The Tenant Fees Act 2019 commences in force from 1st June 2019 and applies to England only for now, but is likely and has the facility to be extend to Wales. Scotland of course already has an equivalent set of legislation.
The new Act restricts payments that landlords and letting agents may ask a tenant of a residential letting in England to make in connection with their tenancy, and it includes certain student lettings and residential licences.
The Act also covers the capping of tenancy deposits and holding deposits, with various conditions attached, and puts restrictions on third-party contracts that a tenant or guarantor can be contracted to be bound by for services such as insurance.
It is therefore very important for landlords and agents to have a clear understanding of these regulations as there are stiff penalties for failure to comply.
Note: These brief guidelines are based primarily on English law and are not a definitive interpretation of the law. There is more detail in the Act itself. Every case is different and only a court can decide, so seek expert advice before making or not making decisions.
Effectively, the Act bans all payments a landlord or letting agent may take from a tenant except those expressly set out in the Act as “permitted” payments. These are:
- Rent – which will include an advance payment for the first rent period, which must be the same as all the subsequent rent payments. In other words, the first period cannot be loaded to recover costs
- Holding Deposit – refundable, and no more than the equivalent of one week’s rent, with its terms of refund and retention set-out clearly in writing
- Tenancy Deposit, sometimes referred to as a security or damage deposit, again refundable and capped at no more than five weeks’ rent, if the total annual rent is less than £50,000, or a maximum of six weeks’ rent, if the annual rent exceeds £50,00
- Amendments, mid-tenancy, amendments requested by the tenant are capped at £50, unless a greater cost can be fully justified.
- Early Termination, payments associated with this when requested by the tenant
- Provision of Utilities, such internet services, telephone, TV licence and council tax when appropriate.
- Default Fees, when the tenant defaults on rent payments orother permitted payments specified in the tenancy agreement, including such items asreplacement of a lost keys, etc.
There is considerably more detail within the Act itself – see the link below – so landlords and agents should familiarise themselves with the detail.
There are some severe sanctions for non-compliance for landlords, letting agents and also for company directors in person. Enforcement authorities may force the repayment of any prohibited payments together with interest, tenants can apply to the First Tier Property Tribunal to recover any prohibited payments together with interest, and landlords and letting agents may face fines of up to £30,000.
The likely Impact on Businesses:
Many letting agents, particularly small-scale single practices may find it has a major impact on their profitability without passing on the loss of fee income in the form of additional fees to their landlord clients. In a competitive environment they may find this difficult.
Where the fees are passed on to landlords, in turn their profits will be squeezed without passing on these costs in the form of higher rents to their tenants. Again, in a competitive environment this may or may not be possible depending on the circumstance.
Ultimately though, it is more than likely that rents will rise overall for all tenants, but it may save those tenants who are regularly stung by excessive fees by some high street agents. On the other hand, those tenants who have rented direct from landlords, who don’t normally charge fees, may find their market rent levels increasing.
Landlords and agents need to think carefully about their business strategies going forward and adjust their budgeting accordingly, in the knowledge of how the Act will affect them.