Following the introduction of the Tenant Fees Act 2019 (summarised here) from 1st June 2019, the legislation outlines various information in relation to permitted fees and prohibited fees.
We have outlined what the fees are and how they will affect all assured shorthold tenancies, student accommodation and licences to occupy in England (only) entered into from 1 June 2019.
Permitted fees in the Tenants Fees Act
For the tenancy agreements affected by the new Tenant Fees Act, all payments to the landlord are prohibited unless they are listed as permitted in the new legislation.
Here are the permitted fees in the Tenants Fees Act (listed in Schedule 1) that landlords and letting agents are allowed to request and receive:
1. Rent
Although a permitted payment, landlord’s need to be aware that the rent should be agreed at the start of the tenancy and should be payable on regular agreed intervals, e.g. weekly, monthly, etc.
A landlord cannot request a higher amount of rent in month one to offset the costs of setting up a tenancy (banned fees), e.g. month one rent charge being £800, and then in months two to 12 charge £600 rent. The additional amount paid in month one would be a prohibited payment. Likewise, if a landlord attempts to delay a higher amount to say month four that would also be deemed a prohibited payment.
If the tenant does not have a suitable guarantor, the landlord can ask the tenant to pay a lump sum upfront for the full term of the tenancy but, this payment must not equate to more than if the landlord charged monthly, e.g. if the rent is £500 per month and the tenancy was for a fixed term of six months, the landlord could not charge any more than £3,000.
After the tenancy has commenced, the landlord can reduce or increase the tenant’s rent without breaching the Tenant Fees Act if, this is agreed with the tenant or, the landlord have a rent review clause within the tenancy agreement which allows for a reduction or increase. The landlord can also increase the rent by way of a Section 13 Notice.
2. Tenancy deposit
This is payable at the outset of the tenancy as security for any damage. No change is made to the requirements of protecting the deposit and providing the tenant with the prescribed information, etc.
The amount requested from the tenant has changed to:
- If the annual rent is less than £50,000 per annum, the deposit is capped at five weeks
- If the annual rent is more than £50,000 per annum, the deposit is capped at six weeks
The formulae used to calculate the five or six weeks rent is to take the annual rent, divide by 52 which gives the weekly rent and multiply by either five or six weeks, e.g.:
- Monthly rent = £500 x 12 = £6,000 (annual rent) ÷ 52 = £115.38 x 5 = £576.90
This cap applies to the total weekly rent for the property, not for each individual tenant. For example, if there are three tenants who are jointly liable, for a weekly rent of £300, the landlord wouldn’t be able to ask each tenant to pay a tenancy deposit of up to five times the weekly rent (5 x £300 =£1500). The maximum the landlord could ask the tenants to pay would be £1,500 between them, e.g. split equally between the three would be £500 each.
As outlined above, the cap applies to all tenancies entered into from 1 June 2019 and will apply to any fixed term contracts which are renewed for a further fixed term even if it is the same tenants at the same property, as any new agreement entered into will be classed as a new tenancy. At this point, the landlord will be required to repay the amount of the deposit held, which is over the five or six week cap.
From 1 June 2020, any clause within tenancies entered into prior to 1 June 2019 that breaches the Tenant Fees Act, such as the deposit cap, will no longer be legally binding. This applies to all tenancies, even if they have reverted to a periodic tenancy. The landlord will not need to immediately return any part of the deposit in excess of the cap because, the payment was made prior to the Tenant Fees Act. However, the landlord will need to return the deposit in the usual way.
3. Holding deposit
This is usually payable to secure the tenancy whilst referencing checks are being undertaken.
A landlord cannot ask a tenant for more than one week’s rent as a holding deposit and is calculated as set out above.
Only one holding deposit can be held per property, so the landlord cannot charge per tenant. Therefore, once a holding deposit has been paid, the landlord should stop advertising the property as they are not permitted to take multiple holding deposits. These could be deemed as prohibited payments.
There is a deadline for agreement which is 15 days from the date the holding deposit was received. This deadline can be shortened or extended by agreement in writing with the tenant.
The holding deposit must be returned in full within seven days of:
- Entering into a tenancy agreement with the tenant;
- The landlord deciding before the deadline for agreement not to enter into a tenancy agreement relating to the property; or
- The deadline for agreement has passed without a tenancy being entered into.
A holding deposit can only be retained if:
- The tenant has provided false or misleading information
- Fails a Right to Rent check
- The tenant withdraws from the agreement
If the landlord does retain the fee, they must detail their reasons for doing so to the tenant in writing within seven days of them deciding not to proceed.
4. Default fees
A landlord can charge a default fee where, the tenancy agreement allows them to do so for the following:
Late payment of rent
Only when the rent payment has been outstanding for 14 days or more (from the date set out within the tenancy agreement).
Default fees for late payment of rent are capped at 3% above the Bank of England’s base rate for each day the payment has been outstanding. Any fee taken which exceeds this amount would be deemed a prohibited payment.
The tenancy agreement should clearly set out to the tenant the circumstances when they would be liable for a default fee and how the fee is determined. The landlord must make the tenant aware of these provisions within the agreement prior to it being signed. The landlord must also publish these fees on their website and in their offices.
If the landlord has inherited any tenancy agreements which do not have these provisions within then, they may still be able to recover damages for breach of contract. The landlord can seek to recover these damages at the end of the tenancy via the deposit, however, they are also able to bring a claim at any time throughout the term of the tenancy by initiating legal proceedings.
Landlords and agents cannot include clauses within their agreements that a payment is required as a penalty should the tenant fail to perform an obligation. Even if an amount is not specified, it is highly likely to be deemed as a prohibited payment. Any claims for damages must be based on evidence and will only be permitted where the landlord has incurred costs/actual loss as a contractual breach.
Terms which are highly likely to be deemed unfair and/or breach the Tenant Fees Act are:
- £25 penalty fee for any payment of rent which is seven days or more overdue
- £100 per hour for a contractor to visit the property to carry out repairs and maintenance.
- £50 for a missed appointment with a contractor
- Sending a letter with regard to late payment of rent chargeable to the tenant at £25 plus VAT per letter and personal visits charged at £75 plus VAT
Replacement key or security device/fobs
The landlord can ask the tenant to pay a fee to cover the cost of replacing the lost key or security device giving access to the property if, it is required under the tenancy agreement. The cost must be reasonably incurred by the landlord as a result of the default. The landlord must provide evidence that their costs are reasonable by providing written evidence, such as an invoice or receipt. The landlord must also provide an itemised and clear breakdown to enable the tenant to determine the reasonableness of the fee charged. The landlord must be able to show that they have obtained the best value for money.
Rather than making the tenant pay a default fee, the Tenant Fees Act encourages landlords or letting agents to give the tenant the opportunity to replace a lost key or security device at their own cost. This would not be in breach of the ban.
Changes to a tenancy
If a tenant makes a reasonable request to alter their tenancy, such as:
- Allowing pets to be kept;
- A change of sharer where the tenancy is joint;
- Permission to sublet;
- A business to be run from the property; or
- Any other amendment which alters the obligations.
The landlord can charge a reasonable fee of up to £50 including VAT or, such reasonable higher cost if this is a cost incurred and can provide evidence as to why the fee is higher, e.g. solicitors fees.
The landlord cannot charge a tenant for changes to an agreement before it is entered into, such as requests to remove or amend clauses, etc.
Also, the landlord cannot charge for a renewal or extension of a tenancy agreement as this would be deemed as a prohibited payment.
Early termination fees
The landlord can charge reasonable fees where the tenant requests that the tenancy be terminated early.
To ensure this is a permitted payment, the fee charged cannot exceed the loss incurred by the landlord, e.g. the loss of rent due to the tenant’s decision to leave and/or the costs of re-advertising or referencing or reasonable costs incurred by a letting agent, such as marketing and referencing.
Even if the landlord agrees to the tenant leaving early, they can ask them to pay rent as defined in their tenancy agreement until, a suitable replacement tenant is found. A tenant is liable for the rent until the end of the fixed term or, if the tenancy is a statutory periodic tenancy until the notice period, as defined in the tenancy, has expired.
The landlord cannot charge more than the rent that would have been received before the end of the tenancy. Any over-payment would be deemed as a prohibited payment.
If the tenancy agreement contains a break clause and the tenant exercised that clause, provided they have given the correct notice as defined by the clause, a fee cannot be charged.
Council tax
Only when the payment is made to a billing authority. This payment cannot be made to anybody else, including the landlord or letting agent.
Utilities – electricity, gas, other fuel, water or sewerage
These are all permitted payments if, the tenancy agreement requires the payment to be made.
If a tenant is directly responsible for paying the gas and electricity, they have the right to choose the supplier. The landlord cannot prevent them from doing this, irrespective of any clause within the tenancy agreement. The tenant also has the right to change the meter installed.
A landlord or agent can receive payment directly for a utility, however, the charges levied cannot exceed the actual cost of the utility otherwise they will be breaching the Maximum Resale Price Provisions (MRPP) set by Ofgem. Tenants are entitled to receive a breakdown of the costs.
Loans taken by tenants under the Green Deal Plan or any other energy efficiency schemes are also excluded from the ban.
Water
Landlords cannot over-charge tenants for the resale of water as set out in the MRPP Water Resale Order 2006. Landlords who resell water and sewerage cannot charge more than the amount they are charged by the water supplier.
However, they can charge a reasonable administration fee to cover administration costs and the maintenance of meters. The permitted payment is £5 each year for a property without a meter and £10 each year for a property with a meter.
Broadband, TV or phone payments
These are permitted payments if, the tenancy agreement requires the payment to be made. However, landlords or agents are prohibited from overcharging under the Tenant Fees Act.
Payment for a TV licence is similar to payment of the council tax as mentioned above, as it can only be made to the BBC.
Prohibited fees in the Tenants Fees Act
Anything that is not a permitted fee is a prohibited fee, which includes:
- Viewing fees
- Tenancy set-up fees – including 3rd party fees
- Inventory fees
- Referencing fees – including 3rd party fees
- Guarantor/guarantee fees
- Check-out fees
- Cleaning fees
- Gardening fees
Third party fees
A tenant cannot be charged for the services of a third party. However, if a tenant wishes to employ the services of a third party, e.g. an inventory serve, they will be responsible for the costs.
The landlord cannot make it a requirement of the tenancy that the tenant takes out insurance although, they may choose to do so voluntarily.
Cleaning fees
The landlord cannot require a tenant to pay for professional cleaning when they vacate the property, however, they can request that the property is cleaned to a professional standard. Tenants are responsible for ensuring that the property is returned in the same condition as when they first went into occupation. Fair wear and tear is accepted but not damage.
The landlord cannot insist that the tenant uses a particular cleaning company. However, if the property is not left in a reasonable condition, they can recover the costs incurred in returning the property to its original condition and/or carrying out repairs by claiming against the tenancy deposit. If the tenant returns the property in the same condition as when they first went into occupation apart from wear and tear, the landlord cannot claim deductions from the deposit for this.
Prohibited & permitted fees in the Tenants Fees Act – How Can Nelsons Help
Paula Haverkamp is a Paralegal in our Dispute Resolution team specialising in landlord and tenant matters and property disputes.
For further information on prohibited fees and permitted fees in the Tenants Fees Act or any related queries, please contact Paula or another member of our team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.