A guide to the Tenant Fees Act 2019

The Tenant Fees Act 2019 severely limited the fees landlords and letting agents could charge tenants. For example, common charges such as tenancy agreement fees, reference fees, inventory costs, and check-out fees became illegal overnight – and breaking the rules became potentially very expensive. However, the legislation meant landlords and agents had to quickly learn what fees were permitted and which weren’t.

In this article, we take a look at what’s prohibited, what isn’t, and what the consequences are for breaking the rules. We also answer some frequently asked questions about the legislation.

• What is the Tenant Fees Act?
• What fees can a landlord charge a tenant?
• Can a landlord charge late payment fees?
• What are the penalties for breaking the Tenant Fees Act?
• How can tenants report prohibited payments?
• Can letting agents charge fees?
• FAQs
• How can landlords prevent losses?

What is the Tenant Fees Act?

The Tenant Fees Act 2019 came into force on 1st June 2020. The Act aims to make rental contracts and associated fees clearer to tenants.

Who does the Tenant Fees Act apply to?

The Act applies to both landlords and letting agents. A letting agent is anyone who Acts on behalf of a landlord. They needn’t be a professional and could, for example, be a family member.

Under the legislation, it is illegal for landlords and letting agents to charge tenants certain fees.

The ban on these fees applies to the following types of tenancy agreement:

• Assured shorthold tenancies – this is the most common type of tenancy in the private rental sector.
• Student accommodation – this covers housing provided by educational organisations.
• Tenancy licences – where tenants don’t have exclusive possession of a property, such as lodgers who share a house with their landlord.

What fees are banned under the Tenant Fees Act?

Almost all service charges are banned, as are charges to do with administration. In fact, it’s probably easier to assume all landlord and letting agent fees are banned unless they are on the list of allowable expenses.

The full list of fees you can no longer charge can be found at GOV.UK, Tenant Fees Act, guidance for landlords. Some examples of prohibited payments include:

• Viewing fees
• Tenancy set-up fees
• Tenancy check-out fees
• Professional cleaning after check-out
• Inventory checks – including making an inventory list for a rental property
• Third-party fees, including referencing and credit checks, and insurance (including rent guarantee and legal expenses insurance)
• Gardening and cleaning services – unless they are included in the rent
• Chimney sweeping costs

The Tenant Fees Act and Section 21

If you have unlawfully charged a tenant fees, you cannot evict them using Section 21 of the Housing Act 1988. Similarly, you cannot use Section 21 if you have unlawfully retained all or part of a tenant’s deposit. Unlawfully held fees and holding deposits must be repaid before you can evict using Section 21.

What fees can a landlord charge a tenant?

Under the rules set out by the Act, landlords and letting agents can only charge a limited number of fees; they are:

• Rent – rental costs must be consistent throughout the year, so you can’t charge more in the first month to compensate for lost fees. You can increase rent part way through the tenancy if your tenancy agreement has a rent review clause. You can also increase the rent annually in accordance with Section 13 of the 1988 Housing Act.
• Upfront rent – you can ask a tenant to pay rent upfront as a lump sum, but the amount must not exceed the rent chargeable over the fixed term of the tenancy.
• Refundable tenancy deposit – this is capped at five weeks’ worth of rent (for tenancies where annual rent is less than £50,000). Where rent is £50,000 or more, you can charge up to six weeks’ rent as a deposit.
• Refundable holding deposit – you can ask potential tenants to pay a reservation fee to hold the property; this is capped at one week’s rent. You can only have one holding deposit per property at any given time.
• Early termination of the contract – you can only charge tenants if they have asked to end the tenancy before the originally agreed date. The cost must not exceed the costs incurred by the landlord (usually loss of rent and costs of re-advertising or referencing) or reasonable costs to the letting agent (normally marketing and referencing costs).
• Changes to the tenancy contract – an admin fee is only allowed if tenants have asked to make changes to the tenancy. This is limited to a maximum £50.
• Utilities – you can charge for utilities such as electricity and gas if they are part of the tenancy contract.
• Communication services – this covers broadband payments and TV licence costs if included in the tenancy.
• Default fees and damage payments – you can only charge these fees if they are set out in your tenancy agreement. If a tenant is 14 or more days late with the rent, you can charge interest (see the answer to the next question for details). If a tenant loses a key or security device needed to gain access to the property, you can charge the reasonable cost of replacing these items.

Can a landlord charge late payment fees?

Yes, but these can only be charged if your tenancy agreement allows it. You can only charge fees for the late payment of rent when a tenant is at least 14 days in arrears. Interest for each day of non-payment must not be more than 3% above the Bank of England’s base rate.

If your tenancy agreement doesn’t allow default fees, you may be able to claim damages for breach of contract. You’ll normally do this by claiming against the tenancy deposit, but you can initiate legal proceedings at any time.

What are the penalties for breaking the Tenant Fees Act?

Breaking any of the rules is considered a civil offence for the first instance. Breaking them again can lead to a criminal conviction. The penalties for each differ.

Financial penalties for landlords and agents

The penalties for breaching the Tenant Fees Act apply to landlords and lettings agents. A first breach can attract a financial penalty of up to £5,000. Any subsequent breach within five years can be dealt with in one of two ways. Either a local authority can apply a penalty of up to £30,000 or decide to prosecute. A successful prosecution under the Act can lead to an unlimited fine. If you are convicted, the local authority can apply for a banning order and may add you to the database of rogue landlords and property agents. This will prevent you from renting out any property.

How can tenants report prohibited payments?

If a tenant is asked to make a prohibited payment, they can report the landlord or letting agent to their local authority (usually Trading Standards). If a landlord or letting agent refuses to repay the illegal fee, a tenant can recover it via a First-tier Tribunal. The tenant cannot be evicted using Section 21 at any stage unless the payment has been returned.

Can letting agents charge fees?

Under the Tenant Fees Act 2019, letting agents can only charge permitted fees. Any other costs are considered ‘prohibited payments’, and asking tenants to pay them, can lead to penalties.

What fees can letting agents charge?

Fees letting agents can charge include rent and a tenancy or holding deposit. You can also ask tenants to cover reasonable costs if they have requested a change to the tenancy agreement or choose to leave the property early.

The only services letting agents can charge for are utilities (including water and sewage disposal), communication (such as broadband), and TV licences if included in the tenancy agreement.  Making tenants pay for services not listed under permitted fees can lead to financial penalties and prosecution.

Of course, letting agent fees for landlords are still permitted as the landlord is buying a service.

Can letting agents charge for a reference?

No, letting agents can ask prospective tenants for a reference, but they can’t be made to pay for this service.

Tenants may decide to pay for their own referencing checks from a third party, but this is up to them.

FAQs

Can landlords charge a tenancy agreement fee?

No, these are banned under the terms of the Act.

Can landlords charge a fee at the end of a tenancy?

An end of tenancy fee can only be charged if a tenant leaves before the end of the contracted period. This fee can only cover the reasonable costs incurred by the landlord, including loss of rent and re-advertising costs.

Can landlords charge fees for missed appointments?

No, landlords can’t charge fees for missed appointments, such as contractor call outs.

Can landlords charge a decorating fee?

No, this isn’t allowed. However, if a tenant causes damage to a property or redecorates without the landlord’s consent, the landlord may claim against the tenancy deposit.

Can landlords charge wear and tear fees?

No, it is illegal to charge fees for fair wear and tear.

Can landlords charge for callout fees?

Landlords are not allowed to charge for call outs, such as for contractors. Landlord responsibilities include maintaining the structure of a property, along with the provision of water, electricity, heating systems, drainage, gas and more. You can learn more in this article on Section 11 of the Landlord and Tenant Act 1985.

Can landlords charge service fees?

No, these would be classed as prohibited payments.

Can landlords keep holding fees?

A landlord can keep a holding deposit if the tenant decides not to rent the property, gives inaccurate or misleading information in their application or can’t pass a Right to Rent check. If the tenant agrees, the landlord can also put a holding deposit towards a tenancy deposit or first rent payment. Otherwise, the landlord must return the holding deposit within seven days of the tenant signing a tenancy agreement.

Can landlords charge a tenant an early termination fee?

Yes, if a tenant leaves before the agreed tenancy period ends, a landlord can charge an early termination fee. The cost must not exceed the loss incurred by the landlord (usually loss in rent and remarketing costs). The charges must be reasonable and backed up by evidence of the actual costs incurred by the landlord.

How can landlords prevent losses?

Being a landlord comes with a number of challenges, but our experts are here to help you protect your investment and minimise financial losses.

Along with our tenant fees ban guidance, our landlord hub can help you navigate the many challenges that come with renting out property – whether that’s understanding your landlord obligations, putting together the right landlord documents, or dealing with problems with tenants.

Plus, with our five-star rated landlord insurance, you can be confident about finding a policy that suits your needs. For tailored packages that cover a wide range of events and incidents, speak to one of our experts on 01603 216399.