Tenant Fees Ban

The Tenant Fee Ban Explained

Em Morley - September 16, 2019

The following article has been written by our friends at Luscombe Gray, the property litigation experts, in order to explain what the newly instated Tenant Fees Act 2019 has meant for the industry.

The Tenant Fee Ban came into force on 1 June 2019 as part of the Tenant Fee Act, a brand new piece of legislation setting out the government’s approach to private sector renting. 

At its core, the Tenant Fee Ban is designed to place restrictions on the fees letting agents charge. It encompasses most types of private tenancies, including assured shorthand tenancies, lodging agreements and student accommodation. 

This is not a law simply paying lip service to disgruntled tenants. The government means business. The Act is based on feedback received from a public consultation conducted in 2017, where a massive 93% of the tenants surveyed agreed with the government’s proposals for a fee ban.  The Tenant Fee Ban has not been without controversy. Here we explore the details of the ban and what it means for landlords, tenants and agents. 

What fees are permitted under the Tenant Fee Ban?

As of 1 June 2019, the only allowable fees for new rental contracts are:

  • The tenancy deposit.
  • A holding deposit (where a tenant wishes to reserve a property). 
  • Rental payments. 
  • Costs associated with the variation of the tenancy. 
  • Costs associated with the termination of the tenancy before the date agreed. 
  • Late payment fee in respect of rent. 
  • Cost incurred for replacement keys or secure entrance devices if lost by the tenant. 
  • Payments for Council Tax, utilities, TV licence and telephone and Internet services.

All other fees are considered to be ‘prohibited payments’. The renewal of contracts made after 1 June 2019, charges for references, administration and credit and immigration checks, are all now expenses which will have to be waived entirely or met by the landlords themselves. 

As you might expect, there is a degree of leeway when it comes to what constitutes a ‘prohibited payment’ under the ban:  

The tenancy deposit:

The tenancy deposit is refundable and must be kept in a Deposit Protection Scheme. Where the rent is charged at less that £50,000 per annum, it is capped at no more than five weeks’ rent (up to six weeks’ rent if the annual rent is £50,000 or above). 

The holding deposit:

Holding deposits are limited to one week’s rent and they must be refunded as soon as the tenancy starts. It is also important to note that agents are not permitted to hold more than one holding deposit for each property. 

A holding deposit becomes non-refundable if a tenant provides false information, fails to proceed with the agreement or fails the rental check. A written intention to retain the holding deposit and the reasons why, must be provided to the tenant within seven days.

Rental payments:

Rental payments must be paid at regular intervals throughout the tenancy.  During the first year of the contract, landlords are not permitted to charge a higher rent and a reduced amount for the rest of the tenancy. Any attempt to do so is a prohibited payment.

If a tenant fails to pay their rent, and provision is made in the tenancy, then a default fee is permitted. If applicable, the rent must have been outstanding for at least fourteen days. Any interest must not be higher than 3% above the base rate of the Bank of England. 

Tenancy variation and early termination of a contract:

Fees can apply if an existing tenancy needs to be changed at the request of a tenant. However, charges are capped at £50. For the fee to exceed this amount, the agent must be able to show that such costs were reasonably incurred.

Early termination fees are also permitted. But letting agents must document the expenses incurred and provide the tenant with evidence of the same. Generally speaking, the fee amount should not exceed the amount of the loss suffered by the landlord. 

What does the Tenant Fee Ban mean for tenants?

Commentators have suggested that the Tenant Fee Ban will result in a more transparent relationship between landlords and tenants, since landlords will find themselves responsible for those services previously charged for by a letting agent.  

Unsurprisingly, the Tenant Fee Ban has been universally welcomed by those who rent their homes. Whether you choose to buy or rent, moving to a new house is expensive. The prohibition of what The Guardian has termed ‘egregious charges’ is a welcome reprieve. 

What does the Tenant Fee Ban mean for landlords and letting agents?

On the flip side of the rental coin, the ban has not been welcomed by letting agents. ARLA, the regulatory body responsible for letting agents has found that the Tenant Fee Ban could mean the potential loss of 3,000 jobs across the sector. This is in addition to a predicted £200 million loss in turnover. These figures are hard to ignore. There is concern across the industry that the economic impact of an outright ban simply has not been thought through.

Letting agents are understandably put out to be accused of unscrupulous behaviour. Their position is that the majority of agents are honest and fair and that the fees they charge are justified. They are also very clear that things like credit checks and inventories are an important part of protecting a landlord’s property. These tasks take time to complete and without being able to charge, many agents will find themselves working for free. 

Ultimately, the revenue lost as a result of the Tenant Fee Ban will need to be recouped from somewhere. After all, without it, many of the smaller independent lettings’ agencies may not survive. In circumstances where the cost burden falls to the landlord, then it is likely that tenants will very quickly find themselves facing significant rental increases. 

The rental sector involves many different people, all of whom will be affected by the Tenant Fee Ban in one way or another. Only time will tell whether the new legislation will succeed in its mission to make renting a worthwhile investment for landlords, tenants and agents. 

For expert advice on landlord and tenant legal matters, please visit Luscombe Gray, leading commercial litigation solicitors: https://www.luscombegray.com