Following the third reading in the House of Lords with just a couple of minor amendments the Tenant Fees Ban 2017 is set to come into force on
1 June 2019
. The debate is somewhat over and Royal Assent is expected in the next few weeks. It’s time to put the date in our diaries and take a closer look at the detail….
What is the aim of the legislation?
To make renting properties in England fairer and more affordable for tenants by reducing the costs at the outset of the tenancy and improving transparency throughout.
Who does the ban apply to?
The ban applies to both agents and landlords
Where does the ban apply?
Both England and Wales are passing their own versions of the legislation. This note focuses on England. Information for Welsh tenancies can be provided on request.
What type of tenancy does this apply to?
Assured shorthold tenancies and licences.
Company lets
and
non-assured tenancies
are exempt.
The ban will affect all
new tenancies
entered into after the Tenant Fees Act comes into force –
1 June 2019
. It will also apply to
renewals
but
not
statutory or contractual periodic tenancies
. So for all current fixed term ASTs that become periodic after 1 June 2019 the old rules continue to apply. All tenancies running as contractual periodic tenancy (no fixed term tenancy running on a month by month basis) then the old rules also continue to apply.
However, after
12 months
the ban will apply to
all existing tenancies
and the charges imposed within the agreement will have no effect.
In addition, if a Landlord takes a payment after the 12 month date they will have to return the payment within
28 days
or they will be in breach of the legislation.
What fees are banned?
Banned fees include any fees not exempt that the tenant (or someone acting on their behalf i.e. a parent or guarantor) is required to pay as a
condition
of the “
grant, continuance, termination or renewal
” of an assured shorthold tenancy or licence agreement.
Examples of banned fees include charges for –
4. If the tenancy does go ahead, the holding deposit must be returned within
7 days
of agreement, unless it is offset against payment of the main deposit or used towards the first months’ rent.
RENT
The rent can no longer be set at a higher level at the start of the tenancy and reduced at a later date. This is clearly to combat any artificial increase in rent as a way of getting around the ban on fees.
There is however nothing to stop a higher rent being charged for the duration of the tenancy.
DEPOSITS
Deposits will be limited to
5 weeks rent
for tenancies where the annual rent is below £50,000. This has increased (slightly) from the proposed one months’ rent.
Deposits for tenancies where the annual rent is £50,000 or more are limited to the equivalent of
6 weeks rent
.
CHARGES FOR DEFAULTING
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: -
Loss of keys:
landlords may charge a
reasonable cost
that can be evidenced in writing. Anything landlords cannot evidence in writing
with receipts
will probably be considered a prohibited payment.
Late payment of rent
: landlords and agents may only charge interest at
3% above the Bank of England base rate
on the late payment of rent from the date the payment is missed. You cannot charge for sending reminder letters nor can you include fixed charges.
THIRD PARTY PAYMENTS
There are a number of third party payments that are often required under the terms of the tenancy agreement and which are not prohibited fees.
Examples include a contractual obligation for the tenants to pay:
· Television licence
· Council tax
· Landlord's costs from a specific service provider for utilities
· Landlord's cost for a specific communication service i.e. phones, broadband, Sky TV.
If the landlord seeks to charge more than the billed costs for these services then the additional sum will be considered a prohibited payment.
FINANCIAL PENALTIES!!
If a breach occurs and payment is taken for any banned fee then the tenants will have recourse through the county courts.
Interest is payable from the date the banned fee is taken.
Local Trading Standards are expected to assist tenants with their claims. More worryingly Trading Standards will be required to enforce the legislation and can issue a fine of up to
£5,000 for a first offence
. Subsequent breaches are criminal offences or alternatively, the landlord can be fined up to
£30,000
and be subject to a banning order.
RESTRICTIONS ON SECTION 21 NOTICES.
No
Section 21
notice can be served if a prohibited payment has been a) requested, b) paid by the tenant; and c) is still being held by the landlord or agent.
Landlords and agents can either refund the prohibited payment or (with the permission of the tenant) use that money as payment towards rent or the deposit. This should always be properly documented so that the agreement can be evidenced for the court should the need arise. Examples include written correspondence including an email trail.
Before serving a s21 notice a review of fees charged should be carried out to avoid invalidating any notice served.
TENANCY AGREEMENTS
While most costs related to assignment or surrender of a tenancy are prohibited, you can charge certain small sums if the tenant requests a change in the tenancy or an early surrender.
Change in tenancy
: i.e. changing the names of the tenants you can charge a fee of
£50
for the change or the costs incurred. You must be able to
evidence in writing
the costs incurred if they are above £50. Be warned the draft guidance makes it clear that £50 is considered reasonable cost. Anything over and above must be evidenced.
Early Surrender of the tenancy
: you may charge fees equivalent to the loss incurred. This does not include charges such as referencing, tenancy drafting etc but you can charge for loss of rent for any void period. The issue is that when agreeing to a surrender the void period is usually unknown so cannot be charged.
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