Tenant Fee Ban – What Does it Mean for Landlords?

The new Tenant Fee Ban now effects all residential landlords in England. Whether you know much about it or not, landlords can’t afford to ignore the new legislation. Those who do risk facing a big fine. Here’s what you need to know…

What is the Tenant Fee Ban?

The Tenants Fee Act 2019 came into effect 1 June, making it now illegal to charge unfair additional fees — such as an admin fee — to tenants when they take on a new property, or renew a contract.

The ban automatically applies to all new contracts signed after 1 June 2019. From 1 June 2020 it will apply to all other applicable tenancy contracts too.

Why has the Tenant Fee Ban been introduced?

To make renting fairer for private tenants who for too long were being charged unfair fees each time they went to rent a new property.

Private renters in England — including families with dependent children — have been paying £13 million a month in letting fees, says Citizens Advice. One in seven tenants paid over £700, while one shelled out over £2000 for the privilege of moving into one property! 

The old ‘system’ was especially harsh on those forced to look for a new place because their landlord was selling up. In other words, it wasn’t their choice to move.

When landlords use a traditional letting agent to let out their property, the agent would charge to cover the purported costs of credit checks, referencing and drawing up the tenancy agreement, for example. Charges could also include a mandatory inventory fee, contract renewal fee, and an ‘admin fee’.

With so many people moving home every year, such fees could put a huge strain of families and individuals. Research by the Citizens’ Advice Bureau reveals that 42% of renters had to borrow money just to pay their tenant fees.

What does the tenant fee ban mean for landlords?

The government estimates that in its first year it could cost landlords up to £83m, and letting agents £157m.

What’s certain is that landlords cannot now lawfully charge:

  • Viewing fees 
  • All fees associated with setting up a tenancy, including referencing, inventory and credit checks
  • Check-out fees 
  • Third party fees 
  • Gardening services.

You can, however, charge for:

  • Rent
  • A refundable tenancy deposit (maximum five weeks’ rent, or six if the annual is £50,000 or more)
  • A holding deposit (capped at one week’s rent)
  • Replacing lost keys
  • Any changes the tenant asks to be made to the contract (capped at £50)
  • Bills, such as council tax, water, broadband, TV licence
  • Ending the contract early
  • Late rent payments (after 14 days, and only if written in the contract)
  • Cleaning fees in extreme circumstances.

Tenant fees account for about 19% of a letting agent’s income, with some agencies reporting as much as 30% of their annual income from tenant fees alone. Agents will look to recover this by increasing the fees they charge the landlords.

While many have argued that the landlord will in turn increase the rent they charge, there’s evidence this may not happen. The ban was introduced in Scotland in 2012,  yet only 2% of Scottish landlords were able to put up their rents because of the fee ban. Which means the hit is to be absorbed between landlords and letting agents. 

Experts agree that the most likely outcomes for landlords now are:

  • Face longer void periods because they increased rents to cover costs
  • Cut back on making improvements, which will see them unable to raise the rent or attract better-quality tenants
  • Decide to ‘self-manage’ their properties rather than use an agent, which will see many landlords struggling to stay abreast of property rules.

In Wales, agents and landlords will be banned from charging for viewings, signing a contract or renewing a tenancy from September. Northern Ireland have yet to announce a ban on tenant fees.

What is the risk of non-compliance?

Landlords and lettings agents who ignore the ban face an initial fine of up to £5,000. Those committing another breach within five years may be fined a maximum of an extra £30,000, and may possibly be taken to court.

The changes aren’t retrospective, so landlords and agents will not be penalised for fees already paid. They do, however, apply to all landlords, even those who only own one property.

Howsy — the smarter solution

We started Howsy to provide a fairer, kinder lettings service for both landlords and tenants. This is why we don’t charge our landlords or our tenants for:

  • advertising the property on big property search websites
  • referencing and credit checks
  • arranging viewings, or
  • drafting and renewing contracts. 

And we don’t take any ‘admin fees’ either. This was true before the new ban.

In fact, Howsy landlords don’t pay a thing until AFTER the tenants have moved in. And our tenants don’t pay anything besides their rent and deposit.

We offer a complete property management service for just £35 a month anywhere in England, and £55pm inside the M25. As a landlord, you’ll be completely covered for repairs, inspections and rent collections. And even for the eventuality that you’ll need new tenants.

For savvy landlords, this is the time to start looking around for better alternatives to your letting agent. Unlike Howsy’s model, getting out of a contract with a traditional letting agent can take up to six months. 

So, waiting until the last moment to start shopping around could mean facing the double impact of increased letting agent fees and the next Section 24 increase. Act now and protect your profits.

To find out more about what we can do for landlords, email us or call us on 0330 999 1234 today.