The Tenant Fees Act 2019 which came into force today was enacted in order to make provision for four principle matters:
(1) Prohibiting landlords and letting agents from requiring certain payment to be made or other steps to be taken;
(2) To make provision about the payment of holding deposits;
(3) To amend the existing law on the information that is to be provided by letting agents; and
(4) To make provision about client money protection schemes.
What are the Prohibitions for Landlords?
Under the Act, landlords are prohibited from requiring a relevant person (defined as a tenant or a person acting on behalf of a tenant or a person has guaranteed the payment of rent by a tenant) to make a prohibited payment to the landlord or a third party in connection with a tenancy of housing in England. Local housing authorities and the Greater London Authority and their agents are excluded from the definition of a relevant person.
Landlords must also not require a relevant person to enter into a contract with a third party in connection with a tenancy of housing in England if that the contract is for the provision of a service (unless it relates to the provision of a utility or communication service to a tenant) or a contract of insurance.
Landlords are also prohibited from requiring relevant persons to make a loan to any person in connection with a tenancy of housing in England.
In order for the abovementioned requirements to fall foul of the act and satisfy the requirement that it be “in connection with a tenancy of housing in England as per s.1 Tenant Fees Act 2019, the requirement must:
(1) Be in return for the grant, renewal, continuance, variation, assignment, novation or termination of a tenancy of housing.
(2) Arise out of a term of the tenancy agreement which imposes one of the prohibited requirements in the event of an act or default of a relevant person;
(3) Arise out of a term of the tenancy agreement which imposes one of the prohibited requirements if the tenancy is varied, assigned, novated or terminated.
It also a breach of the Act for a landlord to require a person to do of any of the prohibited acts in return for a reference for that person in connection with the person’s occupation of housing.
However, a landlord does not act unlawfully by requiring a relevant person to make a payment, enter into a contract or make a loan if the landlord gives the person the option of doing such an act as an alternative to complying with another requirement imposed by the landlord or a letting agent, provided that the other requirement is not prohibited under either s.1 or s.2 of the Tenant Fees Act 2019 OR it would not otherwise be unreasonable to expect the relevant person to comply with the other requirement.
What are the prohibitions for Letting Agents?
Section 2 of the Act mirrors the same prohibitions for letting agents as for landlords except that the exemption for landlords to require relevant persons to enter in contracts with third parties for the provision of a utility or communication service does not apply.
However, letting agents are entitled to demand that relevant persons make payments to them or a third party or demand that a contract is entered into with themselves or a third party where:
(1) The requirement is imposed in return for the letting agent providing a service to a tenant; and
(2) As part of the service, the agent finds housing for the tenant to rent and the tenant rents that housing; and
(3) The agent does not act on behalf of the landlord of that housing, whether in relation to the specific housing or any other housing.
What tenancy payments are permitted?
All payments are prohibited under the Act unless a payment is covered under Schedule 1, Tenant Fees Act 2019. The permitted payments are:
(1) Rent – provided that the rent amount is consistent throughout the period of the tenancy. This does not, however, prohibit increases or reductions in the rent pursuant to an express term of the tenancy or where a subsequent agreement is reached between the landlord and tenant after the commencement of the tenancy. Also excluded are cases where the change in the amount of the rent payable takes place one year after the beginning of the tenancy;
(2) Tenancy deposits – provided that where the annual rent is less than £50,000, it does not amount to more than 5 weeks’ rent and where the annual rent exceeds £50,000, the tenancy deposit does not exceed 6 weeks’ rent;
(3) Holding deposits – provided that the holding deposit complies with Schedule 2, Tenant Fees Act 2019 and does not exceed 1 week’s rent and the landlord or letting agent has not previously received a holding deposit in relation to the same housing which not been repaid in full and an exception to full repayment under Schedule 2, Tenant Fees Act 2019 does not apply (exceptions to repayment include where the deposit is applied toward the rent with consent and where the tenant fails their right to rent check);
(4) Payments in the event of a relevant default – a relevant default means the loss of a key or other security device giving access to the housing to which the tenancy relates or a failure to make payment of rent within 14 days of the due date. Payments in the event of a relevant default are lawful provided that at all times the amount of the payment represents the costs that were reasonably incurred by the landlord or agent as a result of the default and there is supporting evidence which is provided to the person who is required to make the payment. Any amount in excess of what was reasonably incurred is a prohibited payment. In relation to unpaid rent, the amount of costs requested must not exceed the aggregate amount of rent owed on each day that the rent is unpaid applying an interest rate of 3% above base rate. Furthermore, only one of the landlord or the letting agent is entitled to request payment for failing to pay the rent on time in order to avoid double recovery.
(5) Payment of damages for breach of a tenancy agreement or an agreement between the letting agent a relevant person.
(6) Payment on variation, assignment or novation of a tenancy – provided that the sum does not exceed the greater of the sum of £50 or the reasonable costs of the person to whom the payment is to be made in respect of the variation, assignment or novation of the tenancy.
(7) Payment on termination of a tenancy – if it is for terminating the tenancy before the end of the fixed term or where the tenancy is periodic, without the tenant giving notice as required under the law. In both cases, the amount must not exceed the loss suffered by the landlord or the reasonable costs of the letting agent in relation to the termination as applicable.
(8) Payments in respect of council tax to a billing authority;
(9) Payments in respect of utilities – utilities are defined as electricity, gas or other fuel, water or sewage.
(10) Payment in respect of a television licence;
(11) Payment in respect of communication services – these are defined as a service enabling a landline telephone; the internet; cable television and satellite television.
What happens where a landlord or letting agent breaches a requirement of the Act?
Under s.4 Tenant Fees Act 2019, any term of a tenancy agreement which breaches ss.1-2 is not binding on a relevant person, but the rest of the agreement continues, so far as is practicable, to have effect and where a loan is made, the loan is repayable by the borrower to the relevant person on demand.
Under s.6 of the Act, there is a duty imposed on every local weights and measures authority in England to enforce the prohibitions applying to landlords and letting agents and the requirements relating to the treatment of holding deposits. However, this duty is subject to any enforcement action being taken by another enforcement authority or the lead enforcement authority.
It is interesting to note that under s.6(3) of the Act, where housing is located in the area of more than one local weights and measures authority, the breach is taken to have occurred in each of those areas. The local weights and measures authority must under s.6(4) of the Act have regard to any guidance issued by the Secretary of State or the lead enforcement authority and will have the investigatory powers set out under Schedule 5, Consumer Rights Act 2015.
District councils which are not the local weights and measures authority have a discretion to enforce the prohibitions on landlords and lettings agents as well as the requirements in relation to the treatment of holding deposits under Schedule 2, Tenant Fees Act 2019. In doing so, district councils must have regard to any guidance issued by the Secretary of State of the lead enforcement authority, and they have the same investigatory powers under Schedule 5, Consumer Rights Act 2015 as the local weights and measures authority.
Under s.8 of the Act where an enforcement authority is satisfied to the criminal standard that a landlord or letting agent is in breach of the Act, the authority may impose a financial penalty on the person in respect of the breach. The amount of the financial penalty is up to the complete discretion of the enforcement authority except that it should not ordinarily exceed £5,000. However, in cases where the enforcement authority is satisfied beyond reasonable doubt that an offence has been committed under s.12 of the Act (which deals with repeat offenders within a five-year period of the last breach or conviction), the financial penalty may exceed £5,000 but must not exceed £30,000. A financial penalty can only be enforced under one of the relevant sections and not both for the same breach. Furthermore, where financial penalties cannot be imposed whilst criminal proceedings remain pending or where a person is found not guilty of an offence.
The enforcement authority has the power under s.10 of the Tenant Fees Act 2019 to require the landlord or letting agent to repay the amount of the prohibited payment outstanding (where it has not been applied to the rent or towards the tenancy deposit with the consent of the parties) provided that the tenant has not made an application him or herself under s.15 of the Act to the First-tier Tribunal. The enforcement authority also has a discretion under s.11 of the Act to require that interest is paid on the amount due from the landlord or letting agent.
Where corporate landlords or letting agents commit an offence under s.12 of the Act with the consent or connivance of, or attributable to the neglect on the part of an officer or member of the corporate body, s.13 of the Act makes it clear that the officer or member, as well as the corporate body, is liable to be proceeded against and punished.
What is the procedure for imposing a financial penalty and is there a right of appeal?
Before imposing a financial penalty, an enforcement authority must serve a notice of intent within 6 months of the date that the enforcement authority had sufficient evidence of a breach. It can also serve the notice at any time that the breach is ongoing or within 6 months of the last day on which the ongoing breach occurs.
A notice of intent must set out the date the notice is served; the amount of the proposed financial penalty; the reasons for proposing to impose the penalty; and information about the right to make representations.
A person receiving a notice has 28 days to make written representations about the proposal to impose a financial penalty.
At the end of the 28-day period, the enforcement authority must decide whether to impose a financial penalty on that person and if so, the amount. Where a financial penalty is imposed, the enforcement authority serves a final notice requiring the penalty to be paid and must set out the relevant period as well as information about appeal rights.
Appeals are a re-hearing of the authority’s decision and may also consider matters which the enforcement authority was not aware of at the time of its decision (fresh evidence). The First-tier Tribunal has the same financial penalty powers as the enforcement authority.
Where a financial penalty is unpaid in whole or in part, the relevant person may recover the penalty through the County Court and the enforcement authority may help a relevant person to make an application to recover the sums owed by conducting proceedings or by giving advice to the relevant person.
Is there anything else to watch out for?
Both landlords and tenants should note that under s.17 Tenant Fees Act 2019, there is a restriction on the service of a s.21 notice where a landlord receives a prohibited payment under the Act and the entirety of the prohibited payment has not been repaid save where the (part) payment or deposit has been applied towards the payment of rent or the tenancy deposit and the remainder has been returned.
Under s.18 of the Act, lettings agents are now required to publicise their fees on third party websites and to include a link back to their own website where a list of their agency fees are published. Agents are also required under s.19 of the Act required to display or publish with the list of fees a statement of whether they are a member of a client money protection scheme.
These provisions may be enforced by the local weights and measures authority in England in respect of where the breach occurs as set out under ss.20-23 of the Act.
The Tenant Fees Act 2019 is very much focused on introducing greater levels of transparency over fees, setting limits on the costs that can be imposed and recovered from tenants but without preventing landlords and agents from recovering their reasonable costs depending on all the facts of the case.
Landlords and tenants who are unsure of their rights and obligations or wish to undertake a review of their standard documentation should contact our specialist Property team for advice and assistance.