Legal Guidance for Landlords and Tenants on the Tenant Fees Act 2019

You may have heard time and time again that there is a housing shortage coupled with affordability in purchasing a property which means that it is a landlord’s market, even with Brexit on the horizon.

Most landlords will instruct a letting agent to manage their properties. This presents its own problems because letting agents will charge the landlord for their services, but more importantly tenants are also lumbered with often hidden and unreasonable charges which they have to meet in addition to their rental obligations, which could include fees for:

• Drawing up the tenancy agreement
• Doing an inventory
• Doing an inspection at the end of the tenancy
• Reference and credit checks
• Administrative costs
• Changing your tenancy terms
• Renewing your tenancy

The Citizens Advice Bureau produced a report in 2009 about letting agents and their charges, called ‘Let Down’ which was then updated in 2015 with a further report called ‘Still Let Down’.

The findings concluded that fees varied widely from £6 to £300 for say checking references but that the total average fee was £337, with some paying up to £700.

In June 2013 Shelter published its own report called ‘Letting agencies: the price you pay’ which found “one in four people in England and Wales felt they
have been charged an unfair fee. Although agencies are contracted by landlords, it has become routine for them to charge renters for elements of the core service. For many, this creates a financial burden, adding to more general affordability problems for private renters.” It confirmed that over 60% of landlords engage the service of a letting agent so the majority of tenants are affected by these unfair fees. These fees are largely for the benefit of the landlords but fall on the weaker contractual party to bear, although sometimes there is double recovery when both parties are paying the agent for the same service.

In 2014 Shelter conducted a mystery shopping investigation of 58 letting agencies and found that the average fees charged was almost £350.

The law is therefore ripe for change.

When did the Tenants Fees Bill come into force?

With the mounting pressure from all sectors and organisations, Chancellor Philip Hammond announced in the Autumn Statement in 2016 that in response the government was going to introduce a ban on letting agents charging tenants admin fees.

The Tenants Fees Bill received Royal Assent in January 2019. The Tenants Fees Act 2019 was passed in February 2019 and will come into force from 1 June 2019.

What is the Tenant Fees Act 2019?

This will apply to all residential assured shorthold lettings, student lettings and licences across England and Wales. They will apply to all new lettings from 1 June 2019 and all existing lettings from 1 June 2020.

Under the Act only ‘Permitted Payments’ will be chargeable to a (prospective) tenant. All other non-permitted payments will therefore be banned. Landlords and agents can no longer require payment as a condition of the grant, renewal or continual of a tenancy.

Permitted Payments will include:

1. Rent – The initial amount for the first rental period must not exceed the same for any later rental period. This is to stop landlord front loading the initial rental payments with any fees which are now otherwise banned.
2. Refundable) Tenancy Deposit – This can be no more than 5 weeks’ rent if the annual rent is under £50,000 or 6 weeks’ rent if the annual rennet is over £50,000
3. (Refundable) Holding Deposit – This is limited to 1 week’s rent (although if both parties agree it could be applied to the first month’s rent or deposit). More details about this is contained in Schedule 2 of the Act.
4. Default charges – If specified in the tenancy agreement it will be limited to a) Loss of a key or security device (which is required to access the property) b) Failing to pay the rent in full within 14 days
5. Variation, assignment of novation – This is limited to £50 or the reasonable costs of the landlord, whichever is greater
6. Termination – This will be for the actual loss suffered by the landlord
7. Utilities, television licence and communication services – These are only chargeable if specified in the tenancy agreement

How will this be enforced?

If there is a breach, there are a number of sanctions provided for under the Act, including:

1. The term which requires a prohibited payment will not be binding on the tenant (but the rest of the tenancy agreement will still be binding)
2. A maximum penalty of £5,000 by the landlord/agent for their first breach or £30,000 if they have already had a financial penalty within the previous 5 years
3. The inability for the landlord to serve a s21 notice (and thereafter obtain possession) until the prohibited payment has been refunded to the tenant

Trading standards have been empowered to enforce the Act. A tenant can also apply to the First-Tier Tribunal to recover the payments prohibited under this Act.

Other legislative change will also follow to allow certain provision to take effect. The Housing and Planning Act 2017 will need to be amended to confirm that a breach of this Act will be a banning order offence which means that a landlord or agent can be banned for up to 1 year.

The Consumer Rights Act 2015 will need to be amended so that agents will need to publish on their websites details of their fees (and client money or redress scheme memberships).

How will this work in practice? Parliamentary guidance is expected in advance of the June deadline but landlords and agents are being cautioned to start reviewing their contracts and practices to ensure that there will be no default come June 2019 as there will be no periods of grace.