Tenant Fees Ban: What do landlords need to be aware of?

It is big news in the industry of residential lettings that the Government has recently published a Draft Bill with plans to make BIG changes to how landlords can charge tenants to let properties in England.

If the bill gets approved, it would become illegal to charge tenants for referencing, inventories, and any other cost that is currently the norm, particularly when a landlord uses an experienced agent.

Here is a summary of what is involved in the Tenant Fee Ban

• Landlords or their agent will have a limit on the amount they take as a deposit to six weeks’ rent
• Landlords or their Agents will have a maximum limit of one week’s rent on holding deposits
• There will be a blanket Ban on any other fees (except contractual default penalties)
• There will be Fines of £5,000 for first offence (civil)
• There will be subsequent Fines of £30,000 for second offence (criminal)

What do these mean to landlords?

Landlords – or their agents – will no longer be allowed to charge tenants for anything except the rent, the tenancy deposit and a holding deposit. This means you or your agent will no longer be allowed to ask tenants to cover the cost of their own referencing. This is going to have some big consequences as this forms a vital part of the lettings process and is done for the protection of landlords ensuring prospective tenants are able to pay the rental, have not defaulted in the past and have a good history so you know your biggest asset will be in safe hands! Additionally, you or your agent also won’t be able to charge for check-in/check outs, inventory or admin fees. This means that these costs will need to be covered by… guess who? Landlords!

Some ‘Defaults’ Are Exempt

It is likely that you or your agent will still be able to charge certain fees once the tenancy is set up. These are things like reasonable costs to replace lost keys and fines for late rent-payment or if your tenants are replaced mid tenancy, but we will know more about this in due course.

They will need to be included in the tenancy agreement for you to be able to charge them, and previous rules about fair clauses will still apply.

Limits on Tenancy Deposits

Tenancy deposits, also called security deposits, are to be limited to six weeks’ rent.

In practice, Latham Smith have always asked for a six week deposit as this means that in the event the tenant does not pay their last month’s rental, there is still some monies remaining to cover any dilapidations. If however, a tenant wants a dog or cat, then this is usually increased to 2 months deposit as there can be more damage with pets. This new rule will mean you can’t ask the tenant for a deposit larger than six times the weekly rent of the property which could mean landlords refuse more prospective tenants with pets, which doesn’t really benefit anyone and aid the current housing crisis!

Limits on Holding Deposits

Likewise, holding deposits will be limited to one week’s rent.

This is a big change, since most holding deposits are currently much more than a week’s rent and are non refundable. The biggest change in the Bill is that the holding deposit must be returned to the tenant: either in payment back to the tenant, or being put towards the first rental payment, or the security deposit.

There are some exceptions and in these cases the landlord or agent will be able to retain the holding deposits:

• If the tenant withdraws from the tenancy
• If the tenant doesn’t take all reasonable steps to enter the tenancy
• If the tenant fails a right to rent check
• If the tenant provides misleading information which materially affects their suitability to rent the property

What Are the Penalties to Landlords Who Charge Tenant Fees?

Landlord (or agents) who charge illegal fees will face paying enormous fines. The first offence would be deemed a civil offence, with a fine of £5,000. If the offence is repeated within five years, there would be either a criminal offence or a fine of £30,000.

There are also plans to help tenants recoup any illegal fees they paid from the landlord (or agent). Local Trading Standards organisations will enforce the ban.

Do bear in mind: It’s Just a Draft Bill

Although the Government seems to be on a mission to continue to bombard the already battered housing market with a ban on fees and restricting the size of deposits, the Bill is currently only in the Draft phase. The details could still change. Most people in the industry, Ben and I included do not understand why a simple cap on fees was not suggested instead of a ban. It seems to be yet another kick to landlords who already have so much legislation to follow and act upon, with severe penalties for non-compliance.

There will now be a period of discussion and feedback and the bill will be revised. When that happens, we’ll be back to keep you up to date with all developments.

We would welcome your comments, please feel free to email Ben or I at lettings@lathamsmith.co.uk.