Important changes to the type and amount of fees and tenancy deposits landlords and letting agents are permitted to request from their tenants have come into effect. The Tenant Fees Act 2019 came into force on 1 June 2019 in England and will have a significant impact on the charges that landlords (and lettings agents) can levy. It applies to new assured shorthold tenancies (the most common type of tenancy), student tenancies and licences to occupy in the private rented sector. The legislation will apply to existing tenancies and licences from 30 May 2020. There is a narrow list of seven permitted payments in connection with a tenancy, as follows:
- rent – the rent instalments must be split equally across the first year of the tenancy. This does not prevent landlords from asking a tenant to pay more than one rent instalment at the outset. For example, say rent is £400 per month, landlords can ask a tenant to pay three months’ rent upfront (£1,200) however they cannot charge £1,200 in the first month and then £400 every month thereafter;
- a refundable tenancy deposit capped at five weeks’ rent (where annual rent is less than £50,000) and six weeks’ rent (where annual rent is £50,000 or above);
- a refundable holding deposit capped at no more than one week’s rent;
- payments to change the tenancy, when requested by the tenant capped at £50 including VAT, or reasonable costs incurred. However landlords should not simply charge a blanket fee as a matter of course;
- payments associated with early termination of the tenancy, when requested by the tenant. Here, the costs charged cannot exceed those actually incurred by the landlord or the reasonable costs of the letting agent;
- payments of utilities, communication services, TV licence and council tax; and
- default fees – late payment of rent and replacement of a lost key/security device are two examples set out in the legislation, but the accompanying guidance refers to others.
If prohibited fees such as inventory fees or credit check fees are taken, they will need to be returned to the tenant within 28 days.
Breaches will usually be a civil offence incurring financial penalties of up to £30,000 and recurring offenders may face a criminal charge and an unlimited fine.
An important practical consequence of a breach is that landlords cannot recover possession of the property by serving a section 21 notice until all unlawfully charged fees or unlawfully retained holding deposits are returned.
Given the consequences, it is important to review existing and precedent agreements to check they do not refer to prohibited fees. The risk that repossession could be blocked because too much was charged or a small refund has not been made, is likelier to motivate landlords more than the risk of a civil law action.
KEY POINTS
- The law applies to new tenancies and licences to occupy created from 1 June 2019
- It will apply to existing tenancies and licences to occupy from 30 May 2020
- Tenancy deposits are capped, and inventory fees and credit check fees are prohibited
- Landlords cannot recover possession using the section 21 notice procedure if unlawful fees or deposits have not been returned to the tenant
- Fines of up to £30,000 for non-compliance and recurring offenders could face criminal charges