The 1st June 2019 saw the introduction of the Tenant Fees Act 2019 (‘the Act’), which aims to provide additional protection for private residential tenants by restricting payments that landlords and letting agents can charge, as well as limiting the amount which can be taken as a tenancy deposit and providing detailed obligations in respect of holding deposits. The provisions under the Act will apply immediately to all new tenancies, whilst there is a 1 year transitional period for tenancies already in existence.
The Act will apply to all Assured Shorthold Tenancies (other than social housing tenancies or long leases), student lettings and licences to occupy (with the exception of holiday lets). Additionally, the Act will apply to all tenants, a tenant’s guarantor or any other person acting on behalf of the tenant.
Breaches of the Act can result in fines by local Trading Standards, orders to repay prohibited payments, and restrictions on serving Section 21 Notices to terminate a tenancy. It is therefore vital that landlords and their letting agents are clear which payments can, and more importantly, cannot be charged to their tenants.
Which payments are prohibited?
Schedule 1 of the Act sets out which payments a landlord is able to charge its tenant (some of which are subject to conditions, or a cap). A prohibited payment is therefore one which is not listed in Schedule 1. A landlord or letting agent will be prohibited from requiring a tenant (or their guarantor, or anyone acting on their behalf) to make a payment unless it is expressly included in Schedule 1 of the Act. The schedule includes:
- A tenancy deposit (capped at 5 weeks rent if the annual rent is less than £50,000 or 6 weeks rent if the annual rent is over £50,000),
- A holding deposit (Capped at one weeks rent),
- Payments in the event of certain events, for example loss of keys,
- A fee for the variation or assignment to the tenancy (capped at £50 or reasonable costs),
- A payment in the event of a breach of the tenancy agreement,
- A payment for the early termination of the tenancy at the tenant’s request (before the end of the fixed term, or in the event of a periodic tenancy, without the required notice being provided. If the payment exceeds the loss suffered by the landlord, then the excess amount will be considered a prohibited payment),
- Council tax, utility bills, tv licences and communication services (telephone line, internet and satellite tv).
As a result, landlords and agents will no longer be able to require tenants to make payments for the following commonly encountered payments:
- Tenancy set up fees,
- Viewing fees,
- Inventory Check fees,
- Check out fees
Restrictions on terminating tenancies
Where a landlord is in breach of the prohibitions, they will not be able to serve a s21 notice in relation to an AST whilst the prohibited payment or holding deposit, has not been repaid to the tenant, guarantor, or other relevant person.
Whilst the Act applies to all new tenancies entered into on or after 1 June 2019, there is a transitional period for existing tenancies. From 1 June 2019, to and including 31 May 2020, the restrictions against landlords and letting agents requesting prohibited payments will not apply to tenancy agreements entered into before 1 June 2019 and statutory periodic tenancies arising after 1 June 2019 (where the fixed term was entered into before 1 June 2019).
From 1 June 2020, the restriction on prohibited payments will apply to all agreements entered into before 1 June 2019 and any provision in a pre-existing tenancy or letting agency agreement which requires a prohibited payment, will not be binding. Therefore, if a landlord or letting agent accepts a payment under an existing provision in the tenancy agreement, after 1 June 2020, and does not return it within 28 days, they will be in breach of the Act.
It remains to be seen whether the restriction on payments which can be lawfully charged to tenants, either by their landlords or letting agents, will result in an increase in rent. Scotland banned similar fees in 2012, and research has suggested that there was only a marginal rent increase, which was in line with other areas throughout the UK. Landlords however will need to be clear on what payments can and cannot lawfully be charged to their tenants to avoid facing hefty fines, claims against them in the First Tier Tribunal and restrictions on them ending tenancies.
For further information on this topic please contact Laura Gomme on 0207 467 5763.