Tenant Fees Act 2019
(tenant fee ban)
The Tenant Fees Act 2019, implemented on June 1st, 2019, is a UK law that aims to eliminate “hidden” costs for tenants. Before this Act, landlords and letting agents had the freedom to charge tenants for a range of services, often leading to unexpected and high costs. The Act now restricts these charges, allowing only specific payments related to the tenancy.
Summary:
- Maximum holding deposit of one week’s rent can be collected
- Tenancy deposit is maximum of five weeks’ rent
- Landlord can only charge tenants ‘Permitted Payments’: Holding deposit, tenancy deposit, rent, early termination of tenancy cost, utilities, late rent payment and lost key charges can be made.
Permitted Payments
- Rent
- A refundable tenancy deposit
- A refundable holding deposit
- Payments associated with early termination of the tenancy when requested by the tenant
- Payments for utilities, TV license, and council tax
- Default fees for late payment of rent and replacement of a lost key/security device
Rent
The Act does not restrict or cap the amount of rent you can charge. However, it is important to note that landlords cannot charge more rent in the first part of the tenancy to recover costs that have been lost due to the ban on fees.
Refundable Holding Deposit
A holding deposit is a payment made by a tenant to reserve a property before the signing of a rental agreement. The Tenant Fees Act 2019 limits holding deposits to no more than one week’s rent.
The holding deposit must be refunded (or put towards the rent or tenancy deposit) to the tenant, typically after they enter into the tenancy agreement, unless the tenant fails a right to rent check, provides misleading information, or withdraws their application.
Purpose of the Holding Deposit
A holding deposit serves as a sign of the tenant’s serious intent to rent the property. It essentially allows the landlord to ‘hold’ the property for the prospective tenant and not entertain other offers during this period. In return, the tenant is expected to proceed with the rental process within a reasonable timeframe. The landlord or agent must not accept more than one holding deposit at the same time.
When Can It Be Taken?
A holding deposit can be taken once the landlord and the prospective tenant have agreed on the major terms of the tenancy, such as the rental price and the move-in date, but before the tenancy agreement has been signed.
Terms Under Which It Can Be Retained
Under the Tenant Fees Act 2019, a landlord or letting agent can retain the holding deposit only under specific circumstances:
- If the tenant fails a right to rent check.
- If the tenant provides false or misleading information which affects the landlord’s decision to let the property to them.
- If the tenant decides not to enter into the tenancy agreement.
- If the tenant fails to take reasonable steps to enter into the tenancy agreement.
In any of these scenarios, the landlord or agent must provide the tenant with written notice of their intention to retain the holding deposit within 7 days of the decision.
Timeline for Returning the Holding Deposit
If the tenancy proceeds, the holding deposit must be returned to the tenant within 7 days of agreement, unless it is converted into a payment towards the first rental payment or the security deposit.
If the tenancy does not go ahead, the landlord has 7 days from the decision (or from the date the ‘deadline for agreement’ ends, if that is earlier) to return the holding deposit.
The ‘deadline for agreement’ for both parties is usually 15 days after the holding deposit has been received, unless otherwise agreed in writing.
Tenancy Deposit
A refundable tenancy deposit serves as a security for the landlord against any damages a tenant might cause to the property, or any unpaid rent or bills at the end of the tenancy.
The Act caps tenancy deposits at no more than five weeks’ rent where the total annual rent is less than £50,000, or six weeks’ rent where the total annual rent is £50,000 or more.
Early Termination
The early termination fee is a charge that may be incurred by a tenant if they choose to end their tenancy agreement before the agreed upon termination date. The Tenant Fees Act 2019 has specific regulations around this fee to protect tenants from excessive charges.
When Can It Be Charged?
An early termination fee can be charged when a tenant requests to leave the property before the end of their fixed-term tenancy agreement. The purpose of this fee is to compensate the landlord for the unexpected loss of rental income and for any additional costs they may incur while finding a new tenant.
How Much Can Be Charged?
According to the Tenant Fees Act 2019, the amount that can be charged for an early termination fee must not exceed the financial loss suffered by the landlord as a result of the early termination. This financial loss could include lost rent and the costs of re-advertising or referencing if these are necessary.
Similarly, if a letting agent is involved, they can only charge their reasonable costs in respect of the work carried out as a result of the tenant’s request to leave early. These costs should be evidenced in writing to the tenant.
Transparency and Communication
The terms for the early termination fee should be clearly stated in the tenancy agreement, and the landlord or letting agent must provide an explanation of these charges if the tenant requests it.
Changes to the Tenancy
During a tenancy, there may be circumstances where a tenant wishes to make changes to the terms of their tenancy agreement. The Tenant Fees Act 2019 stipulates how such changes can be handled and what costs may be associated with them.
What Constitutes a Change?
Changes initiated by the tenant may include requests such as adding or removing a tenant from the agreement, altering the length of the tenancy, obtaining permission for a pet when the original agreement did not allow one, or seeking approval to sublet a portion of the property.
Costs Associated with Changes
The Tenant Fees Act 2019 allows landlords and letting agents to charge a fee for changes to the tenancy requested by the tenant. This fee is capped at £50, or the reasonable costs incurred if these are higher. If the costs exceed £50, the landlord or agent should be prepared to provide evidence to justify these costs.
The legislation was written in 2018, so the £50 limit is not really applicable any more given the rate of inflation since then.
Procedure for Changes
Any changes to the tenancy agreement must be mutually agreed upon by both the tenant and landlord. These changes should then be documented in writing, either through a new tenancy agreement or an addendum to the existing agreement. Both the tenant and landlord should retain a copy of this documentation for their records.
Payments for Utilities
Utilities, in the context of renting a property, typically include services like gas, electricity, water, and telecommunications (e.g., broadband). The Tenant Fees Act 2019 provides specific guidelines around charges related to utilities.
Who Pays for Utilities?
The tenancy agreement should clearly state who is responsible for paying for utilities. In most cases, it is the tenant’s responsibility to pay for these services, but there can be exceptions, particularly in the case of all-inclusive rental agreements or in certain types of shared accommodations.
Charges and Fees
Under the Tenant Fees Act 2019, landlords and letting agents cannot charge tenants more than the actual cost of the utilities. They are not allowed to make a profit on utilities. If a tenant believes they have been overcharged, they can seek evidence of the actual costs from the landlord or letting agent.
In addition, landlords and letting agents can’t charge tenants for the cost of setting up a utility service, for example, a connection or disconnection fee.
Payments to Third Parties
Landlords are allowed to require tenants to enter into a contract with a utility company and pay for services directly to that company. However, the provider or tariff must not be unreasonably imposed upon the tenant.
Green Deal Charges
The Tenant Fees Act 2019 also allows landlords to charge tenants for Green Deal charges, which are repayments for energy-efficient home improvements like insulation or renewable energy installations. However, these charges must not exceed the amount that the tenant is likely to save on energy bills as a result of the improvements.
Default Fees
Default fees are charges that a tenant may incur as a result of breaching their tenancy agreement. The Tenant Fees Act 2019 stipulates how such fees can be imposed and what costs may be associated with them.
What Constitutes a Default?
A default refers to a situation where a tenant fails to comply with the terms of their tenancy agreement. Common examples of defaults include late rent payments and losing keys or other security devices provided by the landlord for the property.
Costs Associated with Defaults
The Tenant Fees Act 2019 permits landlords and letting agents to charge tenants default fees, but these fees are subject to restrictions.
For lost keys or other security devices, the landlord or agent can charge the tenant the actual cost of replacing the lost key or device. They must provide evidence to show that the amount they are charging is reasonable, such as a receipt for the cost of having new keys cut. Landlords and agents can charge for their time taken to have a replacement key cut, so long as the charge is reasonable.
For late rent payments, a default fee can only be charged when the rent payment has been outstanding for 14 days or more and is limited to an annual interest rate of 3% above the Bank of England’s base rate.
Procedure for Charging Default Fees
Default fees should be clearly stated in the tenancy agreement, and the landlord or agent must provide the tenant with evidence of the costs incurred as a result of the default before they can impose the fee. For example, if the tenant loses a key, the landlord should provide a receipt for the cost of cutting a new key.
Late Payment Fees - Worked Example
When this legislation was introduced, the BoE base rate was so low, that charging late payment fees where pointless; however, at the time of writing (July 2023), with the Bank of England Base Rate at 5%, it’s worth calculating interest if a tenant has given you the run around.
Use our free Excel rent arrears interest tool.
- Interest is capped at 3% above the Bank of England base rate.
- You can only charge interest if rent is more than 14 days late.
- If it is more than 14 days late, you can charge interest from the day it was late.
- Interest must be calculated daily at the prevailing interest rate.
- The interest charge must be set out in the tenancy agreement.
The below calculation shows you how to work out the late payment fee to charge. This calculation assumes that the interest rate was the same for the whole period, which it has not been. You’ll need to calculate the interest on a daily basis at the prevailing rate of interest. Our free tool does all of this for you.
Consider a tenant who hasn’t paid their rent for three full months. The monthly rent is £500, and the Bank of England’s base rate is currently 4.5%. The Act allows for late payment fees to be charged at an annual interest rate of 3% above the Bank of England’s base rate, which in this case results in an annual interest rate of 7.5% (4.5% base rate + 3% as permitted by the Act).
Now, let’s calculate the late fees. The daily interest rate is 7.5% divided by 365 (the number of days in a year), which gives us a daily rate of 0.0205%.
Here’s what the tenant owes in late fees for each month:
- Late fees for Month 1: £500 * 0.0205% * 90 = £9.23
- Late fees for Month 2: £500 * 0.0205% * 60 = £6.15
- Late fees for Month 3: £500 * 0.0205% * 30 = £3.08
Add these up and you get a total of £18.46 in late fees (£9.23 + £6.15 + £3.08).
So, in this scenario, the tenant would owe a total of £1,518.46. This includes the £1,500 rent arrears and £18.46 in late payment fees.
Charges for Damages
This legislation has had landlords and agents concerned that they can’t charge tenants for damage they cause to the property, however, charging tenants for damages they have caused to the property during the tenancy is not a breach of the Tenant Fees Act 2019, as long as it is handled correctly.
The Act does not prohibit landlords from seeking compensation for damage caused by tenants that goes beyond normal wear and tear. This can be done by deducting from the tenancy deposit or, if the costs exceed the deposit or if the damage occurs during the tenancy, by invoicing the tenant directly.
It’s important to note that landlords should be able to provide evidence of the damage and the costs incurred, and tenants have the right to challenge these claims. Any disputes can be taken to a deposit protection scheme or court if necessary.
Third Party Fees
Two common examples of third-party fees: no deposit schemes and referencing companies.
No Deposit Schemes
No deposit schemes, also known as “zero deposit” or “deposit replacement” schemes, are an alternative to the traditional deposit. Instead of paying a lump sum deposit at the start of the tenancy, tenants have the option to pay a non-refundable fee to a no deposit scheme. This fee is often a fraction of what a traditional deposit would cost.
Under the Tenant Fees Act, landlords can offer no deposit schemes to tenants. However, it is important to note that these schemes must be optional. The tenant must be given the choice between paying a traditional deposit or using the no deposit scheme. Landlords cannot require tenants to use these schemes as a condition of the tenancy.
Referencing Companies
When a new tenancy is being set up, landlords often want to check the potential tenant’s creditworthiness and get references from previous landlords or employers. Many landlords use referencing companies to carry out these checks.
Under the Tenant Fees Act, landlords and letting agents cannot charge tenants for the cost of obtaining references. However, if a tenant chooses to obtain a reference themselves from a third-party referencing company, they would be responsible for any fees charged by the company. It’s important to note that landlords cannot require tenants to use a particular referencing company.