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We’ve put together a few frequently asked questions about the new Tenants Fees ban coming into force 1st June 2019 (England Only at the moment).
When does the tenant fees ban start?
Does the ban apply to all tenancies?
Will tenancies I already have be affected?
What can tenants be charged for?
What can’t tenants be charged for?
How much deposit can I charge?
Can I take a higher deposit if the tenant has a pet?
Can I charge the tenant if they are late paying their rent?
What about damage to the property? Can this be charged to the tenant?
If the tenant doesn’t pay anything, how can I be sure they are committed?
When can I ask the tenant to pay the tenancy deposit and first month’s rent?
Are there any ways around the new legislation?
Can I ask a tenant to provide me with a reference report at their own cost?
Can I increase the rent for one month to cover my costs?
How will this affect The Online Letting Agents?
What should I do if I charge a tenant something accidentally?
Are there penalties if I get it wrong?
Can a tenant get compensation if they’ve been wrongfully charged for something?
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When does the tenant fees ban start?
The Tenant Fees Act 2019 commences from 1st June 2019. From this date you cannot require a tenant to make certain payments in connection with a tenancy.
Does the ban apply to all tenancies?
The new rules apply to assured shorthold tenancies, licences (lodger lettings for example) and student lettings (provided by a specified educational institution).
The Act does not apply to contractual tenancies which would be used if the tenancy is for a company let or non-assured tenancies.
Will tenancies I already have be affected?
If you have a contract that was signed and executed before 1st June 2019, you can still charge any fees that are mentioned in that contract up until 31st May 2020. From 1st June 2020, any prohibited payments listed in any tenancy agreement won’t be enforceable.
If you renew a contract with an existing tenant after 1st June 2019, the fees ban will apply to the new tenancy.
From 1st June, the level of tenancy deposit you can ask a tenant to pay will be capped at a maximum of 5 weeks rent for the property is less than £50,000, and up to 6 weeks for the property is £50,000 or above. If you renew a contract after 1st June 2019, and the tenant paid more than the permitted deposit amount, you must repay any over payment.
What can tenants be charged for?
You will still be able to charge tenants:
-
- Rent;
- Deposit (capped at 5 weeks rent for rents of less than £50,000 pa, or 6 weeks for rents of £50,000 pa or more);
- Bills;
- Green deal charges;
- Holding deposit (see below for details);
- Defaults by the tenant in relation to the loss of a key/security device or late rent (interest can be charged at 3% above the BoE base rate);
- Variations of the tenancy agreement at the tenant’s request; and
- Early termination of the tenancy at the tenant’s request.
What can’t tenants be charged for?
The easiest way to think of it is that all payments are “prohibited payments” unless that payment is expressly permitted under the Act.
Common charges that are prohibited payments include referencing & admin fees, inventory / check in / check out fees, tenancy renewals fees and the cost of sending letters & notices (eg, for late rent, advising of tenancy breach etc).
Although agents will no longer be able to charge tenants for referencing, it is still strongly advised that landlords do undertake thorough references for prospective tenants. The Online Letting Agents will still continue to offer comprehensive tenant reference checks for landlords, though this will be payable by the landlord.
Unless a payment is expressly permitted under the Act, it will be a prohibited payment.
Prohibited payments includes payments to a 3rd party, such as:
Professional cleaning: You can request that a property is cleaned to a professional standard when it is returned at the end of the tenancy if it was in this condition when the tenancy started, but cannot require a tenant to pay a 3rd party to do this. Tenants are responsible for ensuring that the property is returned in the condition that they found it, aside from any fair wear and tear. The tenant may choose to pay for the services of a cleaner to professionally clean the property at the end of the tenancy, which would be acceptable.
Gardening, chimney sweeping, window cleaning & similar services: You cannot require a tenant to pay a 3rd party to maintain the garden, sweep a chimney, clean the windows or undertake similar cleaning/maintenance tasks. You can request that they keep these clean/maintained and the tenant may decide to employ the services of a 3rd party for this purpose. You can include these costs in the rent only if the property has been advertised as inclusive of these services.
Insurance: You cannot require a tenant to take out insurance through a 3rd party, although they may choose to do this themselves.
If the tenant opts to employ the services of a 3rd party at their own cost, this is acceptable within the Act.
How much deposit can I charge?
The level of tenancy deposit you can ask a tenant to pay depends on the total annual rent for the property.
If the total annual rent for the property is less than £50,000, the maximum tenancy deposit you can ask a tenant to pay is up to five weeks’ rent.
If the total annual rent for the property is £50,000 or above, the maximum tenancy deposit you can ask a tenant to pay is up to six weeks’ rent.
Can I take a higher deposit if the tenant has a pet?
There are no special provisions or exemptions to the maximum permissible deposit if you rent to a tenant with a pet. A landlord or agent can only take a tenancy deposit up to a maximum of five weeks’ rent (where the total annual rent is less than £50,000) or six weeks’ rent (where the total annual rent is £50,000 or more). This provision applies universally, regardless of circumstance.
Can I charge the tenant if they are late paying their rent?
For late payment of rent, a default fee can be charged for late payment of rent but only where the rent payment has been outstanding for 14 days or more (from the date set out in the tenancy agreement).
Landlords and agents may only charge 3% above the Bank of England base rate in interest on the late payment of rent from the date the payment is missed. At the time of writing this would be 3.75% interest, because the base rate is currently 0.75%. They may not charge for sending reminder letters.
How to calculate interest on the rent:
The calculation is (rent amount in arrears) x 0.0375 / 365 x (the amount of days since the arrears began).
The 0.0375 given in the calculation above is calculated from the % interest. If the base rate increased to 1%, for example, the chargeable interest would be 4% (1% + 3%), so the number to use in the calculation would be 0.04.
For example, if a tenant pays £500 rent per month on the 1st day of each month and misses their payment due on 1st January, and that amount remains unpaid for the whole month, interest would be payable on the 31 days of unpaid rent, and would be calculated as follows:
£500 for the 31 days
£500 x 0.0375 = £18.75
£18.75/365 = 5p per day
5p x 31 = £1.55 for the first 31 days of arrears at that total.
What about damage to the property? Can this be charged to the tenant?
If the property is not left in a fit condition, you can still recover costs associated with returning the property to its original condition and/or carrying out necessary repairs by claiming against the tenancy deposit.
If the tenant doesn’t pay anything, how can I be sure they are committed?
To ensure a tenant is committed to your property, you can take a holding deposit of up to one week’s rent. Only one holding deposit can be held for a property at any one time.
You have 15 days from receiving the holding deposit to sign a tenancy agreement with the tenant. This is called the ‘deadline for agreement’. You can agree a different deadline for agreement with the tenant, but you must have it in writing.
You must refund a tenant’s holding deposit in full within 7 days of:
- signing a tenancy agreement with the tenant (unless the tenant has agreed in writing for you to use their holding deposit towards their rent or deposit);
- you choosing to withdraw from the proposed agreement; or
- the deadline for agreement passing without a tenancy agreement having been signed.
A holding deposit can only be kept if the tenant:
- provides false or misleading information;
- fails a right to rent check;
- withdraws from the property (unless the landlord has acted in such a way that the tenant couldn’t reasonably be expected to wish to proceed with the tenancy); or
- fails to take all reasonable steps to enter into a tenancy agreement.
If you decide not to continue with the tenant, you must let them know the reason why, in writing, within 7 days of either deciding not to go ahead or the deadline for agreement, whichever is soonest.
A breach of the requirement to repay the holding deposit is a civil offence and will be subject to a financial penalty of up to £5,000.
When can I ask the tenant to pay the tenancy deposit and first month’s rent?
You can’t ask for any payment other than the holding deposit until the tenancy agreement is signed. Once the tenancy agreement is signed, you can request the tenancy deposit and first month’s rent.
Under the Act, holding deposits of up to one week’s rent are permitted payments but any further payments received prior to the signing of the tenancy agreement would be prohibited.
This means that agents and landlords can not ask a tenant to pay their tenancy deposit and/or first month’s rent before the contract has been signed. To do so would be to ask for a prohibited payment. The Tenant Fees Act is drafted in such a way that any money taken prior to the signing of an agreement is treated as a holding deposit. As this is limited to one week’s rent, any further payments received would be prohibited.
Are there any ways around the new legislation?
There are no loopholes in the new legislation. You can’t ask a tenant to make a payment to a 3rd party (for example, requiring the tenant to provide a reference from a provider at their own cost) or pay an unusual figure for the rent for any month(s) of the tenancy (for example, increasing the first month’s rent to cover the extra costs).
Can I ask a tenant to provide me with a reference report at their own cost?
You cannot require a tenant obtain a reference through a third-party reference service as a condition of granting a tenancy, but a tenant could opt to obtain such a reference voluntarily. You can ask a tenant to supply a reference from a former landlord or agent, but the previous landlord or agent cannot charge the tenant for this. If you request a reference directly from a tenant’s previous landlord or agent, and they want to charge for doing this, you will have to negotiate this with the previous landlord or agent directly and pay any associated costs if required.
Although agents will no longer be able to charge tenants for referencing, it is still strongly advised that landlords do undertake thorough references for prospective tenants. The Online Letting Agents will still continue to offer comprehensive tenant reference checks for landlords, though this will be payable by the landlord.
Can I increase the rent for one month to cover my costs?
You can’t charge a higher than normal rent for month one (for example) and then a reduced rent for the remainder of the term. Likewise, you can’t charge that higher than normal rent in a later month of the tenancy.
How will this affect The Online Letting Agents?
Our current pricing model includes a contribution from both the landlord and tenant, with landlords paying for marketing, and tenants paying for referencing.
We are reviewing all our packages and will soon make an announcement on how our fee structure will change in line with the new legislation.
What should I do if I charge a tenant something accidentally?
Any prohibited payment that you have inadvertently taken from a tenant must to be repaid within 28 days, whether it’s been requested by them or not.
You will not be able to serve a section 21 notice until any unlawfully charged fees have been repaid.
Are there penalties if I get it wrong?
Each request you make for a prohibited payment is a breach of the legislation.
A breach will usually be a civil offence with a financial penalty of up to £5,000. If a further breach is committed within 5 years of the imposition of a financial penalty or conviction for a previous breach this will be a criminal offence. The penalty for the criminal offence, which is a banning order offence under the Housing and Planning Act 2016, is an unlimited fine.
Where an offence is committed, local authorities may impose a financial penalty of up to £30,000 as an alternative to prosecution. In such a case, local authorities will have discretion whether to prosecute or impose a financial penalty. Where a financial penalty is imposed this does not amount to a criminal conviction.
A breach of the requirement to repay the holding deposit is a civil offence and will be subject to a financial penalty of up to £5,000.
You will not be able to serve a section 21 notice until any unlawfully charged fees have been repaid.
Can a tenant get compensation if they’ve been wrongfully charged for something?
A tenant is entitled be repaid the sum of any unlawfully charged fees, an unlawfully retained holding deposit or amounts paid under a prohibited contract as well as any interest awarded by the enforcement authority (in line with the Act).
Trading Standards authorities have a duty to enforce the ban but district councils that are not Trading Standards authorities will also have power to enforce if they choose to do so.
The Act also makes provision for tenants to recover unlawfully charged fees through the First-tier Tribunal and, importantly, prevents landlords from recovering possession of their property via the section 21 eviction procedure until they have repaid any unlawfully charged fees or unlawfully retained holding deposit. Tenants can also seek repayment through the relevant redress scheme (where this concerns an agent).
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