Tenant Fees Act 2019 Applies to All Tenancies from 1 June 2020

28th May 2020 Commercial Litigation

The Tenant Fees Act 2019 came into effect on 1 June 2019. However, there was a transitional provision, which meant that for a period of one year the Act did not apply to tenancies and letting agency agreements pre-dating 1 June 2019.

This transitional period is now about to expire on 1 June 2020, which means that the Act will now apply to all Assured Shorthold Tenancies and most residential licences.

In effect, the Act prohibits all payments made by tenants (or third parties, e.g. guarantors) to landlords and estate agents, apart from payments excluded in schedule 1 of the Act, which lists 11 types of permitted payments:

  • rent;
  • tenancy deposit;
  • holding deposit;
  • payment in the event of default;
  • damages for breach of an agreement;
  • fees for variation, assignment or novation of a tenancy;
  • payment on termination of a tenancy;
  • payment in respect of:
    • council tax;
    • utilities;
    • TV licence; and
    • communication services.

Some of the permitted payments are also capped by the Act. For example, a tenancy deposit is capped at 5 weeks’ rent unless the annual rent for the property exceeds £50,000 while a holding deposit should not exceed one week’s rent.

The Act overhauled the letting sector and the prohibitions it introduced apply to both landlords and agents. The consequences of a failure to comply are significant and include financial civil penalties of up to £5,000 for each offence, i.e. for each prohibited payment made; and larger financial penalties of up to £30,000, criminal prosecution and banning orders. The main consumer redress schemes have also made clear that they expect the rules to be obeyed and so potentially may levy further penalties if a complaint is made to them.

Additionally, a landlord will not be able to serve a section 21 notice until any prohibited payments have been fully repaid to the tenant. It is not entirely clear what the position is for a landlord serving a section 21 notice where a prohibited payment has been made to an agent of the landlord. However, considering the clear objective of the Act, it is unlikely that any leeway will be allowed by the courts to landlords who seek to evict tenants while prohibited payments are being held by their agents. In similar situations the Courts were not prepared to allow any leniency in relation to tenancy deposit protection legislation.

Some practical implications will no doubt be on landlords’ and agents’ minds as we approach the expiry of the transitional period.

Do pre-existing agreements, which were until now covered by the transitional period, need to be updated?

Not necessarily. Terms requiring prohibited payments will just not be binding and the agreement will continue to have effect so far as practicable.

However, there is still a risk that a tenant could make a prohibited payment relying on such a term, even where a landlord does not seek to enforce the term after 1 June 2020. Furthermore, where an old term requests a payment in excess of a cap introduced by the Act, the whole term is likely to be rendered non-binding, thus fully depriving the landlord of the payment.

Good practice could be for landlords and agents to contact their tenants and inform them what specific terms in respect of prohibited payments are no longer valid.

Better practice will be for pre-existing agreements to be varied by consent in order to be brought fully in line with the new legislation. This may sound cumbersome, but arguably not as cumbersome as having to face the consequences of an avoidable breach of the Act.

What happens to deposits currently held which exceed the cap?

Some deposits which landlords hold for tenancies which came into existence before the Act came into effect, i.e. before 1 June 2019, could exceed the 5-week cap. Should these be repaid?

For fixed-term tenancies, the answer should be ‘no’ as the payment was not a prohibited one at the time when it was made and the legislation does not operate retrospectively, only concerning itself with payments ‘made’ during its period of effect.

However, where the tenancy is to be renewed after 1 June 2020 the deposit will be taken again on renewal, whether explicitly or implicitly, as a result of the decision in Superstrike. At that point it would exceed the threshold and would therefore be unlawful. The correct approach would therefore be to refund any deposit amounts which exceed the cap on renewal of the tenancy.

Can landlords/agents continue to require professional cleaning fees?

No. A requirement that the property is cleaned to a professional standard is allowed, but if a tenant is required to pay a fixed sum for a professional cleaner, this would be a breach of the Act. In circumstances where the property is left in a condition which falls below the required standard, then a professional cleaning fee could be charged to rectify the breach of the agreement but this fee cannot be pre-specified in advance.

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David Smith is a Partner located in Londonin our Commercial Litigation department

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Neli Borisova is a Solicitor located in Londonin our Commercial Litigation department

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