The controversial Tenant Fee Ban came into effect on 1 June 2019 as a result of considerable public support wanting restrictions placed on letting fees charged by agents and landlords. The Tenant Fees Act sets out the Government’s approach to private sector renting and comes on the back of a public consultation survey carried out in 2017, which found that 93% of people agreed on a ban on letting fees.

What types of fee are now banned under the Tenant Fees Act?

Under private tenancies – including assured shorthold tenancies, lodging agreements and student accommodation – the following fees are prohibited:

  • The renewal of contracts after 1 June 2019
  • Charges for references
  • Administration, credit checks and immigration checks

These are all now classed as expenses and hence are the responsibility of the landlord or agent to meet. The only fees now allowable include tenancy deposits, holding deposits, rental payments, costs of amending a tenancy, costs of terminating a tenancy, fees for late payment of rent, fees for replacement keys and other security issues, council tax, utilities, TV licence, phone and internet.

What are the rules around payments still permitted?

Not surprisingly, much discussion surrounds those fees still allowed, rather than what is banned, so to clear up any grey areas:

  • Tenancy deposit: this deposit shall be no more than the equivalent of five weeks’ rent, where the annual rent is less than £50,000. If the annual rent is more than £50,000 the deposit may be up to six weeks’ rent. As previously, the deposit is fully refundable and must be kept in a deposit protection scheme, a Government-backed scheme to protect the tenant and ensure they get their deposit back, subject to certain conditions.
  • Holding deposit: This shall be the equivalent of one weeks’ rent and is paid to secure a vacant tenancy prior to the tenancy starting. The holding deposit shall be repaid upon the tenancy starting, but is non-refundable should the tenant be dishonest in providing information, doesn’t take up the tenancy or fails a rental check. The landlord or agent must, however, provide written confirmation as to why a holding deposit is being retained, within seven days.
  • Rental payments: Any attempt by a landlord to charge a higher rent and reduced amount over the rest of the tenancy is prohibited during the first year of a tenancy. The higher rent becomes a prohibited payment. A default fee is permitted if a tenant fails to pay their rent, but only if there is written provision for this in the tenancy contract. The rent must be 14 days late at a minimum and any interest charged on the default fee must not exceed 3% above the Bank of England base rate.
  • Tenancy amendments and early termination of contract: If a tenant requests a change to the tenancy, they can be charged a maximum of £50. This fee can only be exceeded if the letting agent can evidence that further costs have been reasonably incurred. When charging a fee for early termination, an agent must provide documented evidence of the additional expenses.

What are the expected outcomes of the Tenant Fee ban?

For tenants – it is expected that this will lead to greater transparency, because the landlord’s responsibilities are now much greater and clearer. Generally speaking, tenants have welcomed the legislation, as it reduces the associated costs of renting private property.

For landlords/letting agents – ARLA, the regulatory body responsible for letting agents, has claimed that the new legislation could lead to up to 3,000 job losses, and a predicted £200million loss in turnover. Letting agents believe they are being unfairly treated with a blanket ban on the back of the unscrupulous activity of a minority of letting agents or landlords. Many feel the fees charged historically are justified and have been issued fairly. They also claim that a letting agent is now effectively giving their time for free, if they can’t charge for credit checks and inventories etc, tasks which are important and take time.

Letting agents believe that it is inevitable that small letting businesses will have to pass the burden of lost revenue on to tenants. This means that any savings a tenant is making from reduced fees, is simply hitting them around the next bend in the form of rent increases.