The end of unfair letting fees – landlords and letting agents beware!

The Tenant Fees Act 2019 (the “Act”) came into force on 1 June 2019.

The Act, part of a wider package of measures aimed at rebalancing the relationship between landlords and tenants to deliver a fairer, more affordable and good quality private rented sector, introduces protections from unfair letting fees and charges, and excessive deposits by landlords and letting agents. The protections will apply to most residential tenants in the private rented sector in England and will apply both at the start and throughout a tenancy.

Who is protected by the Act?

The Act protects most of the following types of residential tenancies and licences in England:

• Assured Shorthold Tenancies (“ASTs”)
• student lettings
• licences to occupy housing.  

(“a protected occupancy agreement”).

The Act does not apply to:

• leases granted for more than 21 years
• ASTs and licences of social housing within the meaning of Part 2 of the Housing and Regeneration 2008
• holiday lettings
• licences to live-in carers where a charity or community interest company has given advice or assistance to either the licensor or carer.

What does the Act do?

The Act provides that a landlord or letting agent must not require a person protected by the Act (a “person”) to do any of the following actions in connection with a protected occupancy agreement:

• make a “prohibited payment” to the landlord, the letting agent or a third party
• enter into a contract with a third party for the provision of a service or for insurance other than a contract to provide a utility or communication service to the person
• make a loan to anyone.

(a “prohibited action”).

A landlord or letting agent will have required a person to do a prohibited action “in connection with” the protected occupancy agreement in the following situations:

• in consideration of the grant, renewal, continuance, variation, assignment, novation or termination of a protected occupancy agreement
• in accordance with a provision in the occupancy agreement that requires or purports to require them to do any of the prohibited actions:
  • in the event of an act or default of the person; or
  • if the occupancy agreement is varied, assigned, novated or terminated
• on entry into a protected occupancy agreement that requires or purports to require them to do a prohibited action in any circumstances other than in the event of an act or default of the person or if the occupancy agreement is varied, assigned, novated or terminated
• as a result of an act of default of the person relating to the protected occupancy agreement or the housing that was let by the occupancy agreement unless, in accordance with, or for the breach of a provision in the occupancy agreement
• in consideration for provision of a housing reference for that person.

Which payments are permitted by the Act?

The Act prohibits all payments “in connection with” a protected occupancy agreement except for payments that are expressly permitted.

In broad terms, the following are permitted payments (subject to certain conditions and caps):

• rent - as long as there is not an increase of rent during the first year of the occupancy unless resulting from a rent review provision in the occupancy agreement or a variation agreed between the landlord and the person
• tenancy deposits - capped at 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
• holding deposits paid to reserve a property before the grant of the protected occupancy agreement - capped at one week's rent
• default fees set out in the occupancy agreement for:
  • loss of a key or other security device – as long as the payment does not exceed the landlord’s or letting agent’s costs reasonably incurred; or
  • failure to pay rent in full within 14 days of rent being due in accordance with the occupancy agreement – as long as the amount does not exceed the aggregate sum found by charging interest as an annual percentage rate of 3% above the Bank of England base rate on the unpaid rent for each day after the due date that the rent remains unpaid
• damages for breach of the occupancy agreement
• payment in consideration of a variation, assignment or novation of an occupancy agreement – capped at £50 or (if higher) the reasonable costs of the person
• payment in consideration of the early termination of an occupancy agreement at the resident’s request – as long as the payment does not exceed the loss suffered by the landlord or letting agent
• payment of council tax to a billing authority
• payment in connection with the provision of utilities - as long as the occupancy agreement requires the payment to be made
• payment to the BBC for a TV licence – as long as the occupancy agreement requires the payment to be made
• payment in connection with the provision of communication services – as long as the cost does not exceed the landlord’s reasonable costs and the occupancy agreement requires the payment to be made.

What additional changes has the Act introduced?

The Act provides that section 21 notices cannot be given in relation to an AST if the landlord is in breach of the prohibitions and contains detailed obligations regarding the repayment of holding deposits. It also makes minor amendments to the:

• duties on letting agents to provide information in accordance with the Consumer Rights Act 2015
• mandatory requirements on property agents to join a client money protection scheme.

What penalties can be imposed under the new Act?

Landlords or letting agents who breach the requirements of the Act can:

• receive a financial penalty of up to £5,000 for an initial breach; or
• be charged with committing a criminal offence where a person has been fined or convicted of the same offence within the last five years. Financial penalties of up to £30,000 can be issued as an alternative to prosecution.

Important dates under the Act

The Act will apply to all new protected occupancy agreements from 1 June 2019 except for statutory periodic tenancies arising after 1 June 2019 at the end of a fixed-term tenancy that commenced before 1 June 2019.

From 1 June 2020, the Act will apply to pre-existing protected occupancy agreements entered into before 1 June 2019.

Comment

From 1 June, landlords should ensure compliance with the Act to avoid enforcement penalties and to ensure they can terminate tenancies when needed.

Landlord and agents operating in the private rented sector in England should by now have carried out reviews of their stock and policies and procedures, to check which payments currently being charged will become prohibited under the Act and to ensure that occupancy agreements are amended to exclude prohibited and include any applicable permitted payments.

Registered provider (RP) clients should note that whilst the Act will not apply to the provision of social housing occupancy agreements, the Act will still apply in relation to any market rent occupancy arrangements. 

Equally, the Act will apply to non-RP clients granting occupancies at a “social rent”.

For more information

Please contact Penny Bournes.