With the Tenant Fees Act coming into force in England on 1st June 2019, and the Welsh fee ban due to follow suit in September, there are lots of questions to be answered. We take a look at some of the most common questions around what you can and can't charge with regards to the Tenant Fees Act 2019.
Of course, what you can charge with regards to permitted fees is widely reported in detail. But what about some of the other charges? What about those fees and charges that don't necessarily fall under the catch all title of admin charges, but could save your letting agency from going under? The legislation is a actually quite vague in some respects, especially when it comes to charging commission or call out charges. But there have been responses from figures such as ARLA’s David Cox on the subject of some of the fees that agents can charge tenants.
So, if you’re wondering what you can or can’t charge under the as a result of the fee ban, these are some of the key frequently asked questions and the main responses.
What are the fees I can charge for?
Under the Tenant Fees Act 2019, there are six permitted payments that you can charge tenants. They are:
- A refundable holding deposit of one weeks rent for tenants who wish to move into the property
- A refundable deposit of five weeks rent, which the holding deposit can be included. If annual rent is over £50,000 then 6 weeks rent can be taken as deposit
- Default fees for late payment of rent and charges for lost keys or security fobs
- Tenancy contract changes when requested by the tenant, capped at £50, or 'reasonable costs incurred'
- Payments associated with early termination of the tenancy when requested by the tenant
As an optional extra, you can also charge for payment in respect of:
- Council tax
- Utilities including water, electricity, gas etc
- Broadband and telephone line
- TV licence
There are some complications around utilities insofar as you cannot sell gas or electricity for more than the cost price.
Can I charge for administration, inventory or credit checks?
No. Under the Tenant Fees Act 2019, charges such as administration, mandatory cleaning fees, check in/check out or credit checks are all now not-permitted payments. That means they're illegal fees and you cannot charge tenants.
Other charges you can no longer charge include guarantor fees, gardening or cleaning fees.
So whose responsibility is referencing?
As tenant referencing is an important part of letting property you’re still going to need reference checks, of course. As charging tenants anything beyond the permitted fees is prohibited after 1st June 2019, you can't charge tenants for reference checks.
So how about requiring the tenant to supply their own reference check? This falls under the umbrella of an additional fee, so nope, sorry. In fact, the Landlords Guild website states:
It’s not only an offence for a landlord or letting agent to require a prohibited payment but it’s also an offence for a landlord or letting agent to require a relevant person to make a prohibited payment to a third party (for example asking a tenant to pay directly to a referencing company is prohibited).
In short, reference checks are a cost that you will need to cover as a letting agent or landlord.
Can I charge a higher rent and then lower it later to cover my fees?
No. You cannot 'front load' the rent at the start of a tenancy. This refers to charging a higher rent at the start of the tenancy and then lowering it after a few months. It also includes putting the rent up after a few months (like a broadband internet contract) or offering a discounted intro rate.
For longer tenancies which include a rent review clause, perhaps annually, you can still increase the rent in accordance with the agreement.
Can I charge higher rent?
There are currently no restrictions on the rental amount that you charge, so yes, you can list property at whatever price you like.
Perhaps I could offer utilities as part of all-inclusive rent?
There is nothing that says you can’t just include additional services as part of any new tenancy agreement. In fact, this is a growing sector in residential property lettings, with lots of new agencies popping up that include utilities, cleaners, concierge and more as part of the tenancy agreement. So long as you're not charging application fees for renting you're all good...
For existing tenancies, you’ll need to offer things like utilities or other services as an optional extra. More on that below.
What about if I offer optional extras on top of the rent? (and charge a commission)
Yes, of course, you can offer optional extras on top of the rent. However, when it comes to the commission this is when it gets a little bit murky. Basically, the legislation says nothing on the subject of charging a little extra on top of offering an optional service.
When we asked The Property Ombudsman for clarification, the response was:
“….recent guidance from NTSEAT refers to the Consumer Protection from Unfair Trading Regulations 2008 (“the CPRs”) and their application in relation to referral fees. The guidance states that any practice which hides the real price of a service is capable of being found to be an unfair commercial practice under the CPRs.
Following on from this, Peter Habert, Director of Policy at The Property Ombudsman, recommends that lettings agents also take the time to consider this guidance in relation to their referral and associate services arrangements.”
In short: Make sure you’re transparent when it comes to any additional charges or commissions. And make sure to state clearly that you are making a commission on your website and any paperwork.
Can I make my tenant pay to clean up damage or mess?
Under the terms of the Tenant Fees Act 2019, you can’t make it compulsory to pay for normal wear and tear. Although you can't specify that property needs to be cleaned by a professional, you can specify that the property needs to be cleaned to a particular (i.e: professional) standard.
For tenancy agreements that started before the 1st June 2019, if a tenant has agreed to pay for professional cleaning as part of their contract, you can still charge for this up until 31st May 2020 (one year after the introduction of the Act). After 1st June 2020, the legislation will apply to all tenancy agreements.
If there is deemed to be an unsatisfactory level or mess or damage to the property then you can take the payment for this from the deposit. However, you'll need to state clearly to the tenant how much it will cost to put right.
The issue might be around the interpretation of an acceptable amount of wear and tear on a property. Maintaining a record of the state of the property on moving in day is going to be more important than ever.
But, to make it plain. If the tenant breaches their contract agreement and damages the property, creates a lot of mess or causes a problem with the neighbours then they will likely be in breach of their contract. They will then be subject to a default on their contract and can be charged a default fee.
However, with regards to repairs or cleaning, you’ll need to be clear with the tenant how much it has cost you.
The tenant has been neglectful of a maintenance issue and now it’s going to cost money to put right. What can I do?
If the tenant has caused damage through negligence then this would fall under the defaulting on their agreement. If part of their agreement is to maintain the property then they should notify you in the event of a maintenance issue as soon as possible.
As above, you can recover a payment for damages for defaulting on their agreement, either. You’ll still need to provide evidence of any costs that you’ve incurred as a result of the breach.
My tenant lost their keys, what can I do?
You can charge the tenant for the replacement of the keys or security fob and ‘reasonable costs’. Although it’s not clear what reasonable costs are, you can’t charge for your time or inconvenience except in ‘exceptional circumstances’.
What are ‘exceptional circumstances’? Well, perhaps if the tenant needs letting into their apartment in the middle of the night, or they have needed to call out an emergency locksmith (that you’ve incurred the charges for), then you should be able to charge a reasonable fee.
The Government statement says, “...the onus is on the landlord or letting agent to prove that they have incurred business costs as a result of the default”.
There are service charges as part of the block, can I pass these on?
You can’t charge any additional mandatory charges on a monthly basis, apart from the rent. However, there is nothing to say you can’t charge a higher rent.
So if an apartment block includes gardeners, cleaners, a concierge or other extras, you can’t charge for them individually.
The tenant has a pet. Can I charge more rent?
Yes, you can. You’ll need to make it clear before the tenancy agreement commences that there is an additional charge for pets. For best practice, make it clear in your advertisement that there is an additional monthly charge for pets in the property.
Can I charge a higher deposit for tenants with pets?
No. You can’t charge a higher holding deposit or security deposit for tenants with pets.
I have existing tenants who pay additional charges, what do I need to do?
If your tenants have a contract agreement signed before the 1st June 2019 then they any fees that they currently pay (such as monthly extras etc) are still valid. That is, they can still be charged them.
However, on the 31st May 2020, you will need to make sure that any of these mandatory additional charges cease. The tenant can be given the same charges as an optional extra. The key here is ‘optional’.
If tenants have been charged a check out fee in advance then after 1st June 2010 you will need to refund this.
The Tenant Fees Act 2019 is a big change to the way the UK lettings industry will operate, so we hope our answers to the frequently asked questions help you out...
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