As you will know, from 1st June 2019 neither agents nor landlords will be able to charge tenants any fees in connection with a tenancy in England (joining Scotland where the ban is already in place, Wales will join on 1st Sep 2019).
The new rules apply to all new tenancies (other than company lets and non-assured tenancies) and tenancy renewals signed and executed from 1st June 2019. This will have a significant effect on both landlords and agents.
Below is a full run-down of the tenant fees ban, but if you have specific questions, why not check out our tenant fees ban FAQ’s?
How do I know what I can and can’t charge?
The easiest way to think of it is that all payments are “prohibited payments” unless that payment is expressly permitted under the Act.
Common charges that are prohibited payments include referencing & admin fees, inventory / check in / check out fees, tenancy renewals fees and the cost of sending letters & notices (eg, for late rent, advising of tenancy breach etc).
So what can tenants be charged for?
You will still be able to charge tenants:
- Deposit (capped at 5 weeks rent for rents of less than £50,000 pa, or 6 weeks for rents of £50,000 pa or more);
- Green deal charges;
- Holding deposit (see below for details);
- Defaults by the tenant in relation to the loss of a key/security device or late rent (interest can be charged at 3% above the BoE base rate);
- Variations of the tenancy agreement at the tenant’s request; and
- Early termination of the tenancy at the tenant’s request.
How will holding deposits work?
You can take a holding deposit of up to one week’s rent, but only one holding deposit can be held for a property at any one time.
You have 15 days from receiving the holding deposit to sign a tenancy agreement with the tenant. This is called the ‘deadline for agreement’. You can agree a different deadline for agreement with the tenant, but just make sure you have it in writing.
You must refund a tenant’s holding deposit in full within 7 days of:
- signing a tenancy agreement with the tenant (unless the tenant has agreed in writing for you to use their holding deposit towards their rent or deposit);
- you choosing to withdraw from the proposed agreement; or
- the deadline for agreement passing without a tenancy agreement having been signed.
A holding deposit can only be kept if the tenant:
- provides false or misleading information;
- fails a right to rent check;
- withdraws from the property (unless the landlord has acted in such a way that the tenant couldn’t reasonably be expected to wish to proceed with the tenancy); or
- fails to take all reasonable steps to enter into a tenancy agreement.
If you decide not to continue with the tenant, you must let them know the reason why, in writing, within 7 days of either deciding not to go ahead or the deadline for agreement, whichever is soonest.
IMPORTANT: Holding deposits of up to one week’s rent are permitted payments but any further payments received prior to the signing of the tenancy agreement would be prohibited. This means that agents and landlords can not ask a tenant to pay their tenancy deposit and/or first month’s rent before the contract has been signed. To do so would be to ask for a prohibited payment.
What if I charge a tenant something accidentally?
Any prohibited payment that you have inadvertently taken from a tenant must to be repaid within 28 days, whether it’s been requested by them or not.
You will not be able to serve a section 21 notice until any unlawfully charged fees have been repaid.
Are there any ways around the new legislation?
Sadly not. You can’t ask a tenant to make a payment to a 3rd party (for example, requiring the tenant to provide a reference from a provider at their own cost) or pay an unusual figure for the rent for any month(s) of the tenancy (for example, increasing the first month’s rent to cover the extra costs).
What about the tenancies that I already have, will they be affected?
If you have a contract that was signed and executed before 1st June 2019, you can still charge any fees that are mentioned in the contract up until 31st May 2020. From 1st June 2020, any prohibited payments listed in the tenancy agreement won’t be enforceable.
If you renew a contract with an existing tenant after 1st June 2019, the fees ban will apply to the new tenancy.
You should be mindful that if you renew a contract after 1st June 2019, and the tenant paid more than the permitted deposit amount, you must repay any over payment. You should make enquiries with the deposit scheme you are using on the best way to do this.
What does this mean for landlords using The Online Letting Agents?
The new legislation will affect ALL agents in England, regardless of whether they operate on the high street or online. Tenant fees are already prohibited in Scotland. The ban will be extended to Wales on 1st September 2019.
We have lobbied the Government to be fairer to the landlords that they rely so heavily on for quality private rental sector homes but sadly the work of ourselves and other Landlord support groups has not been successful.
In our opinion the lettings industry rightly deserves better regulation and transparency, which is a standard we’ve always tried to achieve ourselves. We feel a complete tenant fee ban was extreme and will most likely lead to higher rents as landlords look to recover the additional costs that will inevitably fall to them.
On a positive note, the new regulations will bring a clearer picture of all costs associated with letting a property through an agent. It will create a level playing field, making it easier for a landlord to compare one agent to another.
As you know, our current pricing model includes a contribution from both the landlord and tenant, with landlords paying for marketing, and tenants paying for referencing. We are reviewing all our packages and will soon make an announcement on how our fee structure will change in line with the new legislation.
The recent changes in legislation and taxation, not to mention the newly announced proposed ban of the section 21 notice, have left landlord’s feeling somewhat bruised, but we want to reassure all our customers that we remain committed to providing a high standard of service at a reasonable price.