Belinda Thorpe, Managing Director at Residentsline provides an overview of the Tenant Fees Act.
The Tenant Fees Act
In the property industry, there has often been issues surrounding tenant fees. From unfair letting fees to excessive deposits, tenants have often been given little choice but to pay. However, thanks to new legislation, this is all set to change.
On 1st June, the new Tenant Fees Act will come into force. Having initially been announced in the Autumn Statement in 2016, the Tenant Fees Bill was given Royal Assent earlier this year on 12th February, meaning it will finally be accepted as law. From June, the Act will include all new tenancies, as well as renewed.
As stated by Minister Rishi Sunak MP, the Act is a result of government aims to “make renting fairer and more transparent for all.” According to the official government press release, the Act is expected to save tenants around £240 million per annum, making it a massive step towards fairer tenant fees.
So, what will the Tenant Fees Act do?
There are many facets to the Tenant Fees Act, all geared towards offering tenants financial protection and support. It is also hoped that it will improve the relationship between tenants and landlords or agents.
The Act will place a ban on letting fees paid by tenants in the private sector. These fees will instead be paid by the landlord, thereby reducing initial costs for tenants and encouraging an improvement of the services provided by letting agents, as they will have to compete for landlords and will be unable to impose excessive fees.
The Act will also implement a cap on tenant deposits at 6 weeks’ worth of rent, further reducing tenant costs from the outset. As of last September, moves were made by the government to stop landlords being able to incur excessive fees for minor damages. From June, landlords will have to provide evidence of the costs incurred by any tenant damage and will only be able to charge accordingly.
In addition to this, the time period landlords are given to pay back any fees they have unlawfully charged has been reduced, meaning tenants will get their money back in an appropriate timeframe.
What can landlords or agents charge?
According to Landlords Guild, these are the limits to what landlords or agents can charge tenants, and each one has restrictions in place to avoid any unnecessary costs.
- Rent
- Tenancy deposit
- Holding deposit
- Payment in the event of a default
- Payment on variation, assignment or novation of a tenancy
- Payment on termination of a tenancy
- Payment in respect of council tax
- Payment in respect of utilities etc.
- Payment in respect of a television licence
- Payment in respect of communication services
What is the difference between a tenancy deposit and a holding deposit?
As mentioned above, landlords will retain the right the charge for a holding deposit and a tenancy deposit. So, what’s the difference?
The holding deposit (or holding fee) is an amount of money the prospective tenant pays towards to the landlord prior to signing the tenancy agreement. The purpose of this is to hold the property whilst referencing checks take place and the relevant contracts are brought up, and acts as a sort of application – it shows the landlord that you are invested in the property. Should the landlord reject your ‘application’, the deposit will be refunded in full. Likewise, if you are accepted for the property and sign the documentation, your holding deposit will also be returned. However, if you change your mind and pull out before accepting the tenancy, the landlord can keep the deposit as forfeit.
Unlike a holding deposit, a tenancy deposit is paid at the start of the tenancy. This is usually between 4-6 weeks’ worth of rent (although as of June this will be strictly capped at 6). The landlord is obliged to hold the deposit in a government-approved deposit protection scheme. When the tenancy ends, the landlord can deduct any costs for damage incurred by the tenant during their tenancy from the deposit, although this can be contested by the tenant, and as of June landlords will have to provide evidence of these costs so as not to charge excessively.
What happens if a banned fee is charged?
Whilst the Tenancy Fees Act will be widely circulated around the property industry, it is possible that mistakes will be made or even that landlords could take advantage of unaware tenants. Should costs that have been banned under the new Act still be imposed, there are strict penalties in place.
For an initial offence, landlords or letting agents could face fines of up to £5,000. Furthermore, a second offence within 5 years would incur fines of up to £30,000, as well as being considered a criminal offence. Furthermore, tenants who have been made to pay banned fines will be allowed to apply to the First-tier Tribunal to ensure the landlord or agency pays back the fees in full.
A happy ending?
The recent efforts of the government to construct the Tenant Fees Act will not go unnoticed. By diminishing initial costs and stopping unfair payments, the Act will help in improving both the tenant experience and the relationship between tenant and landlord. These improvements were well overdue, but it is nonetheless refreshing to see that the government are keeping in step with the requirements of renters. The Act will surely prove to be a big step in the progression of the property industry.
