Landlords and agents in the private rented sector face a raft of changes that is expected to shake up the rental market as a new set of laws has now received Royal Assent.
The Tenant Fees Bill was designed to protect millions of private renters from unfair fees and charges and is set to come into effect June 2019, with wide-ranging implications for landlords and agents in the private rented sector.
The changes will particularly concern those landlords and agents who own or manage student accommodation, houses in multiple occupation (HMOs) and co-living spaces, and directly affects Assured Shorthold Tenancies (ASTs), lettings to students and licenses to occupy housing.
Whilst much has already been said about the benefits this Bill will bring for renters, it is crucial that landlords are aware of all the changes to avoid falling foul of the new rules, which could result in heavy fines and even criminal proceedings.
Charging a higher rent at the start of a tenancy with a view to reducing the rent at a later date, as a means of offsetting any initial fees is prohibited.
Outlined below are the key aspects of the legislation and its implications for tenancy deposits, holding deposits and the fees charged to tenants or licensees at the beginning and during the currency of their tenancies.
The legislation defines, very specifically, those payments which are acceptable for a landlord to charge a tenant and prohibits any payment that does not fall within those definitions. It enumerates an exhaustive list of permitted payments which a landlord can request from a tenant. If a payment does not fall within the exhaustive list of permitted payments, then the payment is deemed a prohibited payment. These apply where the landlord or agent is arranging, granting, renewing or continuing a tenancy.
Some of the payments that are permitted, are:
- Rent, as one would expect, is deemed to be a permitted payment. However, charging a higher rent at the start of a tenancy with a view to reducing the rent at a later date, as a means of offsetting any initial fees associated with the inception of a tenancy, is prohibited. A consistently higher rent is permissible, although the government believes the market would correct any inflated rent arrangements in this regard.
- Refundable tenancy deposit of no more than five weeks’ rent for an annual rent of less than £50,000, or 6 week’s rent for an annual rent of more than £50,000. On previous readings of the Bill, this period was six weeks irrespective of the amount. For the vast majority of landlords and agents operating within the student accommodation sector or co-living arena, we expect that the five-week tenancy deposit limit will continue to be the norm given that annual rents within this sector will very rarely exceed £50,000, but landlords must be aware of the threshold.
- Refundable holding deposit of no more than one week’s rent: anything currently charged in excess of this amount must be reduced to this level. The landlord should thereafter adhere to the following process in respect of the holding deposit:
- The Landlord has 15 days to make a decision on taking on a tenant once the holding deposit is taken (but this period of time may be varied by agreement with the Tenant).
If the Tenant does not go ahead with the tenancy, the holding deposit should be repaid within seven days of the deadline being reached at clause 1.3.1, or the Landlord deciding not to proceed with the tenancy.
If the prospective tenant does not proceed, fails the right to rent checks, has provided false or misleading information, or if the Landlord and or Agent has taken all reasonable steps to get the information needed but the prospective tenant fails to provide the information within the deadline then there is no requirement on the Landlord to refund the holding deposit.
If the tenancy proceeds, the holding deposit must be returned within 7 days of the tenancy agreement, unless it is converted into payment of the tenancy deposit or used towards the initial rent payment.
Payments relating to late payment of rent or for breaches of the tenancy agreement by the Tenant are permitted. Payments in the event of default by the tenant also cover charges for lost keys or costs incurred by landlords and agents pertaining to rectifying breaches such as reminder letters for rectification. However, such charges must be reasonable and if asked, landlords and agents will have to evidence that the costs were incurred.
Fees for varying a tenancy are to be capped at £50. Anything charged in excess, must be reduced to this level on inception if they are to be collected.
Some of the prohibited payments include charging for credit checks, guarantor form, cleaning services, inventories, referencing, professional cleaning, administrative charges, gardening services, changing tenant charges, early termination charges and many more.
Payments relating to late payment of rent or for breaches of the Agreement by the Tenant are permitted.
Crucially however, as it stands, a landlord will not be required to amend existing tenancy agreements once the Bill is enacted, however any clause requiring a prohibited payment will be unenforceable against the tenant. The remainder of the agreement will remain valid. Accordingly, it would be prudent for landlords and agents to ensure prohibited payments are omitted from new tenancy agreements to avoid breaching the proposed legislation.
Should a prohibited payment be charged to a tenant by a landlord however, there are a number of sanctions including:
- A fine of up to £5,000 for an initial breach imposed by the Local Authority;
- Where a second breach is committed within 5 years of the imposition of a financial penalty or conviction for a previous breach:
- Criminal proceedings in the form of a banning order or an unlimited fine; alternatively
- The Local Authority may choose to impose a civil fine of up to £30,000.
- Unlawfully charged fees could be recovered by the Tenant, assisted by the Trading Standards Authority;
- Landlords may be prevented by the Trading Standards Authority from recovering possession of their property from the tenant.
The sanctions must not be ignored by landlords. Through altering their practices and creating new income streams, landlords and agents should be able to avoid falling foul of the legislation with careful planning and drafting.
Should landlords have any uncertainties on the fees they are currently charging or charges they intend to implement following the inception of the Bill, it is highly advisable that they seek legal counsel to ensure compliance. It is also worth noting that the Trading Standards Authority is expected to bring more clarity on this issue and landlords should work with them as well as their local authorities to ensure compliance.
Susanna Caulfield is a Senior Associate in the Real Estate Group at Rosling King LLP. www.rkllp.com