Tenant Fee Ban

Angie Nicholls

05/10/2021
09:00

Security deposits… holding deposits… Tenant fee ban – don’t fall foul of it – the penalties can be severe!

The Tenant Fee Ban came into force as part of the Tenant Fees Act on 1 June 2019 and applies to new or renewed tenancy agreements signed on or after 1 June 2019. We are still getting asked about this and, more worryingly, finding Landlords who are unsure about it, today, some 2 years on!

So, let’s have a look at it, break it down and, see what it’s all about.

The Tenant Fee Ban was brought in because there were agents out there who were charging exorbitant fees to tenants moving into properties; the idea behind the ban, was to lower the cost for tenants. As part of this, two new concepts were introduced – Prohibited Payments and Holding Deposits. A cap was also placed on Security Deposits.

Prohibited Payments – some Agents were charging 1000s of pounds of fees to Tenants, for setting up tenancies and for managing them, which were not commensurate with the work involved. So, the concept of fees, was removed completely and a list of permitted payments replaced it. The idea being that if a charge is not on the list, then it is prohibited!

Here is the list of Permitted Charges under the Tenant Fees Act 2019:

Rent
A refundable tenancy deposit (security deposit) capped at no more than 5 weeks’ rent, where the total annual rent is less than £50,000, or 6 weeks’ rent where the total annual rent is £50,000 or above
A refundable holding deposit (to reserve a property) capped at no more than 1 week’s rent
Payments associated with early termination of the tenancy, when such early termination is requested by the tenant
Payments capped at £50 (or reasonably incurred costs, if higher) for the variation, assignment, or novation of a tenancy
Payments in respect of utilities, communication services, TV Licence and Council Tax
A default fee for late payment of rent and replacement of a lost key/security device giving access to the housing, where required under a tenancy agreement.

As outlined above, if the Charge is not on this list, then it is not a permitted charge. Our advice would be that, wherever possible, retain receipts, for having keys cut etc.

Holding Deposits:

Holding Deposits – these are permitted but a strict level has been set and the treatment of them has been mandated, as mentioned above, these have been set at a maximum of 1 week’s rent (monthly rent x 12/52).

You should stop advertising the property once a holding deposit is received
You must not take a holding deposit from more than one person, for the same property, at a time
You have 15 days, from when a holding deposit is paid, to enter I not a tenancy agreement. This is called “the deadline for agreement”
A different deadline can be agreed between the parties, but it must be in writing
Once a tenancy agreement has been entered into, the holding deposit must ether be returned within 7 days of agreeing the contract or (with the tenant’s permission) be put towards the tenancy deposit (security deposit) or the first rent payment

They must also be refundable and cannot be retained unless the following applies:

If a tenant fails to take all reasonable steps to enter into a tenancy agreement and the Landlord or Agent takes all reasonable steps to do so (unless a landlord or Agent imposes a requirement that breaches the ban or acts in such a way to the tenant or relevant person that it would be unreasonable to expect a tenant to enter into a tenancy agreement with them).
the Tenant decides not to rent the property
The Tenant misleads or withholds information (for example does not tell you about any CCJs they have or, if they misrepresent their income)
The Tenant fails a right to rent immigration check

If you are going to keep a holding deposit, you must write to the tenant, within 7 days, advising them of this fact and explaining why.

You should provide clear information to the Tenant about why you are requesting a holding deposit, including the sum that is required and the circumstances where they may lose all or part of their deposit.

You should provide the tenant with a copy of the tenancy agreement before taking the holding deposit.

A breach of the above legislation will usually be a civil offence, with a financial penalty of up to £5000. However, if a further breach is committed, within 5 years of the imposition of a financial penalty or conviction for a previous breach, then this will be a criminal offence. The penalty for the criminal offence, which is a banning order offence under the Housing and Planning Act 2016 (and which may result in your being included in the database of rogue Landlords) is an unlimited fine.

If you’d like to discuss the above or any other aspect of compliance, then do not hesitate to contact us.

If you have any questions about Compliance, Regulations, Deposits, Prohibited Payments or we can help in any way, then give us a call on 0117 440 6789 or email us here