Hot on the heels of changes in relation to stamp duty land tax, from 1 June landlords face another set of new rules under the Tenant Fees Act 2019. This includes obligations relating to deposits, charges and membership of client money protection schemes. There are some transitional provisions which mean that in some circumstances the Act will not apply until April 2020 for existing tenancies.
According to Thomas Lewis, an Associate at WBW Solicitors in Exeter, a landlord who fails to get it right now could risk facing a penalty of up to £30,000 levied by a local council’s trading standards department.
Landlords need to take expert advice on the changes and ensure that any new leases are compliant with the new rules, which will mean obtaining and keeping copies of various documentation.
Landlords whose tenants have rolled over arrangements based on old leases will need to check those terms and decide whether it will be better to grant a new tenancy on terms which comply with the 2019 Act.
What the Tenant Fees Act 2019 allows
The Act allows landlords to carry on collecting rent from their new or existing tenants, but it prevents them from increasing the rent during the first year to try and compensate for fees that they can no longer collect.
Landlords are permitted to:
- collect and hold on to a tenancy deposit if this is not more than five weeks’ rent;
- take a holding deposit from prospective tenants of up to one weeks’ rent, which must be returned within seven days if a prospective tenant decides not to go ahead but may be used to pay rent or as a security deposit;
- charge tenants a fee where a key or zapper is lost, but this must not be more than the actual cost and they will have to provide written evidence of this to their tenants; and
- charge interest on overdue rent, but this must not exceed three per cent above Bank of England base rate.
Other than these payments, the Act bans landlords (or their agents) from charging tenants any other fees. It will usually be a tenant’s responsibility to pay directly for items such as utilities, council tax and a television licence.
Since the General Data Protection Regulation came into force in May 2018, credit reference agencies have been obliged to provide a credit report free of charge to individuals who request their own report.
Tenancies covered be the Tenant Fees Act 2019
It applies to all assured shorthold tenancies, which is usually a landlord’s preferred way of renting out a buy-to-let property.
It applies to new tenancies and from April 2020 it will apply to existing ones as well.
It does not apply to long leases of over 21 years. It also does not apply to tenancies of social housing.
Client money protection schemes
Letting agents will now need to publicise their fees, not just on their own website but also when advertising on the websites of other companies such as Zoopla or RightMove.
Any agent who holds client money now has to be a member of a client money protection scheme (CMPS) which has been approved by the Ministry of Housing, Communities and Local Government. A membership certificate has to be displayed at the letting agent’s business premises and on their website.
Trading standards officers are given new powers to enforce compliance with the new CMPS rules with maximum financial penalties of up to £30,000 for breaches.
Sanctions where landlords fail to comply
Section 21 of the Housing Act 1988 allows a landlord to terminate an assured shorthold tenancy on two months’ notice to the tenant. However, if a tenant has made a prohibited payment to a landlord, or the landlord has breached the new rules on holding deposits, then this means that a landlord cannot validly serve a section 21 notice.
Where landlords wrongly hold on to a tenant’s deposit at the end of a tenancy, then tenants can now make an application to the First-tier Tribunal for an order for its return, where the procedure is simpler, quicker and cheaper than the county court.
New powers for Trading Standards
Trading standards officers are given new powers to enforce compliance with the 2019 Act. They have extensive investigative powers. Landlords who ignore the new rules on holding deposits, risk a financial penalty of up to £5,000 being levied for a first offence but that maximum penalty rises to £30,000 for the second or subsequent offences. There are technical provisions relating to the content of these notices. Proof must be to the criminal standard and the First-tier Tribunal is given power to hear appeals. If you have received one of these notices you will need to take expert legal advice from a landlord and tenant solicitor immediately.
Landlords as immigration officers
Landlords also need to have controls in place to comply with the provisions of the Immigration Act 2014 which came into force in England on 1 February 2016. In June 2018 the Home Office published ‘A short guide on right to rent’ as well as its ‘Right to Rent Code of Practice’. It is vital for landlords to get compliance spot on because the Immigration Act 2014 provides for criminal sanctions against landlords who do not do these checks in the right manner at the right time and who do not keep appropriate records. The maximum penalty that the criminal courts can impose is a prison sentence of five years.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.