Tenant Fees Ban

The Tenant Fees Act which comes into force on 1 June 2019 sets out the government’s approach to banning letting fees paid by tenants to landlords and agents in the private rented sector and capping tenancy deposits in England. The purpose of the Act is to reduce the costs that tenants can face at the outset, and throughout a tenancy. The government claims that the Act is part of a wider package of measures aimed at rebalancing the relationship between tenants and landlords to deliver a fairer, good quality and a more affordable private rented sector.

Tenants will be able to see, at a glance, what a given property will cost them in the advertised rent with no hidden costs. The party that contracts the service – the landlord – will be responsible for paying for the service of the letting agent, which will help to ensure that the fees charged reflect the real economic value of the services provided and sharpen letting agents’ incentive to compete for landlords’ business.

Tenancy deposits will be limited to the equivalent of five weeks rent where the annual rent is less than £50,000. Landlord and agents will be able to charge a refundable holding fee of one week’s rent to secure a property, the holding fee has to be used towards the rent, deposit or refunded back to the tenant once a tenancy is agreed. There are limited circumstances where the holding fee can be retained by the landlord or agent if the tenancy doesn’t go ahead such as the tenant giving misleading information or the tenant withdraws from the agreement.

The government published three guidance documents on the Tenant Fees Act on 1 April 2019. One for landlord/letting agents. One for tenants, and one for local authorities. The provisions come into force on 1 June 2019 so there is little time to digest the guidance and make changes accordingly. This is made more difficult because the various statutory instruments which will bring the Act into force and which can (optionally) be used to amend the list of prohibited or permitted fees have not been published and so the guidance operates in something of a vacuum at the moment.

The Tenant Fees Act (TFA) operates by prohibiting landlords and letting agents from charging tenants any fees for the grant, renewal, termination, assignment, or novation of a tenancy unless they are specifically included on an approved list. That list is pretty short. The Act also prohibits requiring a tenant to enter into a contract with a third party so it prevents the obvious evasion of not charging a fee myself but getting someone else to charge it on my behalf e.g. a referencing agency.

The Act has a schedule of permitted fees within it which set out what can be charged. It is important to bear in mind that if a fee falls into one of the categories in the schedule then it is permitted. Even, if it does not fall into other categories or is excluded from another category specifically. It is easy to fall into the trap of thinking that because a category excludes a specific class of fees that these are excluded altogether, even though they are permitted elsewhere.

Local authorities will be responsible for ensuring both landlords and letting agents comply with the legislation. Anyone found to have breached these laws could be fined up to £5,000 for a first offence – and there are more severe penalties, like the threat of criminal prosecution, for those who do it more than once.

Parkinson Property

13th April 2019


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