( based on 3rd Dec 2018 draft legislation)
The government continues to move forward with a planned ban on fees charged by letting agents and landlords to their tenants. While this is yet to come into force, and draft legislation is always subject to change, it is very likely to come into force in much the same format so landlords and agents should start considering the impact on their business now.
This short guide will act as a primer for landlords and agents to help them prepare for these upcoming changes.
This guidance is based on legislation that has not yet come into force. Landlords and agents should be aware that it remains subject to change.
Does the fee ban apply to agents and landlords?
Yes, it will apply to both agents and landlords.
Will the fees ban apply to older tenancies?
Not immediately. It will apply to renewals of tenancies, excluding statutory and contractual periodic tenancies that arise after the Tenant Fees Act comes into force. After one year the ban will attach to pre-existing tenancies and clauses that charge fees in them will become ineffective.
What fees are banned?
Anything not exempted, that the tenant (or someone acting on their behalf like a guarantor or parent) is required to pay as a condition of the ‘grant, continuance, assignment, termination or renewal’ of an assured shorthold tenancy or licence agreement.
This includes payments to third parties, either for services throughout the tenancy or for specific performance of a job and loans from third parties.
In short this means that pretty much any fee that is in the tenancy agreement will be void unless it is exempt.
Examples of banned fees then would be:
Charging for a guarantor form
Having the property de-flead as a condition of allowing pets in the property
Requirements to have specific insurance providers
Charges for changing tenants
Charges for early termination
What is exempted from the banned list?
Holding deposits, rent, deposits and charges for defaulting on the contract (such as reminder letters for non-payment of rent) are all exempted from this ban.
However, the first 3 are all subject to additional restrictions as part of the legislation and landlords and agents will need to be mindful of these changes.
Restrictions on rent
There will be a ban on setting rent at a higher level for the first portion of the tenancy and then dropping it down afterwards. This is to prevent landlords or agents trying to offset the ban on fees by artificially increasing the rent for the initial period to make up the costs.
Of course, a higher rent than you would normally charge for the property, that is consistent throughout the tenancy will be fine. The government believes this is unlikely to happen though, as tenants will shop around for the lowest price.
Holding deposits will be limited to a maximum of 1 week’s rent and subject to statutory legislation on the repayment of this should the tenancy not go ahead. Briefly, this is proposed to be:
The landlord has 15 days to make a decision once a holding deposit is taken.
If the tenancy does not go ahead then the money must be repaid in full within 7 days of the deadline being reached or the landlord backing out.
Repayment does not need to be in full if the tenant backs out of the tenancy agreement themselves, fails right to rent checks, has provided false or misleading information, or that the landlord tries their best to get the information needed but the tenant fails to provide it within the 15 days.
If the tenancy does go ahead, the holding deposit must be returned within 7 days of agreement, unless it is converted into part payment of the actual deposit or used towards the initial rent payment.
Deposits will be limited to 5 weeks rent as a maximum amount. This has gone up from the originally proposed limit of one month.
Breaches of the tenancy agreement
Costs incurred from breaches of the tenancy agreement by the tenant can still be charged. Reminder letters for these breaches are still perfectly acceptable and will continue to be so. The charges will have to be reasonable though and if asked the landlord will have to evidence that the costs were incurred.
What are the penalties for this?
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 are supposed to assist tenants with this in some fashion once it comes into force.
In addition, local trading standards will be required to enforce this legislation and will issue a fine of up to £5000 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 tenancy types does this legislation apply to?
Only ASTs, student accommodation, and licences are caught by this. Company lets and non-assured tenancies will be exempt.
Is there anything else to be aware of?
This guidance is based on the current draft of the Tenant Fees Bill. It is current as of the 3rd December 2018 and will be updated as and when further information is provided.