What do landlords need to know about the Tenant Fees Act?
After first being announced in late 2016, the tenant fees ban – known officially as the Tenant Fees Act – is effective from June 1 2019.
This means letting agents and landlords are no longer be able to charge upfront fees and the deposits they can take from tenants are capped.
For landlords, it’s vitally important that you’re up to speed with what the new legislation allows you to do. It’s also key that you work with a letting agency that is fully compliant and transparent.
To mark the introduction of this landmark legislation – which is likely to have a significant effect on the rental market – we have put together a rundown of everything you need to know…
No more upfront tenancy fees
The new legislation prohibits agents and landlords from charging tenants any upfront fees, apart from some exemptions (detailed below). You are of course still allowed to charge for rent and deposits, although in the case of deposits these are now capped as we explain below.
Here is a selection of fees that tenants can no longer be charged for:
• Administration fees
• Inventory fees
• Credit check fees
• Cleaning fees
• Referencing fees
• Guarantor fees
This list is by no means exhaustive, so if you are thinking about charging for something but not sure if it’s banned, it’s advised that you check with a professional letting agent or read up on the government’s official guidance.
Which tenancies does the fees ban apply to?
The Tenant Fees Act applies to all new tenancies and renewals effective from June 1 2019.
For tenancies granted before this date, landlords are still able to charge fees to tenants, provided they are set out in the original tenancy agreement.
By June 1 2020, however, all existing tenancy agreements will be brought in line with the legislation meaning that all upfront fees will be banned.
The laws apply to all Assured Shorthold Tenancy agreements – which are the most common – as well as student lettings and licence agreements (including lodgers).
There are three default fees you are still able to charge for
As mentioned above, there are three fees which you are able to charge tenants for, these are known as ‘default fees’ and must be included in a tenancy agreement.
If your tenants are in rent arrears for more than two weeks, you are able to charge them a late rent payment fee up to 3% plus the Bank of England base interest rate.
You can also charge your tenants if they want to make a change to the tenancy agreement such as adding a pet clause or terminating the contract early. You are only allowed to charge up to £50 for this, unless you can demonstrate why it cost more.
If the tenant is merely asking to extend or renew their agreement, you are not allowed to charge for this under the Tenant Fees Act.
The final default fee is for lost keys. This charge must be for a reasonable amount with receipts as proof.
Holding and security deposit caps explained
As part of the new laws, holding deposits – which allow prospective tenants to reserve a property – and security deposits are being capped.
The holding deposit cap is set at one week’s rent. You are only allowed to keep a holding deposit for 15 days, unless otherwise agreed in writing. After this deadline, you are required to return the money to the tenant within one week.
The reasons for withholding a holding deposit are as follows:
• The tenant fails a Right to Rent check
• The tenant withdraws after making a formal application
• The tenant fails to take reasonable steps to enter into the tenancy agreement
• The tenant provides misleading information such as an inflated salary
Meanwhile, security deposits are capped at five weeks’ rent for properties with a yearly rent below £50,000 and six weeks for properties with an annual rent higher than this figure.
If you have tenancy agreements in place where the deposits exceed the five or six-week cap, you will be required to reduce them when the agreement next renews or after May 31 2020, whatever comes first.
There are significant penalties for non-compliance
If you breach the Tenant Fees Act – either by charging for a prohibited payment or taking a deposit higher than the relevant cap – there are significant penalties.
For the first breach, you will be liable for a fine of up to £5,000. If you breach the Act for a second time within five years you will be charged with a banning order offence.
In this instance, you could be prosecuted or fined up to £30,000 by your local authority. Any fines you receive will have to be paid on top of the fees or deposits you are required to repay to the tenant.
Working with a professional agent is key
As we said above, as well as being compliant yourself, it’s important that you work with a letting agency that takes compliance seriously.
The best local letting agents can offer you expert advice and help you to navigate your way through the new rules and regulations.
The tenant fees ban certainly represents a challenge for landlords, but if you have the right strategy in place and work alongside a reputable letting agency there are still plenty of opportunities to be successful and remain profitable.
If you require further advice on the tenant fees ban or any aspect of the lettings process, you can get in touch with Parkgate Estates on: 020 8940 2991.
What’s more, you can find out how much you could be charging in monthly rent by requesting a free and instant online property valuation.