As many of you know, the Tenant Fees Act 2019 (“the Act”) came into force on 12 February 2019 and has introduced a number of radical changes to residential lettings including limits on administration fees that can be charged and deposits that can be taken from tenants in relation to tenancies granted on or after 01 June 2019 (and 01 June 2020 for all existing lettings).

These charges have been something of a hotly debated topic for some time now as the Act attempts to provide greater transparency to all parties involved in the private rented sector, and imposes sanctions for non-compliance which range in terms of severity.

Why the Change?

The Act is said to be designed to tackle ‘unfair’ additional charges imposed on tenants by landlords and agents. It provides greater levels of protection to tenants but, in doing so, imposes more obligations and rules for landlords and agents to adhere to.

What are the changes?

The changes relate to specific fees which, in the past, tenants have been charged as additional fees or administration charges. The Act doesn’t prohibit the charging of such fees per se, rather it limits them.

Permitted Payments

Any fees that are charged to a tenant, prospective or otherwise, must be permitted. Any fees charged that do not fall into one of the categories listed below are strictly prohibited.

Rent

The rent that is charged for the initial rental period should not be more than the amount charged for subsequent periods. This has been imposed to stop situations where early rental payments are increased in an attempt to conceal fees that would otherwise be prohibited by the Act.

Tenancy Deposit

The amount of any deposit taken is now limited to the equivalent of five weeks rent where the annual rent under the tenancy is below £50,000. This is increased to six weeks if the annual rent is more than £50,000.

Fees for Holding the Deposit

Any fee that is charged to the tenant in order to hold a deposit is limited to a maximum of one week’s rent. This may be applied to the deposit or the first month’s rent with the tenant’s consent.

Event of Default

The only time a fee may be charged in these circumstances is if the tenant loses a key or security device for access to the property, or if the rent is not paid in full within 14  days of the due date. For these fees to be permitted, the tenancy agreement must expressly state that the landlord may charge a fee in such situations. Without this express clause, any such fees are strictly prohibited under the Act.

Payment on Variation, Assignment or Renewal

A landlord may charge a fee for providing consent to the variation, assignment or renewal of the tenancy agreement. This fee is however, limited to £50.00 or the reasonable costs incurred in considering or arranging the transaction. What is reasonable is open to interpretation and no doubt later authority from the Court, so it is wise to err on the side of caution to avoid possible disputes.

Payment on Termination of a Tenancy

If the tenant ends the tenancy before the contractual end date then the Landlord may charge a fee equivalent to any loss suffered by the landlord due to the early termination by the tenant. This may also relate to the reasonable costs incurred by the agent if they are the party dealing with the early termination.

Payment for Utilities

A tenant may be charged for utilities such as gas, electricity and internet usage so long as the tenancy agreement provides for this.

Which tenancies do the changes relate to?

These changes only affect specific types of tenancies, namely, Assured Shorthold Tenancies, Student Lettings and licenses. These changes do not affect social housing tenancies or long leases.

Sanctions

There are both legal and financial sanctions that may be imposed on a landlord or their agent in the event of a breach of the Act, such as:

• The tenant will not be bound by any term in the tenancy agreement that requires the tenant to make a payment which is prohibited under the Act. The remainder of the agreement will, however, remain in force.

• For a first breach, by either the landlord or the agent, a penalty of up to £5,000 may be imposed.

• A criminal offence is committed where the landlord or the agent have already had the financial penalty above imposed on them for the same breach in the previous 5 years.

• In that event, a further financial penalty of £30,000 may be imposed or the landlord or agent may be liable on summary conviction to a fine.

• Perhaps most importantly, the landlord is prevented from serving any notice under section 21 of the Housing Act 1988 on the tenant until all prohibited payments that have been made have been returned to the tenant.

The sanctions that can be applied by the Courts on the landlord or the agent can be severe, especially in relation to a repeat offence. Therefore it is essential that all landlords and agents in the lettings sector are familiar the requirements of the Act and ensure that they are observed.

Disclaimer

This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole. 

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