Landlords and agents must beware financial penalties from new law on tenant fees

Rising house prices are forcing more and more people into rented accommodation. Over 20% of UK households were renting in the private sector in 2017; more than double the figure in 2007. Private renting in Oxford is even higher, with more than 30% of Oxford residents living in private rented accommodation. The student residents of Oxford, both in private rented accommodation and accommodation provided by the universities and colleges, make up 24% of the adult population of Oxford.

With this increase in private renters, better protection for tenants from unfair or hidden costs has become a key concern. As a consequence, the Government has introduced a number of legislative changes for the property sector in recent years, of which this is the most recent.. The intention is to regulate the fees that landlords, licensors, and letting agents can impose on those in the rented sector. The Act came into effect on 1 June this year for all new tenancies and renewals, and will apply to existing tenancies from 1 June 2020.

There are serious implications for all residential landlords if they fail to comply with the new law. Non-compliance can affect the ability to terminate a tenancy, and can also attract financial penalties. So in order to ensure they are compliant, landlords and their agents should take note of the following points.

What tenancies are affected?

The Tenant Fees Act applies to the following residential tenancies:
• Assured shorthold tenancies (ASTs)
• Licences (including lodging agreements)
• Student lettings provided by a specified educational institute

It does not apply to assured tenancies or contractual tenancies.

What payments are not permitted?

The Act bans all payments made to the landlord, agent or a third party in connection with a residential tenancy in England, unless it is permitted under the Act. It also prohibits a landlord or agent from requiring a relevant person (the tenant, guarantor, or someone acting on behalf of a tenant) to enter into a contract for the provision of a service (other than for utilities or communication services) or insurance, or to make a loan to any person in connection with such a tenancy. Examples of non-permitted payments include reference checks, agent fees, viewing fees, check out and inventory fees, and flat administrative charges for breaches of contract.

What payments are allowed?

Only the following payments are permitted by the Act, although please note that they are each subject to their own restrictions:
• Rent: the rent must be the same for each day of the term, a landlord cannot charge more in the first month to make up for the fees they have to pay
• Refundable tenancy deposit: a maximum of five weeks rent if annual rent is less than £50,000, or six weeks rent if the annual rent is £50,000 or more
• Refundable holding deposit: a maximum of one week’s rent and can only be held for 15 days unless otherwise agreed
• Default payments for key replacement or interest on overdue rent:
the amount that can be claimed for these is restricted
• Damages for breach of an agreement
• Payments to change a tenancy, if requested by the tenant: a maximum of £50 or reasonable costs incurred, if higher
• Termination of a tenancy at tenants request
• Payments for utilities, communication services, TV licence and council tax

What happens if a landlord fails to comply?

A landlord who accepts or requests a prohibited payment will not be able to serve a s21 notice (a no-fault eviction) until the relevant payment has been returned, or the tenant has consented to the payment being applied towards the payment of rent and/or the tenancy deposit. If an agent makes a request or receives payment, it appears that the landlord is unaffected for s21 purposes.

For existing tenancies, if a non-permitted payment is accepted from a tenant, the landlord/agent must return the payment within 28 days. The payment doesn’t need to have been requested, merely accepting it is enough for the landlord/agent to been seen as having required the tenant to make a prohibited payment.

There are also penalties payable:
• Up to £5,000 for the first offence
• If a second offence is committed within five years, the financial penalty is up to £30,000, and it becomes a criminal offence as well as a banning order offence, meaning the landlord may be banned from renting properties.

Any financial penalties imposed are in addition to the landlord being required to repay any prohibited payments and are enforceable as if it were an order of the county court.

Any relevant person (the tenant, guarantor, or someone acting on behalf of a tenant) who has made a prohibited payment will also be able to make an application to the First-tier Tribunal for recovery and this will have cost consequences for the landlord, licensor or agent.

Many landlords, including university colleges, have already updated their tenancy agreements to avoid falling foul of the regulations and the financial penalties it imposes. If you need your tenancy updated to reflect the changes brought about by the Act, or if you need advice on how it may impact you, please do get in touch.