It’s been looming over landlords for a while, but the Tenants Fees Act finally came into force in England at the start of June.
Designed to reduce hidden costs for tenants, the new Act has implications for tenants, landlords and letting agents.
Hailed as a major victory for the country’s 4.7 million rented households, The Tenants Fees Act outlaws additional charges when a tenant signs up to rent a new property or renews an existing contract.
But the new Act could leave property owners out of pocket.
According to government figures, it could cost landlords up to £83 million
in its first year. Letting agents will feel the pinch, too, with the government estimating it will cost them about £157 million. Estimates by consultancy firm Capital Economics on behalf of Arla
make the government figures look conservative. Their data suggests that landlords are set to lose £300 million a year and letting agents £200 million.
From the tenants’ perspective, the new Act is good news. Research carried out by property management app Bunk found that tenants stand to save £192 million a year as a result of this ban on hidden charges and fees.
What is The Tenant Fees Act 2019?
The Tenant Fees Act reduces the charges tenants face from the start of the renting process right through to when their contract comes to an end. In brief, it bans letting fees paid by private tenants in England and caps the amount they have to pay as a security deposit. Here’s what’s changed in more detail:
What tenants can’t be charged for
The legislation sets out new rules about what landlords and letting agents can charge their tenants. It abolishes most fees including those for viewings, credit checks, references, and drawing up a tenancy agreement.
According to an article in The Guardian
, these fees could add an additional £600 to £800 to the cost of renting a property.
From June 2019, if tenants are charged an unlawful fee or deposit, they can get it back.
It is important that property owners are aware of these changes. Any landlord or agent found in breach of the Act could face a fine of £5,000 and civil penalties of up to £30,000.
One way to make sure your property stays safe and protected for the duration of a tenancy agreement is to have specialist landlord insurance
What tenants can be charged for
The only fees landlords are now able to charge tenants are:
1. Refundable security deposit
. Under the new rules, this is capped at a maximum of five weeks’ rent if the total annual rent is less than £50,000. If the yearly rent totals more than £50,000, the security deposit is capped at six weeks’ rent.
2. Refundable holding deposit
: This allows tenants to reserve the property and can be charged at no more than one weeks’ rent.
3. Contract termination fee
: Payment for the early termination of a tenancy agreement when it has been requested by the tenant, not the landlord. These costs cannot exceed the loss incurred by the landlord or letting agent
4. Utility bills
: This includes payment for utilities and council tax bills.
5. Default fee for late payment of rent
: Rent needs to be at least two weeks late before a fee can be charged.
6. Fee for the replacement of keys or locks
. There is no limit on what can be charged for this, but the fee must be reasonable and the property owner must provide written evidence of the cost, such as a receipt.
Make sure that both you and your tenant get a fair deal by selecting landlords insurance that is tailored to your needs
How else will the Tenant Fees Act impact landlords?
Some experts are suggesting that while the Tenant Fees Act is good news for tenants, there may be some negative consequences.
According to a study by Arla, 70% of letting agents said they planned to increase their costs towards landlords
In the same month that the Act was passed, there were already reports of some letting agents encouraging landlords to increase monthly rents as a way to offset the new costs they face.
And this is a trend that could continue to grow – 87% of the landlords questioned in the Arla study believe that rent prices will increase as a direct result on the ban.
The introduction of the Tenant Fees Act has placed added pressure on agents to become more efficient and complete the rental processes faster and more effectively. But if agents attempt to divert charges to landlords, this could mean property owners decide not to instruct a letting agency in the future.
And that means both the landlord and the agent lose out.
The key is to make sure everyone acts fairly and transparently. Using a letting agent can still be a good option for landlords. Equally, treating tenants with respect and being honest with them will always work in a landlord’s favour. Having specialist landlord insurance
will mean you are covered in the event of damage or loss of rental income due to damage caused.
How to navigate the Tenant Fees Act
Want to find out more information about the Tenant Fees Act 2019 and how it will affect you and your tenants? There are a number of tools and guidelines to help you navigate the Act.
Check out the government issued guidelines – Tenant Fees Act 2019: Guidance for landlords and agents
. Covering everything from who the ban applies to and how the Act will be enforced to information about penalties, this is your go-to information source.
· Deposit calculator:
To help you calculate how much you are able to charge as a deposit, the Tenancy Deposit Scheme has this handy Deposit Cap Calculator
For more information on protecting your property when letting to tenants, get in touch
with the team at Insurance Choice. We can help you find the right landlord insurance cover for your needs at a competitive price.
Get in touch for a quote on landlord insurance