The Autumn Budget Statement in 2016 said that Westminster intended to ban tenant fees. This ban came into effect in England from 1 June 2019. Wales, with its devolved housing power, writes its own legislation for housing in Wales so has different fee ban rules. The Welsh Tenant Fees Ban is expected to commence on the 1 September 2019 but legislation with this commencement date has not yet passed.
Whilst the original legislation introduced to the Welsh Assembly and the UK Parliament was almost the same, they have since developed in different ways during the various legislative stages they have passed through.
One obvious difference was that the Welsh legislation links the whole tenant fee ban to ‘occupation contracts’ and ‘contract holders’. This was in anticipation of the Renting Homes (Wales) Act 2016 being in force, replacing assured shorthold tenancies with occupation contracts, before the fee ban came in.
The Welsh tenant fees ban is not going to happen by September so the definition of an occupation contract will include an assured shorthold tenancy when commenced (the power for this is in section 25).
Will All Tenant Fees Be Banned In Wales?
Although the common reference is to a ‘tenant fee ban’, it is actually much more comprehensive than a fee ban and a deeper understanding of the law is important in order to comply.
In addition to banning fees, landlords and agents cannot require a person to enter into a contract for services, make payments to a third party, take out insurance or make a loan. This ban is so extensive that section 3 has had to include the ability for the letting agent to enter into a contract to manage the property! This is important in that it demonstrates how comprehensive the ban is.
In simple terms, all payments are banned unless they are listed in Schedule One, which sets out “permitted payments”. Anything else is effectively banned. This prevents the “pink socks fee”. What this means is that if you invent a new fee for something no one has ever charged for before, it is banned already.
Schedule One – Permitted Payments
Schedule One lists eight permitted payments, these being: rent, security deposit, holding deposit, default payment, council tax, utilities, TV licence and communication services (phone, broadband, satellite etc.).
Even these permitted payments are not straightforward as a number of them have conditions attached. For example, there are rules about reductions in rent payments, the council tax having to be paid to the local authority, and several others.
The holding deposit is listed as being a maximum of one week’s rent. In England, the security deposit is detailed as being no more than five weeks’ rent; however, the Welsh version does not state the cap but leaves that to separate regulations that have not yet been published. The consultation about deposit levels talks about the same sort of figure, so expect it to be around four to five weeks’ rent.
Although the value of the holding deposit is limited to one week’s rent in Schedule One, Schedule Two contains significant new rules for the processing of holding deposits.
The first new concept in Schedule Two to grasp is that of the ‘deadline for agreement’. By default, this means that you have to set up the new tenancy within 15 days of receipt of a holding deposit, or it will have to be refunded. The 15 days can be amended by agreement of both parties in writing.
The schedule also lists situations where the holding deposit can be retained or where it has to be refunded. It is worth noting that the acceptance of a holding deposit creates a ‘right of first refusal’ for the tenant, so is a serious step to take.
The Welsh Assembly is currently consulting with regard to the description and limits of default payments to be permitted payments under the Act and additionally over what information the landlord or their agent must give the prospective tenant before a holding deposit is taken (prescribed information).
The outcome will also help determine what default payments may be permitted if the tenant breaches their tenancy agreement and if there are to be limits on those payments. The Assembly intends to create a list of default payments by regulations which are permitted to be charged.
In the consultation question, 3 for landlords lists a number of defaults which a landlord may currently charge or reserve the right to charge under the tenancy agreement and asks the amount charged. This list includes lost keys and late rent as well as emergency call-outs, repairs arising from damage by the tenant and bounced cheques and also asks whether any additional payments are charged.
Question 4 goes onto asking what charges you think should be charged if the tenant breaches the tenancy. It repeats the same list of defaults from question 3 but then also asks what else should be charged. This was an opportunity not afforded landlords of properties in England and therefore a chance to add defaults payments for consideration, for instance, a change of lock if required, HMO licensing costs if the tenant creates an HMO without landlord consent or even costs that the courts award.
The list of defaults in the English equivalent was limited to a loss of keys and interest on late payment of rent. The English legislation did though allow for payment of damages for a breach of the tenancy agreement or an agreement with a letting agent. The result is an increase in terms in English tenancy agreements that may be breached.
The second part of the consultation considers what information the tenant should be given before a holding deposit is taken. The suggestions are largely straightforward including the tenancy length, which potentially should read intended or proposed length, tenancy type and moving in date. All this is likely to be subject to a credit check or referencing. It also asks whether details of how the holding deposit should be protected if the tenancy proceeds.
This is a curiosity as the Act allows for the holding deposit to be applied to the rent in which case does it need protecting? There is, of course, the possibility that the Welsh Assembly is suggesting that the money qualifies as a deposit and
should be protected by deposit protection as it is to be held to ensure the tenant fulfils an obligation in connection with an assured shorthold tenancy (start it). Clarity would help.
The consultation closed on the 19 July 2019.
The penalties in the Welsh legislation are a £1,000 fixed penalty notice for each offence (the same sort of system as for speeding fixed penalties) or “a fine”. Being penalised could also be considered by Rent Smart Wales in trying to decide if someone is a fit and proper person to hold a licence to manage a property.
The new rules for tenant fees will not apply to contracts already entered into before the legislation comes into force. This means that if you have an inventory check-out fee in a current tenancy and the tenant leaves on 10 October, assuming the law starts in September, the check-out fee can still be charged. Section nine states that the new rules for holding deposits, apply to holding deposits that are taken after the new legislation has come into force.
Help is at hand for Landlords in Wales
If you’re a landlord in Wales, we may have crossed paths on our recent charity challenge – the Welsh 3 Peaks. If you’re one of the many supporters that took the time out to offer words of encouragement as we reached Snowdon’s summit – thank you!
For those that we didn’t get to say hi to, you may be interested to learn that LettingaProperty.com has recently gained Licensed Agent status with RentSmart Wales and are on standby to help with your letting needs.
Please call us on 0333 577 8888 and speak to one of our friendly team members who will be delighted to talk through how we can be of service.