The Tenant Fees Act 2019 (Act) has recently been enacted and is due to come into full force on 1st June 2019. The key provisions of the Act restrict the kinds of payments that landlords and letting agents can require and prohibit certain arrangements in connection with the letting of housing in England.
Default fees will also be subject to caps, eg: interest on late payment of rent is capped at three per cent above the Bank of England base rate.
In addition the Act sets out stringent regulations for the treatment of holding deposits (i.e. deposits paid to reserve a property prior to the signing of a tenancy agreement).
This article summarises the key points from the Act.
Tenancies to which the Act applies
The Act applies to tenancies of housing in England. For the purposes of the Act, “tenancy” means:
- Assured Shorthold Tenancies (other than ones of social housing and certain long leases);
- Student Lettings falling within paragraph 8 of Schedule 1 of the Housing Act 1988; and
- Licences to occupy (excluding holiday lets and licences to occupy social housing).
The inclusion of licences in the definition of “tenancy” is a clear anti-avoidance provision designed to stop those involved in the letting of housing exploiting the lease/licence distinction to avoid complying with the new provisions.
Permitted and prohibited payments
Under the terms of the Act, landlords and letting agents must not require tenants (including prospective tenants and guarantors) to make any prohibited payments. In short a payment is a “prohibited payment” unless it is a permitted payment as listed in Schedule 1 of the Act.
The only permitted payments are as follows:
Rent: Where any payment of rent is greater for one period than the amount of rent payable for any later period that commences during the first year of the tenancy, the extra rent is not a permitted payment. As such, landlords and letting agents will not be able to ‘front load’ the rental payments to recoup their costs.
Refundable tenancy deposit: The amount of deposit is subject to the following caps:
No more than five weeks’ rent where the annual rent for the tenancy immediately after its grant, renewal or continuance is less than £50,000; and no more than six weeks’ rent where the annual rent for the tenancy immediately after its grant, renewal or continuance is £50,000 or more.
Refundable holding deposit: This must be no more than one week’s rent.
A holding deposit cannot be required where the landlord or letting agent has received any previous holding deposit after the coming into force of the Act in respect of the same housing which it has not repaid in full in circumstances where it was not entitled to retain the same. This is a potential tripwire for landlords and letting agents – for as long as they retain a holding deposit in contravention of the Act they are not entitled to require the payment of any new holding deposit from another tenant in respect of the same housing.
Certain default fees: These are only permitted for:
- loss of a key or other access security device; and
- failure to pay the rent in full before the end of the period of 14 days beginning on the date on which the payment is required to be made
- and only in circumstances where the tenancy agreement requires payment of the same.
Default fees will be subject to caps on what can be recovered. For example, interest on late payment of rent is capped at three per cent above the Bank of England base rate. It is worth noting that a payment of damages for breach of a tenancy agreement or an agreement between a letting agent and the tenant or its guarantor is a permitted payment.
Payments for variation, assignment, novation or termination of a tenancy:
These are permitted in certain circumstances and subject to various caps on what can be recovered. Generally what is recoverable is limited to reasonable costs or losses. For example, a payment for a variation must not exceed the greater of £50 and the reasonable costs of the landlord.
Payments for council tax, utilities, television licences and for communication services. Subject to various conditions.
In addition to prohibiting certain payments, the Act also prohibits landlords and letting agents from requiring a tenant (including prospective tenants and guarantors):
- to enter into a contract with third parties if that contract is for the provision of a service or a contract of insurance. There are limited exceptions for contracts required by landlords relating to the provision of utilities and communication services to tenants; or
- to make a loan to any person,
- in both cases where the same is in connection with a tenancy of housing in England.
Treatment of holding deposits
Schedule 2 of the Act makes provision for the treatment of holding deposits. The Schedule sets out a timetable for dealing with holding deposits, for example requiring the holding deposit to be refunded to the tenant within seven days of the parties entering into a tenancy agreement (although there is also provision for the holding deposit to be applied, subject to the consent of the payee, to the first instalment of rent or towards any permitted security deposit).
The Tenant Fees Act 2019 (Act) has recently been enacted and is due to come into full force on 1st June 2019.
The Act restricts the circumstances in which a holding deposit can be retained by a landlord. Circumstances in which a landlord might be able to keep the holding deposit include:
- if it transpires the tenant does not have the right to rent the property pursuant to the Immigration Act 2014 and the landlord or letting agent did not know, and could not reasonably have been expected to know, that prior to accepting the holding deposit;
- if the tenant provides false or misleading information to the landlord or letting agent. In such cases the landlord is reasonably entitled to take into account the difference between the information provided by the tenant and the correct information as well as the tenant’s actions when deciding whether or not to grant a tenancy; and
- if the tenant decides not to enter into a tenancy agreement of the property or fails to take all reasonable steps to enter into a tenancy agreement.
However, where a landlord or letting agent seeks to retain a holding deposit it must serve a notice on the payee of the deposit setting out the grounds on which it intends to keep the deposit. Failure to serve the requisite notice within the time limits prescribed (normally seven days) will mean that the landlord or letting agent will forfeit their right to keep the same.
Sanctions for non-compliance
- Where a prohibited payment or prohibited arrangement has been required, or the provisions relating to holding deposits have been breached, the potential consequences include:
- any prohibited payment or prohibited arrangement in relation to a tenancy will not be binding on the tenant or its guarantor; however, the agreement will continue, so far as practicable, to have effect in every other respect;
- the enforcement authority may take steps to force the repayment of any prohibited payments together with interest;
- the tenant may apply to the First Tier Tribunal to recover any prohibited payments together with interest;
- the landlord/letting agent may face a fine of up to £30,000 (depending on the circumstances);
- where the landlord or letting agent requires any prohibited payment or prohibited arrangement and it can be shown that they are a repeat offender, they may be committing an offence which is liable on summary conviction to a fine (note that officers of corporates may also be held to have committed an offence);
- where the landlord:
- has required the tenant or its guarantor to make a prohibited payment and that payment was duly made; or
- has breached the rules relating to the treatment of holding deposits,
- it may be barred by section 17(3) of the Act from serving a section 21 notice to terminate the tenancy (where it is an assured shorthold tenancy) for as long as all or part of the prohibited payment or holding deposit has not been repaid. This is a significant sanction as it interferes with the landlord’s ability to terminate its relationship with the tenant.
The new provisions will be enforceable by local weights and measures authorities (i.e. Trading Standards) and district councils that are not local weights and measures authorities.
The Act provides for a lead enforcement authority being either the Secretary of State or a local weights and measures authority nominated for the task. The lead enforcement authority is responsible for, among other things: overseeing the operation of the provisions of the Act; and providing information and advice to relevant authorities in England as well as the public.
In addition, the lead enforcement authority will be able to enforce the Act where it thinks necessary or expedient to do so.
While at first glance the Act does not appear to have retrospective effect, it is worth noting the transitional provisions in section 30. These provide that, while the Act will not apply to prohibited payments or arrangements required by landlords or letting agents before the coming into force of the Act, one year after commencement of the Act any provision that would otherwise qualify as a prohibited payment or prohibited arrangement will cease to be binding on the tenant or relevant person (which can include a prospective tenant or guarantor). Should the landlord or letting agent accept any prohibited payment after this time and fail to return it within 28 days they will have acted in breach of the Act and be liable to the enforcement remedies listed above. The provisions in the Act regarding the treatment of holding deposits only apply in relation to holding deposits paid after the coming into force of the relevant schedule.
Amendments to the Consumer Rights Act 2015
The Act also amends the Consumer Rights Act 2015 concerning the information to be provided by letting agents so that it will apply to online property portals and also makes provision about client money protection schemes.
Coming into force
The ban on tenant fees will come into force on 1st June 2019.
Emma Broad at Dentons: