Buy to let - Update for Landlords

Residential Property Buy To let - Update for Landlords  on the Tenant Fees Act 2019 and Electrical Checks for rented properties coming this year.

For landlords renting out private properties a Tenant Fees Act 2019 was the latest in a long line of changes to the law, proposed reforms and consultations at reforming the residential lettings market.  This Act applies to any new Assured Shorthold Tenancies (ASTs) granted on or after the 1^st June 2019.  It will apply to all ASTs (regardless of date) with effect from June 2020.  The aim of the Act is to reduce ‘hidden’ costs that a tenant can face at the start of their tenancy.  The idea behind the new law is that a tenant should know easily what a given property will cost without having to face potential ‘add-ons’.  The Act was introduced as a way of imposing controls on what was seen as the practices of ‘rogue’ agents and landlords but as is it affects all parties letting out a residential property as even payments that were commonly charged by reputable landlords and agents are now prohibited. 

The Act does not specify which fees are prohibited, but instead confirms those that are permitted.  The Government has published useful guidance on fees and this can be accessed here:-

https://www.gov.uk/government/publications/tenant-fees-act-2019-guidance

This guidance gives useful examples of payments that might now be considered common, and which are prohibited under the new legislation.  For example where a landlord wishes to carry out a reference against a tenant and a charge used to be made for this, such a fee is now prohibited.  The same applies to credit checks, inventory check fees, tenant set up fees, viewing fees and payment for third party services such as gardeners or cleaners unless included in the rental payment itself. 

So what are the permitted payments?

Rent is a permitted payment. Rent reviews can be included within the Tenancy Agreement but Landlords are not permitted to include an initial higher rent at the start of the term to offset what used to be initial costs such as viewing fees, set up fees and reference fees. 

A deposit is a permitted payment.  The deposit cannot exceed 5 weeks rent.  If however you are lucky enough to receive more than £50,000 in rent under the AST then 6 weeks rent is permitted as a deposit.  The practice of charging additional deposits for certain situations (such as where a tenant has a pet) is not permitted any longer. 

Holding deposits are permitted where a landlord wishes to charge one as evidence of the tenants’ intention to complete a tenancy.  However it cannot exceed one weeks rent and cannot be requested if the landlord holds a deposit for the same property from the same tenant previously.  Holding deposits can be held for a maximum of 14 days, and must be repaid to a tenant within 7 days of the tenancy being completed.  A holding deposit can only be retained by a landlord if the tenant fails the ‘right to rent’ checks, or provides unsatisfactory or misleading financial or other information, or withdraws from the transaction, or fails to take reasonable steps to enter into the Tenancy Agreement within the agreed deposit period (maximum 14 days).  A holding deposit cannot be retained if the landlord elects not to proceed with the letting as a result of an unsatisfactory reference or credit check.

The Act allows for a permitted default fee but only where there are 2 forms of tenant default – interest on the late payment of rent, or the cost of replacing lost keys.  Such default fees must be clearly and expressly set out in the Tenancy Agreement and comply with strict requirements – for example a key loss must reflect the reasonable costs incurred by the landlord and details must be given to the tenant in writing.

There is no mention of default fees for items such as breach of repair requirements, damage to contents or failure to return premises in a clean condition.  The Act does not prevent a landlord relying on the Tenancy Agreement which allows him to recover from the tenant the cost of remedying such a breach.  A landlord can continue to deduct the cost of remedying the breach from the tenancy deposit at the end of the tenancy, or pursue a claim in the Courts for damages.  It is a requirement that any such use of a tenancy deposit must be stipulated within the Tenancy Agreement.

If the tenant wishes to vary or assign an existing tenancy, a fee of up to £50 can be charged by the landlord as an assignment fee.

Payment on termination of a tenancy – if a tenant makes a payment to a landlord to terminate the tenancy before the end of the fixed term, or because inadequate notice has been given under the terms of the agreement such a fee/payment can only reflect the actual loss suffered by the landlord.  It should not be punitive.  The fee charged should be limited to the loss of rent, and any re-advertising or agents fees incurred.  If a suitable replacement tenant is found then the termination fee can be further limited to the period of lost rent only. 

Payments to cover Council Tax, utilities, telecommunications, cable/satellite TV and internet are permitted payments and can be recovered by landlords.  However landlords are not permitted to ‘overcharge’ the provision of such services.  Payment for a TV licence is considered a permitted payment provided that the Tenancy Agreement requires the payment to be made.  Landlords cannot charge interest on the late payment of such sums unless they are included within the overall rent payment.  The Letting Agreement is therefore key – it must confirm what fees are payable to cover such items, or include them within the rent. 

Where a landlord or letting agent requires a tenant to make a prohibited payment they may face prosecution and payment of a fine of up to £5,000, which can be increased to £30,000 if that landlord or letting agent has committed a similar offence within the past 5 years.  Any provision within the Tenancy Agreement that seeks to recover a prohibited payment from a tenant is deemed unenforceable and cannot be enforced within the Courts.  It is important to note that all other terms of the Tenancy Agreement will remain in force. 

A Tenant Fees Act 2019 is not where landlord regulation for letting of private premises is going to end.  The Government has laid further regulations under the Housing and Planning Act 2016 to commence the process of requiring all landlords to carry out electrical safety checks on properties that are rented out in the private sector.  This statutory requirement officially came into force on the 25^th October 2019 in terms of the Secretary of State having the power to make such regulations, but the Government has not yet set a date.  It is however anticipated that following various consultations the Government will introduce the regulations in late 2020 and this will require all landlords to have a full electrical safety inspection on the premises every 5 years.  Again it is likely that the new regulations will apply to new tenancies only at the outset and there will be a fairly short transitional period before other properties are required to comply with the same legislation.  Enforcement of the regulations is likely to be given to Local Authorities and be a matter for civil penalties rather than criminal prosecutions.