What Landlords need to know about the Tenants Fee Ban

What Landlords need to know about the Tenants Fee Ban

On 1st November the Government published a draft Tenants Fee Bill which outlines plans to make big changes to the way landlords let properties in England, by banning tenant fees.

When this bill is brought into law it - which is likely to happen early next year - it will become illegal to charge tenants fees for referencing, inventories and the various other fees associated with letting out property.

Summing up the draft Tenant Fee Bill

  • Limit tenancy deposits to six weeks’ rent
  • Limit holding deposits to one week’s rent
  • Ban any other fees (except contractual default penalties)
  • Fines of £5,000 for first offence (civil)
  • Fines of £30,000 for the second offence in 5 years (criminal)

All tenant fees are banned

Landlords and agents won’t be able to charge their tenants and potential tenants anything other than rent, deposit and a holding deposit (with some caveats).

This means landlords and agents will no longer be able to make tenants pay for referencing, charge check in and check out fees or charge admin fees. Probably the biggest area that this is going to impact is referencing.

There are some exemptions

That’s not to say that you won’t be able to charge your tenants for fees at all, there are some ‘defaults’ which are exempt from the draft bill. These include fees for late rental payments.

All of these will need to be specifically outlined in the tenancy agreement and you will have to ensure that you are acting within the remit of a fair clause.

Tenancy deposits to be limited

You will no longer be able to be able to charge more than six weeks’ rent as a tenancy or security deposit. Although we advise landlords keep the rent below two months anyway, this could have some implications for the amount you charge in rent.

Holding deposit limited to one week

Similarly to tenancy deposits, holding deposits will have to be limited to one weeks’ rent. Whilst we recommend to landlords using MakeUrMove that the holding deposit should be limited, we do hear stories of holding deposits be well in excess of £500.

Holding deposits rules

There are new rules about what can be done with holding deposits. The draft Tenants Fee Bill states that the holding deposit must be returned to the tenant either via a direct payment, by being put towards the first month’s rent or by being put towards the security deposit.

Circumstances where the landlord can keep the deposit include:

  • The tenant withdraws
  • The tenant doesn’t take reasonable steps to start the tenancy
  • The tenant fails a right to rent check
  • The tenant provides misleading information

What would happen if a landlord charges tenant fees?

If a landlord or their agent does charge their tenant a fee they face having to pay a fine. If it’s the first offence it will be treated as a civil matter and the fine will be up to £5,000. If the offence is repeated within the next five years it will be treated as a criminal offence with a fine of up to £30,000. Not a situation any landlord wants to find themselves in!

In addition, tenants can work with local Trading Standards to recoup the illegal fines if they are charged them by a landlord or their agent.

Don’t draft bills get watered down?

Although the draft bill gives us an indication of how the Tenants Fee Ban will affect landlords, it’s important to recognise that all of the above is provisional and is likely to be tweaked slightly as the bill goes through the parliamentary process.

Many bills are actually tightened up during the parliamentary process and not watered down and as the government seem to be targeting the private rented sector at the moment don’t doubt that any changes could further impact landlords and their agents.

Landlord fees and rent rises

Whilst most landlords will find they are able to easily navigate the new rules, it’s important that you know these changes are going through parliament and the nature of the letting industry is going to be changed by this.

The general perception in the lettings industry is that these changes will see landlords incurring more upfront costs. Ultimately these costs will likely have to be recouped by landlords through rent rises. So keep an eye on what rents are being charged and be prepared to increase yours if you need to.

Find tenants before the tenant fee ban

To promote your rental property on the major portals and find tenants fast, list your property with MakeUrMove now.

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