The Tenant Fees Act will come into force on 1st June 2019. At the centre of the plans is a ban on tenant fees, including admin and agency fees.
From 1st June, it will be illegal for landlords and agents to charge tenants for referencing, inventories and ‘admin’ fees.
Here’s everything a landlord needs to know about the Tenant Fees Act (2019).
Summary of Tenant Fee Ban
- Limit tenancy deposits to five weeks’ rent
- Limit holding deposits to one week’s rent
- No cap to amount that can be deducted for referencing
- Ban any other fees (except contractual default penalties)
- Fines of £5,000 for first offence (civil)
- Fines of £30,000 for second offence (criminal)
What’s in the Bill?
Here are the key new rules contained in the Bill.
1. All Payments Prohibited Except Rent, Deposits and Two Exceptions
Landlords or their agents will no longer be allowed to charge tenants for anything except: the rent, the tenancy deposit and a holding deposit (more on these below).
This means you will no longer be allowed to ask tenants to cover the cost of their own referencing. You also won’t be able to charge check-in, inventory or admin fees.
2. Two ‘Default Fees’ Are Exempt
The only two exceptions are two kinds of ‘default’ fees. These are fees you can charge when the tenant breaks the tenancy agreement. You will have to write these clauses into your contract to be able to charge tenants these two fees while the tenancy is in progress.
(a) Late Rent Fees
You will be able to charge tenants for the replacement of lost keys or other security devices, as long as you are able to demonstrate the cost to you (e.g. with a receipt).
You will also be able to charge fees for rent payments that are over 2 weeks late. The fees can be up to 3% plus the Bank of England base interest rate. Because this is an annual interest rate, you will have to calculate the amount of pro rate interest accrued on the outstanding rent.
Here’s an example:
A tenant is 30 days late for one £1,500 rent payment.
The base rate of interest is currently 0.75%, so you can chase the tenant for the outstanding rent plus a fee of 3.75% of outstanding rent, pro rata for the 30 days.
3.75% of £1,500 is £56.25.
60 days is 60/365 of the yearly rate. Therefore, to get the pro rata amount, we multiply £56.25 by 60/365, which is £9.25.
Many of you will be thinking that £9.25 is not a big fine for being a month late with the rent. This is quite a small fee. It’s debatable, however, whether late fees have ever been effective at making tenants pay on time, and if the threat of eviction is a much better deterrent.
(b) Lost Keys
You will also still be able to charge tenants for losing their keys (or other security device). But you will only be able to charge a reasonable amount for which you can provide evidence of the cost to you.
For example, you will be able to charge £5 to replace a lost key if you can produce a receipt for £5 for getting a new key cut.
Remember, both default fees will need to be included in the tenancy agreement for you to be able to charge them, and previous rules about fair clauses will still apply.
3. Cap on Tenancy Deposits
Tenancy deposits, also called security deposits, are to be limited to five weeks’ rent.
It was originally going to be six weeks, but then the Government seemed to meet those campaigning for four weeks halfway.
In practice, deposits have never been uncapped. They have always been kept below two month’s rent due to the fear of the tenancy becoming a premium tenancy.
This new rule will mean you can’t ask the tenant for a deposit larger than five times the weekly rent of the property.
4. Cap on Holding Deposits
Likewise, holding deposits will be limited to one week’s rent.
This is a big change, since most holding deposits are currently much more than a week’s rent. An OpenRent poll recently found that 47% of tenants have paid a holding deposit of over £750 — much more than the average weekly rent for a UK property.
5. New Rules on Holding Deposits
The Bill includes new rules about how holding deposits must be treated.
The holding deposit must be returned to the tenant: either in payment back to the tenant, or being put towards the first rental payment, or the security deposit.
There are some exceptions. In these cases the landlord can keep the holding deposits:
- The tenant withdraws
- The tenant doesn’t take all reasonable steps to enter the tenancy
- The tenant fails a right to rent check
- The tenant provides misleading information which materially affects their suitability to rent the property
If that last clause sounds a little vague to you, then you’re not alone.
6. Repayment of Holding Deposits
Landlords will only be able to hold the holding deposit for 15 days unless another date is agree in writing.
After the deadline, the holding deposit must be repaid within 7 days according to the above rules (see 5).
The holding deposit can be repaid to the tenant, or it can be put towards the rent or tenancy deposit.
What Are the Penalties to Landlords Who Charge Tenant Fees?
Landlord (or agents) who charge illegal fees will face paying huge fines.
The first offence would be a civil offence, with a fine of £5,000.
If the offence is repeated within five years, there would be either a criminal offence or a fine of £30,000.
There are also plans to help tenants recoup any illegal fees they paid from the landlord (or agent).
Local Trading Standards organisations will enforce the ban.