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Tenant fee ban – 10 top tips for letting agents

Tuesday 02 April 2019

As part of ARLA Propertymark’s Tenant Fees Tool Kit, we’ve put together 10 of our top tips for letting agents ahead of the Tenant Fees Act 2019 coming into force on 1 June.

1. Remember, existing tenancies do not come under the scope of the ban until 1 June 2020

This means that up until this date, unless the tenancy is renewed (new Fixed-Term tenancy), fees that were originally tied to the tenancy agreement can still be charged. Any fee taken after 31 May 2020 will be a Prohibited Payment, regardless of the tenancy start date, and must be returned within 28 calendar days.

2. Failing referencing isn’t enough to withhold a potential tenant’s Holding Deposit

If a tenant provides completely factually and accurate information but nonetheless still fails referencing, agents will have to still return the Holding Deposit. In order to withhold the Holding Deposit for a tenant providing false or misleading information, the agent must be able to prove that the tenant provided factually inaccurate information. For example, a potential tenant stating that their salary was higher than it actually is would be providing false or misleading information.

3. Changes to other transparency rules

Under the Tenant Fees Act, agents are still required to display their fees schedule, Client Money Protection and redress scheme membership in their office and on their website. This requirement has been extended to advertisements on third-party websites. This includes the portals (Rightmove, Zoopla, OnTheMarket) as well as other websites such as local newspaper sites, local property portals and social media (e.g. Facebook, LinkedIn, Twitter). It may not be possible on a social media website to fully advertise all these details. In this instance, a link may be provided to the agent’s website which provides all the information.

4. Pets don’t have to be a no go

Although tenancy deposits cannot exceed five week’s rent (or six weeks for rent exceeding £50,000 per annum), this doesn’t mean that having tenants with pets isn’t an option. Provided that it is expressly advertised on property listings and to a potential tenant, a higher amount of rent may be organised to accommodate for a tenant having a pet. The rent without a pet must also be advertised.

If the prospective tenant does not want to pay a higher amount of rent for a pet, the landlord does not have to allow the pet.

5. Every fee is illegal unless it is expressly stated as a Permitted Payment

Under the ban, Permitted Payments are: Rent; a capped refundable tenancy deposit; a capped refundable Holding Deposit; default fees; payment on variation, assignment or novation of a tenancy; payment on termination (surrender) of a tenancy; payments in respect of Council Tax; payments for utilities (electricity, gas or other fuel, water or sewage); payments for a television licence; communication services (telephone other than a mobile telephone; the internet; cable television, satellite television); and Green Deal charge. If it isn’t in this list, it can’t be charged.

6. You can’t charge tenants a penalty fee for contractor appointments, even when the tenant misses it

One of many big changes is that tenants cannot be charged a penalty fee for a contractor call out (but can be charged the actual costs of a call-out), even where it’s due to a fault of their own or when they have not allowed access.

Agents can require tenants to put the landlord back in the position they would have been had the tenant complied with the terms of their tenancy. Therefore, if there is a clause in the tenancy requiring the tenant to indemnify the landlord against the landlord’s costs for missed contractual appointments then the agent can require the tenant to pay those costs. If the tenant does not, they can be taken to court during or after the tenancy, or the costs can be deducted from the tenant’s deposit at the end of the tenancy (if this is allowed within the deposit clause of the tenancy agreement).

7. Tenancy deposit deductions are not prohibited under the ban

Although tenancy deposits are capped, the legislation does not have any impact on how deposit deductions currently operate. Provided there is a breach of the tenancy agreement, which is covered in the deposit clause, and the landlord or agent suffers a loss as a result, an amount can be deducted.

The amount deducted should be reasonable and reflect the loss incurred by the landlord or agent.

8. Don’t underestimate the severity of charging a Prohibited Payment

Each breach of the ban can result in a civil offence with a financial penalty of up to £5,000. Further breaches of the ban, within five years of the first offence, will be classed as a criminal offence with an unlimited fine. The enforcement authority may impose a financial penalty of up to £30,000 as an alternative to criminal prosecution. If a person is convicted of two financial penalties in a 12-month period, they may be entered into the Database of Rogue Landlords and Letting Agents. Where a Prohibited Payment is charged it must be returned to the tenant as soon as possible and within seven calendar days.

Section 21 Notices cannot be issued if a Prohibited Payment has not been fully refunded to the tenant.

9. Know what needs to happen with existing tenancy deposits

The cap on tenancy deposits is not retrospective. Existing tenancy deposits that exceed five weeks (or six weeks where rent is over £50,000 per annum) can be held for the duration of the tenancy. Only when the tenancy is renewed on or after 1 June 2019 will the excess deposit need to be refunded.

Where an existing Fixed-Term tenancy entered into before 1 June 2019 becomes a Statutory or Contractual Periodic tenancy, there is no requirement to return any excess tenancy deposit.

10. Look at your business costs

Agents need to find ways of increasing income and reducing costs. Are you doing too much for your standard fee? Consider charging separately for deposit deductions, undertaking Right to Rent Checks or undertaking additional property visits. This not only increases your income but shows to your landlords the amount of work you do for them. Furthermore, are there ways to increase rents on your properties so you don’t have to increase your management percentages. When looking at cost savings preparations for the fee ban has resulted in an explosion of PropTech coming into the market. Think about, what will save time and therefore money in your business. When you know that answer there will be a PropTech solution available.

toolkit

TENANT FEES TOOLKIT

The Tenant Fees Act comes into force on 1 June 2019, to help our members prepare we've put together a host of new resources to help you understand the legislation and to help your business comply. These resources include template legal documents, case studies from Scotland, bite-size videos and events.

Find out more