Preparing for the Tenant Fees Act: Essentials You Need To Know
In two months time, the Tenant Fees Act will come into force. This means certain fees associated with letting a property will be banned.
Why is the Act being introduced?
The government’s overall aim is to create a more fair and affordable private rented sector. The Tenant Fees Act is just one measure the government is taking to overhaul the private rented sector and to improve the relationship between landlords and tenants.
The Tenant Fees Act will apply to all shorthold tenancies within the private rented sector.
Here is everything you need to know about the Tenant Fees Act, how the law will affect you and how you can be prepared ahead of its introduction on 1st June 2019.
What fees have been banned?
Viewing, tenancy set-up, check-out and third-party fees have all been banned under the Tenant Fees Acts.
This means you cannot charge a prospective tenant for viewing your rental property.
2. Tenancy set-ups
All costs associated with referencing, credit checks, guarantor and admin have to be covered by the landlord.
The only exception is if a tenancy agreement began before the 1st June 2019 which states that certain fees have to be paid, for example, renewal fees.
3. Tenancy check-out
Similarly, landlords can only charge tenants any check-out fees if their tenancy was agreed before the 1st June 2019. Otherwise, you cannot charge your tenant for aspects such as a professional clean of the property at the end of the tenancy. While a tenant is responsible for cleaning the property to the same standard as it was when they first moved in, if the property needs a clean, then the costs with the need to be supported with evidence and claimed through the tenant’s deposit.
4. Third-party fees
You cannot charge a tenant for acquiring fees from a third party, such as reference checks, credit checks, insurance, gardening services or guarantor. Any costs associated with these will have to be paid by the landlord.
What fees can I still charge tenants?
The only fees that landlords are able to charge tenants are the rent, a tenancy deposit, a holding deposit, changes to the tenancy agreement, early termination of a tenancy, payments associated with utilities, broadband, a TV license, council tax, or loss of key, and a default fee for late rent payment.
There are restrictions within these accepted fees though.
This fee amount should be agreed before the tenancy agreement is signed. The monthly rent should be the same amount for each month of the tenancy. Landlords are only able to change the monthly rent through a rent review clause for a permanent increase or decrease in rent.
2. Tenancy Deposit
This must be no more than the equivalent of five weeks’ rent. If the total annual rent of a property is more than £50,000, then the tenancy deposit can be the equivalent of six weeks’ rent.
3. Holding Deposit
This is limited to the equivalent of one weeks’ rent. However, you can only accept a holding deposit from one prospective tenant and you can no longer advertise the property after you receive the payment.
The holding deposit fee has to be repaid following the tenant agreeing to the tenancy agreement, if the landlord chooses not to let the property to the prospective tenant or if an agreement isn’t reached within 15 days after received of the holding deposit.
4. Changes to the tenancy agreement
If your tenant requests a change to their tenancy agreement, you can charge up to £50. However, if the associated costs could be higher than £50, you’ll have to show evidence of the potential costs you would incur.
5. Early termination of a tenancy agreement
This is based on financial loss and reasonable costs incurred. Generally, this means the amount should not be more than the amount of rent you would have received if the tenant had followed through with the tenancy until the end of the agreement.
6. Payments associated with utilities, broadband, TV licence and council tax
This depends on the individual tenancy agreement, but tenants are generally responsible for paying these fees.
7. Replacement or default fees
This has to be already written into the tenancy agreement in order for a landlord to charge for late payment of rent or the loss of a key. Late payment of rent is classed as more than 14 days overdue.
The fee should also not exceed 3% more than the Bank of England’s annual percentage rate for each day the payment is outstanding or costs incurred.
How are the current tenancy agreements affected?
If a tenancy agreement was agreed before the 1st June 2019, then you will still be able to charge the banned fees if they are already included in the tenancy agreement.
From the 1st June 2020, the Tenant Fees Act will apply to all tenancies.
You should also note that if you have charged a tenant for any of the banned fees for a tenancy agreement entered after the 1st June 2019, then you will be unable to use Section 21 should you need to evict a tenant. You will have to repay the unlawful fees in order to use a Section 21 notice.
What are the penalties for a breach?
The fine for breaching the Tenant Fees Act will be a civil offence and a fine of up to £5,000. However, if a landlord makes another breach within five years of the first fine, then the breach will be classed as a criminal offence instead. If you commit a criminal offence, you could face prosecution or a fine of up to £30,000.
Landlords who receive two or more financial breaches in one 12 month period or commit a criminal offence may find themselves placed on the rogue landlord database.
If you’re a landlord who’s concerned you may face an increase in costs as a result of the Tenant Fees Act, we’ve got a low-cost package to support you. Our Good Landlord Package has everything you need at just £12 a month and covers aspects such as Zoopla and Rightmove advertising and compliance checks.