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Abolition of managing agent fees

New legislation prohibits landlords and letting agents from charging fees on tenancies of housing in England

The Tenant Fees Act 2019 (“the Act”) took effect on the 1 June 2019. Under the Act, landlords and letting agents can be hit with fines of up to £5,000 for charging certain fees to tenants and prospective tenants. The relevant provisions apply immediately to new and renewal leases and licenses (excluding periodic tenancies) with a grace period of one year for existing tenancies.

Prior to the Act, each time a tenant moves to a new house they can incur charges for anything from reference checks to a request to move in at the weekend. According to research by lettingfees.co.uk, average fees for a two-person household in London are £404 per move.

What does the Act do?

The Act prohibits all payments a landlord or letting agent may require “in connection with a tenancy of housing in England” unless the payment is expressly “permitted” under the Act. Even if a payment is permitted, for example rent and deposits, there are restrictions on the amount and time deposits can be held. The Act applies to tenants and prospective tenants of assured shorthold tenancies (excluding social housing and long leases) and student accommodation in England. It also applies to residential licenses.

What fees are allowed?

Permitted fees are limited to the following:

  • rent;
  • tenancy deposit (capped at five weeks’ rent if annual rent is less than £50,000, or six weeks’ rent if annual rent is £50,000 or more);
  • holding deposit (capped at one week’s rent);
  • payments for loss of keys;
  • late payment of rent or breach of the tenancy;
  • variation, assignment or novation of tenancies (capped at £50 or reasonable costs);
  • early termination by the tenant;
  • council tax;
  • utilities;
  • TV license; and
  • payments for landline phone, internet and cable or satellite TV.

There is restriction on the amount that can be charged in some cases and this is limited to reasonable costs incurred by the landlord or letting agent.

Some examples of prohibited fees under the Act include fees for tenancy set up, viewings, credit-checks, inventory checks, check out and for professional cleaning services.

Another key provision is the requirement for landlords and letting agents to repay a holding deposit within 14 days beginning with the day it is received.

Penalties for breach

Terms which breach these provisions will not bind the tenant or licensee. Tenants and licensees can recover money wrongly paid, and landlords will be unable to serve section 21 notices to terminate tenancies while holding prohibited payments.

Sanctions for non-compliance can include a fine of up to £5,000. If a second breach is committed within five years, a criminal offence is committed and a fine and banning order may be imposed. Alternatively, the enforcing authority may impose a civil penalty of up to £30,000. Trading standards authorities (TSAs) and district councils will enforce the provisions.

What are the implications for landlords, letting agents and tenants?

At face-value the Act seeks to protect tenants from high and onerous fees in the rental market. However, many argue this will cause rents to rise and standards to suffer as costs will be made up somewhere else in the longer term. For example, in Scotland a ban on lettings fees in 2012 lead to a marginal rent increase. Germany banned letting agent fees in 2015, which at the time were roughly equal to one months’ rent, as well as rent controls. However, the German property market has seen little material impact.

Notwithstanding the effect on the property market, landlords and letting agents must now be careful in their consideration of the fees they propose to charge tenants. Holding deposit forms should be updated to reflect the new rules in view of the 14-day deadline to repay to the tenant. A comprehensive review should be made of the fees that are charged to existing tenants and tenancy agreements should be updated to prepare for the end of the grace period on the 31 of May 2020 upon which the Act will apply to existing tenancies.

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 would like to discuss any aspect of it please contact Fionan Foo at fionan.foo@burlingtonslegal.com.

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