On the 15th January 2019, after several months (even years) of uncertainty, we were finally given a deadline to work to of the 1st June 2019 as the date the Tenant Fee Bill will be in effect. Although landlords across the country may have heard whispers of the Tenant Fee Bill, many have failed to consider the impact it will have for them and the changes to their working practices that they will need to implement sharpish.
Ok so break it down for us, what does this entail?
There are various elements of the ban involving both deposits and fees, and it works on the basis that all fees for tenants are banned unless the bill expressly states they are allowed. From 1st June, the only fees you will be able to take from a tenant are as follows;
Replacement keys or security device: landlords will be able to charge a fee, amounting to the exact cost of replacing a lost key or security device. A charge for the time taken to retrieve this key or fuel costs are not permitted. However, should a tenant lose a key to which there are several keys and the entire lock and keys need a change, this would be covered. A landlord would need to evidence the cost of the key by producing an invoice to show the cost of replacement.
Interest on rent arrears: late payment fees will no longer be legal under the bill however a landlord will be able to charge an interest on the late period of rent calculated at 3% above the Bank of England base rate (currently set at 0.75%) for every day the rent is not paid. However, this can only be charged after 14 days of non-payment of the rental period but can be back-dated to start from the date the rent was due.
Change of sharer fee: a £50 fee for changing a sharer on a tenancy will be legal under the ban, as will every novation to an agreement that a tenant requests (so anything needing an addendum for the change), therefore if a tenant requests to have pets or to paint a wall midway through a tenancy and you have to change the agreement as a result, you will be able to charge £50 for this change. The bill actually states:
“the reasonable costs of the person to whom the payment is to be made in respect of the variation, assignment or novation of the tenancy”
Which means more could be charged if you can evidence and prove that higher reasonable costs were incurred.
Early release fee: an early release fee is currently allowed under the bill if requested by the tenant during a fixed term, or if the tenant has not given the required notice under law in a month to month tenancy. The bill currently states the payment should be no more than the landlord’s loss under this which if a tenant was in a twelve-month fixed term contract and requesting early release at month three, could be nine months’ worth of rent. As this could be a significant amount of cash for a tenant to part with, and nowhere near what a landlord or agent would normally charge for an early release, we are expecting a ‘do-gooding’ civil servant to change this at some late stage.
But what about holding fees?
A landlord can take one weeks holding fee from a tenant when the tenant wishes to take up a tenancy. However, if the tenancy agreement is signed within 14 days of the tenant agreeing to take the property, the holding fee must be returned to them. If the landlord pulls out or the agreement is not signed because of a delay with the landlord, the fee must also be returned within 7 days. This fee can be kept if the tenant fails to sign within this time or if the let fails to go ahead because the tenant pulls out of the deal or the tenant has not declared adverse credit. However, the tenant must be made aware in advance that this could be a possibility and if the landlord does retain it, they must write to the tenant setting on their reasons for doing so.
You mentioned tenant deposits, how are these effected?
From 1st June, landlords will only be able to take a 5 weeks of rent deposit from tenants. Its important to consider how you are working on the 5 weeks as it is dangerous to continue working it out based on the month and a half formula many use now for 6 weeks. You must work out the 5 weeks using this formula: the monthly rent multiplied by 12, then divided by 52 and multiplied by 5. This gives you your exact 5 weeks rent.
It is thought there will be a transition period of 12 months from 1st June 2019 where the fees detailed in existing signed tenancy agreements will apply. This means deposits registered before 1st June 2019 which were 6 weeks deposits can stay at this rate until the tenancy is renewed within the initial 12 months (if a renewal occurs this is technically classed as a new agreement and the deposit will need to be lowered to 5 weeks and therefore, 1 weeks’ worth of rent returned to the tenant). However, after 1st June 2020, it is indicated that the ban will then apply to any continuing month to month tenancies started before 1st June of this year. This means that letting agents and landlords alike will need to urgently review their current tenancies that started in the first half of this year or earlier and release at least one weeks’ worth of rent back to tenants. This will not be an easy feat or something the deposit protection schemes make very easy to accomplish.
What about the fines then?
A breach of the bill is deliberately severe; £5,000 for your first offence and £30,000 per offence thereafter, however just taking one upfront fee from a tenant (which could be broken down into a referencing fee, deposit protection fee and tenancy agreement fee – so 3 separate fees) could result in 3 fines in one go, which could be even doubled or tripled for more than one tenant. From speaking to my local Trading Standards contact recently, they will be policing this hungrily as just catching one unsuspecting landlord or agent could finance their department for a whole year.
Although many Letting agents have been busy preparing their processes and policies to cope with this, I do not think self-managing or landlords advertising for tenants on Facebook marketplace or gumtree have considered the impact to them and are probably completely unaware of the fines they may very shortly face for non-compliance. Could you suffer fines of this magnitude and still prosper? Its important you make sure you are ready for this in June, please as always get in touch if you have any queries.
If you would like to learn more about this, please click HERE to book a ticket to our next landlord seminar where we will be talking about this in depth and the processes you will soon need to adopt to manage this, we also have a special guest speaker of trading standards who will be giving a talk.
Angharad Trueman - Managing Director