The private rented sector houses 4.5 million households in England and Wales. It represents 20% of all households and up to 25% in London. However, following a series of consultations, the Government expressed concern that tenants were being exploited, and were the victims of unfair and excessive fees imposed on them by the letting agents chosen by landlords. The Government found that tenants have a limited ability to negotiate or opt out and the fees and hidden costs imposed on them restricted movement and reduced affordability.

Accordingly, the Government has published the Tenant’s Fees Bill, which aims to ban and curtail what it sees as unfair and bad practices. As the Bill moves closer to becoming law, partner Mark Sellers reviews the key details.

Letting fees

The Bill will ban landlords and their agents from requiring tenants and licensees in the private rented sector from making any payments as a condition of granting, renewing or continuing a tenancy.

The Bill will also ban landlords and agents from requiring tenants and licensees from paying or securing services from any third party, or to make a loan. These provisions have been added to try to defeat any avoidance techniques or loopholes being exploited.

In response to its consultation, unsurprisingly 96% of tenants supported this ban. 75% of landlords and agents opposed the ban. The Government sided with tenants. It feels by imposing this ban tenants will be better informed about the costs of the letting (as letting fees were commonly not advertised upfront) and the elimination of some upfront one-off payments will reduce the costs to the tenant. Landlords are better able to absorb such costs, and can offset the fees against tax liabilities.

The proposed ban will also apply to housing associations where they are letting an Assured shorthold tenancy (AST) in the private rented sector. This will ensure all tenants are treated the same regardless of the status of the landlords.

Refundable holding deposit

It is common for tenants to be asked to pay a holding deposit when terms are agreed. This ensures there is a financial commitment by the tenant. In return, the landlord will stop showing the property to other potential tenants.

In response to its consultation, landlords, tenants and agents understood the justification for paying a refundable deposit to take a property off the market. However, there was a wide gap between the suggested cap for such a deposit.

The Government has suggested in the Bill that the holding deposit should be capped at one weeks’ rent. It says this is a reasonable financial commitment by a tenant and would avoid landlords and agents incurring unnecessary and costly work while tenants speculate on a number of properties.

The Bill requires landlords and agents to refund the holding deposit except in circumstances where the tenant:

• withdraws;
• does not take all necessary steps to enter into the tenancy agreement;
• fails a right to rent check; or
• provides false or misleading information.
  
  

Refundable tenancy deposit

These are deposits paid by tenants at the outset of the tenancy, and held by landlords for the duration as security for the tenants’ obligations. In response to the consultation, tenants, landlords and agents agreed there should be a cap. But not on how much that cap should be.

The Government expressed concern that high up front deposits could put a strain on tenants’ finances at the outset. Evidence produced by The Disputes Service showed that over the last three years, the amount of the deposit had increased by nearly 8%. However, data showed in nearly all cases tenants received back the majority of their deposit value.

The Bill therefore provides that it will be permissible for Landlords to receive a refundable tenancy deposit of no more than six weeks’ rent.

The Government believes this offers landlords a reasonable level of security. It also believes it will dissuade tenants from choosing not to pay the last month’s rent of a tenancy so avoiding issues relating to their occupancy found during checking-out of the property.

Enforcement

Trading Standards will enforce the new rules.

Penalties for non-compliance

Any clause in a tenancy, which requires the tenants to make a prohibited payment, is not binding on the tenants. The rest of the tenancy agreement will continue to apply.

Trading Standards will be able to impose a financial penalty on a landlord or agent who required a tenant to make a prohibited payment or failed to return a holding deposit. The financial penalty will be up to £5,000.

In the event a further breach is committed within five years, it would constitute a criminal offence and a civil penalty up to £30,000 could be imposed as an alternative to a prosecution.

While the Government accepts the Bill will have an impact on the income of letting agents, it also believes it will save tenants around £240m per annum. However, the new measures are subject to Parliamentary timetables. Whilst the bill will reach the report stage in Parliament the week beginning 5 September 2018, there is no estimate as to when it will become law.