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Landlords are you Ready for the Fees Ban? Here’s What you Need to Know…

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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 Bill.

This bill has now received royal assent and will come into effect on the 1st June 2019 for all tenancies signed on or after that date.

This proposed new law is attempting to drive down the cost of renting in the private rentals sector.

The Draft Tenant Fees Bill is good or bad depending on who’s article you read. But one thing is certain, things are about to change 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 Bill?

This is some new legislation that aims to make renting fairer for tenants. It isn’t in force yet, but it will apply to all new tenancies formed on or after 1st June 2019.

The Bill predominantly deals with fees charged at the start of a tenancy. But it also covers deposits, renewal fees and check-out fees.

It’s not all bad news though. 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.

The government held a consultation on the Fees Bill that 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 Bill?

Well, until now, it’s been straightforward. Landlords and letting agents can charge fees to cover the administration costs of the tenancy. These usually come in the form of holding deposits, check-in fees, inventory fees, renewal fees, etc.

Landlords can also make deposit deductions if there is a breach of the tenancy agreement.

When the Tenant Fees Bill passes into law some of these fees will become illegal or will be 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 new rules. The law will apply to landlords as well as letting agents, which is why it pays to understand these changes.

Why are tenant fees seen as unfair?

There’s plenty of research to show that tenants often end up paying figures in the thousands to set up a tenancy.

Tenancies that are established via a letting agent usually cost more than those established by a private landlord. Letting agents charge holding deposits, inventory checking fees, administration fees for drawing up a contract, renewal fees, checkout fees, and usually charge per tenant. Landlords tend to charge for referencing and credit checks, and they typically charge less than letting agents.

Agencies that protect the rights of tenants, like Generation Rent, have called 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 these 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. Many agencies point out that tenants often take a loan or use credit cards to cover the up-front cost. This makes them a financial risk to the landlord right from the offset of the tenancy.

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). It’s safe to say that it’s letting agents who will suffer most as a result of the Bill.

It’s not just the start of tenancy fees we’re talking about here though. Deductions from deposits have also been scrutinised and at times found wanting. That’s not to say deposit deductions are unfair. But there are plenty of horror stories highlighting that deposit abuse is prevalent among rogue landlords.

The tenant rights groups feel that abolishing charges would be fairer for tenants. Many landlords and letting agents feel that this will increase rents in the short term. (Covering any shortfall in revenue lost as a result of the fees ban). While this is a legitimate concern, the government’s response is: We’ve done our best to close any glaring loopholes.

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 Bill 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.

Fees for starting a tenancy

The Tenant Fees Bill makes administration fees illegal. Once the Bill passes you won’t be able to 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. You can also charge a tenant for not paying rent.

Under the proposed new rules, charges of this sort must only reflect the costs of completing the request. Fines for missing rent payments should only reflect costs incurred and rent owed. Any fees or fines of this sort must have supporting evidence, such as invoices or receipts.

Holding deposit

Holding deposits are getting a shake up too. This isn’t surprising given that letting agents can charge upwards of £200 for this service. The holding deposit is usually refundable, but some letting agents operate on a non refundable basis. Sometimes the holding deposit doesn’t even guarantee the property will be held. That’s set to change though. Holding deposits are now capped at a maximum of one week’s rent. They are also subject to rules that the deposit should be repaid if the tenancy does not go ahead.

In the Bill the stipulations set forward for holding deposits are:

  • When a holding deposit is taken the landlord has 15 days to decide if he wants to accept the tenant’s application
  • If the tenancy does not go ahead because the landlord has rejected the tenant, the deposit must be repaid within 7 days.
  • If the tenancy does not go ahead because the tenant backs out. Or if the tenant fails to provide the information the landlord needs to make a decision. Then the deposit does not need to be repaid in full.
  • 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).

Security deposit

Tenants usually pay a security deposit at the start of the tenancy to cover any damage caused to the property during their tenure. The Tenants Fee Bill caps the deposit at 5 week’s rent.

Deposits are still required to be paid into a deposit protection scheme. This is because the deposit protection service provides dispute resolution. Preventing rogue landlords from charging £150 to clean and replace a light bulb for instance.

Rent increases

The Bill bans 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.

What can Landlords charge fees for once the Bill has passed?

The only fees you’ll be able to charge for are:

  • refundable holding deposits
  • rent
  • security deposits
  • charges for changing the tenancy including the tenant wanting to terminate the agreement early
  • charges for defaulting on the tenancy agreement such as late rent payments or charges for replacing a lost key
  • Utilities where applicable

Remember, some of these fees have extra restrictions as part of the legislation.

You can still charge your tenant for costs incurred by a breach of the tenancy agreement, but there must be evidence of the costs incurred. You can’t, for instance, charge your tenant for causing noise. But if your tenant decorates and the tenancy agreement says they can’t… You can then claim back, from the tenant, any money you had to pay to undo their Lawrence Llewellyn Bowen escapade. (Everyone remembers Changing Rooms, right?!)

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. But good tenants are the key to this kind of approach.

What happens if I charge an illegal fee?

Well for a start your tenants will be able to claim from you any money they shouldn’t have paid via the County Court.

Trading Standards will be enforcing the legislation and will issue a fine of up to £5,000 for a first offence. If you charge another illegal fee within 5 years of the initial fine, you’ll face prosecution or fines of up to £30,000. You may also be subject to a banning order under section 14 of the Housing Act 2016.

While Trading Standards will be enforcing the Bill, letting agents will also face tighter regulations. Letting agents can currently operate without any qualifications or professional oversight. The Bill 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.

Does the Tenants Fee Bill apply to all types of tenancies?

The Bill only applies to Assured Shorthold Tenancies and holders of licences to occupy. Company lets, and non-assured tenancies will be exempt. The proposal for the ban also seeks to cover tenants of houses in multiple occupation.

The legislation will apply to all new AST’s and Licences formed once the law is in effect, and any AST’s or Licences that renew after that date.

When will the Tenants Fee Bill become law?

The Bill has made steady progress through the House of Commons and the House of Lords. It’s final reading in the House of Lords happened on 15th January 2019 and has now received royal ascent. 

The Bill will now be sent back to the House of Commons where it will be passed into law. 

The Bill has sparked political controversy and received many amendments before it passed the House of Commons and the House of Lords. It has also been controversial among landlords and letting agents. Despite the controversy the Bill is due to pass into law on the 1st June 2019.

 

So that’s everything you need to know at this point. Keep checking back, we’ll update this article as we learn more.

(Article last updated 21/02/19)

What do you think of the Tenant Fees Bill? Good, bad or ugly? Have your say in the comments.

 

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