Tenant Fees

The Tenant Fees Act 2019 came into force on 1 June 2019 and banned most tenant fees in England.

The Act applies to:

assured shorthold tenancies
licences (such as lodger lettings)
student lettings provided by a specified educational institution

However, it does not apply to contractual tenancies or assured tenancies.

Only a "permitted payment" may be requested from a "relevant person" (for example, a tenant, prospective tenant, or guarantor).

The rules apply to any new tenancy or renewal granted on or after 1 June 2019. For existing tenancies granted before that date, the rules apply from 1 June 2020.

Under the rules, a landlord or letting agent must not require a relevant person (tenant, guarantor, or anyone acting on their behalf) to:

make a prohibited payment to the landlord or an agent in connection with a tenancy of housing in England
make a prohibited payment to a third party in connection with a tenancy of housing in England
enter into a contract with a third party in connection with a tenancy if that contract is for the provision of a service or insurance (except utilities or communication services, see below)
make a loan to any person in connection with a tenancy of housing in England

The only payments allowed are known as "permitted payments". These are listed in Schedule 1 of the Act and include:

Rent
Tenancy deposit
Holding deposit
Payment in the event of a default
Payment of damages for breach of an agreement
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, etc.
Payment in respect of a television licence
Payment in respect of communication services

Rent

The request for rent is a permitted payment. However, the amount charged for an earlier period must not be greater than that for a later period, and any excess would be prohibited under the Act.

For example, if a tenancy starts on 1 July and the rent for July is £900.00 (P1), then from 1 August it is £700 per month (P2). As the amount for P1 is greater than P2, the difference is prohibited (in this example, the difference is £200, and it is that amount which is the prohibited payment — the £700 remains a permitted payment).

Note: This payment should be requested only after a tenancy has been agreed - ideally, once the tenancy agreement has been signed. For more details, please see the section on Holding Deposit.

Tenancy Deposit

A tenancy deposit is a permitted payment, but it's limited to a maximum of five weeks' rent where the annual rent is less than £50k and six weeks' rent for a yearly rent of £50k or over.

To calculate the 5 or 6 weeks' rent amount, you first take the annual rent and divide by 52 to get one week's rent and then multiply by 5 or 6 as appropriate.

Note: This payment should be requested only after a tenancy has been agreed - ideally, once the tenancy agreement has been signed. For more details, please see the section on Holding Deposit.

Holding Deposit

A holding deposit is a permitted payment taken before granting the tenancy. It is ordinarily used whilst the landlord or agent takes steps to grant a tenancy to the payer (such as referencing etc.).

A holding deposit is defined under the Act as meaning (highlights added) "... money which is paid by or on behalf of a tenant to a landlord or letting agent before the grant of a tenancy with the intention that it should be dealt with by the landlord or letting agent in accordance with Schedule 2 (treatment of holding deposit)." By implication, it is the only permitted payment allowed before a tenancy has been agreed (usually by a signed tenancy agreement) and as a result, all other payments in the list should be treated as only being allowed after a tenancy has been signed (but may be received before the tenancy starts if it commences in the future).

There is a strict procedure to follow under Schedule 2 of the Act.

The maximum holding deposit that may be requested is one week's rent (annual rent divided by 52).

Only one holding deposit may be held at any one time for the same property.

There is a deadline for agreement date, which is 15 days from the date the holding deposit was received. This deadline for agreement date may be changed by agreement with the tenant in writing.

The holding deposit must be repaid by the person who received it if:

the landlord and tenant enter into a tenancy agreement, and in this case, the person who received it must repay it within seven days from the date of the tenancy agreement
the landlord decides before the deadline for agreement not to enter into a tenancy agreement, and in this case, the person who received it must repay it within seven days of the decision, or
the landlord and tenant fail to enter into a tenancy agreement before the deadline for agreement, and the person who received it must repay it within seven days from the deadline for the agreement date.

Where the landlord and tenant have entered into an agreement, instead of repaying the holding deposit, the landlord may use it against the first rent or tenancy deposit, but only if the payer has agreed to this. Otherwise, it would need repaying within seven days of entering the tenancy agreement.

There are a small number of exceptions where the landlord or agent may retain the holding deposit, which are:

the landlord is prohibited by section 22 of the Immigration Act 2014 (persons disqualified by immigration status) from granting a tenancy of the housing to the tenant, and the landlord (or letting agent acting for the landlord) did not know and could not reasonably have been expected to know, the prohibition applied before the landlord or agent accepted the deposit, or
suppose the tenant provides false or misleading information. In that case, the landlord is reasonably entitled to consider the difference between the information provided and the correct information in deciding whether to grant a tenancy. Or the landlord is reasonably entitled to take the tenant's action in giving false or misleading information into account in determining whether to grant such a tenancy.
if the tenant notifies the landlord or letting agent before the deadline for agreement that the tenant has decided not to enter into a tenancy agreement

In every case, as listed above, where the landlord or agent intends to retain the holding deposit, they must send a written notice to the person who paid the holding deposit within seven days. A failure to do so negates the ability to retain, and the person who received the holding deposit must repay it regardless of circumstances (including if the tenant notifies they no longer wish to proceed).

Payment in the Event of a Default

A landlord (or an agent acting on behalf of a landlord) may seek payment for a "relevant default", which means:

the loss of a key, or other security device giving access to, the housing to which the tenancy relates, or
a failure to pay rent in full before 14 days, beginning with the date ("the due date")

when the payment is required to be made by the tenancy agreement.

The Loss of a Key

For payment in respect of the loss of a key or other security device to be a permitted payment, the cost must be reasonably incurred by the landlord or letting agent and supported by written evidence provided to the person on whom the requirement to make the payment is imposed.

Any excess over and above what costs have been reasonably incurred is a prohibited payment.

If requesting payment under this heading, the actual receipt for the new key, security fob or whatever was reasonably incurred must be provided.

The tenancy must contain a term allowing a payment request.

Failure to Pay Rent in Full

In addition to the rent itself, payment of interest is a permitted payment where there is a failure to pay rent in full before the end of the period of 14 days beginning with the date ("the due date"). The interest rate is calculated by:

the aggregate of the amounts found by applying, in relation to each day after the due date for which the rent remains unpaid, an annual percentage rate of 3% above the Bank of England base rate to the amount of rent that remains unpaid at the end of that day.

Therefore, a daily rate may be calculated and added from day 15 of non-payment onwards (but the interest can then be applied back to the day after the 'due date').

The tenancy must contain a term allowing a payment request.

Payment of Damages for Breach of an Agreement

Payment of damages for breach of a tenancy agreement or an agreement between a letting agent and a relevant person is a permitted payment.

The Consumer Rights Act 2015 requires that any tenancy term be "fair", so the Tenancy Fees Act 2019 doesn't go any further than this for this permitted payment.

Payment for breach of tenancy allows for damages such as repairs to be claimed when the tenancy ends.

Payment on Variation, Assignment or Novation of a Tenancy

Only if the tenant requests a landlord or letting agent vary, assign or novate is a payment in consideration for performing the request a permitted payment. But, if the amount exceeds the greater of £50 or the reasonable costs of the person to whom the payment is to be made, the amount of the excess is prohibited.

Payment on Termination of a Tenancy

Payment is a permitted payment if it is a payment to a landlord or letting agent in consideration of the termination of a tenancy at the tenant's request.

That can be a request before the end of the term or, for periodic, without the tenant giving the required notice under the tenancy agreement or law.

However, to be a permitted payment, the amount cannot exceed the loss suffered by the landlord or the reasonable costs to the letting agent due to the termination of the tenancy, and any excess is a prohibited payment.

Payment in Respect of Council Tax

A payment to a billing authority regarding council tax is a permitted payment.

Note: only payment of council tax to a billing authority is permitted. A council tax payment cannot be made to anybody else (including the landlord or agent).

Payment in Respect of Utilities, Etc

Payment for the provision of a utility is permitted if the tenancy agreement requires the payment to be made, and "utility" means--

electricity
gas
other fuel
water or sewerage.

It's also a permitted payment towards energy efficiency improvements under a Green Deal plan.

There appears to be no reason why a landlord or agent cannot receive payment directly for a utility. Unlike the council tax prohibition before, this part does not require payment to the utility supplier.

The resale of gas and electricity is already governed by legislation (it can only be resold for the same price it costs).

Payment in Respect of a Television Licence

Payment to the British Broadcasting Corporation regarding a television licence is a permitted payment if the tenancy agreement requires the payment to be made.

Like the council tax before, the payment is only permitted if made to the BBC.

Payment in Respect of Communication Services

Payment for the provision of a communication service is permitted if the tenancy agreement requires the payment to be made, and "communication service" means a service enabling any of the following to be used:

a telephone other than a mobile telephone;
the internet;
cable or satellite television.

However, suppose the payment is made to a landlord, and the amount exceeds the reasonable costs incurred by the landlord to provide the service. In that case, the amount of the excess is a prohibited payment.

Prohibition on Requiring a Tenant to Enter Into a Third-Party Contract

In addition to it being unlawful to request a prohibited payment, it's also not allowed to require a relevant person to enter into a contract with a third-party for:

a contract for the provision of a service, or
a contract of insurance.

Prohibition on Requiring a Loan

It's also prohibited to require a relevant person to make a loan in connection with a tenancy.

Enforcement and Penalties

Enforcement is by every local weights and measures authority in England, and provisions are in place for cross-border offences. A district council, which is not a local weights and measures authority, may also enforce.

The penalty for a first offence is up to £5,000. If a person commits a second offence within five years, a fine of up to £30,000 is payable. In addition, a second offence is a criminal offence. Furthermore, a second offence is a banning order offence.

Any financial penalty is on top of being required to repay any prohibited payments or holding deposits received.

Any financial penalty imposed is enforceable as if it were an order of the county court (allowing the request of bailiffs, attachment of earnings or a charge on property, etc.).

Restriction on Terminating Tenancy

Suppose a landlord requires a relevant person who has an assured shorthold tenancy to make a prohibited payment. A prohibited payment is made due to the requirement, or a landlord breaches the holding deposit rules. No section 21 notice may be given concerning the tenancy as long as all or part of the prohibited payment, or holding deposit, has not been repaid to the relevant person.

If the person consents, it's possible to repay by offsetting any rent or tenancy deposit due under the tenancy.

Further Guidance

MHCLG has published guidance for tenants, landlords, letting agents and local authority enforcement officers explaining how the Tenant Fees Act affects them: https://www.gov.uk/government/publications/tenant-fees-act-2019-guidance.

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