163: The Tenant Fees Act 2019 – A brave new rental market

After a lengthy gestation period, the Tenant Fees Act 2019 (the Act) is coming into force on 1 June 2019 as part of the government’s plans to ‘build a housing market fit for the future’. It’s intended to make renting fairer and more affordable, but with a wide range of restrictions being imposed on landlords, it’s fair to expect that the Act will have a ripple effect on the wider rental market.

When does it come into effect?

The Act will apply to the majority of the private rental market – assured shorthold tenancies, licences to occupy and student accommodation are all subject to the new rules, but social housing, long leases and holiday lettings are outside of its scope. It will apply to new lettings entered into from 1 June 2019 and any existing lettings from 1 June 2020.

Rebalancing the relationship

The primary changes brought about by the Act prohibit landlords and letting agents from passing on wider fees to tenants and introduce caps on the amount that can be held back as a deposit:

• landlords and letting agents will only be able to charge ‘permitted payments’ to tenants and prospective tenants, which are currently all set out in the Act. The most noteworthy type of prohibited fees are letting agent fees, which will need to be fronted entirely by the landlord going forward. Initial ‘bumper rents’ are also banned in order to prevent savvy landlords from circumventing this;
• tenancy deposits are to be capped at the equivalent of five weeks’ rent for tenancies with an annual rent under £50,000 and six weeks’ rent if more than £50,000;
• holding deposits to secure a property will not be able to exceed one week’s rent and there are new rules on the holding and repayment of these by landlords and letting agents;
• the only tenant ‘events of default’ for which a charge can be made are those relating to the loss of a key or security device needed to access the housing or where the tenant has failed to pay rent within 14 days of the due date. Again, there are further rules on this (for example, the tenancy agreement has to explicitly state that a fee may be charged in these circumstances);
• any payments to a landlord or letting agent for providing consent to a variation, assignment or novation of a tenancy cannot exceed £50 or their reasonable costs in connection with it. Meanwhile, any early termination fees cannot exceed the loss suffered by the landlord (or the reasonable costs of the letting agent); and
• in an effort to stamp out confusing or hidden pricing, letting agents will also be required to clearly set out their fees online, either on third party letting sites or on their own site

For the avoidance of doubt, tenants can still be required to pay for utilities, any television licence and communications services (telephone, broadband and TV bills) as long as it is set out in the tenancy agreement.

Consequences for breaching the Act

In the first instance, a tenant will not be bound by any term in a tenancy agreement which attempts to impose a prohibited fee on them. Landlords and letting agents can be subject to a fine of up to £5,000 and, for repeat offenders, up to £30,000 and a criminal conviction. Crucially, landlords will also be prevented from serving a s21 notice to evict a tenant at the end of their tenancy where they still hold any banned fees which haven’t been paid back to the tenant.

Taking the sting out of renting

While it’s likely that rent will go up as landlords look to make up any shortfall, it’s worth noting that industry observers had already predicted that the average rent paid would increase over the next five years anyway. Even taking into account rent increases though, tenants will get a much clearer picture on the likely costs involved at the outset under the Act and a number of last minute amendments to it (limiting the scope of default fees and introducing a requirement for landlords to provide evidence for losses in respect of these) have made this a clear win for tenants.

Meanwhile, landlords will likely pay close attention to rent levels in their local market in the coming months and will no doubt be acutely aware of the fact that they will have less funds available to draw on from deposits in the event that tenants subsequently cause damage to a property during a tenancy.