Beginning 1 June 2019, the Tenant Fees Act of 2019 will go into effect, which bans letting fees paid by tenants in England. The purpose of the act is to provide guidance for the establishing fair landlord/tenant fees; thereby, equalizing the relationship and making the private renter sector more balanced. The full guidance from The Ministry of Housing, Communities and Local Government (MHCLG) can be found at https://www.gov.uk/government/publications/tenant-fees-act-2019-guidance.

Allowable / Unallowable Tenancy Fees

According to the guidance, the only monies (fees) a tenant can legally be asked to pay are:

• Rent – The agreement must state that the tenant agrees to let the property and pay the rent amount evenly at regular intervals during the life of the tenancy. This stated, consistent amount is designed to prevent agents from compelling a tenant to pay the first two months’ rent upfront to make up for lost fees. Additionally, the rent may be reduced during the first year, but this must happen during the first year.
• A refundable deposit – Capped at five weeks’ rent for properties where the annual rent is below £50,000 or no more than six weeks’ rent for properties where the total annual rent is £50,000 or above. Any request for a larger deposit would be illegal – no exception would be made for pet deposits (eight weeks is standard). Landlords or letting agents are still required to place all deposits, within 30 days, in one of three government-backed tenancy deposit schemes (TDS).
• A refundable holding deposit – Capped at one week’s rent with a “Deadline for Agreement”, for the tenancy agreement to be signed within 15 days. Also, once a holding deposit is paid, another cannot be accepted by the landlord.
  • The holding deposit must be refunded to the tenant under these conditions:
    • Where the 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).
    • If the landlord imposes a requirement that breaches the ban in such a way that it would be unreasonable to expect a tenant to enter into a tenancy agreement with you (i.e., unfair terms to the tenancy agreement, harassment).
  • Reasons for a landlord to retain the holding deposit include:
    • The tenant provides false or misleading information.
    • The tenant fails a right to rent check.
    • The tenant withdraws from the agreement.

• Default fees – A late fee may be charged when a tenant is more than 14 days overdue on the rent payment or when a building entry security device has been lost. This fee must be detailed in the agreement and cannot be more than 3% above the Bank of England’s rate. Fees for lost security devices can only be reasonable costs incurred (i.e., the cost of replacement).

• Payments to change the tenancy – Changes to the tenancy are capped at £50, unless reasonable costs can be shown to be more. These instances should be rare. Typically, this fee will be applied when changing names (e.g., when a tenant changes in a shared house or a pet clause is added). For agreements made after 1 June 2019, a fee cannot be applied for agreement renewal or when a change is made to the length of the tenancy. Agreements with renewal fees made prior to 1 June 2019, landlords can continue to charge a change fee for renewal until 31 May 2020.

• Early termination fee – Payments associated with early termination of the agreement are permitted. Fees for terminating the contract early cannot exceed the landlord’s financial loss. Typically, these would include unpaid rent up to the point where the tenancy agreement was stated to end and the agent’s commission. Payments that exceed any financial loss to the landlord are prohibited. The guidance states that it is good practice to not charge tenants that made timely payments termination fees unless the landlord can show that costs have been incurred due to the termination (e.g., marketing and referencing costs).

• Council tax and utilities – Tenants continue to be responsible for payment of council tax, utility bills, and communication services, as stated in the tenancy agreement. Landlords are prohibited from over-charging for these services.

Two-stage Transition

The act is in force for all tenancy agreements entered into starting 1 June 2019. For agreements entered into before this date, only fees stated under the existing agreement (e.g., check-out or renewal fees) may be charged until 31 May 2020. Starting 1 June 2020, tenant fees are banned on all tenancy agreements in the private rented sector in England.

Enforcement

Local Trading Standards authorities are required to enforce the ban; however, district councils that are not a local weights and measures authority also have the power to enforce the ban, if they chose to do so. Tenants may recover prohibited fee payments through the First-tier Tribunal or through the relevant redress scheme (for agent properties).

Conclusion

The Tenant Fees Act is aimed at protecting tenants from a small minority of landlords/agents that charge unfair administrative fees. Its intent is to make renting fairer and more affordable. A likely consequence of the act is that the market will see rent amounts increase to make up for the loss in fees. Under the new act, tenants will be able to better understand their rent and the fees listed in their tenancy agreement. Prospective tenants need to be informed of these new fee requirements to protect themselves, before signing a tenancy agreement. If you have questions regarding this Altair Global Advisory, please contact Client Services or your Business Development representative.   Altair Global (‘Altair’) has provided this information as a service and convenience for your information only. It is not intended to replace your own legal or financial guidance and/or assistance and you are encouraged to seek the advice of your own tax and legal advisor. Further, the information contained herein is to our knowledge accurate to the extent of the data available to Altair as of the date identified. Altair does not assume responsibility for the accuracy of the contents hereof and is under no obligation to update the material contained herein.