Tenant Fee Act - 1st June 2019

20 May 2019  |  Admin  |  0 Comments

As most of our landlords will be aware, as of 1st of June, the laws are changing as to what agents and landlords can charge to tenants. The Tenant Fees Act 2019 is the bill that will come into affect as of 1st June affecting all assured short hold tenancies or licences to occupy contracts signed on or after that date.

Landlords and third parties including referencing agencies, inventory companies, insurance companies will all be affected. The legislation applies across the board for both traditional estate agents and online estate agents such as I Am The Agent.

**** Due to the new legislation, I Am The Agent will be vetting all wording used by landlords uploading properties to their accounts. We advise all landlords not to ask for extra fees in their property descriptions, or charge any additional amounts at any part of the letting process, that are not acceptable within the tenant fee ban rules. It will not be legal to include any wording asking for any additional costs to be paid by tenants.

**** It has also become policy with I Am The Agent, with immediate effect, that you are no longer allowed to use the terms ‘NO DSS’, so this tab link will no longer be available when uploading properties to our site. Using this wording within a property description will also be removed or amended. This has become policy with Zoopla and plans are in place for other portals to follow suit, so we are no longer allowing the use of this terminology.

GUIDELINES FOR LANDLORDS:

What fees can I ask a tenant to pay?

You cannot require a tenant (or anyone acting on their behalf or guaranteeing their rent) to make certain payments in connection with a tenancy. You cannot require them to enter a contract with a third party or make a loan in connection with a tenancy.

The only payments you can charge in connection with a tenancy are:

The only payments you can charge in connection with a tenancy are:

  1. the rent – you should agree the amount of rent to be paid with the tenant when agreeing to let the property. The rent should be paid at regular, specified intervals. The amount charge will usually be equally split across the tenancy. In the first year of the tenancy, you must not charge more at the start of the tenancy compared to a later period. For example – you cannot require a tenant to pay £800 in one month and £500 in month two. However, if appropriate, you may decrease the rent (without penalty) during the first year if agreed by the tenant once the tenancy has started or under a rent review clause that enables both rent increases and decreases.
  2. a refundable tenancy deposit capped at no more than five weeks’ rent where the annual rent is less than £50,000, or six weeks’ rent where the total annual rent is £50,000 or above
  3. a refundable holding deposit (to reserve a property) capped at no more than one week’s rent. You may only accept one holding deposit for one property at one time. You should stop advertising a property once a holding deposit has been agreed to be paid - you must list your property as ‘let’ under your I Am the Agent account in this case. You must refund the holding deposit where a tenant later enters into a tenancy agreement, the landlord decides not to rent the property, an agreement is not reached before the ‘deadline for agreement’ (and the tenant is not at fault), or if you impose a requirement that breaches the ban and/or act in such a way that it would be unreasonable to expect a tenant to enter into a tenancy agreement with you (i.e. including unfair terms in a tenancy agreement or harassment etc.) The ‘deadline for agreement’ for both parties is usually 15 days after a holding deposit has been received by a landlord or agent (unless otherwise agreed in writing).
  4. payments to change the tenancy when requested by the tenant, capped at £50, or reasonable costs incurred if higher. You should provide evidence to demonstrate the reasonable costs of carrying out the work if you wish to charge above £50
  5. payments associated with early termination of the tenancy, when requested by the tenant – capped at the landlord’s loss or agent’s reasonable incurred costs. This usually means that a landlord must not charge any more than the rent they would have received before the tenancy reaches its end. It is good practice to agree to any reasonable request to terminate the tenancy agreement early. If there are no missed rent payments, we encourage you to not charge any early termination fees unless you can demonstrate through evidence to the tenant that specific costs have been incurred (e.g. marketing and referencing costs).
  6. payments in respect of utilities, communication services, TV licence and council tax - tenants are still responsible for paying bills in accordance with the tenancy agreement, which could include council tax, utility payments (gas, electricity, water) and communication services (broadband, TV, phone). There is associated consumer protection legislation which prohibits landlords form over-charging for these services.
  7. A default fee for late payment of rent and replacement of a lost key/security device, where required under a tenancy agreement – you can only charge a tenant a default fee where this has been written into the tenancy agreement and this is for a late payment of rent (which is more than 14 days overdue) or a lost key/security device giving access to the housing

If the fee you are charging is not on this list, it is a prohibited payment and you should not charge it. A prohibited payment is a payment outlawed under the ban.

What is considered to be a prohibited payment?

Viewing fees – you cannot charge a tenant to view a property

 Tenancy set-up fees – you cannot charge a tenant for any activity (except if listed in the permitted payments section above) or for you time in setting up a new tenancy. This includes fees for:

  • Referencing and credit checks
  • Guarantor fees
  • Administration fees

 

However, if the tenancy was entered into before 1 June 2019 and the tenant agreed in their contract to pay certain renewal fees, then you can charge these fees for a new fixed-term agreement or statutory periodic agreement up until 31 May 2020.

 From 1 June 2020, the term requiring that payment will no longer be binding on the tenant. Until that time, you should consider whether it is necessary to charge in such instances. Where fees are charged, businesses such as letting agents are prohibited from setting unfair terms or fees under existing consumer protection legislation.

 You may ask a tenant to provide information which supports you to carry out a reference check, such as:

  • bank statements – to assess a tenant’s income and ability to pay rent
  • a reference from a previous landlord (you cannot ask a tenant to pay for this)
  • proof of address history (usually up to 3 years)
  • details of current employer – an employer can verify a tenant’s income and confirm whether they are trustworthy, reliable and honest

 I Am The Agent recommend you use a professional referencing service. We can offer this at £75 per tenant, if this service is not already included in the package you have chosen with us.

 Inventory costs – you cannot charge a tenant the cost of an inventory check-in or check-out report, or any rental inspections during a tenancy

Tenancy check-out fees – you cannot charge a tenant for any services connected with the termination or ending or a tenancy (unless this relates to early termination requested by the tenant).

However, if the tenancy was entered into before 1 June 2019 and a tenant agreed in their contract to pay exit fees, such as check-out or inventory fees, you can charge these fees up until 31 May 2020. From 1 June 2020, the term requiring that payment will no longer be binding on the tenant.

Professional cleaning fees at end of tenancy - you cannot require a tenant to pay for a professional clean when they check-out. However, if the tenancy was entered into before 1 June 2019 and a tenant agreed in their contract to pay such fees, you can charge these fees up until 31 May 2020. From 1 June 2020, the term requiring that payment will no longer be binding on the tenant.

You may request that a property is cleaned to a professional standard. Tenants are responsible for ensuring that the property is returned in the condition that they found it, aside from any fair wear and tear. Fair wear and tear is considered to be a defect which occur naturally or as part of the tenant’s reasonable use of the premises. You cannot require a tenant to use a particular company to clean the property.

If the property is not left in a fit condition, you can recover costs associated with returning the property to its original condition and/or carrying out necessary repairs by claiming against the tenancy deposit. You should justify your costs by providing suitable evidence (e.g. an independently produced inventory, receipts and invoices). You are not able to claim deductions from a tenant’s deposit for any change in the condition of the property which is due to fair wear and tear or if a tenant returns the property in the same condition as it was found.

Weekend check-out charges - you cannot require a tenant to pay a fee when they leave the property, or checks out, on a Saturday, or at any time over the weekend. If a tenant chooses to check-out on a Saturday, you may charge for this, but only where the tenant has been given a reasonable alternative that does not require a fee (e.g. a check out during office hours, if this required). However, if the tenancy was entered into before 1 June 2019 and a tenant agreed in their contract to pay such fees then you can charge these fees up until 31 May 2020. From 1 June 2020, the term requiring that payment will no longer be binding on the tenant.

Can a tenant’s previous landlord or agent charge me to provide a reference? If you request a reference directly from a tenant’s previous landlord or agent, they can charge for this. You will be responsible for negotiating and paying any costs associated with obtaining a reference required from a previous landlord or agent.

Third party fees – you cannot require a tenant to pay for the services of a third party. However, if a tenant opts to employ the services of a third party, for example, by purchasing their own reference check or inventory service, they will be responsible for any associated costs.

Can I require a tenant to obtain a reference? 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.

Can I charge a tenant to undertake a credit check through a third party? You can ask a credit referencing agency to carry out a check on a tenant, and you can ask the tenant to provide the necessary details to complete the check. However, you cannot make the tenant pay for this. If the tenant does not provide the information reasonably required by the third party to carry out a check and they have been given reasonable notice, you may be able to retain their holding deposit, if they paid one.

Can I refuse to let to a tenant if they do not have a reference check provided by a third party? You cannot require a tenant to meet any conditions that could only be met by paying a fee for a third-party service. This means that you cannot require a tenant to pay a fee through a third party where there is an alternative option which does not require a fee but imposes an excessive or unrealistic requirement on the tenant. For example, you cannot ask a tenant to pay a fee to a third party for a credit check where the alternative requires them to provide five years’ bank statements. You can ask a tenant to provide any information you reasonably require in order to undertake referencing or credit checks through a third party. If a tenant does not provide this when requested and they have been given reasonable notice, you could be entitled to retain their holding deposit, if they have paid one.

Can I ask a tenant to pay for gardening services? You cannot require a tenant to pay for gardening unless this has been included as part of the rent.

Can I ask a tenant to take out insurance through a third-party? No. You cannot require a tenant to do this, although they may choose to do this voluntarily.

Can I charge a tenant for a rent guarantor? You can ask a tenant to provide a suitable rent guarantor as a condition of granting the tenancy; however, you cannot ask the tenant or their guarantor to pay any fees associated with meeting this condition (e.g. referencing or administration costs).

Can a tenant opt to pay for a third-party service? A tenant can use the services of a third party if they choose to do so. For example, a tenant may use a reference checking company, a deposit replacement product or an inventory service. However, a tenant cannot be required to do so by a landlord or agent in connection with a tenancy. You cannot require a tenant to meet any conditions that could only be met by paying a fee for a third-party service (e.g. requiring a professional clean at the end of the tenancy). However, you may ask a tenant or give them the option to do something as an alternative to complying with a different requirement which is permitted under the ban. For example, if the tenant is required to pay a default fee under a tenancy agreement to cover the reasonable costs of a replacement key, you could give them the option to replace the lost key at their own cost and time through a third-party. Alternatively, you may give a tenant the option of using a deposit replacement product instead of paying a tenancy deposit. Where possible, we encourage landlords and agents to be flexible.

Can a tenant opt to use an agent to act on their behalf? If a tenant chooses to employ an agent to act on their behalf, for example, a relocation agent, to support them in finding housing to rent in England whilst they are living overseas or outside of the area, the agent would be permitted to charge the tenant for such services (provided that the tenant rents housing from that agent and the agent does not work on behalf of the landlord).

Can I ask a tenant to pay for chimney sweeping services? Under the ban, landlords or letting agents cannot require tenants to pay for the services of a third party, including chimney sweeping services. If the tenants prefer to employ the services of a third party, they will be responsible for any associated costs. Landlords have a duty to ensure the property is maintained safely and should consider the potential risks associated with chimneys. If the tenancy agreement prohibits tenants from using a fireplace or to have the chimney swept and the tenants failed to comply with the restriction or obligation and this constitutes a loss to the landlord i.e. causes damage or additional expense, the landlord may seek to recoup this loss from the tenancy deposit.

Further Q&A Regarding permitted fees

  • What does this mean for existing tenancy agreements? If a tenancy agreement was entered into before 1 June 2019, you can continue to require a tenant to pay fees written into that agreement (e.g. check-out or renewal fees) until 31 May 2020. After 1 June 2020, the term requiring that payment will no longer be binding. Should you, in error, ask a tenant to make such a payment, you should return the payment immediately and must return this within 28 days. If you do not return the payment within 28 days, you will be treated for the purposes of the Act as having required the tenant to make a prohibited payment (a payment that is outlawed under the ban). You do not need to return any amount of tenancy deposit that is over the cap for tenancy agreements that were entered into before the Tenant Fees Act came into force.

 

  • Can I ask a tenant to pay more rent in the first few months to cover the cost of banned fees? Under the ban, you cannot require a tenant to enter into an agreement that ‘front loads’ the rent at the start of a tenancy i.e. by charging more for the first month(s) of the tenancy. The amount of rent charged should normally be equally split across the first year of the tenancy. However, after the tenancy has begun, you can reduce or increase a tenant’s rent without breaching the Tenant Fees Act if agreed with the tenant or under a rent review clause in the tenancy agreement (provided that the rent review clause permits both a rent reduction or increase according to the circumstances).

 

  • Can I increase the rent part way through the tenancy? You can increase the rent if a tenant agrees to this or under a rent review clause in the tenancy agreement (in the first year of the tenancy, this is provided that the rent review clause would also have permitted a rent decrease). If the tenancy is an assured shorthold periodic tenancy, you can also increase the rent annually by notice in accordance with section 13 of the Housing Act 1988. If you seek to increase the rent by way of a section 13 notice the tenant may apply to the First-tier Tribunal for determination of the reasonable rent. You may want to consider including a rent review clause in the tenancy agreement to enable you to discuss any changes in rent level with the tenant at an appropriate time.

 

  • Can I ask a tenant to pay rent upfront if they don’t have a suitable guarantor or reference checks? You could ask a tenant to pay their rent in a lump sum but should consider if this is necessary and affordable for the tenant. You cannot charge any more in an up-front lump sum payment than would have been chargeable over the fixed-term of the tenancy. For example, if the rent is £500 a month and the tenancy is for a fixed term of six months, you cannot ask a tenant to pay more than £3,000 up front. A tenancy agreement must not ask a tenant to pay more rent in the first month compared to a later period (the rent instalments should be split equally across the first year of the tenancy). You could reasonably ask a tenant to pay more than one rent instalment at the start of the tenancy but only where the tenancy agreement does not require this as a single rent payment. For example, if the rent was £400 per 27 months, you could ask a tenant to pay three months’ rent upfront (3 x £400 = £1200), but the tenancy agreement could not make a tenant liable (responsible) to pay £1200 in the first month and then £400 every month after that.

 

  • If a tenant cannot afford to pay the tenancy deposit, can I increase the rent as an alternative to taking a tenancy deposit? You should discuss with the tenant whether there is a suitable deposit alternative available to them. They may be able to access a loan from a third-party scheme or secure a guarantee to cover damages and/or unpaid rent. You should make clear to the tenant that they will often still be responsible for the costs of any damages and/or unpaid rent at the end of the tenancy, even where they have paid an up-front fee to a third-party or they have used a deposit replacement product. The amount that you ask for in rent should be fair, in line with other similar properties in the area and clearly advertised to the tenant. You should be clear and up-front with tenants about what the rent covers (whether this includes certain utilities or council tax). This will allow tenants to make an informed decision about whether they can afford a property.

 

  • If a tenant paid a tenancy deposit which exceeds the cap before 1 June 2019, do I need to re-pay the amount of the deposit above the cap? Landlords and letting agents are not obliged to immediately refund part of a tenancy deposit that is above the cap but was paid before 1 June 2019. If a tenant signed a tenancy agreement before 1 June 2019 (and that tenancy is continuing or is a statutory periodic agreement) then the tenant will be bound by the terms of that contract until it is either renewed or terminated.

 

  • How much tenancy deposit can I ask a tenant to pay? Where a tenant has an individual tenancy, you cannot ask them to pay a tenancy deposit that is more than five weeks of the rent set out in their tenancy agreement (unless their annual rent is £50,000 or above per year). Where there is a joint tenancy agreement, you cannot require each tenant individually to pay a tenancy deposit equivalent to five weeks’ rent (where the total annual rent for the property is less than £50,000) or six weeks’ rent (where the total annual rent is £50,000 or more). 29 For example, where there are three tenants who are jointly liable (responsible) for a total weekly rent of £240, you cannot ask each tenant to pay a tenancy deposit of up to five times the total weekly rent (5 x 240 = £1200). The maximum this group of tenants could be asked to pay as a tenancy deposit between them would be £1200. They may then choose to split this equally so that each person would pay £400. Tenants in a joint tenancy agreement are jointly and severally liable (i.e. all those named on the contract bear equal responsibility) for paying the rent – therefore the cap on tenancy deposits applies to the weekly rent liability which can be spread across the tenants. For properties where the total annual rent is less than £50,000, five weeks’ rent is the statutory maximum you can ask a tenant to pay as a tenancy deposit if they enter into a tenancy agreement on or after 1 June 2019. For properties where the total annual rent is £50,000 or more, six weeks’ rent is the statutory maximum you can ask a tenant to pay as a tenancy deposit if they enter into a tenancy agreement on or after 1 June 2019.
  • Do I have to take a tenancy deposit? You are not obliged to take a tenancy deposit and you should consider on a case by case basis whether to take a tenancy deposit and the appropriate level of deposit to take. A deposit equivalent to five weeks’ rent (where the total annual rent is under £50,000) or six weeks’ rent (where the total annual rent is £50,000 or more) is the upper limit and in many scenarios the amount of deposit requested will be less. The average level of tenancy deposit taken is between four and five weeks’ rent.

You should discuss with the tenant an appropriate level of tenancy deposit they should pay. For assured shorthold tenancies, any deposit that you request from a tenant must be protected with one of the three Government backed tenancy deposit protection schemes within 30 days of taking the payment. You must also provide the tenant with information about where and how their deposit is protected. The deposit is the tenant’s money and you will need to provide evidence to substantiate any claims against the deposit at the end of the tenancy. If you do not protect the deposit, a tenant can seek up to three times the amount back from you by going through the courts. Citizens Advice provide more information on this.

  • When does the tenancy deposit cap apply? From 1 June 2019, the cap on tenancy deposits will apply to new applicable tenancies. This includes assured shorthold tenancies, tenancies of student accommodation and licences to occupy housing in the private rented sector in England. 30 From 1 June 2019, the cap applies to fixed term contracts which are renewed for another fixed term – even if this is at the same property – as they will be a new applicable tenancy. Landlords and letting agents will be required at this point to repay the amount of the deposit held which is over the five (or, where appropriate, six) week cap. If the tenant’s held deposit is protected in a Government approved scheme, this deposit should be returned within 10 days of the tenant and the landlord agreeing on the amount to be returned (minus any deductions for fair wear and tear for example) at the end of the tenancy. If the deposit is not protected (most likely the case if a tenant is a lodger, a student in university halls of residence or if they have an assured or protected tenancy), it should still be returned at the end of the tenancy (minus any agreed deductions). If a landlord does not do this, a tenant has the option to seek a refund through the courts.

 

  • What is the transition period? How will it apply to me? There is a 12 month transition period from 1 June 2019 to 31 May 2020. This is to allow time for landlords and letting agents to renegotiate their agreements. From 1 June 2019, any provision which breaches the ban in a continuing tenancy agreement which was signed before this date continues to be legally binding on the tenant. This includes continuing assured shorthold tenancies, tenancies of student accommodation, licences to occupy housing and statutory periodic tenancies which arise during the transitional period from a fixed term which was signed before 1 June 2019. This means the tenant will continue to be liable for any payments agreed to in the tenancy which might occur within this transitional period.
  • What happens after the transition period? From 1 June 2020, any provision in continuing tenancies that breach the fee ban or deposit cap will no longer be legally binding. This includes continuing assured shorthold tenancies, tenancies of student accommodation, licences to occupy housing signed before 1 June 2019 and statutory periodic tenancy agreements arising during the transitional period from a fixed term signed before 1 June 2019

 

  • Why is the tenancy deposit cap higher for properties with a total annual rent of £50,000 or more? Certain high-end properties have higher costs associated with them in terms of more expensive fittings and furnishings. The costs of any damage and unpaid rent at the end of the tenancy is therefore greater in such properties.

 

  • Can I take a higher amount of tenancy deposit if a tenant has a pet? No, there are no special provisions or exemptions if you have 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.

What records should I keep?

In case of any disputes that may arise with regard to payments requested, you should keep any evidence of payments that you have requested a tenant to make; this could be:

  • tenancy or pre-tenancy agreements
  • any other relevant paperwork
  • receipts and invoices
  • bank statements
  • correspondence from the tenant – emails, letters, texts
  • notes that you made at the time or shortly after any conversation with a tenant

Financial Penalties

A breach of the legislation will usually be a civil offence with a financial penalty of up to £5,000, but 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.

-,What is considered to be a breach of the ban?

Each request you make for a prohibited payment is a breach. For example, the following would be considered multiple breaches:

  • charging different tenants under different tenancy agreements prohibited fees
  • charging one tenant multiple prohibited fees for different services at different times
  • charging one tenant multiple prohibited fees for different services at the same time
  • charging one tenant one total prohibited fee which is made up of different separate prohibited requirements to make a payment e.g. £200 requested for arranging the tenancy and doing a reference check = multiple breaches. Where you are being fined for multiple breaches at once, and you have not previously been served a financial penalty, the financial penalty for each of these breaches is limited to up to £5,000 each.

 

I Am The Agent are one of the first online estate agents in the UK and we can offer huge savings for landlords when you chose one of our packages to rent out your property. The savings you make using an online estate agent can help offset any extra fees you may have to take on once the Tenant Fee Act comes into place.

Check out our packages here https://www.iamtheagent.com/rent-your-property/default.aspx or call us on 0333 444 1007.

 

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