tenant fees

Ban on tenant fees – What does this mean for you?

tenant fees

The ban on tenant fees was first announced in Chancellor Phillip Hammond’s Autumn fiscal statement back in 2016. Fast forward to 2019 and the Tenant Fees Act 2019 finally came into force on the 1st June 2019.

Tenants, landlords and agents should now know for sure what the ban includes, what is permitted and how to plan accordingly. Read this blog for all you need to know about the ban on tenant fees and how it affects you.

What is the ban on tenant fees?

The new legislation is designed to restrict the kinds of payments that landlords and letting agents can charge to tenants in connection with the letting of a property. Think of things like credit checks, reference checks, cleaning services, inventory checks, admin fees or check-out fees.

In addition, the law sets out strict regulations for the treatment of holding deposits and cleaning costs.

What fees are banned under the new laws?

Well, it’s much easier to set out the things that aren’tbanned. Landlords and letting agents must not require tenants (including prospective tenants and guarantors) to make any prohibited payments.

Essentially, the Tenant Fees Act puts a blanket ban on all fees payable by the tenant, except those that are exempt and permitted by the Act.

The following is an exempted list (ie the fees that are permitted):

  • Rent
  • Utilities and council tax – if this is included within the tenancy agreement
  • A refundable tenancy deposit – capped at no more than 5 weeks’ rent where the annual rent is less than £50,000 or six weeks’ where the total annual rent is £50,000 or above
  • A refundable holding deposit to reserve the property– capped at one week’s rent
  • Changes to the tenancy requested by the tenant – capped at £50 or reasonable costs incurred if higher
  • Early termination of the tenancy requested by the tenant
  • Defaults by the tenant – such as fines for late payment of rent and replacement of a lost key/security device, where required under a tenancy agreement

Any other fees that are not on this permitted list are banned.

What does this mean for my current tenancy?

If your current tenancy started before the 1 June 2019, then nothing happens. You can still be charged fees until 31 May 2020, if they are required under your agreement. Whilst the landlord doesn’t have to return any fees in that case, they may have to return part of the deposit which is above the cap if the tenancy is renewed.

However the big game changer is now any tenancy agreement, student let or licence to occupy housing in the private rented sector (think lodger agreement) which started on 1 June 2019 or after must comply with the new rules.

What happens if a landlord breaks the rules?

Where a breach has occurred and a banned fee or payment is taken, tenants will be able to get any money wrongly paid back via the county court. Local Trading Standards can also assist tenants with this.

In addition, local trading standards will be required to enforce this legislation and will issue a fine of up to £5,000 for a first offence. Subsequent breaches are criminal offences or alternatively, the landlord can be fined up to £30,000 as a civil penalty and be subject to a banning order.

What if I collect prohibited fees after 1 June 2019?

If you collect a ‘prohibited’ fee you should return the payment immediately and in any event must be returned within 28 days. You should also return any tenancy deposits over the cap for fixed term contracts which are renewed for another fixed term, even if this is at the same property.

You also won’t be able to evict the tenant using the Section 21 procedure until you have repaid any unlawful fees.

What should I do now to comply with the law?

If you’re a landlord or letting agent, you will have to re-evaluate your current business model. The prohibition on fees could heavily impact on some business models (particularly small businesses or individual landlords).

Similarly, it is vital that landlords and agents consider whether their current tenancy agreements and holding deposit forms are fit for purpose.

You should also consider updating your tenancy agreements for any new tenancies in order to comply with the law and revise your policies on holding deposits and deposit protection schemes.

All of Rocket Lawyer’s tenancy agreements have been updated to reflect these new changes. Create your Tenancy Agreement with Rocket Lawyer and read our guides on Rent residential property.

Isn’t the ban unfair on landlords?

Landlords and tenants will always have conflicting interests. If you’re a tenant, you would see this law as a welcome change. The government suggests tenants will save approximately £240 million a year by not having to pay letting fees, and unsurprisingly the majority of tenants back the ban.

According to statistics, 93% of the tenants surveyed during the initial consultation agreed with the government’s proposed ban. This may also encourage more people to consider renting in the future if the upfront costs involved are reduced.

As to be expected, if you’re a landlord or estate agent, you would strongly oppose this change. One of the main arguments against the ban was that it would end up doing more harm than good to tenants. It is predicted that letting agents would simply pass on the costs to the landlords who, in turn, would pass them on to the tenants in the form of higher rents.

I live in Wales, does the ban affect me?

Not yet is the answer. Whilst the ban does not affect properties in Wales yet, a similar ban will be in force in Wales from 1 September 2019.

Final commentary

The government has said previously that the ban will help ‘improve transparency, affordability and competition in the private rental market’, while also preventing agents from double charging both tenants and landlords for the same services.

But only time will tell what the long-term impact of the tenant fees ban is and we won’t know for at least a couple of years. But it’s an issue that will continue to be divisive with strong opinions on either side of the argument.

Watch this space for more updates as we expect to see even more changes in the residential property area soon, as the government plans to scrap Section 21 noticesin the future.

Ask a lawyerif you have any questions.

Alan Cheung