The ban on tenant fees coming into force on 1st June 2019

The ban on tenant fees is approaching fast, with the Tenant Fees Act coming into force on 1st June 2019. Here’s a quick guide to what you can and can’t do once the new legislation comes into effect, and how you can protect the best interests of your tenants and landlords.

Fees

We know that after 1st June, anyone involved in the application of undertaking a tenancy cannot be charged any monies as a condition to taking on a property. But what does this mean in practice?

Charges cannot be applied to anyone on the tenant’s side for anything other than rent, holding deposits, a security deposit or deposit insurance, alterations to existing AST agreements (capped to £50) and for replacing lost keys (limited to the cost of the key).

Can you still charge tenants before the ban? Well... yes and no.

Early guidance suggests the ban will apply to any tenancy that’s agreed after 1st June. So even if you take monies before this date, they may in fact turn out to be in breach of new legislation if the tenancy is not fully in place (countersigned and executed) before this date.

Therein lies a couple of questions to consider:

1. Do I want to be charging tenants up until the deadline and have to refund those tenants whose agreements haven’t been finalised before 1st June?

2. Is the upside of the tenant fees I’m collecting worth the risk of missing refunds, and costing my business £5,000 per offence?

Holding deposits

Holding deposits will be limited to a maximum of one week’s rent and only one payment will be able to be taken per property under application.

They can also only be held for 15 days. This means that, if after 15 days from taking the deposit, the tenancy is not finalised in agreement, it either has to be refunded to the tenant, or an extension to this period has to be agreed in writing.

A deposit can only be withheld if the tenant pulls out of the application of their own accord, or if they have provided false information as part of their application. However, the burden of proof may lie with the agent as to whether this is the case - obtaining written confirmation from the tenant regarding key information such as base earnings and credit history to assess their suitability before taking holding deposits may prove to be the best option.

The holding deposit can be used towards the security deposit or first month’s rent, but the tenant has to give consent for this to happen.

Security deposits

Security deposits will be limited to five weeks’ rent for tenancies with an annual rent below £50,000, and six weeks’ rent for tenancies with an annual rent above £50,000.

A week’s rent must be calculated as (monthly rent x 12) ÷ 52 weeks.

Renewals

No fees can be charged to the tenant for the renewal of a tenancy. If a tenancy that started before 1st June is renewed after this date, the deposit limits apply. If a deposit over five or six weeks’ rent was initially taken, then the difference must be refunded.

Guidance on how existing deposits should be dealt with in relation to their allocation under protection schemes (whether to release whole deposits or simply the difference) hasn’t yet been made clear.

Shortfall payments

The first month’s rent should not be higher than the following months as this could be deemed as a fee. This could mean shortfall payments will no longer be allowed, however, without the final guidance on the bill, it is unclear at this stage whether shortfall payments will be deemed a prohibited payment.

Interest on late rental payments

Late rental payment interest is fixed at 3% above the Bank of England base rate. This can only be levied after 14 days’ worth of arrears and is backdated.

It’s important to note that final guidance from the Government is yet to be released, so some details could vary.