Warning: Tenant Fees Ban commences 1st June

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Fees Ban:

The Tenant Fees Act 2019 commences in force from 1st June 2019 and applies to England only for now, but is likely and has the facility to be extend to Wales. Scotland of course already has an equivalent set of legislation.

The new Act restricts payments that landlords and letting
agents may ask a tenant of a residential letting in England to make in connection
with their tenancy, and it includes certain student lettings and residential licences.

The Act also covers the capping of tenancy deposits and
holding deposits, with various conditions attached, and puts restrictions on third-party
contracts that a tenant or guarantor can be contracted to be bound by for
services such as insurance.

It is therefore very important for landlords and agents to
have a clear understanding of these regulations as there are stiff penalties
for failure to comply.

Note: These brief guidelines
are based primarily on English law and are not a definitive interpretation of
the law. There is more detail in the Act itself. Every case is different and
only a court can decide, so seek expert advice before making or not making
decisions.

Effectively, the Act bans all payments a landlord or letting
agent may take from a tenant except those expressly set out in the Act as “permitted�
payments. These are:

1. Rent –
   which will include an advance payment for the first rent period, which must be
   the same as all the subsequent rent payments. In other words, the first period
   cannot be loaded to recover costs
2. Holding
   Deposit – refundable, and no more than the equivalent of one week’s rent,
   with its terms of refund and retention set-out clearly in writing
3. Tenancy
   Deposit, sometimes referred to as a security or damage deposit, again refundable
   and capped at no more than five weeks’ rent, if the total annual rent is less
   than £50,000, or a maximum of six weeks’ rent, if the annual rent exceeds
   £50,00
4. Amendments,
   mid-tenancy, amendments requested by the tenant are capped at £50, unless a
   greater cost can be fully justified.
5. Early
   Termination, payments associated with this when requested by the tenant
6. Provision
   of Utilities, such internet services, telephone, TV licence and council tax
   when appropriate.
7. Default
   Fees, when the tenant defaults on rent payments orother permitted payments specified in the tenancy agreement, including
   such items asreplacement of a lost
   keys, etc.

There is considerably more detail within the Act itself –
see the link below – so landlords and agents should familiarise themselves with
the detail.

There are some severe sanctions for non-compliance for
landlords, letting agents and also for company directors in person. Enforcement
authorities may force the repayment of any prohibited payments together with
interest, tenants can apply to the First Tier Property Tribunal to recover any
prohibited payments together with interest, and landlords and letting agents
may face fines of up to £30,000.

The likely Impact on
Businesses:

Many letting agents, particularly small-scale single
practices may find it has a major impact on their profitability without passing
on the loss of fee income in the form of additional fees to their landlord
clients. In a competitive environment they may find this difficult.

Where the fees are passed on to landlords, in turn their
profits will be squeezed without passing on these costs in the form of higher
rents to their tenants. Again, in a competitive environment this may or may not
be possible depending on the circumstance.

Ultimately though, it is more than likely that rents will
rise overall for all tenants, but it may save those tenants who are regularly stung
by excessive fees by some high street agents. On the other hand, those tenants
who have rented direct from landlords, who don’t normally charge fees, may find
their market rent levels increasing.

Landlords and agents need to think carefully about their business
strategies going forward and adjust their budgeting accordingly, in the
knowledge of how the Act will affect them.

Tenant Fees
Act 2019

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