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The Tenant Fees Bill is set to come into force on June 1 this year, it has been announced. This means that, subject to the bill getting Royal Assent, the ban will apply to all tenancies signed after this date. We have come up with a list of important questions the answers to which you need to know if you are or looking to become a landlord. Will the fees ban apply to older tenancies? Not immediately. It will apply to renewals of tenancies, excluding statutory and contractual periodic tenancies that arise after the Tenant Fees Act comes into force. After one year the ban will attach to pre-existing tenancies and clauses that charge fees in them will become ineffective. If a landlord or agent takes a prohibited payment after that date they will have 28 days to return it or be considered in breach of this legislation. What fees are banned? Anything not exempted, that the tenant (or someone acting on their behalf like a guarantor or parent) is required to pay as a condition of the 'grant, continuance, assignment, termination or renewal' of an assured shorthold tenancy or licence agreement. This includes payments to third parties, either for services throughout the tenancy or for specific performance of a job and loans from third parties. In short this means that pretty much any fee that is in the tenancy agreement will be void unless it is exempt. Examples of banned fees then would be: • Charging for a guarantor form • Credit checks • Inventories • Cleaning services • Referencing • Professional cleaning • Having the property de-flead as a condition of allowing pets in the property • Admin charges • Requirements to have specific insurance providers • Gardening services What is exempted from the banned list Holding deposits, rent, deposits and charges for defaulting on the contract are all exempted from this ban. However, all 4 are subject to additional restrictions as part of the legislation and landlords and agents will need to be mindful of these changes. In addition, most required payments to third parties are prohibited, however a landlord can require the tenant to use a specific utility or communications provider. Agents on the other hand are not allowed to require this. Finally, landlords may charge for changing tenants or allowing tenants to vacate the property early. This however is subject to restrictions on costs. Restrictions on rent There will be a ban on setting rent at a higher level for the first portion of the tenancy and then dropping it down afterwards. This is to prevent landlords or agents trying to offset the ban on fees by artificially increasing the rent for the initial period to make up the costs. Of course, a higher rent than you would normally charge for the property, that is consistent throughout the tenancy will be fine. The government believes this is unlikely to happen though, as tenants will shop around for the lowest price. Holding Deposits Holding deposits will be limited to a maximum of 1 week's rent and subject to statutory legislation on the repayment of this should the tenancy not go ahead. Briefly, this is proposed to be: 1. The landlord has 15 days to make a decision once a holding deposit is taken. 2. If the tenancy does not go ahead then the money must be repaid in full within 7 days of the deadline being reached or the landlord backing out. 3. Repayment does not need to be in full if the tenant backs out of the tenancy agreement themselves, fails right to rent checks, has provided false or misleading information, or where the landlord tries their best to get the information needed but the tenant fails to provide it within the 15 days. 4. If the tenancy does go ahead, the holding deposit must be returned within 7 days of agreement, unless it is converted into part payment of the actual deposit or used towards the initial rent payment. Deposits Deposits will be limited to 5 weeks rent as a maximum amount for tenancies where the annual rent is below £50,000. This has gone up from the originally proposed limit of one month. Deposits for tenancies where the annual rent is £50,000 or more are limited to the equivalent of 6 weeks rent. Breaches of the tenancy agreement (damages) Where the tenant has breached their tenancy agreement and caused damage as a result, then landlords may still seek compensation via deductions from the deposit or court action. Breaches of the tenancy agreement (default payments) Previously it was expected that landlords would be able to charge for sending reminder letters. The latest draft of the legislation has tightened up the rules on default payments significantly however. Under the current draft of the legislation landlords are allowed to charge for two types of default payments - loss of keys and late payment of rent. Both are subject to restrictions. For the loss of keys, landlords are allowed to charge the reasonable cost that they can evidence in writing. Anything landlords cannot evidence in writing with receipts will likely be considered a prohibited payment. For late payment of rent, landlords and agents may only charge 3% above the Bank of England base rate in interest on the late payment of rent from the date the payment is missed. They may not charge for sending reminder letters. Changes to the tenancy While most costs related to assignment or surrender of a tenancy are prohibited, landlords and agents are still allowed to charge certain small sums to tenants if the tenant requests a change in tenant or an early surrender. Where the tenants have requested a change in the tenancy (such as swapping tenants), the landlord may charge a fee of £50 for the change or the costs incurred. They must be able to evidence in writing any costs incurred if they do go above £50 and the draft guidance makes it clear that £50 is considered the norm for landlords and agents. Where the tenants have requested early surrender of the tenancy, the landlord or agent may charge fees equivalent to the loss incurred. As charges such as referencing, tenancy drafting, etc are prohibited landlords will not be able to show a loss has been incurred for the provision of these services. Instead, landlords and agents will be able to charge the equivalent of the rent lost due to the unforeseen void period. As the void period may not be clear at the point of charging many landlords and agents will likely start to regularly refuse tenants looking to surrender early as a result. Third party payments A number of third party payments can be required as part of the tenancy agreement. Most can be used by landlords and agents, but some are exclusive to landlords. Landlords and agents 1. A contractual clause insisting on the tenants paying the television licence is an acceptable payment 2. A clause insisting on the tenant paying the council tax is an acceptable payment Landlords only 1. A clause requiring the tenants to pay for the landlord's costs from a specific service provider for utilities is a permitted payment. 2. A clause requiring tenants to pay the landlord's cost for a specific communication service (phones, broadband, cable/Sky TV) is permitted for landlords. If the landlord seeks to charge more than the billed costs for these services then any excess will be considered a prohibited payment. What are the financial penalties for this? Where a breach has occurred and a banned fee or payment is taken, tenants will be able to get any money wrongly paid back via the county court. Local Trading Standards are supposed to assist tenants with this in some fashion once it comes into force. The landlord or agent may be charged interest on this from the day that the prohibited payment was taken. In addition, local trading standards will be required to enforce this legislation and will issue a fine of up to £5,000 for a first offence. Subsequent breaches are criminal offences or alternatively, the landlord can be fined up to £30,000 as a civil penalty and be subject to a banning order. Will I be restricted from serving a Section 21 notice if I charge fees? Yes. No Section 21 notice may be given so long as a prohibited payment was requested, paid by a tenant and is still being held by the landlord or agent. Landlords and agents can either refund the prohibited payment or, with the permission of the tenant, use that money as payment towards rent or the deposit.

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Miss. Claire White
W. Why Media
E. claire@whymedia.com