Residential Landlord and Tenant Update – October 2020

Residential Landlord and Tenant Update – October 2020

Tenant Fees Act 2019

Whilst the stay on possession proceedings has taken over the headlines for the past few months, there have been numerous other updates in the landlord and tenant world.

The next few instalments of our Residential Landlord and Tenant updates will be focusing on the changes which have come into effect during the stay period, resulting in them being, perhaps, overlooked.

The subject of this month’s update is the Tenant Fees Act 2019. This act came into force on 1 June 2019 for any tenancies which were created after this date, but, after an initial 12 month transitional period, has been applicable to all relevant tenancies since 1 June 2020.

Which tenancies does it effect?

The Tenant Fees Act 2019 applies to all assured shorthold tenancies, tenancies of student accommodation and licenses to occupy housing in the private rented sector in England.

What does this mean for landlords?

The Tenant Fees Act 2019 does not list every payment which is prohibited under the Act, but rather it provides a small list of fees which are permitted, leaving every other fee as a prohibited payment.

This means that landlords are now very limited as to what costs they are able to pass onto their tenants and this may mean that some costs which could previously be claimed from tenants must now be absorbed by landlords.

The fees which are listed as being permitted will be explored below.

The Rent

For obvious reasons, the rent is deemed a permitted payment.

Landlords must ensure that no higher amount of rent is being taken at the beginning of the tenancy.

If, for example, £800 rent is paid in month 1 but £500 per month is paid in subsequent months, the £300 additional amount at month 1 could be deemed as a prohibited payment.

Rent is usually split equally across the tenancy, with rent being paid at regular, specific intervals.

If a landlord is in doubt, they should seek specific legal advice.

Holding Deposits

Prior to entering into a tenancy agreement, landlords (or agents, on a landlord’s behalf) can take a holding deposit to secure the property. This must not exceed 1 weeks’ rent and the agreement must be entered into 14 days of the holding deposit being taken. If no agreement is entered into within this time, the landlord must ensure that the holding deposit is returned to the prospective tenant.

If the tenancy is not entered into because the tenant has lied or made a representation which was untrue, the landlord will be entitled to retain the entirety of the holding deposit.

That being said, despite being in place for over a year, the legislation is still largely untested and so each landlord should make a judgment call based upon the individual facts of the case.

Deposits

From 1 June 2020, the maximum deposit which can be held in respect of a relevant tenancy is the equivalent of 5 weeks’ rent (if the annual rent is £50,000 or below) or the equivalent of 6 weeks’ rent if the annual rent is above £50,000.

If the deposit amount currently held is in excess of these maximum amounts, landlords should ensure that steps are taken to return any excess amounts to their tenants. If this action is not taken, any deposit which is retained above the aforementioned limits could be deemed a prohibited payment.

For assured shorthold tenancies, which require the deposit to be protected, it may be prudent to contact the relevant authorised deposit scheme in the first instance, as they may have systems in place to assist with the return of any excess deposit amounts.

It is essential to ensure that deposits are re-protected to reflect the revised amount and that prescribed information is re-served to prevent being in breach of deposit regulations, which could result in the landlord being liable to pay a penalty to the tenant for non-compliance.

Payments to change tenancy when requested by the tenant

Where a tenant requests a change to the tenancy agreement (e.g. a change of sharer or permission to keep pets on the property) a landlord is entitled to charge up to £50 for the work involved in amending the tenancy agreement or the amount of their reasonable costs if they are higher.

The general expectation is that the charge will not exceed £50. If a landlord wants to charge for than £50, they should provide evidence to demonstrate the reasonable costs of carrying out the work. Any charge that exceeds the reasonable costs a landlord has incurred will be a prohibited payment.

No fees can be charged for any extension or renewal of the tenancy.

Payments associated with early termination of the tenancy, when requested by the tenant

Should a tenant request to leave the tenancy early, a landlord is entitled to charge an early termination fee.

This fee cannot exceed the total loss which the landlord would suffer by the tenant vacating the property early, or the reasonable costs incurred in arranging for the tenant to leave early, otherwise this will be deemed a prohibited payment.

This usually means that a landlord must not charge any more than the rent they would have received before the tenancy reaches its end. Landlords are encouraged to agree to any reasonable request to terminate the tenancy agreement early and, if there are no missed rent payments, not to charge any early termination fees unless they can demonstrate through evidence to the tenant that specific costs have been incurred (e.g. marketing and referencing costs).

Payments in respect of utilities

Tenants are still liable to pay for utilities, in accordance with the tenancy agreement, which could include council tax, utility payments (gas, electricity, water) and communication services (broadband, TV, phone). Landlords should ensure that the tenancy agreement is clear as to what the tenant must pay for, to avoid any risk that the tenant claims that a fee is a prohibited payment.

In any event, there are still consumer protections in place for tenants which prohibit landlords overcharging for these services: the Office of Gas and Electricity Markets, ‘OFGEM’, fixes maximum resale prices under section 44 of the Electricity Act 1989, section 37 of the Gas Act 1986, and the Water Resale Order 2006 governs the maximum price for water.

Default fees (for late payment of rent and replacement of a lost key/security device, where required under a tenancy agreement)

Landlords will only be able to request default fees where the rent is at least 14 days late, or if a key/ security device has been lost. These costs can only be demanded from a tenant if they are written into the tenancy agreement.

The fee will be a prohibited payment where this exceeds interest at more than 3% above the Bank of England’s annual percentage rate for each day that the payment is outstanding (for a late rent payment) or the reasonable costs incurred by the landlord or agent (for a replacement key/security device).

Given that these costs are only recoverable if they are an express obligation under a tenancy agreement, it may be prudent to check tenancy agreements to ensure that these provisions are included.

What are the penalties?

Breaching the Tenant Fees Act 2019 has the potential for both civil and criminal penalties to be imposed.

An initial breach is likely to be deemed a civil offence, with a penalty of up to £5,000 being imposed. Should a further breach be committed within 5 years of the imposition of a financial penalty or conviction for a previous breach this will be deemed a criminal offence.

The penalty for the criminal offence, which is a banning order offence under the Housing and Planning Act 2016, is an unlimited fine.

Where an offence is committed, local authorities may impose a financial penalty of up to £30,000 as an alternative to prosecution. In such a case, local authorities will have discretion whether to prosecute or impose a financial penalty. Where a financial penalty is imposed this does not amount to a criminal conviction.

The Act also makes provision for tenants (and relevant persons) to be able to recover unlawfully charged fees through the First-tier Tribunal and, importantly, prevents landlords from recovering possession of their property via the section 21 eviction procedure until they have repaid any unlawfully charged fees or unlawfully retained a holding deposit. Tenants can also seek repayment through redress schemes, if an agent is involved.

Trading Standards authorities have a duty to enforce the Act, but local authorities and tenants also have the opportunity to take enforcement action should they choose to do so, as set out above.

Given the huge range and potential cost of the penalties which can be imposed, it is very important that landlords are ensuring compliance with the Tenant Fees Act 2019. If landlords are in any doubt, specific legal advice should be sought.

Can landlords circumvent the Tenant Fees Act 2019?

In short, no. The Tenant Fees Act will apply to all assured shorthold tenancies, tenancies of student accommodation and licenses to occupy housing in the private rented sector in England.

However, given that many of the costs which were once passed to tenants cannot now be forwarded, some landlords are instead opting to increase the rent for their properties as a means to recoup some of the additional costs. One downside of this, however, is that this can mean that letting out properties may be more difficult as rents may not be competitive.

One potential alternative may be for landlords to consider entering into assured tenancies, rather than assured shorthold.

As above, the Tenant Fees Act applies only to assured shorthold tenancies, tenancies of student accommodation and licenses to occupy housing in the private rented sector in England. This technically means that fees can be charged to tenants on assured tenancies as these types of tenancies are not governed by the Tenant Fees Act 2019.

Landlords may see some obvious drawbacks here: an assured tenancy is a type of protected tenancy and this means that a landlord is only able to get vacant possession of the property by either agreeing a surrender with the tenant or else if there are grounds to do so (grounds listed under schedule 2 of section 8 of the Housing Act 1988); a landlord is unable to serve a non-fault based section 21 notice to end the tenancy.

Whilst this may seem a drawback at present, there are ever-increasing discussions surrounding the abolishment of the non-fault based section 21 notice to obtain possession of a property. Effectively, this will mean that tenancies will likely soon revert back to being, effectively, assured tenancies, and so landlords could consider this as an option for now.

We make clear that entering into an Assured Tenancy is not an “easy solution” and it is certainly not advised for all situations; this type of tenancy does offer a tenant much greater security of tenure, which could mean that a landlord could only evict the tenant should they have a ground to do so.

If landlords are considering this as an option, it is strongly advised that they seek specific legal advice before embarking down this route.

Should you require any assistance, please contact Sian Meredith on 01489 864 152 or email her at sian.meredith@lawcomm.co.uk.