Tenant Fee Act 2019
The 1st June gets ever closer and most landlords and agents are fully aware of it’s existence. Remember it is written along the lines of Roman law – if it is not allowed in the Act, it is NOT allowed and therefore, illegal. This Act in the main is black & white and relates to Agents, Landlords and 3rd Parties, applying primarily to ASTs, licences to occupy and student accommodation.
Any tenancy starting from 1st June will have to comply, whereas if the tenancy is already ongoing (but NOT renewed after 1/6) there will be a transitionary period up to 31st May 2020. After that, all tenancies will be subject to the Act.
The key, to avoiding any problems with the various parts, is to be diligent and have a reasonable understanding of the processes and to be prepared to ask a professional for help if unsure because a mistake could potentially be very expensive!
A key part to keeping safe as a landlord, is to have an up to date worded agreement (AST); many landlords let a tenancy lapse into a contractual periodic month to month, once the fixed term lapses. Whilst this could have been acceptable in the past, current thinking and legislation is demanding that those older ASTs are updated. This is due to the wording, as it will not allow a landlord to take the action required or worse will be deemed unlawful under a current review. The wording will be paramount as any fees apart from the two allowed will be illegal; whereas compensation may be more flexible in the interpretation at the tenancy end in relation to a court action or claiming a deposit for tenant damage.
If you take a Holding Deposit (HD) it can only be one weeks rent and can be held for up to fifteen days unless the tenant agrees in writing to an extension period. The HD can only be kept if the tenant withdraws in that timeframe or exceeds it without approval. It can also be kept if the tenant fails referencing – in reality this can only be by a fraudulent claim (in order to prove this, an in house application form will be needed to be filled in, along with an outsourced reference company and the lie to be clearly visible) by a non disclosure or a false fact. Failing the right to rent checks is also admissible. Once the failure is confirmed a new prospective tenant can be selected.
If the landlord pulls out or when the tenant passes, the HD must be returned within seven days (not working days) and if not the tenant can seek a fine of up to £5000. It is recommended that the HD goes towards the first months rent as taking it for part of the deposit could mean it isn’t registered within the 30 day period.
A deposit on a property can only be equivalent to five weeks rent (rent times 12 divided by 52 times 5), unless the annual income for that property is £60,000 or more a year. In more affluent parts and in some Student Lets/HMO (Homes in Multiple Occupation) this could easily be the case. No extra money can be held as a deposit for a perceived higher risk such as a pet, smoker or housing benefit/universal credit.
Care is the key word for any deposit handling, as a mistake could be costly.
Allowable & Default Fees
Given the Act is so stringent, the only Allowable Fees allowed are that the rent can be paid and that the payment of the utilities and services is allowed by the tenant. Also included is the payment of the Green Deal payment by the tenant as they are the benefactor of the improvement. Similarly if a Deposit Replacement Scheme is used, the yearly premium is allowed.
The Default Fees are also extremely limited – the cost of a replacement key or means of access if it is security carded are allowed but the cost of organising it or the changing of a lock are not; but they can be a sought cost out of the deposit at the end of the tenancy. The deposit clause wording needs to allow for this in the tenancy agreement and given the time frame there will need to be a comprehensive evidence trail to back up the claim. If the tenant wants to leave early or in a group a tenant wishes to leave and be replaced; so long as the requests are in writing and agreed similarly then the evidenced cost can be recovered up to a maximum of £50. If reasonable costs exceed this figure then they may be allowable but they would have to be seen as fair.
Over the last few years the government has put into place a lot of regulation along with fines for non compliance, but in most cases the local authorities have either not had the time nor money to act. This scenario will now start to change as the new agency, which covers Fees, Redress Schemes and CMP (client money protection) as they have been tasked to offer assistance to local authorities, prosecute or force others to prosecute offenders.
Enforcement will occur if prohibited payments are taken and kept, returning them will certainly lessen the severity of the first contact; however ignoring the initial warning will escalate the problem. The first fine can be maximum of £5000 and for a second similar offence within five years, this can rise to £30,000 or a possible court case. This would then enable the local authority to put that landlord on the rogue database and further fines could put a landlord out of business!
Agents and landlords need to be extremely diligent over fees and incorrect deposits held. If in doubt, seek professional advice to avoid being on the wrong end of the law.