Tenant fees ban - what can I charge for?
The Tenants Fees Act comes into force in England on Saturday. In this article first published in RLA members’ magazine Residential Property Investor, we look at the latest government guidance on the new rules.
The fees ban has caused huge consternation among landlords, unsure of what they can and can’t charge for once the act comes into force – and when the changes are being implemented for new and existing tenancies.
What can I charge?
The only payments you can charge in connection with a tenancy are:
- the rent
- a refundable tenancy deposit capped at no more than five weeks’ rent where the annual rent is less than £50,000, or six weeks’ rent where the total annual rent is £50,000 or above
- a refundable holding deposit (to reserve a property) capped at no more than one week’s rent
- payments to change the tenancy when requested by the tenant, capped at £50, or reasonable costs incurred if higher
- payments associated with early termination of the tenancy, when requested by the tenant
- payments in respect of utilities, communication services, TV licence and council tax; and
- a default fee for late payment of rent and replacement of a lost key/security device, where required under a tenancy agreement
If the fee you are charging is not on this list, it’s a prohibited payment and you should not charge it. However, it is worth noting there is nothing in the Tenant Fees Act preventing you seeking costs for damages caused by the tenant through the courts or via your chosen deposit scheme.
Do I need to make changes to existing tenancy agreements?
In short it depends on when your agreement was signed. The ban is being introduced in two stages.
1st June 2019
Fees for anything other than those listed, above, cannot be charged for any tenancy agreement signed on or after June 1 this year.
This means you, the landlord, will need to pay for everything else. This includes referencing, inventories, renewals, check out costs and any related administration.
However, agents and landlords do not have to pay back any fees that have been charged to a tenant before 1 June 2019, and when a tenancy was entered into before this date landlords and agent can continue to charge fees until May 31 next year.
However, this is only where these are required under an existing tenancy agreement.
1st June 2020
From 1 June 2020 the ban will apply to all tenancies and landlords and agents cannot charge any fees (other than those above).
Deposits
The new guidance has clarified an issue regarding deposits, stating you do not need to return any amount of tenancy deposit that is over the cap for fixed term tenancy agreements entered into before the Tenant Fees Act came into force.
However, if a tenant renews their tenancy by signing a new fixed term agreement after 1st June 1, 2019, any amount of their existing deposit which exceeds the five- week limit must be refunded.
The legislation has a specific exemption for statutory periodic tenancies arising between June 1st 2019 – May 31st 2020, but will affect new statutory periodic tenancies created on or after June 1st 2020.
Any statutory periodic tenancy created on or after June 1, 2020 should return any deposit amount above the cap within 28 days.
However, in reality this is a very small proportion of tenancies as they would need to:
1. Be agreed before June 1st 2019
2. Run until at least May 31st 2020
3. Turn into a statutory periodictenancy on or after June 1st 2020
Deposit calculator
RLA deposits partner TDS has created a deposit calculator here, which is also available for letting agents to embed in their own websites.
It also has an online tool to reduce the amount of deposit held by the Custodial scheme or protected with the Insured scheme.
If a new fixed term tenancy is created, the landlord or letting agent can simply change the deposit amount down to the new five/six-week level.
In TDS Custodial, TDS will then return any excess deposit directly to the lead tenant taking instruction from them how they would like to be repaid.
When the deposit has been reduced, a new Deposit Protection Certificate in the new amount will be available in the member’s online account.
As with the TDS Insured scheme no new Prescribed Information has to be issued in these circumstances.
What if I make a mistake?
While you are holding a ‘prohibited payment’ any Section 21 notice you try to serve will be invalid until you have repaid it.
Breaching the ban could result in a fine of up to £5,000, but if a further breach is committed within five years it will become a criminal offence, which comes with an unlimited fine.
Local authorities may issue £30,000 civil penalty as an alternative to prosecution.
Where can I go for help
The RLA has updated its guidance in relation to the Tenant Fees Act, with new tenancy agreements now drawn up to reflect the new legislation.
These remove the references to fees banned under the new legislation, and also added a new clause allowing for adjustments to the rent.
