I think it’s fair to say that the Tenant Fees Act 2019 is a troublesome piece of legislation, but it’s here to stay. Now, my priority is providing our client landlords with robust tenant fees guidance. In this blog, I want to demonstrate that abiding by the Tenant Fees Act, and earning a viable, ethical income from letting property, are not incompatible goals.
The government states the aim of the Act as being “to reduce the costs that tenants can face at the outset, and throughout, a tenancy. Tenants will be able to see, at a glance, what a given property will cost them in the advertised rent with no hidden costs.”
“No hidden costs” is already at the heart of what we do, because we’re an ethical lettings agency. We’re landlords ourselves with firsthand experience of the poor practices that go on, so we’re fully behind the government’s sentiments. However, only a truly committed property professional can understand the ramifications of this legislation – and be aware of the very real dangers that it poses to the uninitiated. To be clear, a custodial sentence is a distinct possibility for the ill-prepared landlord, irrespective of the size of their property portfolio.
So, let me lay out the facts, the dangers and the solutions that we feel all landlords need to know right now.
Permitted fees a landlord can charge a tenant
The first piece of tenant fees guidance is to abide by the list of permitted payments – it’s non-negotiable. Since 1 June 2019, neither landlords nor agents can charge tenants (in the private rented sector in England) anything other than rent and related fees. Here’s the Permitted Payment list of just 8 items:
- Refundable tenancy deposit – capped at 5-6 weeks’ rent depending upon the value of the annual rent
- Refundable holding deposit capped at 1 week’s rent
- Payments to tenant-requested changes to a tenancy
- Payments associated with tenant-requested early termination of a tenancy
- Payments in respect of utilities, communication services, TV licence and council tax
- Default fee for late payment of rent
- Default fee for replacement of lost key / security device
Anything else is prohibited and is, therefore, outlawed. As the government says “The party that contracts the service – the landlord – will be responsible for paying for that service…”. So, typical lettings fees such as tenancy renewal, referencing and credit checking can no longer be passed onto the tenant.
As I’m about to demonstrate, the significance of this simple list needs careful attention, because the enforcement teams will show no leniency to those who aren’t fully up to speed. Furthermore, on 1 June 2020, the Tenant Fees Act will apply to all tenancy contracts retrospectively.
Allowable tenant fees – a small but deceptive list
My advice to landlords about tenant fees covers 2 areas of potential danger:
- Record keeping– forgotten or missed detail in a contract can trip you up
- Tenants’ maintenance issues– Permitted Payments no longer include costs for arranging maintenance and repairs resulting from a tenant’s actions.
There are a number of ways you could be breaking the law – without even realising. This is less about blatant disregard of the legislation and more to do with being tripped up by a forgotten or missed detail in a contract. Efficient admin and good record keeping is vital. A minor misdemeanor – say £1 over the allowed amount – could land you a hefty fine and it might not take too long to reach the maximum (£30,000) before a custodial sentence is on the cards. Just to be crystal clear – making one mistake several times over could make you a ‘repeat offender’. So check that you haven’t applied the same process to several different tenants!Each local authority will have its own enforcement team and, as they are entitled to keep the fines, they will be highly motivated. An ‘inadvertent error’ is not an acceptable excuse and there are no ‘mitigating circumstances’.
Tenants’ maintenance issues
Remember that quote “The party that contracts the service – the landlord – will be responsible for paying for that service…”? It applies to any fee not on the Permitted Payment list.
So, neither you nor your letting agent can charge a tenant for arranging maintenance or repair work legitimately carried out at the property. If the fault lies with the tenant, but you don’t discover this until after the event (as is often the case), you can’t charge the tenant. Some letting agents will simply pass such costs on to their landlord client and deal with the consequences later. The impact of this change in the law is potentially disastrous for the landlord / tenant relationship.
And remember, proposed changes to remove Section 21 might mean you cannot fall back on simply evicting tenants who don’t play by the rules.
Our tenant fees guidance is intended to make you sit up and take note. However, with the support of the proactive and ethical lettings agent, landlords can easily work with this legislation.
Making up the loss of income
As my earlier blog reports, all parties – landlords, agents and tenants – stand to lose out through this legislation. The ban on lettings fees doesn’t make them go away!
The ‘industry standard solution’ has been to raise rents wherever possible, which is an understandable and justifiable approach to the loss of tenant fees. However, we firmly believe that automatically hiking rents on existing tenancies to make up for the loss of income is to be avoided where possible for the sake of good landlord / tenant relations.
So, we’re doing everything in our power to avoid putting our clients in this position. Thanks to our transparent ‘all-in-one’ fee structure and efficient processes, we have been able to absorb some of the typical fees previously paid by tenants, for example credit checks, referencing and tenancy setup fees. This means that our landlords aren’t paying higher management fees and needn’t feel under pressure to put rents up.
As I mentioned earlier, we’re landlords ourselves, so we understand the need for sound tenant fees guidance. This is where the right lettings agent really earns their fee, because they take a huge amount of admin and worry off the landlord’s shoulders. This is how we’re helping our clients:
- Making it our business to know the Tenant Fees Act inside out, to benefit our landlord clients
- Carrying out contract audits to identify landlords’ potential problem areas
- Having secure and efficient processes and software to manage admin and record keeping
- Facilitating a responsible landlord / tenant relationship that discourages ill-will and distrust
- Having a transparent ‘all-in-one’ fee structure for all our landlord clients
Getting the right help and guidance to help you face the Tenant Fees Act head on is vital. It means the ethical landlord can carry on being a profitable one too.