Landlords and Agents: What You Need to Know

Howes Percival LLP

26th April 2019

In the second of our articles about legislative changes affecting residential landlords, we look at the Tenant Fees Act 2019 (“the Act”) which is intended to improve residential letting for tenants and limit the payments landlords and agents can charge in connection with residential tenancies.

When does the Act come into force?

1 June 2019 for new tenancies but there is a transition period to allow time for landlords and agents to review existing agreements and change them if necessary. The transition period is between 1 June 2019 to 31 May 2020 and after this date any provision in an existing tenancy that is in breach of the Act will no longer be legally binding and enforceable.

What does this mean for new and existing tenancies?

From 1 June 2019 all new tenancies must comply with the Act which means that landlords and agents can only charge “permitted payments”. Landlords and agents will therefore be responsible for many of the costs associated with setting up, renewing and ending a tenancy, including those relating to referencing, legal fees and inventories. If a tenancy was entered into before 1 June 2019 landlords and agents can continue to charge fees referred to in the existing tenancy agreement, but only until 31 May 2020. From 1 June 2020 landlords and agents will be prohibited from charging any payments except those which are expressly permitted under the Act. Any provision in a tenancy which refers to a prohibited payment will no longer be binding after this date.

What tenancies does the Act apply to?

All assured shorthold tenancies (except social housing or long leases), tenancies of student accommodation and licences to occupy housing in the private rented sector.

Permitted Payments: What payments can a landlord or agent charge?

  • Rent: in the first year of the tenancy a tenant cannot be required to pay the rent in unequal instalments and therefore the rent should be equally split and be payable by the tenant at regular intervals. I.e. it is prohibited to charge £1000 in the first month of the tenancy and thereafter £500 per month. It is permitted for the landlord to increase the rent under a rent review clause in the tenancy. However, the rent can only be reviewed in the first year of the tenancy if the rent review clause allows for both rent increases and rent decreases. If the tenancy is an assured shorthold periodic tenancy, the rent can also be increased annually by notice.
  • Security Deposit: a landlord can ask the tenant to pay a security deposit to protect it against the tenant breaching the terms of the tenancy (including damaging the property) but the deposit will be subject to a cap. If the total annual rent for the property is less than £50,000 then the maximum deposit that a landlord can request is five weeks’ rent. If the total annual rent is more than £50,000 then the maximum deposit is six weeks’ rent. As is currently the case for assured shorthold tenancies, any deposit taken must be protected in a government tenancy scheme.
  • Holding Deposit: a landlord can ask the tenant to pay a holding deposit to reserve the property, but this will be subject to a cap of up to one week’s rent. A landlord cannot obtain more than one deposit for the same property and will have 14 days to enter into the tenancy agreement from the date the deposit is received. However, it is permissible for a longer period to be agreed with the tenant in writing. The deposit needs to be refunded to the tenant within seven days of the tenancy agreement being entered into, or the landlord deciding not to proceed to grant the tenancy. There are limited circumstances where the deposit can be retained and the landlord will need to write to the tenant confirming why the deposit has been retained within seven days of deciding not to grant the tenancy.
  • Alteration Fee: if the tenant requests to make a change to the tenancy agreement the landlord can charge up to £50. However, the landlord can also charge for any reasonable costs incurred if these are higher than £50, but only if it is reasonable to do so and evidence can be provided in the form of receipts.
  • Tenant’s Early Termination: if a tenant requests to end the tenancy before the end of the fixed term, or the end of its notice period, a landlord can ask the tenant to pay the remainder of the rent that it would have paid, had the tenancy not been terminated early. The landlord cannot require the tenant to pay the outstanding rent in a lump sum and must allow the tenant to continue paying the rent at the intervals set out in the tenancy agreement. The landlord is not permitted to receive a financial benefit from the tenant leaving early and therefore, if the landlord finds a replacement tenant, then the landlord can only charge the amount of rent which would have been payable up to the start of the new tenancy and any reasonable costs incurred in arranging for the tenant to leave early.
  • Outgoings: if payments for utility bills, council tax and communication services are not included in the rent then the landlord can require the tenant to pay these either directly to the supplier, or the landlord can collect the payment from the tenant to pay on its behalf. The landlord must ensure that it does not over-charge the tenant for these services.
  • Charges for Late Payments/Replacement of Keys: if the landlord wants to ensure it can charge a default fee for late rental payments, or where a replacement key is required, then the details of this payment must be set out in the tenancy agreement. Fixed penalty charges are prohibited and the landlord can only charge interest on overdue rent which has been overdue for 14 days or more, at an interest rate of not more than 3% above the Bank of England’s base rate. The tenant can only be required to pay a fee to cover the reasonable costs of replacement of the lost key and the tenant will not be required to pay such costs unless evidence is provided.

Prohibited Payments: What payments are prohibited?

The only payments that can be charged in connection with a tenancy are on the above list. All other payments are prohibited including (but not limited to):

  • Viewing fees;
  • Tenancy set up fees including referencing, credit checks, guarantor fees, legal fees and administration time;
  • Inventory fees;
  • Check out fees;
  • Professional cleaning (however if the property is not left in a clean and tidy condition, the costs of putting the property into such condition can be claimed against the deposit); and
  • Third party services. Therefore the tenant cannot be required to reimburse the landlord for insuring the property or for providing services (except in relation to the Outgoings mentioned above). However, these payments can be included as part of the rent and going forwards it is likely that landlords will prefer an inclusive rent, which will allow them to ask for a higher deposit. The government’s guidance on the Act states that a landlord should be clear and up-front with tenants about what the rent covers.

What if a landlord makes a charge which is not a “permitted payment”?

Any charge made which is not permitted under the Act will prevent the landlord from using the section 21 of the Housing Act 1988 eviction procedure, until such payment is repaid. A breach of the Act by a landlord or agent will also be a civil offence with a financial penalty of up to £5,000. If a further breach is committed within 5 years of the financial penalty then this will be a criminal office with an unlimited financial penalty.

What next?

If you are a landlord or agent who deals with tenancies of residential properties in the private sector, you should familiarise yourself with the government’s “Guidance for landlords and agents” (which you can find here https://www.gov.uk/government/publications/tenant-fees-act-2019-guidance) and ensure that you are reviewing your tenancy agreements now, in readiness for when the Act comes in to force. If you need help and further advice, please get in touch with Charlotte McClean (charlotte.mcclean@howespercival.com). 

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