The general position is that if a fee is not specifically allowed, it is banned. Landlords and letting agents must not require tenants (including prospective tenants and guarantors) to make any prohibited payments.
The following is an exempted list (ie the fees that are permitted):
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 6 weeks’ rent (where the total annual rent is £50,000 or above)
a refundable holding deposit to reserve the property – capped at 1 week’s rent
changes to the tenancy requested by the tenant (ie for the variation, assignment or surrender of the tenancy) – capped at £50 or reasonable costs incurred if higher
fees associated with 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
From 1 June 2020, tenant fee restrictions apply to all private assured shorthold tenancies (ASTs) in England. This includes:
new tenancies granted on or after 1 June 2019 including first tenancies and renewal tenancies
statutory periodic tenancies that arose before, on or after 1 June 2019
tenancies granted before 1 June 2019, including contractual periodic tenancies and tenancies still within their original fixed term
The new law also states that any student let and licence to occupy housing in the private rented sector (think lodger agreement) must comply with the new rules.
Any term in an existing private residential tenancy agreement requiring the payment of a prohibited fee will not be binding on a relevant person (ie the tenant, licensee, guarantor or any other person acting on the behalf of the tenant/licensee).
What actions can tenants take?
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 can private landlords do?
If you collect a ‘prohibited’ fee you should return the payment immediately and in any event, the fee 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.
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 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.
Similar changes have been in place in Wales since 1 September 2019. You can find more information about tenant fees in Wales on the Welsh Government website.
Ask a lawyer if you have any questions.