Landlord and agent's guide to The Tenant Fees Act
From 1st June 2019, new laws will come into force in England to make charging fees to tenants illegal – including fees for referencing, inventories and ‘admin’. Caps on security and holding deposits are also being introduced, with costly penalties for landlords and agents that breach the new laws. This also applies to live-in landlords with lodgers too. These same rules come into effect in Wales a little later, on 1st September 2019.
On SpareRoom, we'll be supporting this by removing the option of adding fees when you're creating an ad. You also won't be allowed to mention fees anywhere in your ad copy, so be mindful of this when creating new ads or reactivating old ones, and check over any existing listings too!
We’ve broken down the new rules below – so you know exactly what you can and can’t charge for.
Prohibited payments:
You’ll obviously still be able to charge your tenant(s) rent, a tenancy deposit and (if relevant) a holding deposit – ensuring these are correctly capped (see section further below.)
However, you now won’t be able to charge fees for:
- Referencing
- Check-in
- Inventory
- Admin
It’s now your responsibility as a landlord/agent to cover these costs. This list isn't exhaustive, however! Bottom line: if it's not on the list of exempt fees, you can't charge a tenant for it.
Fees that are exempt:
There are two kinds of fees that are exempt from the ban.
Late rent fees
If a tenant’s rent is more than two weeks late, you can charge up to 3% plus the Bank of England base interest rate. This is an annual interest rate, so you’ll have to calculate the exact amount of pro rata interest.
You can also still serve a Section 8 eviction notice in extreme circumstances of late rent.
Lost keys
If a tenant loses their keys or other security device (i.e. a building fob), you can charge them a reasonable amount for replacing them. You’ll also need evidence of the cost for the tenant, so they know they’re not being charged unfairly.
Both of these exempt fees must be included in the tenancy agreement to make them valid.
Deposit caps
Tenancy (or security) deposits will now be limited to five weeks’ rent.
Holding deposit caps
Holding deposits will be limited too – you can now only charge one week’s rent in advance.
This deposit also now has to be handled differently. It’ll have to be returned to the tenant, or put towards the first rental payment or security deposit.
You can only hold onto the holding deposit if the tenant:
- Backs out
- Doesn’t take reasonable steps to start the tenancy
- Fails a right to rent check
- Provides misleading information
Landlords/agents can only hold onto this deposit for 15 days, unless you’ve agreed another date in writing. After the deadline you must pay the tenant the deposit within seven days.
If a tenant does back out before the deadline for agreement, you must give written notice explaining why the holding deposit isn’t being repaid. This must be done within seven days of the decision not to enter a tenancy agreement having been made.
Changes to a tenancy
You can still charge in the event of changes to a tenancy – like a change of sharer, or permission to keep pets/run a business etc in the property – but this is capped at £50. If the cost is much higher, you have to provide evidence of this and prove that the charge is reasonable.
Terminating a tenancy early
Any charges associated with the early termination of a contract are still valid, but they must not exceed the loss incurred by the landlord (usually the cost of any lost rent as a result of a tenant leaving early).
If you agree to a tenant leaving early, you can ask them to pay their rent as required by the tenancy agreement until a replacement tenant is found. However, if they're exercising their break clause by leaving early, you cannot charge them.
And the penalties?
Breaking any of these new laws means costly penalties. The first offence will result in a fine of £5,000, further offences within five years will increase this to £30,000 – or be treated as a criminal offence.
Also, if you've taken (now illegal) fees and not returned them to a tenant, you cannot serve them a Section 21 notice to evict your property.
Image credit: Christian Stahl.