What is the Tenant Fees Act 2019?
Often referred to as the Tenant Fee “Ban”, the Tenant Fees Act 2019 will see an outright ban on many fees that have historically been paid by Tenants in order to secure and proceed with a Tenancy, as well as caps and strict restrictions to other costs. The ban includes administration fees, referencing fees, inventory fees and almost any other “fee” a Tenant may have been charged for in the past.
The legislation is not exclusive to pre Tenancy Fees however and will also include a cap on security deposits. There is a common misconception that this new legislation only applies to Letting Agents but this is not the case. It applies to all Landlords, Lettings Agents and Third Parties (such as referencing companies). The complexities and implications of the legislation are vast and the penalties for non compliance are significant. Don’t get caught out. If you are a Landlord and are either not familiar with this legislation at all, or want to simply understand what it means for you and your Tenancies, we cannot stress strongly enough the importance of discussing this with your agent as soon possible. June 1st is not far away!
At Wood & Pilcher we have been preparing for this since the legislation was first announced in October 2016. Our Letting & Management team, which include 5 qualified Arla Propertymark agents, have been informed and educated at every step of the process. If you need expert advice from those with a fundamental understanding of the changes ahead – please call us today. A good agent has never been more important for your investment.
When does the Tenant Fees Act 2019 come into force?
This legislation takes effect from 1st June 2019. Long referred to as the tenants fees ban, the legislation covers much more than just pre Tenancy “admin” charges. We have been preparing for this since the proposal to ban tenants fees was approved in October 2016.
Is the legislation likely to change if we saw a change of Government?
This legislation received almost unheard of cross- party support and was unanimously voted for in both the House of Commons and the House of Lords. There may be variations over time, but it’s here to stay.
Does the Tenants Fees Act apply only to agents’ fees?
No. And this appears to be one of the biggest misunderstandings about the legislation. The Act applies to all Landlords, Lettings Agents and 3rd parties who may have historically applied charges in relation to the granting of a new Tenancy. It is not just referencing and administration/agent fees that are banned.
So will landlords be able to charge move-in fees?
No. As referred to above, the ban doesn’t just apply to letting agents, it applies to landlords as well and third parties, such as referencing agencies.
If there is a ban on fees, does this mean that Tenants can apply for multiple properties at the same time?
The Tenant Fees Act DOES allow for a small number of permitted payments. One of which is a Holding Deposit, although this cannot exceed the equivalent of ONE weeks’ rent. However, if the tenant pulls out during the application process, they’ll forfeit their holding deposit. That has been done very deliberately to stop tenants applying for multiple properties and then deciding which one they’ll have.
Are security deposits affected?
Yes. From 1st June 2019, security deposits are capped at a maximum of 5 weeks’ rent, unless the annual rental exceeds £50k, in which instance the cap is 6 weeks.
Will existing deposits that are longer than five weeks be subject to a refund?
This is one area of the legislation that is still to be absolutely finalised, however it is expected that the government guidance will say that as long as the tenancy continues after the introduction of the ban on 1st June, it will not be necessary to retrospectively repay the balance of the deposit taken. However, if the tenancy renews, anything in excess of five weeks will become a prohibited payment and would have to be refunded. For example if a six-week deposit has been paid and the tenancy renews on 1st of January 2020, that extra week will need to be refunded.
To prepare our Landlords and Tenants for this, we have already implemented the 5 week deposit cap at Wood & Pilcher.
Does the ban include Pet Deposits/Fees?
Absolutely. These can no longer be charged, and where they are already held fall subject to the same repayment conditions as all other deposits.
Does that mean rent will just be higher if I have a pet?
This is not a straightforward one. We have never applied any Pet fees/charges so can only really answer this based on what we have heard from those who do. There have been many questions asked within the industry about how to facilitate Tenants with Pets and not make it harder than it sometimes can be to find a suitable home. Pets form part of the family for many which is one of the reasons that so many Tenants would willingly pay whatever an agent or Landlord asked for by way of fee in order to be able to rent a property that allowed them to have a pet. However, the rent must remain the same for each period of the Tenancy, so a higher first months rent, which is what many had suggested as a “loophole” to this just isn’t an option. Not a lawful one anyway. If a Landlord wishes to charge more to Tenants with pets than without, then it would have to be very clearly and carefully stated in all information about the property.
Do charges and fees referred to in my existing Tenancy Agreement still apply?
Yes - the law is not retrospective. The ban will only affect contracts which are signed on or after 1st June. Any fees associated with a Tenancy signed before the 1st June 2019 can still be charged for a period of 12 months after the ban comes into force. This means the last date of chargeable fees for existing tenancies will be 31st May 2020. But, if the tenancy renews during this period, it creates a new tenancy, which means all fees will be banned.
How will the ban be enforced?
The level of the penalties means there will be a massive incentive on local authorities to enforce the new legislation. If an enforcement officer comes into a branch and finds that fees are being charged, it’s not one £5000 fine, it’s a £5000 fine per fee. If that fee consists of an element of referencing, contract negotiation and inventory, that won’t be one fee. That will be three fees. That is just for the first offence - if the enforcement authority comes back and finds the agency is still charging fees, it will be a £30,000 fine per fee.
The same penalties apply to all Landlords who advertise and Let their properties direct to Tenants without engaging the service of an agent.
As is always the case, ignorance is not a defence. It is fully expected that all Landlords and Agents understand this.
What are Wood & Pilcher doing to prepare for this?
Fortunately, our fee structure for Tenants was relatively similar to what has now been enforced anyway. Particularly in relation to the Holding Deposit which we have always carried forward to the first months rent. Like many reputable agents, and a significant number of Tenants surveyed in the last few years, we felt a cap on all fees would have been more appropriate and fair to all parties, but the legislation is what it is and we will move forward working to these new laws.
As an ARLA PropertyMark agent, with 5 individually accredited members in our team, we have been as well informed as anyone throughout this process which has allowed us to make small adjustments to our working practices in preparation. The awareness and preparation, or lack thereof, that we have encountered from both inside and outside the industry as this legislation approaches has been staggering.
What effect do you expect this to have on the rental market – particularly rents themselves?
This legislation, along with the requirement for all agents to hold CMP (Client Money Protection) from 1st April should see a reduction in the number of “rogue” agents and Landlords. The penalties for non compliance have been set deliberately high to reinforce this.
With regards to rent levels – only time will tell. The concern that most Tenants have had since this ban was first approved was that it would simply lead to higher rents as Landlords and Agents look to cover the lost income. A huge number of Tenants were firmly in favour of a cap on fees to avoid this scenario. Realistically, much will depend on the Landlords own circumstances and whether they are reliant on rent to simply cover costs, or if it is a primary source of income which is effectively a business for them. A common misconception is that Landlords can all afford to take these hits – it really isn’t the case. There are so many factors to take into consideration when setting and agreeing a rent that each case will be different. The only example of the impact that such a ban can have on rents is in Scotland where similar laws were introduced several years ago. Rents have risen there but there are many fundamental differences in the laws there and this legislation so Landlords and Tenants should certainly not take that as a given here.
What advice would you give to Landlords with this legislation looming?
If you engage the services of an agent, speak to them about anything you are unsure of or need clarification on and check what short and long term differences this will make to you. A reputable agent should have a clear idea of what impact this will have already and be able to advise you accordingly.
If you self manage your Tenancy, the onus is on you to make sure you comply with all legislative changes at all times. Educate yourselves and familiarise yourselves with the legislation.
Above all else, please do not make the mistake of burying your head in the sand and ignoring it.
What’s next for the lettings industry?
Who knows! There are multiple amendments to existing legislation, and introductions of new legislation every year, and this won’t change. It would be refreshing to see the private rental sector get a bit of a break after a relentless few years which has seen stamp duty penalties, tax implications changing, mortgage penalties etc.
We know there are some changes afoot which are set to improve the standard of rental property and we welcome these but aside from that, some continuity would be fantastic.