The Tenant Fees Act applies to privately rented residential property in England. It includes licences to occupy, such as short-term student accommodation and situations where a room is being let out to a flatmate, as well as standard assured shorthold tenancies.
The law does not apply to rented property in Scotland, Wales or Northern Ireland.
Local housing authorities and the Greater London Authority, as well as anyone acting for them, are exempt.
The effect of the legislation is that a landlord cannot require a tenant, licensee or any guarantor to give any consideration in connection with a tenancy or a licence.
Consideration is something of value, whether a payment of money or a gift or a provision of services. It doesn’t matter what the value is, or whether the value is greater to one party than to the other.
Nor can the landlord or letting agent require someone to enter into a loan in connection with the tenancy or residential licence.
What fees can be charged to tenants?
The only amounts that can be charged in connection with the tenancy are:
- rent
- a refundable deposit
- the refundable holding deposit
- payments to change the tenancy agreement
- payments to end the tenancy early
- payments in respect of or services
Any other fees are known as prohibited payments, and are not allowed under the ban.
What does “in connection with a tenancy“ mean?
The phrase “in connection with the tenancy” relates both to the tenancy agreement itself, and any other agreement required in order to be able to enter into that agreement (such as one with the letting agent).
In connection with the tenancy principally means at any stage of letting, whether granting the tenancy or arranging it, renewing or continuing it, varying the terms (including transferring it to new tenants), or the ending it. It even includes providing a reference to a former tenant.
It also means anything required to do those actions, whether at the beginning or end of the tenancy, and whether there is an act of default.
If you charge fees unlawfully
If you serve a Section 21 notice in order to end the tenancy, the notice is not valid if you have charged fees or retained a holding deposit unlawfully.
In other words, you will not be able to ask a tenant to leave if you have charged any fee unlawfully and have not returned it.
When does the Act apply?
The Act comes into force on 1 June 2019. However, the rules on fees are being introduced in stages.
From 1 June 2019, fees (except those that are allowed) cannot be charged on new tenancies or residential licences.
Where tenancy or licence agreement was started before 1 June 2019, landlords can still charge fees until 31 May 2020. However, the fees must be required under the existing agreement. That requires a landlord or letting agent to consider whether it is necessary to charge the fee. Existing law relating to unfair terms and consumer protection still apply. A necessary fee is likely to be one that is written into the tenancy agreement, such as a checkout or renewal fee.
From 1 June 2020 the ban on fees applies to all tenancies and licenses. No fees can be charged after this date (except permitted ones) to any tenancy or licence to occupy residential housing
Lawful fees
Rent
Under the ban a landlord cannot require a tenant to frontload rent at the start of the tenancy, for example by charging more for the first month. The rent charged should be equally split across the first year of the tenancy.
However, that does not mean that the rent cannot be increased or reduced if there is a rent review clause. If the tenancy is an assured shorthold tenancy, then the rent can be increased annually under Section 13 of the Housing Act 1988. Of course, the tenant might dispute this and apply to the First-tier Tribunal to determine the reasonable rent.
A landlord can ask a tenant to pay the rent in a lump sum but only to cover the fixed term of the tenancy.
Tenancy deposits
A deposit provides a landlord with security if the tenant damages the property or breaks the terms of the tenancy agreement.
The amount that a landlord can ask a tenant to pay as a deposit depends on the annual rent for the property.
If the total annual rent for the property is less than £50,000 the maximum deposit is up to 5 weeks rent. Above this figure, the maximum deposit is up to 6 weeks rent.
Just as a tenant may be jointly and severally liable for rent, or be individually liable for his or her share, he or she is similarly liable for the deposit. Where there is an individual tenancy, it is unlikely that the annual rent for that individual will be over £50,000 a year. Therefore the cap on the deposit is likely to be five weeks of rent.
A landlord does not have to take a tenancy deposit, although most would be advised to do so. For assured shorthold tenancies, the deposit must be protected by one of the three government backed protection schemes within 30 days of receiving the money. The landlord also must provide the tenant with information about how the deposit is protected. If the deposit is not protected, the tenant has the right to seek three times the amount back through the courts.
Holding deposits
A holding deposit is an amount taken by landlord or letting agent to reserve the property while reference checks are undertaken.
A landlord cannot ask for more than one week’s rent as a holding deposit. Once a deposit has been taken, the property should stop being advertised. Multiple holding deposits the same property cannot be taken.
The Tenant Fees Act requires that the landlord or agent provides the tenant with clear information about why a holding deposit has been taken, the amount of the deposit and the circumstances where the deposit might be lost.
An agent or landlord should check in advance of taking a holding deposit that the tenants are likely to meet the requirements. This can be done through an informal discussion. Tenants should be aware about the criteria on which they will be judged to be creditworthy.
The tenancy agreement should be provided before taking the holding deposit.
A landlord cannot discriminate against the tenant on the basis of disability, gender, pregnancy or maternity, race, religion or sexual orientation.
Once a holding deposit has been taken, the landlord has 14 days to enter into a tenancy agreement.
The holding deposit must be returned within seven days:
- of entering into the tenancy agreement, or
- of withdrawal from the agreement, or
- after the deadline for agreement has been passed without the tenancy having been entered into
A holding deposit can only be retained where a tenant:
- provides false or misleading information
- fails a right to rent check
- unreasonably withdraws from the property
- fails to take all reasonable steps to enter into the agreement
If the landlord or agent breaches the Tenant Fees Act, or act in an unreasonable way, then the tenant may have a reasonable ground to withdraw from the property.
The landlord must set out in writing why he or she is retaining the tenants holding deposit within seven days. If he or she does not then the deposit must be returned.
Default fees
A default fee can only be charged where it has been written into the tenancy agreement and only where it relates to late payment of rent (more than 14 days overdue) or to a lost key or security device.
The interest rate cannot exceed more than 3% above the Bank of England’s annual percentage rate on the day that the payment is outstanding, or reasonable costs incurred by the landlord.
Variation to the tenancy
Where the tenant requests a change to the agreement, for example adding a tenant, the landlord may charge up to £50 or reasonable costs if they are higher.
The expectation is that the charge will be less than £50.
Early termination
If the tenant requests to end the tenancy before the end of the fixed period then an early termination fee may be charged. This cannot exceed the financial loss that the landlord suffers for the tenant’s action.
The maximum financial loss is likely to be the loss of rent for the rest of the fixed period of the tenancy. In practice, a landlord is unlikely to be able to charge more than the cost of any unpaid rent plus marketing and new tenant referencing costs.
Council tax and services fees
The tenant remains responsible for paying any bills in connection with the property during the tenancy. If the tenant has agreed with the service provider to a fixed length of contract, for example for electricity, then the tenant remains responsible for paying under that agreement even if the tenancy ends before the fixed length of the contract has ended.
Enforcement of the Tenant Fees Act
Trading Standards are required to enforce the ban on fees.
Tenants may also recover unlawful fees through the First-Tier Tribunal.
Penalties and convictions for breaches
A breach of the law is a civil offence with a penalty up to £5,000. If the law is breached again within five years, the offence becomes a criminal one, which could result in a fine of an unlimited amount as well as banning order.
Local authorities may alternatively impose a financial penalty of up to £30,000 instead of prosecuting.
Breaching the requirement to repay the holding deposit is a civil offence in the penalty is a fine up to £5,000.
Each request for a prohibited payment is a breach of the law. A landlord could make a multiple breach by asking the same tenant for multiple fees, or by asking many tenants for one fee. Where multiple breaches have been made at the same time, each of these is a civil offence with a penalty of up to £5,000 each.
If a landlord or a letting agent receives more than two financial penalties within a 12 month period, then he, she, or it could be added to the local housing authorities database of rogue landlords and property agents. This is at the discretion of the LHA.
A tenant is entitled to be repaid the sum of any unlawfully charged fees or any unlawfully retained holding deposit.