On the 15th January 2019, after what seems like an eternity of uncertainty, the 1st June 2019 was announced as the date the Tenant Fee Bill will come into force.
Although private landlords across the country may have heard whispers of the Tenant Fee Bill, many have failed to consider the impact it will have for them and the changes to their working practices that they will need to implement very quickly. As agents, this is something that we have been working on for over 2 years!
The Tenant Fee Ban in Summary
There are various elements of the ban involving both deposits and fees, and it works on the basis that all fees for tenants are banned unless the bill expressly states they are allowed.
The law is not retrospective. The ban will only affect contracts which are signed on or after 1st June. Fees can be charged for any contracts signed before 1st June and any fees associated with that tenancy can still be charged for a period of 12 months after the ban comes into force. This means the last date of chargeable fees for existing tenancies will be 31st May 2020.
However, if the tenancy is renewed, all fees will be banned as the renewal will be deemed to be a new tenancy effected after 1st June.
Are there any Fees that can be Charged after 1st June?
The most common tenant fees are included in the ‘blanket’ ban – referencing fees, move in fees, Right to Rent checks, tenancy fees and pretty much any other description of fees charged to tenants you can think of. This applies to the whole of the Private Rental Sector – agents and self manage landlords.
From 1st June 2019, the only fees you will be able to take from a tenant are:
Replacement Keys: Landlords and agents will be able to charge a fee, amounting to the exact cost of replacing a lost key or security device. Charges for time taken or the fuel costs associated cannot be charged! Evidence must be retained to show the cost of replacement e.g an invoice.
Interest on Rent Arrears: Late payment fees will no longer be legal under the bill. However, interest on the late period of rent calculated at 3% above the Bank of England base rate (currently set at 0.75%) for every day the rent is not paid can be levied but can only be charged after 14 days of non-payment of the rental period but can be back-dated to start from the date the rent was due.
Change of Sharer Fee: A £50.00 fee for changing a sharer on a tenancy will be legal under the ban, as will every novation to an agreement that a tenant requests. So, if a tenant requests to have pets or to paint a wall midway through a tenancy and you have to change the agreement as a result, you will be able to charge £50.00 for this change. The bill actually states “the reasonable costs of the person to whom the payment is to be made in respect of the variation, assignment or novation of the tenancy”. More could be charged if it can be proven that higher reasonable costs were incurred.
Early Release Fee: An early release fee is currently allowed under the bill if requested by the tenant during a fixed term, or if the tenant has not given the required notice under law in a month to month tenancy. The bill currently states the payment should be no more than the landlord’s loss under this which if a tenant was in a twelve-month fixed term contract and requesting early release at month three, could be nine months’ worth of rent.
A big worry for agents is if an applicant withdraws once the application process has already begun and how this time and cost can be recouped.
A holding deposit equivalent to one weeks rent can be taken from an applicant upon application.
If the agent or landlord pulls out, the holding deposit must be returned to the applicant. If the tenant’s application is successful and the tenancy agreement is signed within 14 days of the applicant agreeing to take the property, the holding deposit must also be returned.
However, if the tenant pulls out during the application process, they’ll forfeit their holding deposit. That has deliberately been done to stop tenants applying for multiple properties and then deciding which one they prefer.
If the tenant is dragging their feet and not responding to emails, not giving the referencing agency what they need for longer than 15 days, they would also forfeit the holding deposit. If it is the agent or the landlord that is causing undue delays and that goes beyond 15 days, it must be returned within 7 days..
From 1st June, a deposit equivalent to exactly 5 weeks rent can be taken from tenants. This is the monthly rent multiplied by 12, then divided by 52 and multiplied by 5. This gives you your exact 5 weeks rent.
It is thought there will be a transition period from 1st June 2019. This means deposits registered before 1st June 2019 which were greater than 5 weeks can stay at this rate until the tenancy is renewed. If a renewal occurs, this is classed as a new agreement and the deposit will need to be lowered to 5 weeks and the difference returned to the tenant.
The deposit cap is an absolute cap. More cannot be charged for, say, pets at the property. However, there is nothing in the law that increased rents for pets cannot be charged. For example, a ‘pet premium’ could be added onto the rent at £10.00 or £20.00 a week, for example. However, this will need to be clear in any advertising to avoid breaching the Consumer Protection Regulation Act of 2008!
A breach of the bill is deliberately severe; £5,000 for your first offence and £30,000 per offence thereafter, however just taking one upfront fee from a tenant which could be broken down into a referencing fee, deposit protection fee and tenancy agreement fee – so 3 separate fees, could result in 3 fines in one go, which could be even doubled or tripled for more than one tenant!
On speaking to a couple of local authorities, they will be massively incentivised to police this thoroughly as all fines and penalties go straight into the local authority coffers.
Although many letting agents (but not all!!) have been preparing their processes and policies to cope with this, I would suspect that many self-managing landlords advertising privately for tenants have not considered the impact on them and are probably completely unaware of the fines they may face for non-compliance.
Could you suffer fines of this level and still make a profit?