The Tenant Fees Act: What’s Changing?
By Jake McKey, NLA Policy Officer
What’s the detail of the changes?
Since the Bill was introduced, the Government has announced some significant changes, particularly on the amount you can charge for security and holding deposits. There has also been more important guidance released on default fees that will be crucial in managing your portfolio. The Government has also released further important information for agents concerning Client Money Protection schemes (CMP) and maximum liability.
With the implementation phase fast approaching, this handy guide will help you stay up to date and help protect your portfolio and prepare for 1st June.
The maximum-security deposit is being limited to five weeks’ rent, for tenancies less than £50,000 per year (and six weeks for tenancies above this threshold).
The Government’s original proposal was for the security deposit to be capped at four weeks’ rent; we campaigned for this to be increased to six weeks to allow flexibility, which the Government initially accepted. However, the Government introduced a five-week cap while the Bill was being considered in the Lords.
The caps on tenancy deposits will not be retrospective, however, any tenancy renewals with a new fixed term will come under the regulations. In these cases, the difference will need to be refunded e.g. if a six-week deposit is currently held, the landlord or agent will need to refund one week’s worth.
Our research shows that landlords who hold a deposit currently ask for an average of 4.8 weeks’ rent, and so many will be unaffected by the change.
However, we remain concerned that the lower limit will affect the ability of tenants who have a higher risk profile, for example if they own pets or have a poor credit rating, to agree a tenancy. We believe the Government has not properly evaluated the impact this change will have on landlords and will continue to push for changes to enable landlords to manage risks effectively.
You can find out more about the impact of these changes on tenants with pets in our upcoming podcast with Cats Protection.
The ‘default fees’, or permitted payments where costs arise from a fault of a tenant, have been limited to instances where tenants have lost a key or other security device, or where a tenant is at least two weeks late in paying their rent.
No other fees will be allowed. You will need to show evidence of the cost incurred in remedying the situation. For rent arrears, interest can be charged at 3% above the Bank of England base rate from the date the rent was due.
Where there are further contractual breaches, landlords will be able to recover damages from the tenant as they currently do. If there is disagreement, the landlord will either need to pursue this claim in court or make a claim against the security deposit via their deposit protection scheme. No penalty charges (ie beyond the cost of repair to remedy damage to its original state) can be made or included in the tenancy agreement.
There remains a clause in the Bill for the Government to amend the list of permitted payments in the future, without needing to go back to Parliament. They’ve indicated that they will consider this if there is strong evidence of further payments needing to be included.
A number of regulations related to holding deposits, taken before a tenancy begins.
- Landlords and agents are only allowed to take one holding deposit for a property at any one time. They must pay the first prospective tenant’s deposit back in full before taking a second holding deposit (unless allowed to retain the deposit e.g. because the tenant chooses not to enter into the tenancy, or provides false information).
- Where landlords and agents do retain a deposit, they must explain to the tenant in writing why they are doing so.
- If there is the right to retain the deposit, but the tenancy is still entered into, it must be returned to the tenant.
- The holding deposit must also be refunded if a requirement is imposed which breaches the ban or if the landlord or tenant behaves in an unreasonable manner, so that the tenant cannot be reasonably expected to enter into the tenancy.
Client Money Protection
The Government introduced clauses in the Bill in relation to client money protection (CMP) for agents, including ensuring that deposits protected in an approved tenancy deposit scheme are not required to also be protected under CMP.
Furthermore, Homeshare schemes and local authorities and the Greater London Authority have also been excluded from CMP where they are acting on behalf of a tenant from the scope of the Bill. The purpose of this is to allow local authorities to continue to make payments in connection with a tenancy where they are acting on behalf of a tenant or guaranteeing their rent – particularly to support local authorities to undertake their duties to prevent homelessness.
The Bill also introduces a limit on the pay-out of CMP for individual clients, similar to banks’ limits on financial compensation to their customers – so be sure to check that your agent’s limit will cover you appropriately when mandatory CMP comes into force from 1 April 2019.
After a lengthy campaign, the NLA has been protecting landlords’ interests by ensuring that the Government did not set the security deposit cap was not set at four weeks, which was led by our CEO Richard Lambert when he met with then Housing Minister Alok Sharma MP and pressed him to.
We also emphasised to Government that enforcement action should be proportionate, but effective. With £500,000 allocated to support enforcement, we await the announcement of the lead local authority in charge of enforcement and will be working closely with the appointed authority to ensure that best practice is followed.
In an evidence session given to the Parliamentary committee, our CEOon the proposed amendments, security deposit caps, fines and the role of enforcement in ensuring the Acts provisions are carried out.
If you have any further questions about our work in this area, you can email firstname.lastname@example.org.
Like this article? Sign up to our free mailing list and join 35,000 landlords who trust us to deliver licensing and legislation updates, thought provoking news pieces, and practical property advice straight to their inbox.