The ban on letting agents and landlords charging fees to tenants in England comes into force today.
As a landlord, this means you or your letting agent can no longer levy many of the fees that may have been standard in the past – so it’s vital you know how the rules work.
Here, we explain everything buy-to-let investors need to know about the changes, including which fees are exempt and the penalties for breaking the rules.
Tenant fees ban: what’s changing?
More than two-and-a-half years after it was originally proposed in the 2016 Autumn Statement, the ban on landlords and letting agents charging fees to tenants is finally here.
This move could be a game-changer for renters – some of whom currently fork out hundreds of pounds in charges for administration, referencing, inventory and check-out.
As of today, the general rule is that landlords and letting agents can no longer charge tenants fees associated with letting.
There are a few exceptions, however, which are listed below:
- Up-front deposits paid by tenants will be capped at five week’s rent (or six weeks’ if the annual rent is more than £50,000).
- Refundable holding deposits will be capped at one week’s rent.
- Default fees can only be charged if the tenant is at least 14 days behind on rent, or loses their keys.
- Changes to tenancy agreements requested by tenants – for example, for permission to have a pet – will be capped at £50.
- Early termination fees will be capped at the landlord or agent’s actual incurred cost.
Council tax and utility bills will still be the responsibility of the tenant, if this is laid out in the tenancy agreement.
Does the ban apply to existing tenancies?
The ban initially applies to new tenancies set up in England.
For existing tenancies, some specific charges will still be allowed until May 2020. These include fees already specified in the tenancy agreement, for example, for renewing a contract or for professional cleaning on check-out.
In its guidance for landlords and letting agents, the government encourages landlords to ‘consider whether it’s necessary’ before charging such fees.
Keep in mind that for tenancies signed on or after 1 June, you can’t just add a term into the contract that violates the new rules – these clauses will not be enforceable.
Fines for landlords who break the rules
Landlords and letting agents who fail to adhere to the new rules could face fines of up to £5,000, or even a jail sentence if they continue to breach the regulations after being fined.
The rules will be enforced by Trading Standards and local councils.
Letting-fees ban: what does it mean for landlords?
Landlords who have seen profits squeezed in the past few years by tax changes could now face higher costs, as they’ll need to foot the bill for setting up, renewing and ending tenancies.
Some private landlords will be able to undertake these tasks themselves. For example, while you’ll no longer be able to charge for referencing, you will still be allowed to ask for bank statements and landlord and employer references from your prospective tenants and do your own checks.
If you use a managing/letting agent, you should discuss how the changes will affect your contract, if you haven’t already been informed.
Will the ban result in higher rents?
As you might imagine, the new rules aren’t proving too popular with letting agents and landlords.
The letting agent trade body ARLA Propertymark has long claimed that the tenant-fees ban will result in landlords being ‘pushed out of the market or forced to pass rising costs to tenants.’
In research released earlier this week, ARLA claimed that the average rent for tenants will increase by £103 a year now that the ban is in force. That said, renter advocacy groups claim most tenants paid far more than this in fees to set up and end a tenancy, and the rules could encourage landlords to offer longer contracts.
Issues with selective licensing
The National Landlords Association (NLA), meanwhile, says the ban could cause difficulties in areas with selective licensing.
The trade body says local licensing schemes require reference checks, but some agents are no longer offering these as they won’t be able to charge tenants for them.
In a pointed message to agents, the NLA says that by refusing to provide references, they risk landlords ‘opting to do without agents altogether’.
- Find out more: using a letting agent
Tenant fees elsewhere in the UK
The new rules only apply in England, but change is afoot in Wales, too.
Last month, the Welsh tenant-fees ban gained Royal Assent, and it will officially come into force from 1 September this year.
The ban is set to operate on similar terms to the English ban, but the full guidance for landlords and agents hasn’t yet been published.
In Scotland, fees have been banned since 2012. No such ban is in force in Northern Ireland.
Things landlords need to know in 2019
The tenant-fees ban isn’t the only change on the horizon for landlords, with the government also set to consult on reforming the Section 21 eviction process.
This comes alongside the phasing out of mortgage interest tax relief, which will be replaced with a tax credit from April 2020.
You can get to grips with the key reforms facing buy-to-let investors in our story on 16 things buy-to-let landlords need to know in 2019.