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The Tenant Fee Act explained

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After an extended period of discussion and commentary, the government’s ban on some fees being charged to tenants by estate agents and landlords in England took effect from the 1st of June.

Scope

Broadly speaking, the impact of the new legislation will mean that it will become impossible for landlords and estate agents to continue previous practices relating to the collection of some types fees from tenants. This applies to standard assured shorthold tenancies (ASTs), licenses and student lets.

However, non-AST and corporate letting operations are excluded.

Fee types covered

For landlords, letting and estate agents, the reality is that the vast majority of ancillary fees will now be prohibited. That might cover a very wide range of previously commonplace “standard administrative fees”, a sample of which may include:

  • credit history checking;
  • guarantor forms;
  • cleaning charges;
  • gardening;
  • the taking of inventories.

There are some exceptions to the above. The revised rules do permit fees to be charged in situations such as:

  • charges for defaulting on the rental contract and access to deposit procedures;
  • holding deposits;
  • obviously, the rent itself;
  • costs associated with changing tenants, tenancy durations or any work associated with permitting tenants to vacate the property early.

However, all of the above areas are now subject to further controls and restrictions.

Landlords are now also banned from insisting that payments are made by tenants to third parties, though they still have the degree of freedom to require tenants to use a specified services provider for utilities and telecommunications.

Rent increases

Although some critics of these proposed changes have predicted that basic rental rates will rise as a consequence, the official government position is that this is unlikely and any such increases will be constrained by existing competition in the marketplace.

The legislation explicitly prohibits the front-loading of rental rates as a way of attempting to compensate for the loss of fee income. While landlords are free to define their rent levels, they cannot simply set them higher over the first two or three months of the contract in order to effectively try to bypass the new legislation.

Holding deposits and timeframes

Holding deposits must not exceed one week’s rental. The legislation defines exactly what must be done to refund this deposit and when.

The landlord must make a decision on letting within 15 days of a holding deposit being taken, though that period may be extended if both parties agree so.

Holding deposits may, in certain circumstances, be retained. The legislation surrounding this is detailed and it will be sensible for landlords to review it thoroughly before contemplating doing so.

Security deposits

The maximum amount will now be limited to five weeks’ rent in situations where the annual rental will be less than £50,000.

That period will increase to six weeks if that £50,000 figure will be exceeded.

Penalties

The legislation is backed up by some potentially punitive measures. It might be prudent for landlords and estate agents to assume that these rules will be vigorously enforced.

The procedures to be followed in the event of transgression and the subsequent penalties are, as always, incremental. They might culminate in:

  • committing what is noted as a formal criminal offence;
  • progression through civil proceedings to a fine of up to £30,000;
  • being formally registered as a “rogue landlord”.

Updates to the How to Rent guide and form 6A

Landlords should also note that, to coincide with the Tenant Fee Act, both the How to Rent guide and form 6A have been updated.

Further reading

This brief note is only able to give a very superficial overview of the legislation and its many potential impacts on a landlord’s business.

An in-depth reading of these new rules should be considered to be essential. A good start point can be found here.