Tenant Fees Act 2019 Q&A

16th June 2020 Commercial Litigation

The Tenants Fees Act 2019 came into full effect on 1 June 2020 and it overhauled the letting sector by introducing prohibitions which apply to both landlords and agents. This Q&A addresses common questions about the new regime under the Act.

What payments are prohibited under the Act?

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.

What tenancies does the Act apply to?

The Act now applies to all Assured Shorthold Tenancies and most residential licences.

There was a transitional period for tenancies pre-dating 1 June 2019 which expired on 1 June 2020.

Do all agreements pre-dating 1 June 2019 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landlords and agents to contact their tenants and inform them what specific terms in respect of prohibited payments are no longer valid.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.

What happens to deposits where a fixed-term tenancy becomes a statutory periodic tenancy after 1 June 2020?

A deposit is implicitly taken every time a tenancy is renewed, whether due to a contractual or statutory provision. However, s30 of the TFA states that it does not apply to statutory periodic tenancies which arose as a result of a fixed term tenancy which commenced before the TFA came into force in June 2019. So deposits for tenancies that have become statutory periodic based on a tenancy that pre-dated the TFA are not covered. Where a tenancy has been renewed for a further fixed term after the TFA came into effect then will apply to that renewal and to any statutory periodic tenancy that arises from it. If a statutory periodic tenancy is renewed as a new fixed term tenancy then the TFA restrictions will apply.

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.

Can a landlord/agent require a tenant to contract with a third party cleaner?

No. The TFA prohibits requiring tenants to contract with third parties. So it is not possible to compel tenants to obtain professional cleaning services. The only way this can be done is for the landlord to obtain those services and include the cost within the rent.

Is a landlord able to serve a section 21 notice where a prohibited payment has been requested by and made to the agent, rather than the landlord?

Very unlikely. An agent’s is the landlord’s representative. 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.

What are the penalties for requesting or accepting prohibited payments?

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.

Conclusion

Get in touch with us if you have any questions about the Tenant Fees Act.

Send us any further questions you would like added to this Q&A and we will try to add them, too.

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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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