Commencing from 1 June 2019 and applicable to England only, the Tenant Fees Act 2019 will aim to create a more affordable private rented sector – banning all payments that are not expressly “permitted” under the Act.

From 1 June 2019 the Act will affect new and renewal leases and licences (excluding periodic tenancies, social housing and long leases) and from 1 June 2020, will also apply to existing leases and licences.

For the purposes of this particular Act, tenancy is defined as an assured shorthold tenancy (AST), licence (e.g. lodger lettings) or student letting (provided by a specified educational institution). However, where no section 21 notice is ever available to the landlord of an assured tenancy, the Act will not apply.

As mentioned the Act expressly states “permitted payments” which include rent, charges for breach of contract, deposits and holding deposits, all of which are subject to further regulation.

Rent

Rent must be consistent throughout the tenancy, prohibiting an increased rent for individual months.

This does not however prevent rent increases in accordance with the terms in the tenancy agreement.

Deposits

Landlords can no longer seek excessive deposits. If annual rent is less than £50,000, the deposit cannot exceed more than 5 weeks rent, whilst annual rents over £50,000 will be limited to a maximum of six weeks rent. To overcome any loophole that comes with this limitation, Landlords will not be permitted to set a rent at a higher level for the first part of the tenancy, reducing rent for the remainder to gain higher costs indirectly.

Any excess amount above the initial 5 or 6 week rent will be a prohibited payment.

A holding deposit which is taken before the granting of a tenancy is a permitted payment but is subject to strict controls under Schedule 2. For example, the maximum holding deposit allowed is up to one week’s rent.

Default payments

The Act recognises three circumstances of default which may lead to a permitted payment:

  1. 1)  Loss of keys
  2. 2)  Late payment rent
  3. 3)  Breach of the tenancy agreement

Any payment requested for lost keys or other security device needed to access the property must reflect the cost reasonably incurred by the landlord. These costs should be explained/evidenced to the tenant in writing.

In respect of late payment of rent, the landlord must allow a “grace period” of 14 days from the due date on which the payment should be made in accordance with the tenancy agreement. This means the landlord may seek payment if the tenant fails to make a full payment before the end of the grace period.

There is further regulation on the interest charged where there is a failure to pay rent in full. It should not exceed 3% above the current base rate of Bank of England.

This only applies if the tenancy agreement explicitly states that the landlord may charge a fee in these circumstances – otherwise deemed as a prohibited payment.

Other permitted charges

A landlord may charge for utilities and a TV licence provided the tenancy agreement requires the tenant to pay for these, but which should not exceed the reasonable costs incurred by the landlord. Any excess would be considered a prohibited payment.

Payment on variation, assignment or novation of a tenancy agreement at the tenant’s request should not exceed £50 or the reasonable cost of the landlord for fulfilling such request.

Concluding comment

There are a number of legal and financial consequences if the Act is breached including a fine of up to £30,000, or persecution and criminal record. Tenants will have a statutory right to recover any unlawfully charged fees.

Unsurprisingly, no valid section 21 notice may be served on a tenant unless and until any prohibited payments are returned to the tenant – this ultimately prevents a landlord from obtaining possession of the property.

Essentially, this Act aims to rebalance the power between landlord and tenants, creating a housing market that is fairer and more transparent. It will be important for landlords to operate efficiently, making sure that charges requested are within the list of permitted payments.

For more information on “permitted payments” please visit the Tenant Fees Act 2019 guidance page on the government website.