Preparing for the Tenant Fees Act – Everything you Need to Know

On Saturday (1^st June 2019), the Tenant Fees Act will come into force. This means that certain fees associated with letting a property in the private rental sector will be banned.

Alexandra Morris, the Managing Director of MakeUrMove, has shared everything that you need to know about the Tenant Fees Act, how the law will affect landlords, and how you can be prepared ahead of its introduction this weekend.

Why is the Act being introduced?

The Government’s aim is to create a fairer and more affordable private rental sector. The Tenant Fees Act is just one measure the Government is taking to overhaul the industry, and to improve the relationships between landlords and tenants.

The Tenant Fees Act will apply to all Assured Shorthold Tenancies (ASTs) in England’s private rental sector.

Which fees will be banned?

Fees for viewing properties, setting up tenancies, check-out and third party fees will all be banned under the Tenant Fees Act.

• Viewing: You cannot charge a prospective tenant for viewing your rental property.
  
• Tenancy set-up: All costs associated with referencing, credit checks, guarantors and administration have to be covered by the landlord. The only exception is if a tenancy agreement began before 1^st June 2019, stating that certain fees have to be paid, for example, renewal fees.
  
• Check-out: Landlords can only charge tenants check-out fees if their tenancy was agreed before 1^st June 2019. Otherwise, you cannot charge your tenant for tasks such as a professional clean of the property at the end of the tenancy. While a tenant is responsible for cleaning the property to the same standard as it was when they first moved in, if the property requires cleaning, then the costs must be supported with evidence and claimed through the tenant’s deposit.
  
• Third party fees: You cannot charge a tenant for acquiring fees from a third party, such as reference checks, credit checks, insurance, gardening services or guarantors. The landlord must pay any costs associated with third parties.

Which fees can still be charged?

The only fees that landlords and agents are able to charge tenants from 1^st June are: rent, a security deposit, a holding deposit, changes to the tenancy agreement, early termination of a tenancy, payments associated with utilities, broadband, a TV licence, Council Tax, or loss of key, and a default fee for late rent payment.

However, there are restrictions within these accepted fees:

• Rent: This amount should be agreed before the tenancy agreement is signed. The monthly rent should be the same amount for each month of the tenancy. Landlords are only able to change the monthly rent through a rent review clause for a permanent increase or decrease in rent.
  
• Security deposit: This must be no more than the equivalent of five weeks’ rent. If the total annual rent of the property is more than £50,000, then the deposit can be the equivalent of six weeks’ rent.
  
• Holding deposit: This is limited to the equivalent of five weeks’ rent. However, you can only accept a holding deposit from one prospective tenant and you can no longer advertise the property after you receive the payment. The holding deposit has to be repaid following the tenant agreeing to the tenancy agreement. If the landlord chooses not to let the property to the prospective tenant, or if an agreement isn’t reached within 15 days after receipt of the holding deposit.
  
• Changes to the tenancy agreement: If a tenant requests a change to the tenancy agreement, you can charge up to £50. However, if the associated costs could be higher than £50, then you’ll have to show evidence of the potential costs you would incur.
  
• Early termination of a tenancy agreement: This is based on financial loss and reasonable costs incurred. Generally, this means that the amount should not be more than the amount of rent you would have received if the tenant had followed through with the tenancy until the end of the agreement.
  
• Payments associated with utilities, broadband, TV licences and Council Tax: This depends on the individual tenancy agreement, but tenants are generally responsible for paying these fees.
  
• Replacement or default fees: This has to be already written into the tenancy agreement in order for a landlord to charge for late payment of rent or the loss of a key. Late payment of rent is classed as more than 14 days overdue. The fee should also not exceed 3% more than the Bank of England’s annual percentage rate for each day the payment is outstanding or costs incurred.

How are current tenancy agreements affected?

If a tenancy agreement was agreed before 1^st June 2019, then you will still be able to charge the banned fees, if they are already included in the tenancy agreement.

From 1^st June 2020, the Tenant Fees Act will apply to all tenancies.

You should also note that, if you have charged a tenant for any of the banned fees for a tenancy agreement entered into after 1^st June 2019, then you would be unable to use Section 21 powers, should you need to evict a tenant. You will have to repay the unlawful fees in order to use a Section 21 notice.

What are the penalties for a breach?

The fine for breaching the Tenant Fees Act will be a civil offence, with a fine of up to £5,000. However, if a landlord makes another breach within five years of the first fine, then the breach will be classed as a criminal offence instead. If you commit a criminal offence, you could face prosecution or a fine of up to £30,000.

Landlords who receive two or more financial breaches in one 12-month period or commit a criminal offence may find themselves on the rogue landlord database.