Lettings Agents will know the Tenant Fees Ban is due to come into effect on 1st June, but are you aware of exactly how this will impact your business and what you can do now to prepare?
In a recent poll, we found that only 18% of lettings agents* feel prepared for the fee ban, leaving the vast majority feeling either unprepared or unsure how this will affect them.
We’ve pulled together some key facts and advice based on a live Q&A aired on 20th February 2019 with David Cox, CEO of ARLA Propertymark. You can watch the recording any time that suits you by clicking here
The Tenant Fees Act 2019
The bill has now completed its parliamentary passage and received royal assent to become the Tenant Fees Act 2019, which the government have committed to introducing it from 1st June 2019. The official guidance for the ban has not yet been released; all advice provided is based on the draft guidance so may be subject to change.
Who will be affected by the ban?
• All assured short hold tenancies or licence to occupy contracts signed on or after 1st June 2019.
• Landlords and third parties including referencing agencies, inventory companies, insurance companies.
What is a permitted payment?
Under Section 2 of the Tenant Fees Act 2019 all charges are prohibited unless specifically listed as a permitted payment;
• Holding deposit (up to 1 weeks’ rent)
• Security deposit (up to 5 weeks’ rent, or 6 weeks’ if annual rent is over £50k)
• Default fees such as; rent arrears, lost keys, other security devices, change of sharer, novation of contract, surrender of tenancy, charges associated with green deal or energy efficiency scheme
What charges will be prohibited?
All charges not specifically listed as a permitted payment will be prohibited after the ban. Some examples are;
• General admin
• Tenancy set up costs
• Contract negotiation
• Check in and out
• Contract renewal
• Saturday move in service
There is also a specific provision within the bill stating, “You cannot charge a higher rent in any one period to any other period in the tenancy”.
You will not be able to cover your costs by charging a higher rent for the first month, or any other month.
There will be a transitionary 12-month period ending 31st May 2020. During this time, you can continue to charge fees written into your existing tenancy agreements.
If an existing tenancy drops onto a statutory periodic or contractual periodic
• This is classed as an extension of the existing tenancy agreement
• You’ll be able to charge for any fees written into the existing contract
If an existing tenancy is renewed
• This is classed as a new tenancy agreement
• Under the new regulations you’ll be unable to charge fees
• If you took a check-out fee upfront, this will now become a prohibited payment and must be refunded to the tenant within 7 days of signing the tenancy renewal
You will still be able to charge tenants for a holding deposit subject to the terms below:
• Maximum holding deposit should be no more than a single weeks rent per property, not per tenant
• Only one holding deposit can be held per property at any given time
When can you retain a holding deposit?
• If the tenant pulls out of renting the property
• If the tenant fails a right to rent check
• If the tenant provides false or misleading statements; you’ll need to prove the tenant lied, so ensure your application forms that mirror your referencing questions
• If you have been unable to exchange signed contracts within 15 calendar days of taking a holding deposit due to fault on the tenants’ part
The 15 calendar days can be extended by any period, provided you have mutual written agreement from the tenant and the landlord.
If you’re going to retain the holding deposit you must provide the tenant with the reasons for doing so in writing.
Do you have to refund the holding deposit for successful tenants?
• You can put the holding deposit towards either the first months’ rent or the security deposit
• David Cox recommends you put the holding deposit towards the first months’ rent
• To do this you would need the tenants written consent
• You could add a clause to your application agreement to cover this
After the ban you’ll still be able to take a security deposit, subject to the below terms;
• Maximum deposit for most properties is 5 weeks rent
• If annual rent is over £50k, this increases to 6 weeks rent
Do you need to refund existing security deposits held that are over 5 weeks rent?
According to the draft guidance this will not be required. You can hold the existing deposit for the duration of the existing tenancy.
If the tenancy is renewed it will class as a new tenancy agreement and new regulations will apply. In this scenario you would need to refund the difference in deposit upon renewal of the contract.
You can use this calculation to work out the new deposit:
David Cox’s advice for security deposits
• Reduce future administration time by switching to a security deposit of 5 weeks or less now
• If your CRM system calculates the security deposit automatically, check with your provider that they’ll be updating this calculation in time for the ban
Deposit replacement schemes
It is expected that you’ll still be able to offer deposit replacement schemes after the ban, providing the tenant is free to choose between a security deposit or using the deposit replacement scheme.
Make sure you’re able to prove that the tenant had a choice; request their preference in writing or as part of your application form for your records.
The draft guidance does not go into detail as to whether you’ll be able to specify which deposit replacement scheme can be used.
Tenants with pets
After the ban you will no longer be able to take a higher security deposit for tenants with pets; the maximum 5 weeks rent for security deposits cannot be exceeded.
Based on the draft guidance it is expected that you will be able to charge a higher monthly rent for tenants with pets, so long as you make the prospective tenants aware of the additional cost at the earliest available opportunity.
David’s advice is to include details of this on your property listings, so tenants can make an informed decision as to whether to view the property.
You can continue to include terms within the tenancy contract that the “property must be returned to the condition it was given at the start of the tenancy, which was professionally cleaned”.
However, you may not state that the tenant must pay for professional cleaning as this could be classed as a prohibited payment.
Changes to a contract instructed by a tenant
If a tenant requests a change to their contract, you’ll be able to charge up to £50 including VAT, or your reasonable costs if higher. You’ll need to be able to evidence your costs when requested.
At present, it is unclear whether you’ll be able to charge for your time. You may wish to consider what changes you will allow tenants to make to their contracts once the official guidance is available.
Referral fees and commission
According to the draft guidance, you will still be able to take referral fees and commission so long as you are transparent with the bill payer.
For example; you may take a referral fee from a utility company you have recommended to a tenant, so long as the tenant knows you will receive a commission. The tenant must also be free to choose an alternative supplier should they wish.
How to prepare
The first step is to work out how much profit you are currently making out of your tenant fees.
How you choose to replace that revenue will vary from agency to agency, depending on a wide range of factors. Some things to consider are:
• The size of your business
• Where your business is located
• The type of tenants and landlords you work with
Where to go for more advice
David will be joining us for another webinar about the fee ban in April 2019. By this date the official guidance should have been published. Follow us on LinkedIn to see when the webinar date is announced and book your place.
You can also send your questions to David directly via email and keep an eye out for ARLA’s Tenant Fees Toolkit once the official guidance has been published.
Primary Authority Advice
Click here to visit ARLA’s website for more advice and guidance on the Tenant Fee Ban Act 2019.
*During the Q&A with David Cox we asked attendees if they felt prepared for the Tenant Fees Ban. 575 users responded, with only 18% saying yes.