Updated: Q&A on the Tenant Fee Ban with ARLA CEO David Cox
David Cox provides detailed answers to questions from letting agents from around the country about the Tenant Fee Ban.
ARLA CEO David Cox joined Goodlord for a webinar on the Tenant Fee Ban, where he answered the questions of letting agents from around the country.
Click on a question below to jump to the answer:
- What are we allowed to charge tenants under the Tenant Fees Act?
- What aren't we allowed to charge for?
- Can we charge for professional cleaning at the end of a tenancy?
- Can we charge guarantors admin or referencing fees?
- Will landlords be able to charge move-in fees?
- Will we be able to charge for Right to Rent checks?
- Will we be able to charge a fee if a tenant ends a contract before the end of a fixed term?
- Can we charge tenants for late rental payments?
- Can we charge tenants for negligence?
- Can we keep the fees that have been charged for tenancy agreements that have already been signed?
- Will we still need to display our fees?
- How can we avoid applicants withdrawing once the application process has already begun?
- Are there any grounds on which the holding deposit can be withheld?
- Will we need to refund existing deposits that are longer than five weeks?
- Can we take an increased deposit if the tenant has a pet?
- Can we charge an insurance premium for a deposit replacement scheme?
- Can we receive commission when selling insurance products to a tenant prior to a tenancy starting?
- Can we still charge referral fees?
- Are we allowed to receive referral commissions from a reference company if we refer a tenant to secure a reference?
- How will the ban be enforced?
What are we allowed to charge tenants under the Tenant Fees Act?
Work on the principle that absolutely every penny a tenant pays is unlawful, unless it is actively allowed by the legislation. The things that are actively allowed are:
- Utility bills
- A holding deposit capped at one week's rent
- A security deposit capped at five or six weeks' rent, depending on the annual aggregate rent of the property
- Rent arrears
- The cost of replacing a lost key or other security devices
- Variation to the contract, capped at £50 including VAT
- A green deal payment or other energy efficiency charges
What aren't we allowed to charge for?
Administration fees, application fees, set-up fees, contract negotiation fees, referencing fees, check-ins, check-outs, inventory fees, renewal fees, end-of-tenancy fees, Saturday move-in fees... All charges, absolutely everything, are banned from the 1st of June for new tenancies, unless they have specifically been made permitted payments.
Can we charge for professional cleaning at the end of a tenancy?
No, you can't charge for professional cleaning - that's actually been illegal since 1977 under the Unfair Contract Terms Act. All you can say is that a property must be returned in the state that it was at the beginning of the tenancy.
Can we charge guarantors admin or referencing fees?
No. It’s called the Tenant Fees Bill but they’ve pretty much entirely removed the word “tenant” from the bill - what they talk about is a relevant person and a relevant person is anyone that’s involved in the granting, continuation, renewal or termination of a contract. It includes prospective tenants, actual tenants, guarantors, etc. It’s exceedingly widely drafted.
Will landlords be able to charge move-in fees?
No. The ban doesn’t just apply to letting agents, it applies to landlords as well and third parties, such as referencing agencies. So whilst we talk about it as a lettings fee ban, it’s more of a PRS fees ban, so it doesn’t just apply to letting agents.
Will we be able to charge for Right to Rent checks?
No, you will not be able to charge the tenant for Right to Rent checks - the landlord or the agency will have to pick up those costs. However, if the tenant fails a Right to Rent check, that is a reason for withholding the holding deposit, because an applicant should know if they’re going to fail and has therefore deliberately wasted an agent’s time and money.
Will we be able to charge a fee if a tenant ends a contract before the end of a fixed term?
Yes, you will be able to charge an early surrender fee. That fee can not be more than the total rent outstanding on the property, it should be reasonable. The government has suggested that agents will be able to charge the landlord's costs in re-letting the property, plus the amount of rent owing until the new tenant moves in, up to a maximum of the total rent outstanding on the property.
Can we charge tenants for late rental payments?
All you can charge is interest on rent arrears, and that interest charge is calculated at 3% above the Bank of England's base rate from the date the rent falls due, until the date it is paid. However, you can't levy that charge unless the tenant is at least 14 days in arrears. So if they're 10 days late paying rent, you can't levy the interest charge. If they're 15 days late paying rent, you can levy the interest charge, and you can backdate it to when it fell due.
You will need to change that interest clause in your tenancy agreements.
Can we charge tenants for negligence?
Yes, that comes under the damages provisions of the act, which says you can charge the tenant for returning the property to the condition it would have been in, had the tenant not breached the tenancy agreement.
So, for example, if a tenant blocks a toilet with nappies, the landlord does need to fix the problem, but you can bill the tenant immediately. So, effectively you can bill the tenant for the contractor call-out to come and fix it. If the tenant refuses, you can either take them to the small claims court then or when the tenancy's ended, or, which is probably the most likely, you can deduct it from their deposit at the end of the tenancy.
But you can only deduct it from the deposit at the end of tenancy if the tenancy agreement allows you to do that - you must make sure that the deposit clause in your tenancy agreement allows deductions for damages.
Can we keep the fees that have been charged for tenancy agreements that have already been signed?
Yes, you can - the law is not retrospective. The ban will only affect contracts which are signed on or after 1st June 2019. You can continue charging fees for any contracts signed before 1st June 2019 and any fees associated with that tenancy can still be charged for a period of 12 months after the ban comes into force. This means the last date of chargeable fees for existing tenancies will be 31st May 2020.
But, if the tenancy renews during that period, that becomes a new tenancy, which means all fees will be banned, because that will be classed as a new tenancy.
Will we still need to display our fees?
Yes, the Consumer Rights Act and fee transparency rules are not going away, so agents will still have to display all their fees prominently in their offices and on their websites. In relation to tenant fees, you're actually going to need two sets of fee schedules come the 1st June - one for new tenancies and one for tenancies entered into before the ban.
How can we avoid applicants withdrawing once the application process has already begun?
Take a holding deposit. You will be able to take up to one week’s rent as a holding deposit on the property, which you can hold for 15 days. If the agent or landlord pulls out, you have to give that holding deposit back. If the tenant’s application is successful, you’ll also have to give that back. However, if the tenant pulls out during the application process, they’ll forfeit their holding deposit. That has been done very deliberately to stop tenants applying for multiple properties and then deciding which one they’ll have.
Are there any grounds on which the holding deposit can be withheld?
There are four grounds on which holding deposit can be withheld:
1. If the tenant pulls out of the tenancy before the contracts are signed.
2. If the tenant fails a Right to Rent check. You are not lawfully as agents and landlords allow to let property to somebody that doesn't have the right to live in the United Kingdom.
3. If the tenant provides false or misleading information - this does not mean failing referencing. If a tenant provides completely accurate information, but still fails referencing, that will be classed as the landlord or agent pulling out, then you will have to return holding deposit. However, if they have actively lied and you can prove they have actively lied, you can withhold the holding deposit.
4. If the tenant doesn't enter the agreement by the deadline. If the tenant is dragging their feet and not responding to emails, not giving the referencing agency what they need for longer than 15 days, they would also forfeit the holding deposit. But if it’s the agent or the landlord that’s dragging their feet and that goes beyond 15 days, they would have to give it back.
Will we need to refund existing deposits that are longer than five weeks?
You won’t be expected to retrospectively give back one, two or three weeks' rent, depending on the length of the deposit you’ve taken. However, if the tenancy renews, anything in excess of five weeks will become a prohibited payment and you would have to refund it. For example if you’ve taken a six-week deposit and the tenancy renews on 1st January 2020, you will have to give back that extra week.
Can we take an increased deposit if the tenant has a pet?
No - the deposit cap is an absolute cap, you can’t charge more. You will need to look at other options. There’s nothing in the law that says you can’t charge increased rents for pets, for example, so you could put a pet premium on the rent at £10, £20 a week. But if you do, you will need to disclose these premiums under the Consumer Protection Regulation Act of 2008 - so you’ll need to put them in your advertisements otherwise you’re likely to be breaching these regulations.
Can we charge an insurance premium for a deposit replacement scheme?
Yes, but only if it’s optional - the tenant must have a choice between paying a five-week refundable deposit or a non-refundable insurance premium.
Can we receive commission when selling insurance products to a tenant prior to a tenancy starting?
Yes, but they must be optional - they cannot be a condition of the tenancy. If they’re a condition of the tenancy, they’ll be a prohibited charge. But if agent advises a tenant to take out contents or tenants liability insurance and recommends their preferred suppliers, that’s fine - it’s then the tenant’s choice to take that out.
Can we still charge referral fees?
There is nothing wrong with referral fees but you need to make sure you are transparent with whoever is paying the bill that you are receiving those referral fees and commissions - which is often the tenant, not the landlord. If you don't want referral fees to go the same way as tenant fees, you have got to prove you can be transparent.
Are we allowed to receive referral commissions from a reference company if we refer a tenant to secure a reference?
I would strongly urge you not to do that. I understand the logic, but tenants effectively shouldn’t be paying for referencing. Technically the answer is yes you can, but you are skirting very, very close to the edge of the law.
How will the ban be enforced?
The level of the penalties means there will be a massive incentive on local authorities to enforce the new legislation. If an enforcement officer comes into a branch and finds that fees are being charged, it’s not one £5,000 fine, it’s a £5,000 fine per fee. If that fee consists of an element of referencing, contract negotiation and inventory, then that won’t be one fee. That will be three fees. That is just for the first offence - if the enforcement authority comes back and finds the agency is still charging fees, it will be a £30,000 fine per fee or a criminal prosecution, which is an unlimited fine and ban.