David Cox Q&A: Further clarification for agents on the Tenant Fees Act

Letting agents are still seeking clarification on the Tenant Fees Act, months after it came into effect. ARLA Propertymark CEO David Cox answered questions on the Tenant Fees Act in a Goodlord webinar on legislation changes. 

What impact have the Tenant Fee Bans in England and Wales had so far?

There’s indications that - as predicted - rents have increased as a result of the Tenant Fee Ban, which is entirely normal as, when costs go up, prices to end-consumers go up. It’s basic market economics. 

Clearly the Tenant Fee Ban isn't doing what the government wanted it to do in reducing costs to in reducing costs to tenants because they are just paying the same, the price is being sliced slightly differently.

“Pet rents” have been in the news lately - what do you make of letting agents and landlords charging higher rents for tenants with pets?

There have been a few articles recently about the pets issue, but again, that is the only lawful way that letting agents and landlords can mitigate costs for damage caused by pets, by charging a higher rent for people with pets. What I’m seeing is that letting agents who used to take an extra two weeks’ security deposit are now calculating the financial value of those two weeks over a year and adding that to the rent. 

If a tenant has deliberately caused damage, what can the agent charge in contractual damages?

Contractual damages are lawful under the Tenant Fees Ban, but what does that actually mean? In most cases where the landlord asks the agent to arrange for the works to be sorted, the agent will employ a contractor and add a commission onto the contractors' bill and pass that on to the landlord. The landlord is paying contractor’s bill plus the agent's commission for the time of work involved in arranging and managing the works. Can the landlord then pass the whole bill, including the agent's commission or just the contractors' invoice onto the tenant?

We sought counsel’s opinion on this so I do have to clarify, this is counsel's opinion and it's not a legal ruling, and it will require a legal ruling to actually create a precedent. The opinion is that you will be able to pass on the contractor’s invoice but not the costs of arranging the contractor or the commission. This is based on the spirit of the tenant fee act itself together with existing precedent.

Can agents retain any money for time and referencing fees incurred when a tenants changed their mind regarding a property?

If a tenant changes their mind and pulls out then yes, that is the first and probably most important exemption from the return of the holding deposit rule. under the return of the holding deposit rules, if the tenant pulls out, they forfeit their whole holding deposit. When a holding deposit is forfeited, it is forfeited in its entirety. 

What I would say for agents to remember is that if a holding deposit is forfeited, it technically becomes a fee subject to VAT for accounting purposes and you won't be able to charge the VAT on top - the value of the holding deposit is inclusive of VAT.

I would also recommend making sure it's very clear in your terms of business with your landlords who is keeping the holding deposit. Are you keeping it as the agent in its entirety? Are you giving it in its entirety to the landlord? Are you sharing it? There's nothing in law that says how you should do it. To avoid any complaints or contractual issues later, I would strongly suggest you have a clause in your terms of business that makes it absolutely crystal clear what happens to that holding deposit from the very outset of your business with your landlord clients.

Is taking rent in advance of signing the contract considered an excess holding deposit?

There are two schools of thought on this. One indicates that if you take anything other than that holding deposit before you sign the contract, that is an excess holding deposit. The other school of thought is that  it's just the normal course of business. 

It's going to require court case to decide the actual answer but, in terms of liability, if the court decides It's absolutely fine to take the rent and security deposit before signing the contract and you've been waiting until afterwards or what you've been doing is going beyond what the law requires, you've got no liability. 

However, if it goes the other way and the court says, “No, actually that is an excess holding deposit.” Then you will be liable to return of the holding deposit, the return of the security deposit, the return of the first month rent plus a 5,000 pound fine for each instance of an excess deposit being taken.

In terms of returning excess deposits, is the deposit value based on the current rent or potentially the lower original rent?

The excess is calculated on the five times the new rent, not five times the original rent. If you've taken a six week security deposit you're not giving back a week, you're giving back the difference between six weeks’ of the original rent and five weeks’ of the new rent,  which could, in some circumstances, actually be nothing at all.

The full recording of the webinar is available to watch now.