Welcome changes for ‘Generation Rent’

Date published

13/05/2019

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With increasing numbers of people renting residential properties long term due to high house prices, the government has introduced legislation limiting the ability of landlords and letting agents to charge certain fees to tenants in the private residential rented sector. First announced in the 2016 Autumn Statement, the Tenant Fees Act 2019 (the Act) is part of the drive to improve fairness, competition and affordability in the lettings sector, with the aim of protecting tenants by prohibiting unfair charges being levied.

Whilst good news for tenants, landlords need to ensure their practices are aligned to the changes, or potentially risk criminal sanctions.

Changes

The Act comes into force on 1 June 2019 for new and renewal leases and licences and from 1 June 2020 will apply to all existing leases and licences. The Act applies to assured shorthold tenancies, licences and student lettings but does not apply to certain periodic tenancies, long leases, social housing tenancies or holiday lets.

The Act introduces the concept of a ‘permitted payment’ and lists the permitted payments that can be charged to a tenant or prospective tenant. Permitted payments include the following:

  • Security deposit - if the annual rent is less than £50,000 per annum, the deposit cannot exceed five weeks’ rent. If the annual rent is greater than £50,000, the deposit cannot exceed six weeks’ rent.
  • ‘Holding deposit’ – this cannot exceed one week’s rent.
  • Tenant’s default – only reasonable costs can be recovered by the landlord on a tenant’s default. Tenant’s default here means the loss of keys or other security devices or failing to make a payment of rent within 14 days of the due date. Such charges can only be recovered if the tenancy agreement allows the landlord to charge for such default. Damages for a tenant’s breach of the terms of the tenancy agreement is also a permitted payment.
  • Tenant’s request for a variation, assignment or novation of the tenancy agreement - a charge of £50 (or if higher the reasonable costs) incurred by the landlord or letting agent in respect of such a request.
  • Early termination of the tenancy agreement – only losses suffered by the landlord can be charged in the event the tenant terminates the tenancy before the fixed term has expired, or (in the case of a periodic tenancy) sufficient notice has not been provided by the tenant
  • Utility and service costs – only reasonable costs of the landlord can be recovered by the landlord for providing and paying for services such as telephone, internet, television, gas and electricity if the tenancy agreement states that the landlord is to provide and pay for such services.

Impact

Should a tenancy agreement breach any of the provisions of the Act, the landlord may be unable to serve a valid notice terminating the tenancy agreement, thus limiting the ability to evict a tenant. Whilst this of itself is significant, it is compounded by the possibility that a breach of the Act comes with a financial penalty of up to £5,000. It becomes even more serious, however, if a landlord or letting agent has already received a fine, as subsequent breaches within a five year period, may be treated as a criminal offence and attract a fine of up to £30,000.

Furthermore, the Act provides that the terms of an agreement between a letting agent and landlord is not binding on the landlord if any terms of the agreement breaches the provisions of the Act that apply to letting agents. However the remaining terms of the agreement are still binding.

Comment

Tenants in the residential sector have long complained of being unfairly charged for such things as credit checks, viewings, tenancy renewals and inventories. The introduction of the Act now means that such charges have either been completely abolished or the landlord’s and lettings agent’s ability to charge these have been severely diminished.

The Act is a welcome piece of legislation that will go some way in providing a fairer and more transparent system from the outset and it will also go some way to improve the perceptions of the sector. Care needs to be taken, however, to ensure landlords and letting agents are not falling foul of a breach.

We therefore advise all landlords and letting agents to review their existing letting agreements. They will need to ensure that all existing letting agreements are compliant with the Act before 1 June 2020 and that any new agreements entered into on or after 1 June 2019 are also compliant. This includes removing ‘prohibited payments’ from the letting agreements and ensuring that if landlords and letting agents are intending on charging tenants for the items listed above (where permitted under the Act) such costs are stated within the agreement.

Failure to do so means that the landlords and letting agents run the risk of breaching the Act. The penalties involved are significant and send a clear message from the government that these practices will no longer be tolerated.

Read other items in Commercial Brief - May 2019

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