Unless you’ve been hiding from every incarnation of the news ever (I wouldn’t blame you). Then you’ve heard about the Tenant Fees Ban.
The ban was introduced by the Tenant Fees Bill and came into effect on the 1st June 2019 for all tenancies signed on or after that date.
This new law is attempting to drive down the cost of renting in the private rental sector.
The Tenant Fees Bill is good or bad depending on who’s article you read. But one thing is certain, things have changed for landlords, letting agents and tenants…
Getting your head around new legislation is hard. So, we’ve done the legwork to bring you everything you need to know about the Tenant Fees Bill.
Use the table of contents below to skip to the part you’re interested in or read the whole thing to become an expert.
What is the Tenant Fees Ban?
The fee ban was made possible by the Tenant Fees Bill. The bill introduces new legislation that applies to landlords and letting agents and aims to make renting fairer for tenants. It applies to all new tenancies formed on or after 1st June 2019.
Can landlords still charge fees?
The fees ban prohibits landlords and letting agents from applying renewal fees, check-out fees, and many of the fees associated with starting a tenancy. The ban legislation also gives guidelines on how much should be charged for bonds and holding deposits.
Landlords can still charge fees where they’ve incurred costs because of the tenant’s actions. These kinds of charges must now have supporting evidence, like invoices to ensure the tenant is being fairly charged.
The government held a consultation on the fees ban before the legislation was drafted. The consultation included landlords, tenants and letting agents. Agencies that support these groups like the NLA, RLA and Shelter were also involved.
Why do Landlords Need to Know About the Tenant Fees Ban?
Until the fees ban was passed into law it was straightforward. Landlords and letting agents could charge fees to cover the administration costs of starting and maintaining a tenancy. These were usually applied in the form of holding deposits, check-in fees, inventory fees, renewal fees, etc.
Now the Tenant Fees Bill is in effect some of these fees are illegal and others are capped. If you make an illegal charge against the tenant, they’ll be able to claim the money back. As a result, you could end up being fined or prosecuted under The Tenant Fees Bill. The fee ban applies to landlords as well as letting agents, which is why it pays to understand the changes.
Why was the Tenant Fees ban Introduced?
There’s plenty of research to show that tenants used to end up paying figures in the thousands to set up a tenancy. This was one of the driving factors behind the introduction of the tenant fees ban.
Letting agents used to charge higher fees
Before the fees ban, tenancies established via a letting agent usually cost more than those established by a private landlord. Letting agents would charge holding deposits, inventory checking fees, administration fees for drawing up a contract, renewal fees, checkout fees, and more, they usually charged per tenant. Landlords tend to charge for referencing and credit checks, and they typically charge less than letting agents for those services.
Letting fees needed greater transparency
Agencies that protect the rights of tenants, like Generation Rent, have long been calling for more transparent renting terms. They feel the decision to manage a let via an agent falls to the landlord, the tenant has no choice but to pay the letting agent fees if they want to rent the property. Many tenants find that the fees are not advertised up-front, meaning nasty surprises when it comes to starting the tenancy. Agencies often point out that tenants are increasingly taking loans or using credit cards to cover the up-front cost. Not only is this putting the tenant in a bad position but it makes them a financial risk to the landlord right from the offset of the tenancy.
Tenant fees were unfair to landlords too
The unfairness doesn’t just impact the tenant. There’s also an element of unfairness to landlords, with some being double charged. (Sometimes the landlord and the tenant are charged for the same service by a letting agent). Ahead of the ban the media often reported that it was letting agents, rather than landlords, who were most likely to suffer financial losses as a result of the bill.
It’s clear that there are pros and cons for all involved. But we’re not here to discuss the fairness of the Bill. That will come down to how the Bill impacts you. So, let’s look at that in more detail.
What does the Tenant Fees Ban Change About the Fees I can Charge?
Now you know what we’re dealing with, let’s get down to the nuts and bolts of the Tenant Fees Bill.
Can landlords charge fees for starting a tenancy now the fees ban has passed?
The Tenant Fees Bill makes administration fees illegal. Now the Bill has passed you can’t charge for things like inventory checks, credit checks or references. This also applies to administration fees during the tenancy, so you can no longer charge for a tenancy renewal for instance.
There are exceptions, though these come with more rules.
You can charge a tenant if they ask you to make a change to the tenancy. For instance, adding or changing a tenant or ending the rental agreement early. This type of charge is capped at £50 or the amount of reasonable costs if they are higher. If you wish to charge more than £50 you need to provide evidence that you incurred higher costs.
You can’t charge a fee for renewing a tenancy or changing the length of a tenancy.
Can landlords take a holding deposit now the fees ban is in force?
Holding deposits got a shake up too. This isn’t surprising given that letting agents used to charge upwards of £200 for this service. The holding deposit is usually refundable, but some letting agents traditionally operated on a non-refundable basis. Sometimes the holding deposit didn’t even guarantee the property would be held. Holding deposits are now capped at a maximum of one week’s rent. They are also subject to rules that the holding deposit should be repaid in most circumstances.
In the bill the stipulations set forward for holding deposits are:
When a holding deposit is paid the landlord should stop advertising the property
Landlords and agents are only permitted to take one holding deposit per property at any one time. You can’t take multiple holding deposits for the same property.
When a holding deposit is taken the landlord has 14 days to decide if he wants to accept the tenant’s application. This can be changed if the landlord and tenant agree in writing.
You should provide the tenant with clear information about the amount of the holding deposit, agreed rent, specify a date for reaching a rental agreement and any other material terms. This will be important should you decline to return the holding deposit to the tenant.
If the tenancy does not go ahead because the landlord has rejected the tenant, or because a rent agreement hasn’t been reached by the stipulated deadline, then the deposit must be repaid within 7 days.
If the tenancy does go ahead the holding deposit must be returned in full within 7 days of the start of the agreement. (Unless it is used as part payment against the deposit or rent).
Under the conditions of the fees ban the holding deposit can only be retained in the following circumstances:
The tenant supplies false or misleading information
A right to rent check is failed
A tenant withdraws from the property (unless this was as a result of the landlord or agent breaching the ban or behaving in such a way that it would be unreasonable to expect the tenant to enter into an agreement).
The landlord or letting agent take all reasonable steps to form a letting agreement, but the tenant does not.
If you are retaining a holding deposit you must let the tenant know in writing within 7 days of deciding not to rent to them if this is before the agreed deadline, or within 7 days of the deadline passing. If you don’t stick to this 7 day rule you cannot retain the holding deposit.
If you unlawfully retain a holding deposit the tenant can try to recover it via Trading Standards or First-Tier Tribunal. If you are deemed to have unlawfully retained the deposit the penalty is a civil offence and a fine of up to £5000.
Can landlords still take a security deposit now the fees ban has passed?
Tenants usually pay a security deposit at the start of the tenancy to cover any damage caused to the property during their tenure. The fees ban caps the deposit at 5 week’s rent where the annual rent is less than £50,000 or 6 week’s rent where the annual rent is more than £50,000.
For joint tenancies you can’t ask each individual tenant to pay a deposit. If the rent liability is split between tenants, you can still only ask for 5 weeks if the total annual rent payable is under £50,000 or 6 weeks if the total annual rent is over £50,000. Joint tenants can split the deposit if they wish.
Deposits for assured shorthold tenancies are still required to be paid into a deposit protection scheme. This is because the deposit protection service provides dispute resolution and ensures that the tenant’s deposit is protected from unfair claims by the landlord.
There are some landlords circumventing the security deposit scheme altogether. Using innovative things like great landlord tenant relationships and insurance schemes. These mean the tenant doesn’t start the tenancy on a financial back foot.
Can landlords still increase rent under the fees ban?
The fees ban prohibits raising the rent during the first part of the tenancy and dropping it down after. This is to prevent landlords offsetting any increase in agent fees via the rent.
You can increase the rent after a tenancy has begun, but only if you’ve included a rent review clause in the tenancy agreement provided the rent review clause permits both a reduction or an increase dependent on circumstances.
You can also increase the rent annually by way of a Section 13 notice, if the tenant deems the increase excessive, they can apply to the First-tier Tribunal to determine whether the increase is reasonable.
What can Landlords Charge Fees for now the Fees ban has Passed?
You are still entitled to charge for reasonable fees, though a lot of the acceptable fees now come with additional guidelines, many of which have already been covered in this article.
According to the fee ban legislation, the fees listed below are the only ones considered legitimate. Any fees charged outside of these are considered prohibited payments.
Refundable holding deposits (capped at 1 week’s rent)
charges for changing the tenancy including the tenant wanting to terminate the agreement early – capped at £50
Charges for late rent payments or charges for replacing a lost key or security device
Utilities where applicable
Remember, some of these fees have additional restrictions under the fees ban.
You can still charge a tenant for not paying rent provided that a clause covering this has been written into the tenancy agreement and the rent is more than 14 days overdue.
You should not charge the tenant more than 3% of the Bank of England’s annual percentage rate for each day their rent payment is overdue. If you do it’s considered a prohibited payment.
Charges for missing keys and security devices should not exceed the reasonable costs incurred to replace them.
The fees ban does not prevent you from recovering damages arising from a breach of contract via the normal channels of deposit deduction or court action.
What Happens if I Charge a Fee That’s Banned Under the Fees Ban?
Well for a start your tenants will be able to claim from you any money they shouldn’t have paid via the First-tier tribunal. If you charge illegal fees you won’t be allowed to serve a Section 21 notice until they’ve been repaid to the tenant.
Trading Standards will be enforcing the fees ban, if you’ve breached the legislation it is considered a civil offence. For a first offence you could be charged a fine of up to up to £5,000. If you charge another illegal fee within 5 years of the initial fine, it’s considered a criminal offence and comes with fines of up to £30,000. You may also be subject to a banning order under section 14 of the Housing Act 2016.
Each time you request a prohibited payment it is considered a breach of the fees ban, so you could face multiple offences for multiple prohibited payments.
While Trading Standards will be enforcing the fees ban, letting agents will also face tighter regulations. Letting agents used to be able to operate without any qualifications or professional oversight. The fees ban doesn’t introduce these tighter rules for letting agents. It’s something the government claims will come shortly after the Bill.
The new rules for letting agents mean that they’ll now have to meet minimum training requirements. They may also have to abide by an industry code of conduct and show they are compliant with the new rules.
This is good news for landlords who use letting agents to manage their properties. It affords some level of confidence that the letting agent is acting within the law.
Minimise the Risk of Taking Payments Prohibited by the Fees ban
The rules that have come into play under the fees ban are quite in depth. With so many new rules around each type of payment it’s natural to be worried about making a mistake. To make sure you are always protected, you should consider building an audit trail of all communications with your tenants. You should keep evidence of any payments you’ve asked a tenant to make including:
Tenancy or any other signed agreements
All relevant paperwork pertaining to the tenancy
Receipts and invoices
All correspondence from the tenant
Any notes you made during a meeting with the tenant
If you’re using a property management software like Landlord Vision all these details can be saved and retained in the software, making a secure and trustworthy audit trail.
You can rest assured that there is a margin of error. If you ask for or take a prohibited payment you should rescind the ask or return the payment as soon as possible. If you don’t return the payment within 28 days, regardless of your intention to return it, you’ll be deemed to have requested or taken a prohibited payment.
Does the Fees Ban Apply to all Types of Tenancies?
The fees ban applies to all assured shorthold tenancies, student tenancies and holders of licences to occupy.
If you’ve charged fees on previous tenancies that were formed before 1st July 2019 you are not expected to pay these back. If you’ve charged above the current security deposit cap for a previous tenancy you are expected to refund any amount over the cap. For instance, if you took a £1000 security deposit but the annual rent falls below £50,000, when you renew the tenancy you will need to re-pay £500 of the security deposit. You’ll also need to adjust the amount of the deposit in the new tenancy agreement you send to renew the tenancy.
This legislation applies to all new AST’s and Licences formed from the 1st July 2019, and any AST’s or Licences that renew after that date.
Tenant Fees Ban Loopholes
During the fees ban consultation, the groups representing tenant rights felt that abolishing charges would be fairer for tenants. Many landlords and letting agents felt that this would increase rents in the short term. (Covering any shortfall in revenue lost as a result of the fees ban). While this was a legitimate concern, the government’s response was: “We’ve done our best to close any glaring loopholes.”
Since the ban was put in place there have been very few reports of any loopholes being used. Landlords are still able to charge fees where they are warranted, for instance if the tenant breaches the tenancy agreement.
Landlords who rent to tenants with pets usually charge a larger deposit as extra protection against damage caused by pets. Since the fees ban caps the amount of deposit that can be taken, some landlords feel pet deposits have ceased to represent adequate protection and instead are now a liability if their value is greater than the cap. To mitigate the potential costs of pet damage, some landlords have started to charge pet rent.
As you can see there are now a whole host of rules surrounding the fees that landlords and letting agents can charge. We hope this article has helped you to understand these, but you can find the full government guidelines for landlords here.
(Article last updated 18/02/21)