The rules for tenancy fees are changing. If you’re a landlord, you need to understand your responsibilities, or risk the chance of prosecution, hefty fines and being added to the database of rogue landlords and property agents.
As of 1st June 2019, landlords and their agents will be prohibited from charging any fees other than the following:
- Refundable tenancy deposit
- Refundable holding deposit
- Payments to change the tenancy when requested by the tenant
- Payments associated with early termination when requested by the tenant
- Payments for utilities, communication services, TV licence and council tax
- Default fee for late payment of rent
- Default fee for replacement of a lost key/security device
Landlords and agents will be banned from requiring their tenants (or anyone acting on their behalf or guaranteeing their rent) to make other payments in connection with their tenancy. Equally, they cannot ask their tenants to enter into a contract with a third party or make a loan in connection with a tenancy.
There are no loopholes
Once the new act is in place, landlords will be responsible for all costs associated with setting up, renewing or ending a tenancy. This includes all referencing, administration, inventory and renewal fees.
Anyone trying to find ‘creative’ ways of getting around the new regulations will come unstuck.
Landlords cannot charge a fee for any of the following:
- Viewing a property
- Referencing or carrying out credit checks
- Setting up a new tenancy
- Inventory check-ins or check-outs
- Professional cleaning
What about old tenancy agreements?
Where an agreement was entered into before 1st June 2019, landlords will still be able to charge extra fees until 31st May 2020, but only where covered by the existing agreement.
Any payments made in error should be returned within 28 days. If not returned within this time period, landlords will be treated as having required the tenant to make a prohibited payment.
Where does the new act apply?
The new tenancy act applies to all assured shorthold tenancies, tenancies of student accommodation and licences to occupy housing in the private rented sector in England.
Certain licences to occupy are excluded, such as those granted under Homeshare arrangements (provided that necessary conditions apply). Local housing authorities, the Greater London Authority or person(s) acting on their behalf are also excluded.
Who will carry out enforcement?
Trading Standards authorities will enforce the act, but district councils will also have power to enforce if they choose to do so.
What does this mean for agents and landlords?
A breach of the legislation will usually be a civil offence with a penalty of up to £5,000. If a further breach is committed within five years, this will be treated as a criminal offence. The penalty for such a criminal offence is an unlimited fine.
A breach of the requirement to repay a holding deposit is a civil offence and will be subject to a penalty of up to £5,000.
What constitutes a breach of the act?
Each request made for a prohibited payment is a breach. This includes:
- Charging fees to different tenants under different tenancy agreements
- Charging a tenant multiple fees for different services at different times
- Charging a tenant multiple fees for different services at the same time
- Charging a tenant one total fee which is made up of different separate prohibited requirements to make a payment
With the new rules being enforced from 1st June 2019, landlords are advised to keep evidence of the following to prove that they are acting in accordance with new legislation:
- Tenancy or pre-tenancy agreements and other relevant paperwork
- Receipts and invoices
- Bank statements
- Correspondence from the tenant such as emails, letters and texts
- Notes made at the time or shortly after any conversation with a tenant
In a webinar hosted by ARLA (Association of Residential Letting Agents) on 23rd January, it was reported that the UK lettings industry turns over £4 billion per year. Approximately 20% of this comprises tenant fees. Come 1st June, it is estimated that agencies across England and Wales will lose £200 million in turnover per year and something like 4,000 jobs could go.
The new legislation presents a serious challenge to landlords and agents alike. Rents are projected to increase by an average £103 per tenant per year and some agents may have to charge for services that were previously included free of charge in their management services.
Useful Government website links:
What does this mean for tenants?
The new act is part of a wider package of measures aimed at delivering a fairer, more affordable private rented sector. Tenants will be able to see what a property will cost and be confident that there are no hidden costs.
Tenants will be entitled to repayments of any unlawfully charged fees, holding deposits or amounts paid under a prohibited contract as well as any interest awarded by the enforcement authority.
The new act means that tenants will be able to recover unlawfully charged fees through the First-tier Tribunal. It also prevents landlords from recovering possession of their property via the Section 21 eviction procedure until they have repaid any unlawfully charged fees or holding deposits. Where agents are involved, tenants can also seek repayment through the relevant redress scheme.