The Tenant Fees Act 2019 came into force in England last year on 1 June 2019. The Act bans landlords and agents from charging fees to tenants other than those expressly permitted by the Act. It also places a cap on the amount of security deposit a landlord or agent can collect and codifies a procedure for dealing with holding deposits. The ban applies to assured shorthold tenancies granted by private landlords, licence agreements and tenancies of student accommodation (referred to collectively as “tenancies” for the purposes of the Act).
Since 1 June 2019 the Act has applied to all new agreements actively granted on or after this date including renewal agreements. In accordance with the Act’s transitional provisions, the ban has not applied to tenancies entered into before 1 June 2019 or to statutory periodic tenancies that arose at the end of fixed-term ASTs that commenced before 1 June 2019. The transitional period has now come to an end and from 1 June 2020 the Act applies to all relevant tenancies in existence. However, there will still be some differences in how the various rules apply depending on when the tenancy was granted and when the payment was taken.
This is part 1 of a 3-part series exploring how the TFA provisions will apply to tenancies from 1 June 2020. This blogpost will explore how the prohibited payment provisions work and why compliance is important.The second blogpost will look at tenancy deposits and how the cap applies to different tenancies. The final blogpost will examine the holding deposit provisions.
How does the TFA apply from 1 June 2020?
The various scenarios are set out below:
New tenancy granted on or after 1 June 2019 including first tenancies and renewal tenancies
As is the case now, the Act applies so no prohibited payment can be taken. Any term in the agreement that requires a prohibited payment is not binding. This applies equally to the first tenancies and renewal tenancies. This is the most straightforward scenario as no payment taken in connection with that new tenancy will be lawful if it is not a permitted payment under the Act. Requesting a prohibited payment will be a breach of the Act.
Statutory Periodic Tenancy that arose before, on or after 1 June 2019
The Act will now apply to these tenancies as the transitional provisions have come to an end. Any term in the agreement that requires a prohibited payment ceases to be binding on the tenant from 1 June 2020. If a landlord/agent accepts a payment by mistake they have 28 days to return it to the tenant otherwise it is a prohibited payment and they will be in breach of the Act. However, any payment taken before this date (i.e. up to 31 May 2020) will still be lawful as it will have been taken during the transitional period when the TFA restrictions did not apply.
With these tenancies that span the transitional period some payments may have been taken lawfully while later payments may not be lawful. For example, reference fees and inventory fees may have been taken lawfully at the commencement of a tenancy and default fees collected lawfully throughout the tenancy. However, a check-out fee due to be charged at the end of the tenancy will be unlawful if taken on or after 1 June 2020. Difficulties may arise if payments were taken from tenants ‘on account’ at the start of their tenancies when the fee was still allowed but the charge is only actually incurred at the end of the tenancy, for example, to cover a check-out inspection. That fee is likely to be prohibited even if collected before the ban applied and the money should be returned to the tenant.
Tenancies granted before 1 June 2019 including contractual periodic tenancies and tenancies still within their original fixed term
The Act will also now apply to these tenancies as the transitional provisions have come to an end. There is no exemption for tenancies that have a longer fixed-term period or have been contractual periodic tenancies from the outset. The ban applies retrospectively to these tenancies. Again, from 1 June 2020 any term in the tenancy requiring such a payment will cease to have effect and if a payment is accepted it must be returned within 28 days of receipt otherwise it is a prohibited payment and the landlord or agent will be in breach of the Act.
Why is this important? What are the sanctions for non-compliance?
Compliance with the TFA is important because there are serious consequences for breaching the Act. Local authorities and the lead enforcement authority can issue penalties of up to £5000 for each breach of the Act and repeated non-compliance can result in prosecution or a financial penalty of up to £30,000, banning orders and an entry on the Rogue Landlord Database and/or the Mayor of London’s Rogue Landlord Checker. Tenants can also bring claims against the landlord to recover fees charged unlawfully. You can read more about enforcement of the Act here.
One of the biggest deterrents to non-compliance is the restriction on recovering possession from assured shorthold tenants. A landlord in breach of the Act is not able to serve a valid section 21 notice until any prohibited fee has been returned to the tenant or, with the tenant’s consent, credited to their rent account or deposit (if that does not take the deposit above the cap).
Tenant advisers will have updated their section 21 checklists to check compliance with Act and the Court’s N5B Claim Form for seeking possession using the accelerated procedure has now been amended to include a number of questions relating to the Act. There is no doubt that tenant representatives will be analysing payments carefully to check that any fee taken was permitted. If it was not this could provide the tenant with a complete defence to a section 21 possession claim. However, as illustrated above, this will not always be straightforward and will involve checking when the tenancy was granted, the date when the payment was taken (and potentially when the charge was actually incurred) and, if applicable, the date the payment was repaid to the tenant. Some fees will have been taken lawfully at the time, even if they are now prohibited. Landlords/agents and their advisers will also need to ensure that they have scrutinised any payments so that they can demonstrate compliance and, if necessary any prohibited payments are repaid prior to serving a section 21 notice.
More Links, Content, Supporting Documentation & Solutions To Follow October 2020. TLA.