This article will be of interest to landlords in the residential property sector. It provides a summary of the Tenant Fees Act 2019, which became law on 12 February this year. The Act is being implemented in two stages: on 1 June 2019 in part and then on 1 June 2020 in full.
The Act prohibits landlords and agents from charging certain fees (referred to as ‘prohibited payments’) in connection with a tenancy. The purpose of the law is to crackdown on the practice of charging tenants hidden and unexpected fees and therefore to make housing more affordable for those on lower incomes.
What constitutes a prohibited payment?
Essentially, all fees in connection with a tenancy will be prohibited apart from the following:
- Refundable tenancy deposit (this is capped at either five or six weeks’ rent, depending on whether the annual rent is £50,000 or above).
- Refundable holding deposit of no more than one week’s rent.
- Payments in respect of changes to the tenancy, capped at £50 or the landlord’s reasonable costs if higher, e.g. if the tenant wants to keep a pet at the property or install a satellite dish.
- Payments in respect of early termination, capped at the landlord’s loss, i.e. the cost to the landlord of permitting the tenant to leave early. This will likely be the amount of the rent between the date the tenant vacates the property and the end of the tenancy or the date the property is re-let.
- Payments in respect of utilities, council tax, communications services and TV licence fee.
- A default fee for late payment of rent or replacement of lost key/fob, where this is explicitly required under the tenancy agreement.
Therefore, landlords cannot charge any other fees in connection with a tenancy. Broadly, a payment “in connection with a tenancy” means a payment:
- in consideration of the grant, renewal, variation, assignment or termination of a tenancy.
- on entry into a tenancy agreement.
- pursuant to a provision of a tenancy agreement.
- because of an act or default related to the tenancy.
- in consideration of providing a reference for a former tenant.
When is the ban being implemented?
The ban is being introduced in two stages. If the tenancy is entered into before 1 June 2019, then the ban will not affect any fees charged pursuant to that tenancy until after 31 May 2020. If the tenancy is entered into on 1 June 2019 or after, then the ban applies to that tenancy.
Which tenancies are affected by the ban?
The ban applies to all assured shorthold tenancies, student lettings or licences to occupy houses in the private rented sector.
What should I do if I have received a prohibited payment?
You should return the payment immediately and must do so within 28 days. If you do not return the payment within 28 days, you will be treated for the purposes of the Act as having required the tenant to make a prohibited payment. This can have severe repercussions. In additional to incurring financial penalties and a criminal conviction (see below), it could also prevent you from evicting a tenant until such fees have been repaid.
What are the penalties?
A breach of the legislation can result in a financial penalty of up to £5,000. Each request for a prohibited payment will be a separate breach and incur a separate penalty. If a further breach is committed within five years of the imposition of a financial penalty or conviction for a previous breach, this will constitute a criminal offence which could result in an unlimited fine. Enforcement authorities have discretion when determining the appropriate level of financial penalty. The amount of the fine should be fair and proportionate and reflect the severity of the offence as well as the previous conduct of the landlord.
Where a criminal offence is committed, local authorities will have discretion whether to prosecute the offender or impose a financial penalty of up to £30,000. If the latter option is preferred, the financial penalty will not amount to a criminal conviction. As to how local authorities will decide which option to pursue, they will be expected to develop and document their own policy and decide each case on its individual merits in line with that policy.
A landlord who receives two or more financial penalties within a 12-month period or a conviction under the Act could be added to the database of rogue landlords by a local housing authority. A conviction under the ban also constitutes a banning order offence under the Housing and Planning Act 2016. Local authorities are under a duty to record details of banning orders on the database of rogue landlords.
Guidance for landlords
Landlords should ensure that they keep evidence of all payments that they have requested of a tenant. Such evidence would include the tenancy agreement itself, receipts and invoices, bank statements, correspondence or any other relevant paperwork.
If you are unsure as to whether a charge is prohibited or not, you should seek professional advice.