What is the impact of the Tenant Fees Act 2019 for Landlords?

The Act comes into force from 1 June 2019 and is designed to prohibit certain payments between landlords or agents and tenants “in connection with a tenancy of housing in England.”

All payments in connection with a tenancy are prohibited unless they are specifically permitted by Schedule 1 of the Act. They are as follows:

  • Rent
  • Tenancy deposit
  • Holding deposit
  • Payment in the event of a default
  • Payment on variation, assignment or novation of a tenancy
  • Payment on termination of a tenancy
  • Payment in respect of council tax
  • Payment in respect of utilities
  • Payment in respect of a television licence
  • Payment in respect of communication services

In essence, the Act outlaws payment not contained in Schedule 1. The landlord or the letting agent cannot levy payments outside of the above non-exhaustive list.

The Act applies to Assured Short Tenancies (“ASTs”), House in Multiple Occupation (“HMOs”) and licences to occupy. 

There is a one year transitional period and after the transitional period ending on 1 June 2020, the Act applies to all applicable tenancy agreements regardless of when the tenancy was entered into.

How does the Act impact on the Tenancy Deposit?

Although the tenancy deposit is chargeable and remains unchanged in this respect, the amount a landlord or a letting agent can request is governed by Schedule 2 of the Act.

The deposit amount is determined by the amount of annual rent. If the annual rent is less than £50,000 per annum, the maximum tenancy deposit permitted is five weeks rent. If the annual rent is equal to or greater than £50,000, the maximum tenancy deposit permitted is six weeks rent.

Where the landlord or the letting agent is in breach of this prohibition, they should return the excess to the tenant.  

In respect of a holding deposit it should be no more than one week’s anticipated rent and in accordance with paragraph 3 of Schedule 2, the holding deposit must be repaid if:

  1. The landlord and the tenant enter into the tenancy agreement;
  2. the landlord decides before the deadline for the agreement not to enter into the tenancy agreement; or
  3. the landlord and the tenant fail to enter into the tenancy agreement before the deadline.    

How does the Act affect section 21 notices?

A landlord is prohibited from serving a section 21 notice if he requires a tenant to make a prohibited payment and breaches the conditions of Schedule 2 in relation to holding a deposit. Either or combination of both of the said prohibition will invalidate a section 21 notice and accordingly it is to be avoided given the cost implications this may have for landlords including the delay in obtaining vacant possession. 

If a prohibited or excess payment (in relation to a deposit) is obtained, the landlord should return it primarily for two reasons:

  1. to be able to serve a valid section 21 notice;
  2. to avoid prosecution or financial penalty – see below; and  
  3. to avoid an application being made to the FTT for repayment of the prohibited sum – see below. 

Schedule 3 – Financial Penalties

By virtue of section 6 and 7 of the Act, the power of enforcement lies with the local weights and measures authority (usually local authority Trading Standards) for the prohibitions applying to landlords and letting agents and repayment obligations in relation to holding deposits.  

The first offence is treated as a civil offence and the Statutory Guidance for Enforcement Authorities allows an enforcement authority to impose a fine of up to £5,000. The standard of proof is beyond reasonable doubt that a person has breached either the prohibitions or repayment obligations and the requirements relating to holding deposits.  

If the offence is repeated within five years, under section 8(3), it would be deemed a criminal offence and an enforcement authority can impose a financial penalty of up to £30,000 where it is satisfied beyond reasonable doubt that an offence under section 12 has been committed. The imposition of the financial penalty is an alternative to prosecution.

The enforcement authority has power to require a landlord or a letting agent to repay the tenant or relevant person any outstanding prohibited payment or holding deposit plus interest and pay compensation if a relevant person was required to enter into a prohibited contract with a third party. The compensation is limited to the aggregate amount of the payments that person has made plus interest.

An application to the First-Tier Tribunal (“FTT”) can be made to repay the prohibited sum. The FTT can order the landlord or the letting agent to make the repayment within 7 to 14 days of the Order.

The law relating to residential landlord and tenant is increasingly becoming complicated and as can be seen from the above, strict compliance with the Act is required. Failing this, the landlord will be exposed to serious risks of costs, time, resources and criminal prosecution which could lead to a ban.