Tenant Fee Ban 2019: Everything You Need To Know

By Jonathan Daines

Tenant fees calculations

Tenant Fee Ban 2019: Everything You Need To Know

The new Tenant Fee Ban legislation, over two years in the gestation, has finally received Royal Assent with the majority coming into force on the 1 June 2019. Although the focus is on agents, be aware that this affects private landlords too.

For example, in discussion with a landlord recently he said “I won’t be affected as I don’t charge my tenants any fees, they just pay for the referencing”.

Whilst the view is understandable, it is misguided and charging for referencing could be an offence with a £5,000 penalty.

As the Tenant Fee ban is effective from next month, we’ve written a series of 3 articles (to be distributed during the week) to help you understand the ban and how to avoid the pitfalls.

A Budget Promise

This legislation started as a budget announcement in the Autumn Statement 2017.  This alone is unusual in that one would have expected this to be a housing announcement, not a budget announcement.

Perhaps this shows how much this is a political announcement more than anything else.

Nonetheless, the idea has received wide support across both Houses of Parliament. The claim is that this legislation will save tenants £240 million in the first year alone.

Tenant Fee Ban – The Principles

A simple way to regard this legislation, to give an overview, is that a landlord or agent cannot take any money from a tenant in respect of a rented property unless the law allows it in Schedule 1 of the Tenant Fee Ban (Act 2019).

To show how comprehensive this ban is, the first item that the schedule allows you to collect is the rent! Without that provision this law would even ban collecting rent. In addition to this simple restriction other restrictions prevent the requirement to enter into a contract for services or insurance. The law has been written in this way to provide a very comprehensive ban with limited opportunity to circumvent it.

Tenant Fee Ban – The Legislation

Section 1 introduced the ban for landlords and section 2 introduces the ban for agents.

There are a couple of places in the legislation where the rules for landlords and agents are different (the ban on section 21 notices for example).

Although it is convenient to talk about a ban on tenants paying fees, indeed the legislation uses this name, actually the law says a “relevant person”.

This is defined to include the tenant, but also anyone working on the tenant’s behalf (a company or council for example). The latter drafts of the legislation clarified that guarantors cannot be charged either.

Where a prohibited payment is charged the law says that that provision of the tenancy is not binding but the rest of the agreement remains binding.

So, for example, if you included a clause with an inventory check out fee, it is an offence for which you could receive a penalty, and you could not charge the penalty as the provision is not enforceable, but it would not give the tenant the right to walk away from the whole tenancy or to refuse to pay the rent.

Penalties for charging tenant fees

The law creates a penalty of £5,000 for the first offence and £30,000 for a second offence within five years.

The guidance clarifies that if a landlord has ten properties with too much deposit, then each deposit is an offence, but as they are all committed at the same time, they would ‘only’ be up to £5,000 per property.

Another helpful comment in the draft guidance is that if a set-up fee is charged and stated to cover the agreement, referencing, inventory, right to rent checks and check in costs, this would amount to five separate offences, each carrying a £5,000 penalty, not a single offence.

A second or subsequent offence within five years may attract the financial penalty (up to £30,000), kept by the local authority, or may be pursued through the courts where an unlimited fine may be issued, along with it being a banning order offence. Banning orders are not available for first offences.

Companies

Where the offence is committed by a corporate body with “the consent, connivance of or to be attributable to any neglect on the part of, an officer”, the officer as well as the corporate body may be punished.

This leaves company directors potentially liable for the offence, despite the concept of limited liability.

This may affect landlords holding properties within a limited company structure.

Recovery of banned tenant fees

Section 15 allows a “relevant person” to seek to recover a prohibited payment. This process is now done through the First-tier Tribunal. Beneficially the tribunal system allows more limited costs so “no win, no fee” claims should be more limited.

Local authorities have the power to assist a relevant person in seeking to recover a prohibited payment. The enforcement authority can also recover the amounts unlawfully paid and charge interest on them too.

Section 21 Affected by Tenant Fee Act 2019

Section 17 of the new legislation introduces a prohibition on serving a section 21 notice when a prohibited payment has been taken and is still being held.

The biggest danger around this part is probably the danger that those defending tenants in possession proceedings may look carefully at the charging to see if anything has been done as they seek to delay or avoid possession.

Interestingly the whole of section 21 prohibition is linked only to the landlord accepting a prohibited payment, and not the agent collecting a prohibited payment.

Following discussion with MHCLG they said that if the agent was charging, why should the penalty fall on the landlord? This is undeniably logical, but it flies in the face of what happens with gas safety records or incorrect deposit protection.

Section 17(1) says that if the landlord requires a prohibited payment, and the Relevant Person makes the prohibited payment, then no section 21 can be served. It is significant to notice that it is not sufficient in section 17(1) simply to demand the payment, payment must actually be made.

Section 17(2) links the section 21 penalty to failure to comply with Schedule 2. Schedule 2 basically governs the rules around holding deposits (not the amount but rather when they have to be refunded etc, the procedure).

Subsection (3) allows for a ‘get out of jail card’ in the form of a refund of the prohibited payment or holding deposit and then the section 21 notice becomes available again. Unlike the issue with gas safety records and the section 21 notice, it is not a once and for ever offence.

The ban on a section 21 notice does not apply where none or part of the prohibited payment has been refunded because, with the consent of the relevant person, it has been used towards the rent or the main tenancy deposit, or split between the two.

The comment about “with the consent of the relevant person” seems significant here. It would be quite easy with the tenant as on the tenant application form the tenant could simply agree that the holding deposit could be used as rent or as the main tenancy deposit. It could be more tricky if the prohibited payment was paid by someone other than the tenant (may be an employer or the local authority) as getting evidence of consent to use it for rent or the tenancy deposit may be more difficult, but will become essential.

Read our second article which covers more about how the new rules will affect Landlords.

About Jonathan Daines

After having worked as a high street letting agent for over 5 years, I believed there was a better way of helping landlords find tenants without the unnecessary expenses. And so in 2008, lettingaproperty.com was born and has since let over 8,000 properties across the country. I am very proud of the service levels we offer and to have achieved a 99.3% recommendation rate on reviewcentre.com. If you have any questions about our business, please do let me know. I look forward to hearing from you.

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Tenant Fee Ban 2019: Everything You Need To Know
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Tenant Fee Ban 2019: Everything You Need To Know
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The Tenant Fee Ban 2019 sets out the Government’s approach to banning fees charged to tenants. Here's everything you need to know!
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LettingaProperty.com
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8 Comments

    May 21, 2019 REPLY

    Hi, we are in the process of applying to rent a house. The letting agent is asking for £180 plus vat for the admin/referencing fees. My only issue is that we would not move in until June 8th at the earliest so it is only then that we would enter the tenancy agreement. Are they right to ask for the fee? Any help appreciated

      May 22, 2019 REPLY

      Good morning Sara, thanks for getting in touch and congratulations finding a new home. Yes, that is right. The agent can request a fee to start the reference checks and £180. If you are wanting to secure the property, I would recommend you process a payment before someone else. Best of luck!

    May 11, 2019 REPLY

    As a tenant, it’s not my responsibility if Landlord likes to use agents. You can’t use someone service and ask someone else to pay for it. How about if I want to use another agent service to deal with your agent and charge you for it as well?? If you want an agent to deal with me to shortcut the work for your lazy ass YOU pay for it. Otherwise, Agents don’t have to be part of the equation ….End of the discussion

      May 18, 2019 REPLY

      What part of the law of supply and demand would you like me to explain to you? All this legislation is going to do is ensure that landlords think of everything they need to bill and incorporate it into the rent. It won’t save tenants money, it will just change how tenants are billed for services.

    May 6, 2019 REPLY

    I have read your article, which was news to me, Does this new legislation get backdated to the commencement of the tenancy?
    The agent took an administration fee together with an addition sum for carpet cleaning due to the premises being occupied with a family having an an animal. this could soil the carpets and infest the carpets with fleas.
    What can happen in these circumstances please,.

    Yours

    K Britton.

      May 7, 2019 REPLY

      Good morning Keith and thank you for getting in touch. You raise a very good point and let me see if I can help explain this in more detail. As the fee has already been been drafted into the tenancy agreement, prior to the 1st June 2019 it will still be chargeable and allowed for a period of up to 12 months (until 1st June 2020). Our new article may help you understand the transition of existing agreements a little better: https://www.lettingaproperty.com/landlord/blog/tenant-fees-bill-article-2-2019/ 

    May 4, 2019 REPLY

    Please can you clarify as you will no longer be able to charge the tenant a fee for introducing them to the landlord as a result of them viewing the online advert I presume you will now be increasing your fee to the landlord.

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