Tenant Fee Ban Introduction
On Wednesday 23 January 2019, parliament approved a bill which bans fees to tenants. This now means that it will be illegal for landlords and agents to charge administration and other fees to tenants. This includes – but is not limited to – referencing fees, credit checks, general administration fees and contract renewal fees.
This new legislation will take effect on Saturday 1st June 2019. It will apply to all tenancies signed on or after that date.
This article intends to bring landlords up to speed on the Tenant Fee Ban and the rules that will need to be adhered to as of Saturday 1st June 2019.
Background to Tenant Fees Bill
The government announced in Autumn 2016, that it was planning a ban on letting fees to tenants. The aim of this new legislation was to create a ‘fairer, more competitive and more affordable lettings market where tenants have greater clarity and control over what they will pay’.
The charity Shelter had played a huge part in making the ban happen.
The Tenant Fees Bill received pre-legislative scrutiny from the Housing, Communities and Local Government Select Committee. The government’s approach of an upfront ban on fees received full cross-party support.
Read on as we delve deeper into this subject….
What does the Tenant Fee Ban mean?
Once the tenant fee ban comes into force, landlord and agents will only be allowed to take payments for rent and security deposits from tenants. Security Deposits will be capped at the equivalent of five weeks rent when the annual rent is below £50,000. Holding deposits will also be capped at the equivalent of just one weeks rent.
Aside from being able to charge the tenant for damaging a property, there aren’t many more charges that landlords and agents will be able to make. However you can charge the tenant for ‘default fees’ which include:
1. Late rental payments
A fee can be charged for late payment of rent. But this only applies when the payment has been outstanding for 14 days or more. The fee also cannot exceed 3% above the Bank of England base rate for each day that the rent has not been paid.
Note: It will not be possible to charge for the time involved in chasing rent or for sending out letters, making phone calls etc.
2. Tenant losing their keys
It has been confirmed that a charge can be made to tenants for replacing lost keys or access devices. However, these costs must be evidenced in writing and proven to be fair and reasonably priced.
It is still uncertain whether or not it will be possible to charge for the time involved in having keys cut. Although, early indications would suggest that this will not be allowed.
3. Breaches of the tenancy agreement
Landlords may still seek compensation if damages are caused by the tenant in a rental property. This can be done via the normal methods of requesting deductions from the security deposit or via court proceedings.
Landlords can also charge tenants for failure to perform their obligations or discharge a liability arising under or in connection with the tenancy. This being said, there is still some uncertainty over what will be deemed ‘reasonable’ and how these fees should be charged.
4. Changes to a tenancy
Landlords can still charge for a change to the tenancy requested by the tenant. A maximum fee of £50.00 is considered to be reasonable according to government guidance. Any charge over and above this amount would need to be backed up with written evidence.
Similarly, if a tenant wishes to terminate their contract early then it is possible to ask them to pay the reasonable costs involved in doing so. This would include rent up to the point at which they leave and other costs (or equivalent losses) involved in finding a new tenant.
The consequences for charging prohibited fees to tenants are far reaching. Tenants will be able to reclaim any money they have paid via the court system – with interest. Trading standards will also be able to fine landlords and agents up to £30,000. The right to serve a Section 21 notice may also be rescinded in cases where prohibited payments have been charged.
Will the fees ban apply to tenancies signed before 1st June 2019?
No, not immediately. The ban will apply to all new tenancies (and renewals of existing tenancies) signed on or after 1st June 2019.
Tenancies signed prior to this date will have a 12 month grace period. This means that the ban would take effect on 1st June 2020. Any landlord or agent that takes prohibited payments after that date will have 28 days to return it in full before having been considered of a breach.
What fees are banned?
Nearly all fees within a tenancy agreement will be void. Examples of these are as follows:
· Charging for a guarantor
· Credit checks
· Check outs
· Cleaning services
· Admin charges
· Gardening services
Holding deposits will be limited to a maximum of one week’s rent. This will be subject to statutory legislation on the repayment should the tenancy not go ahead.
The landlord and applicant will then face a ‘deadline for agreement’ of 15 days in order to make a decision on proceeding with the tenancy. If the tenancy does not commence, then the money must be repaid in full within 7 days. The only exceptions are if the applicant:
– Backs out of the tenancy
– Fails their right to rent checks
– Provides false or misleading information
– Fails to provide sufficient information or documentation within 15 days
Holding deposits can be used as a part payment towards the full security deposit once a tenancy goes ahead.
Landlord associations and industry leaders have regularly highlighted the fact that it is the ‘greedy few’ who have created an unfair environment for tenants. The reality is that most responsible landlords and agents do in fact charge fees relative to the work they have undertaken. We regularly meet with prospective tenants on viewings who have been quite shocked at the fees quoted by some organisations. One main benefit for us, is that we often secure these tenants for our own clients properties instead, due to our reasonable fees.
Whilst we don’t necessarily agree with a full ban of fees, it was quite clear that something needed to be done to level the playing field. Therefore, we are supportive of the proposed measures. We do however feel that a fee cap would have been a more sensible option. Those landlords who have processed tenancy applications themselves will agree that there is a significant time outlay involved in doing things properly.
One thing is for sure. It is going to be imperative for landlords and agents to fully understand the Tenant Fee Ban before it takes effect. Want to find out more? The official government guidance can be found here.
In part 2 of this series – due to be released in May 2019 – we will be looking at the impact that the tenant fee ban could have on the current rental climate. Keep your eyes peeled for this to be issued over the coming weeks.
As always, if you wish to discuss things in more detail then give us a call today on 0115 981 9651. We would welcome the opportunity to share our knowledge and answer any questions you may have.
We look forward to hearing from you.