Tenant Fees Bill: new rules to come into effect from 1 June 2019

Lord Bourne, the Parliamentary Under-Secretary of State for the Ministry of Housing, Communities and Local Government and Wales Office, confirmed that the provisions of the Tenant Fees Bill would come into effect on 1 June 2019. This is subject to the bill passing back through the House of Commons and receiving Royal Assent, although further substantive amendments in the Commons are not anticipated, given that the bill has broad cross-party support.

As a result, landlords and managing agents will have less than five months to ensure that they are in a position to comply with the regulatory changes that the Tenant Fees Bill will introduce.

Tenant Fees Bill: key points

If, the bill is enacted in its current form, as expected, the following key changes will apply in relation to private residential ASTs signed on or after 1 June 2019:

• Letting fees will be banned, and landlords will only able to take payments from tenants in respect of:
  • rent;
  • deposits;
  • specific default fees;
  • fees for variations, assignment or novation; and
  • damages for tenant breach of covenant.
• Tenancy deposits will be limited to five weeks' rent (unless the annual rent is £50,000 or above, in which case the limit is six weeks' rent).
• Holding deposits will be limited to one week's rent and stricter rules will apply as to how landlords hold these.
• Default fees can only be charged in respect of rent arrears and lost keys. Any invoice for default fees must be accompanied by evidence (for example, receipts). The following limitations also apply:
  • Lost keys: only the cost of replacement keys and reasonable other costs can be recovered. Although "reasonable" is not defined, landlords may not be able to charge for time spent procuring new keys.
  • Rent arrears: interest on arrears is limited to a maximum of 3% above the Bank of England base rate. This means that the current cap would be 3.75%.
• Fees for varying a tenancy, or in relation to an assignment or novation, are permitted. However, where the fee charged exceeds £50, the landlord must evidence that the amount is "reasonable", otherwise it will be capped at £50.
• Although the landlord may recover damages arising from a tenant's failure to perform obligations or discharge liabilities under a tenancy, the amount recoverable is limited to the loss suffered.
• Where a breach of the regulations is outstanding, the landlord may not serve a Section 21 notice to terminate the tenancy.
• Enforcement of the new requirements will generally be carried out by the local district council, and tenants will be able to claim back any prohibited payments. The sanction for failure to remedy a breach of the provisions will be a fine up to £5,000 for a first offence. This threshold will increase up to £30,000 for a repeat offence.

Osborne Clarke comment

The changes to be implemented by the Tenant Fees Bill are wide in scope. It prohibits all payments being charged in relation to tenancies, except for those exceptions listed in Schedule 1 and stated above. The changes are intended to prevent landlords from recharging tenants through alternative management or administrative fees. Furthermore, managing agents and licensors (such as property guardian companies) are included within the definition of landlord, and so they will be subject to the new regime as well.

Ultimately, the Tenant Fees Bill is aimed at curbing the "sharp practices" of a minority of landlords and agents, and the threat of a fine of up to £30,000 for repeat offenders will serve as a strong deterrent against non-compliance.

In practice, many private landlords will already comply with most, if not all, of the requirements of the proposed new regime. However, given the strong likelihood that the Tenant Fees Bill will pass through the Commons without significant (if any) further amendment, landlords and agents should nevertheless review their existing policies for property lettings and management, together with any standard form tenancy agreements, to ensure compliance with the new rules.