Coming soon! The Tenant Fees Act.

This one has been coming down the road for quite some years and from the 1st June 2019 it comes into force!

If you’re a tenant, you are probably cheering from the sidelines. If you’re a Landlord you might not be quite so chuffed.

The premise of this Act in its most basic form is that tenants can no longer be charged fees for setting up a tenancy, or for some more of the traditional charges laid out in the tenancy, professional carpet cleaning, chimney sweeping etc.

It also restricts the amount of deposit a Landlord can ask for to five weeks rent for tenancies with rent up to £50,000 per annum, and six weeks rent for tenancies with rent in excess of £50,000 per annum.

So far, so good if you happen to be the tenant.

Before we go on it is important to understand that this Act applies to all new Assured Shorthold Tenancies starting, and this includes renewals or ones that become statutory periodic, on or after the 1st June 2019. Then from the 1st June 2020 the Act applies to all tenancies regardless of when they started.

The legislation is lengthy, so we aim to bring you the relevant sections here. If you want to give yourself a headache then we recommend reading the Government Guidance or for a humdinger of a migraine, the full legislation.

In short (and we’ve tried to be short) below are the permitted payments you can require from a tenant. Anything else is prohibited. These are:

1. Rent
2. A Tenancy Deposit (up to 6 weeks rent)
3. A Holding Deposit but this has to be repaid once the tenancy starts or put towards the tenancy deposit.
4. Default Payment for the loss of a key or security device but limited to the reasonable or actual cost incurred. And interest on late rent payments but only after 14 days and at a rate of 3% above base rate.
5. Damages for breach of the Tenancy obligations including damage to the property.
6. Varying the Tenancy Agreement. Such as adding a consent clause at a later date for a pet or permitted occupier (up to £50).
7. Terminating the Tenancy early.
8. Council Tax, but it must be paid to the Local Authority
9. Utilities
10. TV Licence
11. Communication Services (e.g broadband)

Like most legislation there are some exceptions to the above but broadly speaking these are the only payments you can accept from tenants.

Whether you are a tenant (put down the bunting) or a Landlord (take your head out of your hands), it is worth taking a couple of moments to consider what this means in practice.

Firstly, in what is a positive step for tenants renting through an Agent, it clears up the age old issue over who is the client. It has always been that a Letting Agents principle client is the Landlord. Charging tenants for the administrative costs of setting up a tenancy helped to share the costs of what was to be a joint contract but it often led to justifiable confusion for the tenant who assumed that they were also the Agents client. This Act makes a clear distinction that the Agent is employed and works for the Landlord and moving forward this is likely to be helpful for all parties to understand their position.

The reduction of the deposit may make many Landlords think twice about considering tenants that have a pet. Historically a Landlord would be more likely to accept a pet if they knew they held a higher deposit to cover any damage or cleaning issues at the end of the tenancy. With that removed, it is highly likely that Landlords will either stop accepting pets, or increase the rent to those with pets. With the average tenancy now around 30 months, an additional £25 a month in rent equates to £750. Surely, most tenants would rather just pay an additional weeks deposit? (which they’d probably get back).

On that note, it is suggested by some that the Act will cost Landlords £83 million in the first year so there is a wider concern that Landlords will look to recoup the extra costs by increasing rents.

Some Landlords may no longer want to use an Agent in a bid to cut costs. Experience shows us that not all Landlords are aware of their obligations and legislative duties which leads to a poorer experience for the tenant.

For many Landlords this could be the straw that breaks the camels back and many may look to sell up and leave the Private Rented Sector. With increased stamp duty costs, taxation and legislation many looking to enter the market may no longer consider this such an attractive proposition.

Reduced stock over the longer term leads to higher rents. Legislation of this magnitude will always cause an initial impact to the Sector so it remains to be seen whether in a year or so, Landlords have adapted or if it will have a longer lasting impact.

Please note the date this article was published as the law may have changed since it was posted. You should always seek independent legal advice if you are intending to rely on any of the contents.