The tenant fee ban – what do landlords need to know

It was back in November 2016 when the Chancellor announced in his Autumn Statement that certain fees to tenants would be banned.

At the time of the announcement, there was a concern that landlords and their agents were over-charging tenants for setting up a tenancy, and there was a belief that this was causing the cost of entering the private rented sector prohibitively high. Of course, those of us inside the industry understand complexities which surround finding the right tenant and drawing up agreements which protect both parties – let alone safeguarding landlords against the risks of penalties for making even simple mistakes. 

However, the reality is that from 1st June the majority of fees charged to tenants will be banned. The rules are exactly the same, regardless of whether you let and manage the property yourself, or you use a letting agent.

At the same time as the ban on fees becomes law there will also be a reduction in the maximum deposit that a landlord or letting agent can take from a tenant – which will be capped at five weeks’ rent.

However, all deposits must be held in an approved government scheme, and so in theory there is no major impact to landlords at the start of the tenancy. But unfortunately, it lessens the protection they have against defaulting tenants. This is because there is little incentive for a rogue tenant to pay the final month’s rent if they have made even a relatively small amount of damage to the property – which would almost certainly leave the landlord out of pocket.

The types of tenancies which are impacted are Assured Shorthold Tenancies – which are by far the most regularly used agreements between landlords and tenants – together with Licence Agreements, which are usually used by lodgers, and students renting University-run accommodation.  

So just what are the fees that landlords and agents can and can’t charge to tenants?

Allowable costs:

  • Holding deposit of up to one week’s rent
  • Rent
  • Deposit of up to five weeks’ rent
  • Default payments – as long as they’re detailed in the tenancy agreement
  • Reasonable fees for making changes to a tenancy agreement
  • Reasonable fees in the event the tenant wants to end a tenancy early

Not allowable:

  • Costs to complete the reference – including if the tenant needs a guarantor
  • Any deposit greater than five weeks’ rent
  • Any default payments not detailed in the tenancy agreement
  • A fee to complete an inventory
  • Gardening or cleaning costs

This change will make quite an impact to agents and landlords, not least because it means that the costs involved in setting up a tenancy still need to be covered.

However, at Darlows, we’re certain that this act should not result in the driving down of standards when it comes to referencing prospective tenants. There is a chance that some tenants may apply for properties even if they wouldn’t normally pass the referencing criteria – after all, if they don’t need to pay any fees to apply, what could be stopping them! And this makes professional referencing all the more important.

Just what are the primary reasons that landlords should professionally reference their tenants?

  • To catch those tenants who are intent on committing fraud
  • To stop those tenants who really can’t afford the rent
  • To prevent you letting your property to someone who has had significant problems in the past

Any landlord who does break the law by charging a fee to a tenant after 1st June can expect a fine of up to £30,000.

For more information about the services we offer Landlords, please speak to your local Darlows branch.