Tenant Fees Bill update: what you need to know

Landlord Advice

18 November 2019

In January 2019, the government announced that amendments to the Tenant Fees Bill will come into force on 1 June 2019, which will see a ban on letting fees paid by tenants in the private rental sector and a cap on tenancy deposits in England for all tenancies signed after this date.

Given that this new legislation signals massive changes for tried and tested procedures, it’s likely that landlords the length and breadth of Blighty have been left scratching their heads wondering: how will this legislation affect me?

Fear not. We’ve set our sights on taking the trepidation out of the Tenant Fees Bill by providing the answers to some of the most pressing questions the legislation updates have raised. Life’s busy enough without having to spend your precious time buzzword-busting the latest landlord legislation – which is exactly why AXA is there to help makes things easier for you every step of the way. 

What are the updates to the Tenant Fees Bill?

The Tenant Fees Bill will ban letting fees paid by tenants in the private rented sector and cap tenancy deposits in England to help reduce the costs that tenants can face at the beginning, and duration, of a tenancy.

This legislation update means that any tenants hunting for their next rental property after 1st June will only pay the cost advertised and will no longer be hit with additional fees by landlords for services, such as referencing and credit checks, which currently come part and parcel with a tenancy starting.

Instead, the party that contracts the service – a.k.a. the landlord – will be responsible for forking out money for these services.

Why is the Tenant Fees Bill being updated?

The government hopes that the Tenant Fees Bill will help rebalance the relationship between tenants and landlords to create a fairer, more affordable private rented sector. It’s set to publish guidelines shortly to provide tenants, landlords and letting agents with added step-by-step help.

Who will the Tenant Fees Ban apply to?

The ban on tenant fees applies to new or renewed tenancy agreements signed on or after 1 June 2019 – even if your tenancy actually begins after this date. For existing tenancies, it’ll come into effect after 31 May 2020. The ban covers most private tenancies in England, including assured shorthold tenancies and student accommodation. There will be separate changes for Wales, while in Scotland fees have been banned since 2012.

What services can I still charge for under the Tenant Fees Ban?

You can charge for rent, deposits, holding deposits or if a tenant defaults on the contract. However, all four of these are subject to extra restrictions as part of the rules set out by the Tenant Fees Bill.

Costs can also be charged if you allow tenants to leave their rental contract early or for changing tenants. If a tenant loses their keys or is late paying their rent, you can also charge for these default fees, although again there are rules limiting these charges.  

Which fees are banned under the new Tenant Fees Bill?

Pretty much any fee that is included in the tenancy agreement at present will be banned under the new rules of the Tenant Fees Bill. This includes:

  • Credit checks
  • Referencing
  • Charging for a guarantor form
  • Inventories
  • Admin charges
  • Gardening services
  • Professional cleaning services
  • Application and set up fees
  • Permitted occupier fees
  • Right to rent fees
  • Contract negotiation fees
  • Saturday move-in charges
  • Check-in / check-out fees
  • Renewal fees or end of tenancy charges

However, deductions from the security deposit for things like cleaning or maintenance, for example, are still permitted.

Can I charge a higher deposit under the Tenant Fees Bill to cover costs?

Under the new Tenant Fees Bills, deposit costs are capped at the equivalent of five weeks’ rent (if the annual rent is less than £50,000) so you won’t be able to charge a higher deposit to your tenants to offset the increased costs.

Can I charge a higher deposit for tenants with pets?

No, you’ll no longer be able to charge higher deposits to tenants for pets. Given that ‘two-tier’ systems will no longer be allowed under the new Tenant Fees Bill, charging tenants with pets a higher rate could be considered a fee, which goes against the rules created by this new legislation.

Can I charge higher rent in the first month to cover my increased costs?

Charging a higher rent for the first month of the tenancy and then lowering it the following month isn’t allowed under the amended Tenant Fees Bill. However, the new rules don’t stop you from raising your rent costs permanently – although this move comes with its own set of risks as if you raise prices too high, tenants may be tempted to look for cheaper alternatives elsewhere.

Do I refund deposits that are now too high under Tenant Fees Ban if a tenancy is renewed?

Yes, if the tenancy contract is renewed after June 1st, you’d need to reduce the value of the deposit you’re holding to five weeks’ rent and refund the rest. Remember: if you signed the renewal tenancy agreement before June 1st, you won’t need to do this until it runs out.

How are holding deposits affected by the Tenant Fees Ban?

Holding deposits will be limited to a maximum of a week’s rent and subject to statutory legislation on the repayment costs if the tenancy doesn’t go ahead. The rules under the new Tenant Fee Bills controlling this are proposed to be:

  • The landlord has 15 days to decide once a holding deposit is taken.
  • If the tenancy doesn’t go ahead, the money must be repaid in full within seven days of the deadline being reach or the landlord backing out.
  • Full repayment doesn’t need to be returned to a tenant if they back out of a tenancy agreement themselves, provide false or misleading information, fail the right to rent check, or if a tenant fails to provide the required information within 15 days despite the best efforts of the landlord.

Keep in mind that if the tenancy successfully goes ahead, the holding deposit needs to be returned within seven days of signing the tenancy agreement – unless it’s converted into part payment of the actual deposit or used to help cover the initial rent payment.

What happens if I mistakenly charge a fee that’s no longer allowed under the new Tenant Fees Bill?

The repercussions for accidentally charging tenants fees that aren’t permitted under the new Tenant Fees Bill can be costly.

Not only can tenants reclaim the money they’ve paid – including interest – via county courts, trading standards could fine you up to £30,000. And if you’re found to have charged tenants fees when you shouldn’t have and pocketed the money, you could be unable to serve a Section 21 notice.

But oversights happen when you’re busy keeping on top of things, so if you realise you’ve accidentally charged a tenant when you shouldn’t have, repay them immediately. Remember, you’re only in breach of the Tenant Fees Bill in these circumstances if you make the charge, take the money, and keep it for your own wallet.

What does the ban mean for landlords?

With tenant fees estimated to account for around 19% of a letting agent’s income, letting agents are sure to feel some of the brunt of the Tenant Fees Ban.

However, some suggest that to offset this, letting agents will simply increase the fees they charge to landlords, effectively passing the costs back to the landlord. To find out more about letting agent fees vs being a private landlord, visit AXA’s guide.

The Government has also estimated that the ban could end up costing landlords up to £83m in the first year.

What does the ban mean for tenants?

The ban on tenant fees was initially met with much praise from tenants when it was first announced, with Citizens Advice claiming that it would crack down on an estimated £160m a year in unfair and uncompetitive fees.

For tenants, the ban is intended to make renting more fair and more transparent, leading to a potential increase in the number of renters in future. However, there are warnings from some that it will have the unintended effect of producing an increase in rent.

How have rents been affected by the Tenant Fees Ban?

There were some predictions that the ban on tenant fees would simply cause letting agents to raise their fees to landlords, and landlords in turn raising rents to cover the costs, and initial reaction appears to suggest that in the lead up to the change, rents in England rose by a record amount.

However according to a recent study, the cost of renting in the UK has remained steady since the change actually took place, with average rents up just 1% to £600 in England. It was a similar story back in 2012 when Scotland first introduced the ban, where just 2% of Scottish landlords raised rents.

Whenever change is afoot it can sometimes feel like a bit of a struggle to move away from the methods that work best for you. But the best preparation for tomorrow is doing your best today. And by getting up to speed with the updates to the Tenant Fees Bill sooner rather than later, the quicker you’ll be able to adapt your landlord life to the new rules – meaning you can avoid any costly mistakes and focus your time on keeping your tenants happy.

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