Letting fees ban and new tenancy deposit rules

This is because the Tenant Fees Act 2019 is now in force.

In summary

In summary the new rules:

• Outlaw many types of up-front tenant fees.
• Prevent a landlord taking a security deposit which exceeds five weeks' rent.
• Prevent a landlord requiring a tenant to contract with a third party (preventing someone else receiving an unlawful payment on the landlord's behalf).

Landlord and agents breaking the rules are subject to various sanctions. These include:

• Fines imposed by trading standards.
• A second breach within five years of a previous fine being a criminal offence, and
• The landlord being unable to serve a section 21 notice, if they have taken a prohibited payment.

Tenants, licensees and 'relevant persons' (acting on the occupier's behalf or who guaranteed the rent) can also apply to the First Tier Tribunal to recover unlawfully charged fees.

Scope

The new rules apply to the following types of letting:

• Assured shorthold tenancies.
• Tenancies of student accommodation, and
• Licenses to occupy housing in the private sector (with certain exceptions).

Prohibited payments

The rules operate by stipulating what fees can be charged. If the type of payment is not listed in the Act, it is unlawful.

For tenancies and licences in the private sector that begin on or after 1 June 2019, landlords can only demand the following types of payment:

• Rent.
• A refundable tenancy deposit which is no more than five weeks' rent (six weeks' rent if the annual rent is £50,000 or more).
• A refundable 'holding deposit' (for reserving a property) of no more than the equivalent of one weeks' rent. Only one holding deposit may be taken at any one time.
• Payments to make changes to the tenancy (e.g. to allow pets, to allow a sub-let, to allow a business to be run from the property) that are limited to £50, or a reasonable amount if higher.
• Payments associated with an early ending of the tenancy, where requested by the tenant, providing the amount does not exceed the landlord's financial loss or agent's reasonable costs.
• Payments for utilities, communication services, TV licence and council tax, and
• Default fees for late payment of rent or replacement of lost keys or security devices, providing they are allowed under the tenancy agreement, and providing they do not exceed interest at more than 3% above the Bank of England base rate or the reasonable costs incurred by the landlord.

Any fee charged by a landlord which is not listed above is unlawful (a 'prohibited payment').

Examples

For example, for tenancies beginning on or after 1 June 2019, a landlord will not be able to charge:

• A tenancy deposit exceeding 5 weeks' rent.
• A fee for obtaining a reference.
• An inventory service payment.
• Administration charges for setting up the tenancy or renewing the tenancy.
• Viewing fees.
• Insurance fees.

This brings much needed regulation to tenant fees. The Act will hopefully prevent the common practice whereby letting agents charge the tenant as well as their client landlord.

However, there is of course a risk that landlords will increase rents to compensate for any loss of income (including higher fees charged to them by agents).

Possession notices

A landlord of an assured shorthold tenant who has received a prohibited payment (or is unlawfully retaining a deposit) cannot serve notice under section 21 of the Housing Act 1988 (the two-month possession notice most commonly used for shorthold tenants).

To be able to serve an effective section 21 notice a landlord in default will need to return the fee to the tenant (or relevant person).

Those advising assured shorthold tenants who've received a section 21 notice will therefore need to establish whether fees were paid in connection with the tenancy, the amounts, and what the payments were for.

Section 17 of the Act sets out the restrictions on giving a s.21 notice. Subsections (4) and (5) provide that the tenant or relevant person can agree to all or part of the prohibited fee being used to pay rent or being held as a tenancy deposit (so as to avoid the section 21 prohibition).

'How to Rent' guide

The Government has updated its 'How to Rent' in light of the fees ban.

The fact the guide has been updated also has implications for the validity of section 21 notices. If a landlord has not given the guide to tenants any section 21 notice they serve is ineffective. They must also provide an updated version of the guide if a new tenancy arises and the guide has been updated in the meantime (to ensure any s.21 notice is effective).

Two stages

The fees ban is being introduced in two stages.

New tenancies

For the first 12 months the rules only apply to new tenancies. For tenancies (and licenses) entered into from 1 June 2019, a private landlord cannot charge a prohibited fee.

Old tenancies

From 1 June 2020 the fees ban will apply to all applicable tenancies and licences in the private sector. This means that an obligation in a pre-June 2019 agreement to pay a prohibited fee will become ineffective after 31 May 2019.

For example, imagine that a contract agreed in 2018 requires the tenant to pay a 'check out' fee at the end of the tenancy. If the tenancy ends between 1 June 2019 and 31 May 2020 the landlord can still lawfully demand payment. However, if the tenancy ends on or after 1 June 2020 the fee can no longer be charged.

Pre-Act fees

Fees charged before 1 June 2019 do not have to be paid back to the tenant (unless they were unlawful in any event under another legal provision). For example a tenant may have paid for a reference check before agreeing a tenancy in 2018. They have no grounds for demanding its repayment merely because the tenancy is still in existence now the Act has come into force.

Renewal fees for existing tenancies

It has been a common practice for letting agents to charge existing tenants a fee for arranging a replacement tenancy when a fixed term ends. Demanding a 'renewal' fee has always been outrageous, since a statutory periodic tenancy automatically arises when a fixed term assured shorthold tenancy ends (if a replacement contractual tenancy is not agreed).

Applying the above rules, landlords can continue to charge renewal fees for 'old' tenancies (those entered into before 1 June 2019) for the time being, providing the payments are required under the tenancy agreement.

However, from 1 June 2020 these charges will become unlawful, even if a clause requiring payment remains in the tenancy agreement.

Old tenancy deposits

Landlords who took large deposits (exceeding five weeks' rent) for tenancies beginning before 1 June 2019 are under no obligation to immediately return the amount exceeding five weeks' rent.

However, if a new contract is agreed on or after 1 June 2019, the maximum cap applies.

This means there's an incentive for landlords holding large deposits for pre-existing fixed term assured shortholds that end after 1 June 2019 to allow them to default to statutory periodic tenancies (rather than asking the tenant to agree a new contract).

In this situation the landlord can wait for the tenancy to end before returning the tenant's deposit money (less legitimate deductions).

Further reading

There's plenty of useful resources about the Act online, including:

• Government guidance.
• House of Commons Library briefing.

Wales

The above rules only apply in England.

However, those in Wales should note that similar (but not identical) provisions are contained in the Renting Homes (Fees etc.) (Wales) Act 2019.

The Welsh Government has indicated that the Act is due to come into force on 1 September 2019. We are still awaiting regulations, which will stipulate how certain aspects of the ban will operate in Wales.

Documents in relation to the Act are available on the National Assembly's website.