The Tenant Fees Act 2019 came into effect for new or renewed tenancy agreements signed on or after 1 June. The Act puts restrictions on the admin fees that landlords and letting agents in England can charge tenants for services such as setting up a tenancy, and credit and reference checks. It also applies caps to tenancy deposits. This will mean changes for landlords and agents, tenants and prospective tenants alike. Here, we take a look at the implications of the new legislation.
What is the background?
Prior to the new Act coming into force, landlords and letting agents essentially had carte blanche in terms of the fees that they could charge private tenants. According to Citizens Advice, private tenants in England alone have been collectively paying £13 million a month in fees. Chancellor of the Exchequer Philip Hammond committed to banning letting fees in his Autumn Budget 2016. Such fees had already been banned in Scotland in 2012, while Wales is set to put its own rules into effect later this year.
There are around 5 million private tenants in England, which reflects a consistent rise in renting over the past decade – the proportion of 35 to 54-year-olds privately renting nearly doubled in the ten years to 2017. Many of these people have had to pay upfront costs to secure a tenancy. The level of fees could vary considerably, with tenants in large cities typically having to pay the most.
What is the Tenant Fees Act 2019?
The Tenant Fees Act 2019 places restrictions on the payments that landlords and letting agents in England can demand from tenants, as well as restricting third-party contracts a tenant can be bound by for services and insurance. For the purposes of the Act, “tenant” includes prospective, current and former tenants. It covers assured shorthold tenancies, licences (for example lodger lettings) and student lettings (provided by specified educational institutions).
From 1 June 2019, landlords and letting agents can only charge tenants the fees and deposits specified in the Act. All other admin fees and charges are effectively banned. The fees permitted under the Act are:
- Rental payments
- A tenancy deposit capped at the equivalent of five weeks’ rent, where the total annual rent is under £50,000
- A tenancy deposit of up to six weeks’ rent where the annual rent is over £50,000
- A refundable holding deposit capped at the equivalent of one week’s rent
- Charges for early termination of the tenancy
- Payments for utilities, council tax, TV licence and communication services (such as telephone, Internet, cable or satellite television services)
- Default fees for late payment of rent
- Fees for replacement of keys or security devices
Failure to comply with the Act carries stiff financial penalties: up to £5,000 for a first offence, and up to £30,000 if a second offence is committed within five years. These penalties are in addition to repaying any prohibited payments or deposits collected. A second breach of the Act will be considered both a criminal offence, and a banning order offence.
What it means for tenants
While the Act takes immediate effect for all tenancy agreements signed on or after 1 June, the legislation won’t be enforced until June 2020 for any tenant who signed a contract before that date. That means millions of existing tenants face another year with no restrictions on the fees that their landlords can charge them, provided they are included in the signed tenancy agreement. However, existing tenants will still be covered by existing protections, such as tenancy deposit schemes and health and safety legislation covering features such as smoke alarms and carbon monoxide detectors.
For anyone signing a new tenancy agreement or renewing a contract after 1 June 2019, the Tenant Fees Act 2019 will apply in full. Amongst other things, this means that if your original deposit was more than the five weeks’ rent stipulated in the Act, you can ask your landlord for a refund of the difference when you renew.
For all private tenancies covered by the Tenant Fees Act, renters can challenge their landlord or letting agents if they attempt to charge a banned fee. Ultimately, enforcement against landlords who attempt to breach the Act is handled by the local authority’s trading standards team.
What it means for landlords
Since the plans to scrap letting fees were first raised in 2016, there has been considerable discussion in the landlord and letting agents’ community as to the effect it will have on the overall profitability of residential property letting. There has been speculation in many quarters that banning these fees will only force landlords to increase rents to make up for the resulting profit shortfalls. However, some have also praised the restrictions imposed by the new Act, as it can help ensure a fairer and more transparent private rented sector for both tenants and landlords.
With severe financial and even potentially criminal penalties for breaching the Act, it will be vital for landlords and letting agents alike to be scrupulous in practice, and transparent in tenancy agreements and all other communications with existing and prospective tenants.