Changes Landlords must know about in 2020
Landlords could be fined up to £30,000 if they fail to comply with new rules regarding deposits and fees charged to tenants.
The Tenant Fees Act bans most letting fees and caps tenancy deposits paid by tenants in the private rented sector in England.
The Tenant Fees Act 2019 was introduced on 1 June 2019 to any tenants who had signed new tenancy agreements from 1 June 2019. The Act banned landlords and agents from charging fees to tenants other than those defined as permitted by the Act. The Act also placed a cap on the amount of security deposits that a landlord or agent were permitted to take from tenants. This applied to tenants given assured shorthold tenancies of private landlords, tenancies of student accommodation and license agreement.
The Tenant Fees Act 2019 however provided a transitional period which meant that for any tenancies signed before 1 June 2019, the Act did not apply.
From the I June 2020 this transitional period has expired, meaning the Act now applies to all Assured Shorthold Tenancies and most residential licences. Under the Act from I June 2020 no prohibited payment can be taken. Any term in the agreement that requires a prohibited payment is not binding. This applies equally to all tenancies including renewals.
From the 1 June 2020 should a landlord or agent, inadvertently accept a prohibited payment they will have 28 days to return it to the tenant otherwise they will be in breach of the Act.
A failure to comply with the Act is enforced by the Local Authorities who can issue fines from £5000.00 to £30,000.00.
As well as being liable for fines a landlord will be prohibited from issuing a valid section 21 notice until any prohibited fee has been returned to the tenant or, with the tenant’s consent, credited to their rent account or deposit.
Here are the permitted fees in the Tenants Fees Act (listed in Schedule 1) that landlords and letting agents are allowed to request and receive:
A payment of rent is permitted
Although rent is a permitted payment, the amount of rent payable should be agreed at the start of the tenancy and should be payable on regular agreed intervals, such as weekly, monthly, etc.
A landlord cannot request a higher amount of rent in month one to offset the costs of setting up a tenancy (banned fees) as this would constitute a prohibited payment.
After the start of the tenancy, the landlord can reduce or increase the tenant’s rent but this has to either be by agreement or if there is a rent review clause in the agreement. This clause may however not be binding depending on how it has been worded and when it can take effect.
A tenancy deposit is a sum of money paid at the start of a tenancy which is kept as security for any rent arrears or damage by the tenants(or anyone that they permit in the property) during the tenancy.
The deposit has been capped to:
(a)If the annual rent is less than £50,000 per annum, the deposit is capped at five weeks
(b)If the annual rent is more than £50,000 per annum, the deposit is capped at six weeks
The amount of any excess is a prohibited payment.
One week’s rent” means the amount of the annual rent payable in respect of the tenancy immediately after its grant, renewal or continuance divided by 52.
This is a payment made to a landlord or letting agent before the grant of a tenancy with the intention that it should be dealt with by the landlord or agent to secure the tenancy whilst referencing checks are being undertaken.
A landlord cannot ask a tenant for more than one week’s rent as a holding deposit. One weeks rent is calculated in the same way as one weeks rent for the tenancy deposit. Any excess is a prohibited payment.
A payment of a holding deposit is not a permitted payment if the landlord or letting agent to whom the deposit was paid has previously received a holding deposit in relation to the same housing. Therefore, once a holding deposit has been paid, the landlord should stop advertising the property as they are not permitted to take multiple holding deposits. These could be deemed as prohibited payments.
Payment in event of a default
A payment in the event of a relevant default by the tenant is a permitted payment if the tenancy agreement requires the payment to be made.
A relevant default means:
(a)the loss of a key to, or other security device giving access to, the housing to which the tenancy relates, or
(b)a failure to make a payment of rent in full before the end of the period of 14 days beginning with the date (“the due date”) on which the payment is required to be made in accordance with the tenancy agreement.
If, in the case of a payment required to be made to a landlord or letting agent in respect of a relevant, the amount of the payment exceeds the costs which—
(a)are reasonably incurred by the landlord or letting agent as a result of the default, and
(b)are supported by evidence in writing which is provided to the person on whom the requirement to make the payment is imposed,the amount of the excess is a prohibited payment.
A payment of damages for breach of a tenancy agreement or an agreement between a letting agent and a relevant person is a permitted payment.
Default fees for late payment of rent are capped at 3% above the Bank of England’s base rate for each day the payment has been outstanding. Any fee taken which exceeds this amount would be deemed a prohibited payment.
A Payment on variation, assignment or novation of a tenancy
A payment is a permitted payment if it is a payment:
(a)to a landlord in consideration of the variation, assignment or novation of a tenancy at the tenant’s request, or
(b)to a letting agent in consideration of arranging the variation, assignment or novation of a tenancy at the tenant’s request.
But if the amount of the payment exceeds the greater of—
(b)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,the amount of the excess is a prohibited payment.
The landlord cannot charge for a renewal or extension of a tenancy agreement as this would be deemed as a prohibited payment.
Payment on termination of a tenancy.
The landlord can charge reasonable fees where the tenant requests that the tenancy be terminated early.
To ensure this is a permitted payment, the fee charged cannot exceed the loss incurred by the landlord, for example any loss that they suffer due to rent not being paid due to leaving early,the costs of re-advertising or referencing or reasonable costs incurred by a letting agent, such as marketing and referencing.
Even if the landlord agrees to the tenant leaving early, they can ask them to pay rent as defined in their tenancy agreement until, a suitable replacement tenant is found. A tenant is liable for the rent until the end of the fixed term or, if the tenancy is a statutory periodic tenancy until the notice period has expired.
If the amount of the payment exceeds the loss suffered by the landlord as a result of the termination of the tenancy, the amount of the excess is a prohibited payment.
A payment to a billing authority in respect of council tax is a permitted payment.
Utilities – electricity, gas, other fuel, water or sewerage
A payment for or in connection with the provision of a utility is a permitted payment if the tenancy agreement requires the payment to be made.
A payment towards energy efficiency improvements under a green deal plan (within the meaning of section 1 of the Energy Act 2011) is a permitted payment if the tenancy agreement requires the payment to be made.
Under the Act utility means:
(a)electricity, gas or other fuel, or
(b)water or sewerage.
Payment in respect of a television licence
A payment to the British Broadcasting Corporation in respect of a television licence is a permitted payment if the tenancy agreement requires the payment to be made.
Payment in respect of communication services
A payment for or in connection with the provision of a communication service is a permitted payment if the tenancy agreement requires the payment to be made.
If the amount of the payment exceeds the reasonable costs incurred by the landlord for or in connection with the provision of the service, the amount of the excess is a prohibited payment.
Under the Act communication service means a service enabling any of the following to be used:
(a)a telephone other than a mobile telephone;
For further information relating to the points raised in this article please contact our Landlord and tenant solicitors.