The Tenant Fees Act 2019 included a 12-month transitional period for tenancy/letting agent agreements entered in to prior to 1 June 2019. However, the transitional period came to an end on 1 June 2020, meaning that all private sector assured shorthold tenancies, licenses to occupy houses and student accommodation tenancies fall under the scope of the legislation, and not just those created/renewed on 1 June 2019.
Tenant Fees Act aims
To recap the Tenant Fees Act aims to reduce upfront and ongoing letting costs to tenants, by banning payments such as those associated with viewings, credit searches, reference checks, tenancy set-ups, inventories, check outs and professional end of tenancy cleaning services.
The legislation has been drafted widely and prohibits both landlords and letting agents from charging a relevant person any fee that is not deemed to be a permitted payment. A relevant person includes not just tenants but also, licensees, guarantors and/or any other person acting for and on behalf of a licensee/tenant.
What fees can a relevant person be asked to pay i.e. what is a permitted payment?
Schedule 1 of the Tenant Fees Act sets our clearly what constitutes a permitted payment. The following are examples of permitted payments:
- Rent, provided that it is payable in equal instalments across a specified period. For example, if a tenant is charged £600 in month 1 but only £200 in month 2, the difference of £400 will be a prohibited payment.
- Tenancy deposits, provided that where the rent is less than £50,000 per annum the deposit is capped at 5 weeks rent, and where the rent is more than £50,000 per annum the rent is capped at 6 weeks rent.
- Holding deposits, provided that they are capped at 1 weeks rent.
- Payments in the event of default, provided that you have a true “event of default” which constitutes the loss of a key/ other security devices that gives access to the property, failure to make a rent payment within 14 days of the due date, and in some cases damages.
- Payments in respect of variation, assignment or novation of a tenancy, provided that the landlord/letting agent does not charge more than £50. In some circumstances the landlord/letting agent may be able to charge a higher fee if it is deemed reasonable.
- Payments in respect of termination of a tenancy at the tenant’s request, provided that such payments do not exceed the actual loss suffered by the landlord or letting agent.
- Payments in respect of council tax, utilities, television licence and communication services.
If the payment in question does not fall neatly in to one of the above categories, then it is likely to be a prohibited payment.
Please note that for tenancy/letting agent agreements entered in to prior to 1 June 2019, the transitional period applied, meaning that prohibited payments taken up to 31 May 2020 will not be unlawful. Landlords/ letting agents need to be mindful about payments they have on account and when charges actually occur. For example, letting agents may have payments on account in respect of check- out fees which were lawfully obtained prior to the legislation coming in to force, but if the charge does not occur until after 1 June 2020 then it is likely that this will be considered an unlawful prohibited payment.
Effect of clauses in tenancy or letting agent agreements that request a prohibited payment
Clauses in tenancy or letting agent agreements that require a tenant to pay a prohibited payment are in breach of the legislation. The offending clause is consequently not binding upon the tenant, meaning that the tenant is under no obligation to make the prohibited payment. The remainder of the agreement remains in full force so far as is practical.
As stated above, the transitional period applied to tenancy/letting agent agreements that were entered in to prior to 1 June 2019, meaning that offending clauses in those agreements would have been valid until 31 May 2020.
For example: If you have a tenancy created on 1 June 2018, which includes a £100 charge for assignment of the tenancy agreement, and on 31 May 2020 the tenant assigns the agreement and the landlord charges the tenant £100. This clause would be valid and the payment would be lawful as it falls within the scope of the transitional period. However, if the landlord charged the tenant £100 for the assignment on 1 June 2020 (the day on which the transitional period ended), the clause would be invalid and the payment would be unlawful, as it exceeds the amount that a landlord is permitted to charge.
Prohibited payments and Section 21 Notices
If a landlord or letting agent has charged a tenant an unlawful prohibited payment, then they will not be able to evict a tenant via the Section 21 process until the full value of the prohibited payment has been paid back to the tenant. If the tenant refuses to accept payment, the landlord is unlikely to be able to serve a valid Section 21 Notice. Therefore, in order to prevent a messy eviction process, it is important that landlords and letting agents are aware of what constitutes prohibited payments from the outset.
Sanctions and Recovery
Any sanctions will be enforced by either the Trading Standards or the relevant local authority. Each breach triggers a fine of up to £5,000. If there are multiple breaches within a five-year period this will be a criminal offence, although the enforcement authority can award a fine of up to £30,000 as an alternative to prosecution. A tenant can also make an application to the First Tier Tribunal for the recovery of prohibited payments.