For years, tenants had been unfairly charged extortionate tenant fees by landlords, and even by some estate agents. Hence the introduction of the Tenant Fees Act (2019), was introduced on 1st June 2019 for new tenancies, and then went on to cover all existing tenancies from 1st June 2020.
This impacted the industry, the agencies and landlords that were rightfully charging reasonable tenant fees were given a blanket ban on most of the aspects they’d normally charge for, essentially denting profits.
So now, all tenant fees are prohibited, and only strictly specified items can be charged to a tenant now. Examples of some services that were chargeable as tenant fees were, inventories, referencing of tenants and/or guarantors, renewal fees, and credit checks, amongst others.
This article will outline what the Tenant Fees Ban had changed, and what the limitations are now the Act has been enforced.
- Tenancy deposits have been capped to the equivalent of five weeks’ rent
- A holding deposit can be taken, equivalent to no more than one week’s rent
There is a ban on any further tenant fees or payments, the only ones that can be charged are contractual obligations or penalties, such as late-payment fees.
If found flouting these rules, you can expect a fine of £5000 for your first offence, and up to £30,000 for a second offence, which would then be deemed a criminal offence.
What are the key rules of the Tenant Fees Act (2019)?
Other than the rent, a tenancy deposit, and a holding deposit. Most other tenant fees are prohibited and should not be attempted to be charged to a tenant.
The only rare exceptions that can be charged are,
- Late rent payment tenant fees
Rent payments that are more than two weeks late are allowed to be charged fees up to 3% of the total amount, in addition to the Bank of England base interest rate. Bear in mind, as this is an annual interest rate, the calculation will have to be calculated pro-rata on the outstanding rent. The amount you’ll be able to charge is very little in most cases. For example, if your tenant is 55 days late owing £900 rent. On an example of a 0.1% base interest rate (as of October 2021), the maximum you can charge in this instance is £4.20. I think most will agree, isn’t much of a deterrent to the tenant in delaying payment again.
- Lost Keys
Keys, entry fobs & cards, parking permits. All are commonly misplaced or lost, the cost of these can be passed onto your tenant, but the cost must be reasonable, and proof must be kept that the cost being charged is accurate. This information should be shown in the tenancy agreement so that there is transparency in what could be charged going forward with the tenancy.
- Changes to the tenancy
A fee of up to £50 can be charged for making changes to the agreement or terms of the tenancy. An example could be to outline allowing for a pet and adding or removal of a tenant from the agreement. As mentioned previously, a renewal or amending of the length of the term of the tenancy is not allowed to be charged for.
- Utilities, communication services and other bills
Some landlords offer properties with ‘bills’ included for a fixed price monthly, you should usually state which bills they are. Bills such as utilities like gas and electric, council tax, internet, and phone services, tv licence etc.
- Tenant fees for terminating or surrendering the agreement
As long as you can show loss has occurred as a result of your tenant terminating their agreement early, you can continue to charge them rent until the point your next tenant moves in. Some of the tenant fees you may charge could be reflective of referencing the new tenant, and the agency fees incurred to remarket and advertise the property.
The deposit to secure a tenancy is strictly limited to the equivalent of five weeks’ rent, applicable to properties with annual rents of below £50,000. This subject is a little controversial, as some could argue that tenants could potentially not pay the final month’s rent expecting the landlord to deduct it from their deposit. But in case of damage or repairs to the property, it would leave little to nothing to fall back on.
Properties with an annual rent of £50,000 or more, can be subject to up to the equivalent of 6 weeks’ rent.
As an example, a rent of £750pcm would be eligible to have £865.38 taken as a tenancy deposit. To get your desired deposit, multiply the monthly rental figure by 12 to get the annual rent figure. Then divide the annual rent figure by 52 to get the weekly figure. Multiply the weekly figure by 5, to get the maximum five weeks rent figure mentioned above.
- £750 x 12 = £9000 (annual figure), £9000 / 52 = £173.07 (weekly figure), £173.07 x 5 = £865.38 (Maximum five weeks rent figure)
A holding deposit will usually be taken, showing commitment to the property it’s been placed against, usually whilst referencing and documentation checks are being done on the tenant/s.
The same principle as above applies, using the same calculation, however only one week’s rent is allowed to be taken to secure the property.
Holding deposits must be returned to the tenant, usually by being credited as part of the first month’s rent, the tenancy deposit, or even the whole just as the tenant paid it.
There are a few occasions in which a landlord or estate agency can keep the holding deposit, such as,
- If the tenant withdraws their interest in the property
- The tenant is dragging their heels or not entering the tenancy promptly
- They fail a right to rent check
- Or if they provide misleading information, usually to improve their suitability or eligibility to rent the property. An example of this could be lying about or falsifying their income, or not disclosing they have adverse credit or CCJ’s (County Court Judgements).
Holding deposits shouldn’t be held for more than 15 days unless a mutually agreed deadline date is stated. Once the deadline has elapsed, landlords must repay the sum within 7 days.
Handing over the management of your property to an estate agent could be helpful to manage these fees but remember the managing agent will likely charge ‘you’ for these services to be conducted, in most cases on a ‘fully managed’ service they will cover this under a fixed start-up and ongoing management fee.
We’d suggest you have a good discussion covering any of your questions, as fees vary from agency to agency. Check out our article ‘Finding The Right Letting Agent’, for an insight into what to keep an eye on when scouring the market for a new agent to help you.