The Tenant Fees Act 2019 is intended to make residential letting fairer and more affordable for tenants by reducing costs at the outset of a tenancy.
This article updates our previous article A ban on unfair lettings fees - draft tenant fees bill 2017.
The substantive provisions of the Act apply to housing in England and Wales only. The Act was passed on 12 February 2019 and will come into a force on a date yet to be confirmed, but which the government website indicates will be 1 June 2019 (the commencement date).
The main provisions
The key provisions of the Act are as follows:
- ‘Tenancy’ means an assured shorthold tenancy other than a long lease, tenancy of social housing, student letting or licence to occupy housing.
- Landlords and letting agents must not require tenants to make any payment or loan as a condition of the grant, renewal, continuance, variation, assignment, novation or termination of a tenancy. This includes fees for securing references or inventories and ‘frontloading’ the rent to recover costs, by charging a higher initial rent.
- The only payments permitted to be charged to tenants are:
- The rent
- A refundable tenancy deposit (being a deposit held as security for the performance of the tenant’s obligations or to cover a tenant liability) of no more than:
- - five weeks’ rent where the annual rent is less than £50,000; or
- - six weeks’ rent where the annual rent is £50,000 or more
- A refundable ‘holding’ deposit of no more than one week’s rent (a holding deposit is a payment made by the tenant to reserve a property) and
- Payment due by the tenant in the event of their default, such as a late payment or breach of the tenancy agreement (for example, payment to replace a lost key).
- Anything else is a ‘prohibited payment’.
- The provisions concerning landlords levying prohibited payments will not apply to (a) tenancies entered into before the commencement date or (b) periodic tenancies arising after the commencement date due to either statute or the expiration of an existing fixed term tenancy. However, any provisions in these tenancies requiring such payments will cease to be binding after the end of one year beginning with the commencement date. So landlords effectively have one year from the commencement date to review any current ‘prohibited payment’ arrangements and put alternative plans in place.
- New rules will apply to holding deposits:
- These must be refunded to tenants within 7 days of the tenancy agreement being completed, or within 15 days of taking the deposit if the agreement is not completed for reasons within the landlord’s control.
- The landlord does not have to refund the holding deposit if:
- the tenant does not have the ‘right to rent’ property under the Immigration Act 2014, provided that the landlord did not know and could not have been expected to know this before accepting the deposit; or
- the tenant provides false or misleading information that materially affects its suitability to rent the property, or if the tenant fails to enter the tenancy agreement for reasons within its control.
- Landlords will be able to charge a small fee if a tenant requests a variation, assignment or novation of its tenancy but this is limited to £50 unless the landlord can show a greater cost was reasonably incurred.
- Sanctions for breach
- To give the Act ‘teeth’, landlords will not be able to serve notice under section 21 of the Housing Act 1988 to obtain possession of tenanted properties until they have repaid any prohibited payments.
- The Act is enforceable by local authorities. They may impose a fine of up to £5,000 if a landlord or letting agent has charged a prohibited payment, and they may require the prohibited payment to be repaid with interest.
- Local authorities can prosecute or impose a fine of up to £30,000 if an ‘offence’ under the Act has been committed, being where a landlord or letting agent has been fined or convicted for a breach within the last five years and commits a further different breach.
- If the entity committing the offence is a corporate body, the officers/members of that body can be liable for it if the offence was committed with the consent or connivance of them, or was attributable to any neglect by them.
- The local authority must notify the landlord/letting agent of the intention to impose a fine within six months of becoming aware of a potential breach. The landlord/agent has 28 days to respond to the notification, after which the local authority will decide whether to impose the fine. If imposed, a final notice will be issued giving 28 days for payment. There will be a right of appeal to the First Tier Tribunal against a final notice.
- The Housing and Planning Act 2016 will be amended to say that an offence committed under the Act is a banning order offence. This means that a local housing authority can apply to court to ban the landlord/letting agent from letting housing and/or acting as a letting agent and/or property manager in England and Wales for at least a year. If so, an entry will be made in the database of rogue landlords and property agents under that Act.
- Enforcement will be carried out locally – provision is made for different enforcement teams across different areas checking with each other to see what, if any, enforcement action has already been taken for a breach.
- Tenants can apply to the First-Tier Tribunal to recover prohibited payments and payments that should have been refunded. Local authorities may help tenants apply to the Tribunal or recover any amounts ordered by the Tribunal to be repaid by, for example, conducting proceedings or giving advice to the tenant.
- Section 83 of the Consumer Rights Act 2015 will be amended to require letting agents to publish details of their fees and client money and redress scheme memberships, both on their own websites and on third party websites where they advertise.
Whilst the Act is yet to come into force, landlords and agents operating in the private rented sector in England and Wales should undertake reviews of their portfolios now, to check what payments currently being charged will become prohibited under the Act. Once the Act is in force if any prohibited payments are discovered to have been made, landlords would be well advised to return them promptly, both to avoid penalties and to ensure they are able to terminate tenancies when needed. Equally, tenants should be aware of what they are being asked to pay when completing, renewing, varying or novating a tenancy agreement and whether those charges might be unlawful.
Whilst the Act is to be welcomed against the backdrop of the current housing shortage and the need for tenants to be treated fairly, it will be interesting to see to what level the Act is enforced and whether this differs regionally depending on the resources of local authorities.