one bit.
It will cost landlords extra money to "protect themselves from bad tenants."
As landlords we all know there are bad tenants out there who want to rent a house - yet once inside will think nothing of stopping paying the rent. And there are also tenants who will damage property - and not give a damn.
I mean why should tenants care a damn anyway? Because successive laws now give TENANTS more and more protection. And these same laws mean LANDLORDS have less and less protection.
And the means of redress and compensation are so onerous and time-consuming - that many landlords instead decide to take the losses on the chin. Anything to just get the bad tenants out.
Tenant fees act 2019 - costs and risks
Here's the full list of things we think will increase your costs and risks.
- You're only allowed to take a maximum of 5 weeks deposit (on rents up to £50,000 per annum). So let's say the rent is £150 a week (approx £650 pcm). That means a MAXIMUM deposit of £750. This small amount will hardly stop problem tenants from causing damage and stopping the rent.
- You need to supply receipts for EVERYTHING and so in the real world landlords will simply not bother.
- Payments to landlords to (for example) allow a tenancy to be changed - barely cover the costs.
- Late rent payments - need to wait 14 days. And then compensation restricted to 3% above base rate. Meanwhile if your mortgage doesn't get paid you risk repossession and credit score issues.
- Tenant credit checks are now the landlord's cost. Of course you still want to know who you're renting to - so this is now an extra cost.
- Inventories are now the landlord's cost. So you need to pay for this yourself - to protect your house and belongings.
- Check in / check out fees - landlord's cost.
- Referencing fees - landlord's cost.
- Guarantor credentials - landlord's cost.
- Drawing up the tenancy - landlord's cost.
- Miss a TINY detail in following the new act and you risk a £5,000 fine - with much larger fines for any repeat.
Conclusion - Tenant fees act 2019 summary
You should familiarise yourself with this summary of the tenant fees Act 2019 – which was introduced to English law on 1st June 2019. This follows the introduction in Scotland way back in November 2012. And also in Wales from 1st September 2019.
According to the UK government, the Tenant Fees Act 2019 has been introduced to bring to an end the charging of exorbitant fees by letting agents and self managing landlords. And as such there are many fees that you can no longer charge for – some would say unfairly.
And you need to be aware that there are new £5,000 fines that go with the act. So if you fall foul of the rules it could cost you a lot of money – on top of the considerable fees you’re now losing out on.
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