The tenant fee back is coming into force from 1st June 2019, the buy-to-let landscape has once again changed for landlords. What we do know is what landlords need to be aware of in order to be compliant with the ban.
Here is some more information on the ban and how it effects landlords as well as us letting agents.
Does the Tenant Fees Ban Apply to Both Landlords and Letting Agents?
Yes. The Tenant Fees Act forbids both landlords and letting agents from charging fees to tenants.
Does the Tenant Fees Ban Apply to Older Tenancies?
Not immediately. The ban will apply to tenancy renewals after it has come into force in England, but not to statutory and contractual periodic tenancies that become so after these dates.
After a year, the ban will then apply both to existing tenancies and to any clauses within the tenancy agreements that charge fees. Landlords and letting agents who take prohibited payments after these date will have 28 days to return the money to the tenant. Landlords and letting agents who fail to return monies to the tenant will be considered in breach of the tenant fees ban.
Does the Tenant Fees Ban Apply to All Types of Tenancies?
No. Company lets and unassured tenancies are exempt from the tenant fees ban. Assured shorthold tenancies, student tenancies, and licences are covered by the the tenant fees ban.
What Tenant Fees are Banned?
The tenant fees that are banned include those for:
• Credit checks and tenant referencing
• Property check-in, check-out, and completion of an inventory.
• Guarantor referencing
• Cleaning services, including stating as a clause that the property must be professionally cleaned at the end of a tenancy
• De-flea costs if you have allowed the tenant to keep pets at the property
• Insisting that the tenant uses a specific home contents insurance provider
• Charging the tenant extra for regular gardening or cleaning services
• Charging the tenant extra for any other third party services
• Administration charges
If any of these charges continue to be written into tenancy agreements, they will be void and unenforceable. If a tenant does pay for any of them, the letting agent or landlord will have 28 days to return the monies as noted earlier.
What if a Tenant Wants to Leave Early?
Landlords can charge tenants for leaving the property before the end of the tenancy, or for allowing them to leave.
A £50 fee may be charged to tenants who request a change in the tenancy, such as swapping tenants. If the cost incurred is higher, this may be charged to tenants, but must evidence of the cost must be provided in writing, and the legislation actually highlights that a £50 charge should be the norm.
If tenants leave early, landlords and letting agents can charge for lost rent during the unforeseen void period. However, this will be restricted to the amount lost and not be a flat fee. Landlords can not, for example, charge the last three months' rent by default, as they may find a tenant after a few weeks.
This has the potential to cause both landlords and letting agents a problem, as the length of the void period is unknown at the point the tenant leaves. Given the charges will now be restricted, it is possible that landlords and letting agents may simply begin to refuse to let tenants leave early unless another tenant is in place, although this itself could cause problems if tenants decide to leave anyway.
Are There Any Exemptions?
Yes. Security deposits, holding deposits, rent payments, and charges as a result of defaulting on the contract are exempt from the tenant fees ban. However, all of these are subject to restrictions below:
Restrictions on Rent Costs
It is now illegal to set a higher rent level for the early part of the tenancy and lower it thereafter. This is an attempt to prevent landlords and letting agents offsetting the costs to themselves of the tenant fees ban with an artificial increase in the rent for the first three months of a tenancy, for example.
While that has closed one potential loophole, it was always far likelier that landlords would simply increase the rent for the duration of the entire tenancy anyway. There is no restriction on what rent can be charged, so landlords remain free to set the rental level at whatever price they like.
The government has stated that it believes landlords are unlikely to increase rental costs too much due to the competitiveness of the rental market. While it remains to be seen if that is indeed the case, it seems highly unlikely that landlords are going to simply absorb these costs and further reduce their rental yields as a consequence.
Restrictions on Holding Deposits
Holding deposits are now limited to one week's rent. There is statutory legislation in place that governs repayment of the holding deposit if the tenancy does not ultimately proceed, which we have outlined below.
Following the payment of a holding deposit:
1 The landlord has 15 days to make a decision as to whether they wish to proceed with the tenancy, with the tenant(s) who have paid the holding deposit.
2 If the tenancy does not go ahead, then the holding deposit must be repaid within seven days of a) The 15 day limit noted above being reached or b) The landlord backing out and deciding not to proceed with the tenancy.
3 The landlord does not have to repay the holding deposit in full if a) The tenant backs out of the tenancy, b) The tenant fails right to rent checks, c) The tenant has provided false or misleading information, or d) Where they have tried to get the information needed from the prospective tenant but this has not been provided within 15 days of the holding deposit being taken.
4 If the tenancy does go ahead, the holding deposit must be returned to the tenant within seven days of the agreement (not the start of the tenancy). The holding deposit amount can, alternatively, be converted into part payment of the security deposit or the first rental payment.
Restrictions on Security Deposits
Security deposits are now capped at five weeks' rent, down from six, which it was previously.
This cap is actually an increase on the original proposal when the tenant fees ban was first put forward, which would have put the maximum security deposit amount at four weeks' rent.
The five week cap applies to all tenancies with an annual rental cost of lower than £50,000.
A six week cap remains in place for tenancies with an annual rental cost over £50,000.
Charges for Breaches of the Tenancy Agreement
What if the Tenant Damages my Property?
Landlords can still seek a deposit deduction - or take court action in serious cases - where a tenant has breached the tenancy agreement and caused damage to the property.
What Default Charges are Allowed?
Landlords can still charge tenants for replacement keys. The cost is restricted to reasonable costs that can be evidenced in writing, i.e. with receipts. This means that you can charge tenants for the cost of the keys themselves, and potentially for fuel and your time. As fuel and time costs may be harder to prove, if possible it may be easier to ask the tenant to get new keys cut themselves - assuming they haven't lost all sets to the property!
Landlords and letting agents can still charge interest on late rental payments, but this is now capped at 3% above the Bank of England base rate, on and from the date the payment is missed. You cannot charge tenants for sending rent reminder letters.
If a Landlord or Letting Agent Charges Fees, Will This Restrict the Serving of a Section 21 Notice?
Yes. If a tenant has paid a banned fee and not had the amount refunded, then a landlord or letting agent cannot serve a Section 21 notice.
What are the Penalties for Landlords and Letting Agents Who Breach the Legislation?
Local trading standards authorities will be responsible for enforcing the Tenant Fees Act, and can issue fines to landlords and letting agents, as well as being required to assist tenants who are looking to claim back monies for any banned fees they have paid, which they will do via their local county court.
Fines of up to £5,000 may be issued for a first offence, with subsequent breaches leaving landlords liable for a civil penalty of up to £30,000, a banning order from renting out properties, or being charged with a criminal offence.
Authorities tend to be more "carrot" than "stick" whenever new legislation like this comes into practice, so it may be some time before we see news of heavy fines being issued, although we're equally as likely in time to discover instances of landlords and letting agents who have been warned numerous times about breaches but not yet been fined.
What Action Do Landlords Need to Take?
Given that landlords have had nearly three years to prepare for the tenant fees ban since it was first seriously discussed in parliament, in reality plans should already have long been in place, whether you decided to increase rents, absorb the costs, or follow another course of action.
If you haven't already done so, it is worth ensuring that your tenancy agreements, holding deposit forms, and any other paperwork you use is fit for purpose to ensure you are ready for when the tenant fees ban comes into force on 1st June 2019.
If you would like to discuss in more depth or would like some advice please get in touch with ourselves.