Tenant Fee Ban – The Facts
14th May 2019
Have you heard that from the 1st June 2019 you will no longer be able to charge tenants any fees?
This relates to fees prior to a tenancy commencing, such as application fees, during the tenancy, such as renewal fees and post tenancy, such as check out fees.
This legislation relates to both landlords and letting agents. If you use a Letting Agent they should be getting in touch with you to explain how this change in the law may affect you.
We aim to explain the consequences of this ban, what it includes and which tenancies this will affect.
When does the ban come into effect and will all tenancies be affected?
The ban comes into force on the 1st June 2019 and will immediately affect all new tenancies.
It will apply to renewals of tenancies, excluding statutory and contractual periodic tenancies that arise after the Tenant Fees Act comes into force.
After one year the ban will attach to pre-existing tenancies and clauses that charge fees in them will become ineffective. If a landlord or agent takes a prohibited payment after that date, they will have 28 days to return it or be considered in breach of this legislation.
What fees are banned?
Anything not exempted, that the tenant (or someone acting on their behalf like a guarantor or parent) is required to pay as a condition of the ‘grant, continuance, assignment, termination or renewal’ of an assured shorthold tenancy or licence agreement.
This includes payments to third parties, either for services throughout the tenancy or for specific performance of a job and loans from third parties.
In short this means that pretty much any fee that is in the tenancy agreement will be void unless it is exempt.
Examples of banned fees are:
• Charging for a guarantor form
• Credit checks
• Cleaning services
• Professional cleaning
• Having the property de-flead as a condition of allowing pets in the property
• Administration charges
• Requirements to have specific insurance providers
• Gardening services
What fees are exempted from the banned list?
Holding deposits, rent, deposits and charges for defaulting on the contract are all exempted from this ban.
However, all 4 are subject to additional restrictions as part of the legislation and landlords and agents will need to be mindful of these changes.
In addition, most required payments to third parties are prohibited, however a landlord can require the tenant to use a specific utility or communications provider. Agents are not allowed to require this however.
Finally, landlords may charge for changing tenants or allowing tenants to vacate the property early. This is subject to restrictions on costs however.
Holding deposits will be limited to a maximum of 1 week’s rent and subject to statutory legislation on the repayment of this should the tenancy not go ahead. Briefly, this is proposed to be:
1. The landlord has 15 days to make a decision once a holding deposit is taken.
2. If the tenancy does not go ahead then the money must be repaid in full within 7 days of the deadline being reached or the landlord backing out.
3. Repayment does not need to be in full if the tenant backs out of the tenancy agreement themselves, fails right to rent checks, has provided false or misleading information, or where the landlord tries their best to get the information needed but the tenant fails to provide it within the 15 days.
4. If the tenancy does go ahead, the holding deposit must be returned within 7 days of agreement, unless it is converted into part payment of the actual deposit or used towards the initial rent payment.
Deposits will be limited to 5 weeks rent as a maximum amount for tenancies where the annual rent is below £50,000. This has gone up from the originally proposed limit of one month.
Deposits for tenancies where the annual rent is £50,000 or more are limited to the equivalent of 6 weeks rent.
Breaches of the tenancy agreement (damages)
Where the tenant has breached their tenancy agreement and caused damage as a result, then landlords may still seek compensation via deductions from the deposit or court action.
Breaches of the tenancy agreement (default payments)
Previously it was expected that landlords would be able to charge for sending reminder letters. However, the latest draft of the legislation has tightened up the rules on default payments significantly.
Under the current draft of the legislation landlords are allowed to charge for two types of default payments – loss of keys and late payment of rent. Both are subject to restrictions.
For the loss of keys, landlords are allowed to charge the reasonable cost that they can evidence in writing. Anything landlords cannot evidence in writing with receipts will likely be considered a prohibited payment.
For late payment of rent, landlords and agents may only charge 3% above the Bank of England base rate in interest on the late payment of rent from the date the payment is missed. At the time of writing this would be 3.75% interest. They may not charge for sending reminder letters.
Possible Consequences of the ban
Increases in Rent
Agents and landlords are expecting rents to rise to cover the inability to charge any fees prior, during and at the end of the tenancy. The government have therefore placed an extra provision in place to prevent this from happening in the short term.
Restrictions on rent
There will be a ban on setting rent at a higher level for the first portion of the tenancy and then dropping it down afterwards. This is to prevent landlords or agents trying to offset the ban on fees by artificially increasing the rent for the initial period to make up the costs.
Of course, a higher rent than you would normally charge for the property, that is consistent throughout the tenancy will be fine. The government believes this is unlikely to happen though, as tenants will shop around for the lowest price. Early indications are that rents are rising in the private rented sector.
Increases in Fees to Landlords
Letting agents bottom lines are going to be affected in varying degrees depending on how high their tenant fees have been in the past. Many agents will be putting up their fees to their landlords to try and combat their fee income. It is thought that some agents who have heavily relied on fees may well be looking to get out of the sector, or merge with other larger organisations.
What is your agent planning to do to combat the fee?
Reduced Number of Agents in the market place
The choice of letting agents for both landlords and tenants may well be reduced, however the ones that do remain will be those that have effectively planned for the ban and generally those that are running their businesses in a more effective way.
In general terms landlords are looking for support from agents and require them to deliver in the key areas of:
1. Finding suitable tenants;
2. Ensuring tenants look after the property;
3. Tenants paying rent on time;
4. Keeping up with increased regulations;
5. Concerns over future changes to legislation;
Here at On The Move we place great importance on these key tasks. We always place strong emphasis on finding suitable tenants, between the team we have several rental properties and the key re-assurance for landlords is that we wouldn’t allocate a property to any tenant that we would not be happy to have in one of our own properties. There is of course the formal referencing which will still be in existence post the fee ban.
We carry out quarterly visits, these visits are recorded with photographs of the property and sent to the landlord for their reference.
We monitor rents on a daily basis and have a robust procedure in place for those tenants that pay late, this starts on day one that the payment is late.
Our procedures, and paperwork are all provided by a solicitor, we receive regular updates and changes as and when legislation changes. We also run regular landlord workshops to keep you updated of changes in legislation.