Insight

Ban on Tenant Fees – A Brief Guide for Landlords and Letting Agents

Stories about landlords grossly overcharging tenants or failing in their duty to provide safe accommodation are a regular feature story in the press.

The government has, as a key policy goal, undertaken to pass legislation regulating the private rental market. The aim is to make renting fairer and more affordable as well as to provide a legal framework and enforcement mechanism for holding rogue landlords or letting agents to account.  The Tenant Fees Act, 2019 is part of a series of acts designed to achieve these policy goals.

In this article we will unpack the changes brought to the private rental market by the Tenant Fees Act.

What are the major changes?

The Tenant Fees Act seeks to reduce the incidence of “hidden fees” charged to a tenant during the course of concluding or extending a lease agreement. The act clearly sets out which fees are permissible and which are prohibited. The Tenant Fees Act applies to:

  • Assured shorthold tenancies (excluding ASTs of social housing);
  • Licence to occupy (excluding licence to occupy social housing); and
  • Student lettings. 

Contractual tenancies, long leases (more than 21 years) and company lets are not covered by this act.

What fees are allowed under the Tenancy Fees Act?

A landlord or letting agent is permitted to charge a tenant the following:

  • rent;
  • tenancy deposit;
  • holding deposit;
  • ‘default’ fees, which must be written into the tenancy agreement and can include:
    • Cost of replacing lost keys or a security device;
    • Interest for late payment of rent
  • Utilities/Communication services/TV Licence/Council Tax;
  • £50 fee for the landlord’s consent for a variation, assignment or novation of an existing tenancy agreement;
  • An early termination fee.

Capping of permissible fees

The Tenant Fees Act has introduced a monetary cap on the permitted fees. The basic guideline is that these additional fees should reasonable and charged at cost. It is not permissible to include excessive administration costs which should be for the account of the landlord and not the residential tenant. We set out some of the major caps below:

  • Tenancy deposit:
    • Five weeks’ rent where the value of the lease is less than £55, 000 per annum;
    • Six weeks’ rent where the value of the lease exceeds £55, 000 per annum;
  • Holding deposit – this cannot amount to more than one weeks’ rent;
  • ‘Default’ fees, which must be written into the tenancy agreement and can include:
    • Cost of replacing lost keys or a security device – this charge must be reasonable and reflect the actual cost to the landlord or letting agent in replacing the item;
    • Interest for late payment of rent – interest may only be charged on amounts outstanding for longer than 14 days and the maximum interest rate applicable is 3% above the Bank of England base rate.
  • Utilities/Communication services/TV Licence/Council Tax – these are limited to the actual cost as reflected on the relevant bill.
  • £50 fee for the landlord’s consent for a variation, assignment or novation of an existing tenancy agreement. A higher fee may, in exceptional circumstances, be charged. The landlord or letting agent will have to prove by way of receipts or other documentation that an increased fee was reasonable and properly incurred;
  • The early termination fee. This must reflect the actual loss suffered by the landlord e.g. loss of rent for a period or the letting agent e.g. advertising and marketing costs.

It is important that letting agents make a schedule of their fees easily available to tenants. This is best achieved by having a dedicated page on the agency website and including a link to that page on any adverts placed on third party sites like Zoopla or Rightmove.

What type of payments are prohibited by the Tenancy Fees Act?

There are a number of fees which are effectively banned by the Tenancy Fees Act. These include:

  • Viewing fees – viewing a property is part of the process of granting a tenancy;
  • Tenancy Set up fees – the costs of setting up a new tenancy such as reference checks, signing the agreement and general administration are the responsibility of the landlord;
  • Inventory charges – an inventory check at the commencement of a lease benefits all parties. However, as the onus is on the landlord to prove any claim for damage to be deducted from the deposit the cost of this inventory should be borne by the landlord and not the tenant;
  • Check out fees – any costs (aside from those expressly permitted for the early termination of a lease) incurred as a result of a tenant exiting a property must be borne by the landlord eg key handovers, inventory inspections or weekend check outs;
  • Professional cleaning – a lease agreement may not include a provision where a tenant is required to have a property professionally cleaned or utilise the services of a particular cleaning company;
  • Charging for a reference check – this includes requiring a tenant to utilise a third party reference check service which requires payment of a fee.

Standard form agreements – time for a health check?

The changes in the permissible fees and the introducing of capping are not dramatic but they are significant. Landlords and letting agents might find that a review of their existing standard form agreements will be in order. A landlord will not be permitted to enforce an unlawful clause regarding fees. Clauses of that nature are void.

Taking or requiring the payment of unlawful fees could obstruct a landlord in enforcing his rights under section 21. This very useful section may not be utilised until a landlord has paid back any unlawful fees taken from a tenant.

Penalties under Tenant Fees Act

There are a number of penalties for contravention of the Tenant Fees act. These include:

  • A fine;
  • Being entered on the local authority’s database for rogue landlords or letting agents;
  • In the case of repeat offenders this could be made subject to a banning order which will mean that they will be unable to:
    • Let housing;
    • Engage in letting agency work;
    • Engage in property management work;

A banning order will operate for a minimum of 12 months. There is no statutory maximum.

How to ensure compliance with the Tenant Fees Act

  • Conduct a health check on your standard form agreements;
  • Maintain records of all payments requested from tenants which should include:
    • The actual cost of the service eg cutting a new set of keys
    • Justification for any additional cost eg time spent attending to having a new set of keys cut
  • Be prepared to justify each and every expense charged to the tenant including the permitted charges.

This article is provided for general information only and is not intended to be nor should it be relied upon as legal advice in relation to any particular matter. If you require specific legal advice on any issue relating to a landlord/tenant dispute, we at Burlingtons Legal LLP will be able to assist. Please contact us on  +44 (0)20 7529 5420 to arrange a consultation.

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