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What is the Tenant Deposit Act 2019?

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The laws affecting private landlords are constantly changing – and ignorance is no defence if you break them. So it’s vital to keep abreast of new legislation. The Tenant Fees Act 2019 came into force 1 June 2019 and sets out new regulations regarding the payments that landlords, letting agents and third parties are permitted to receive from tenants.

The act is a lengthy and complex piece of legislation which may leave you feeling confused – read on for our attempt to clarify the situation for you.

Tenant Fees Act 2019

Permitted payments

The easiest way to avoid asking for or accepting a payment that you shouldn’t is to understand that all payments are prohibited unless specifically permitted by the act. It is an offence to demand a prohibited payment in relation to a housing tenancy in England or to require a tenant to make such a payment to a third party.

The permitted payments are as follows:

  • Rent
  • Tenancy deposit
  • Holding deposit
  • Payment in the event of a default
  • Payment on variation, assignment or novation of a tenancy
  • Payment on termination of a tenancy
  • Payment for council tax
  • Payment for utilities bills
  • Payment for a television licence
  • Payment for phone or internet bills

 

If you’re breathing a sigh of relief at this list of permitted payments, it’s important to note that restrictions apply – we’ll explain more below.

 

Rent

You cannot charge a higher than usual amount for a period of the tenancy and then reduce the rent for the remainder of the term. In other words, you cannot increase the rent for a month or more as a form of surcharge or penalty. Any such charge would be a prohibited payment.

If you rent your property to students, you may be wondering about the common practice of requiring three or four payments throughout the tenancy which tie in with term dates. This system of payment could result in higher and lower amounts being requested across the tenancy. Such a system is acceptable, provided the rent requested is proportionate to the length of the period to which it applies.

Rent increases or reductions according to circumstances specified in the tenancy are permitted. Also, an agreement to increase or reduce the rent after the tenancy has started can be made.

 

Tenancy deposit

A tenancy deposit is a permitted payment. No change has been made to the requirements for protecting this. However, the amount that can be requested by a landlord or agent has been changed.

Where the annual rent is less than £50,000, the maximum tenancy deposit allowed is five weeks’ rent. Where the annual rent is equal to or greater than £50,000, a deposit equivalent to six weeks’ rent is allowed.

You are permitted to replace a tenancy deposit with an alternative product, such as an insurance policy. But you must have given the tenant the option of making a deposit payment, which they have declined this. Tread carefully if you are considering a replacement product – you must make your tenant aware of the precise conditions and any potential pitfalls.

 

Tenancy deposit transitional provisions

From 1 June 2020 any terms in an existing tenancy agreement, which involve a prohibited payment will cease to be binding. Any prohibited payment must be repaid within 28 days. Landlords and agents will not have to repay deposits which exceed the cap and were signed prior to 1 June 2019. But if the tenancy is renewed after that date, they will be required to issue a refund.

 

Holding deposit

A holding deposit should never be confused with a tenancy deposit. A holding deposit is a permitted payment taken before a tenancy is granted, to hold the property while the landlord or agent takes the required steps to grant the tenancy.

It is necessary to follow a strict procedure when accepting or repaying such a deposit. The maximum holding deposit allowed is one week’s rent. Only one holding deposit can be held at the same time for the same property, unless a deposit has been retained due to the provision of false information by the prospective tenant.

A holding deposit can be held for 15 days, unless a different period has been agreed between the parties in writing. It must be repaid within seven days of a tenancy being agreed or refused. The deposit does not have to be repaid if there is an agreement that it should form part of the tenancy deposit or rental payment.

If a tenancy is refused because false information was provided and the deposit is to be retained, this must be explained to the applicant in writing within seven days.

The deposit must also be returned if the prospective tenant has decided not to enter a tenancy agreement because the landlord or agent behaved in an unreasonable way or if no notice of retention has been issued.

A holding deposit must be returned if a tenancy agreement is not entered within 14 days unless the fault for the delay lies with the prospective tenant. Again, the tenant must be advised in writing that the deposit will be retained.

 

Payment in the event of a default

There are certain charges you can make, for loss of keys or security devices, for example. These are called defaults. The charges can only cover reasonable costs incurred which must be outlined in writing. Receipts for costs incurred must be given to the tenant.

 

Failure to pay rent in full

Landlords are permitted to charge interest on rental payments which are at least 15 days late at a rate of 3% above the Bank of England base rate.

 

A payment of damages for breach of an agreement

Payment of damages for breach of a tenancy agreement is a permitted payment, as long as the tenancy agreement is fair.

 

Payment on variation, assignment or novation of a tenancy

If the tenant requests a landlord or agent to vary or sign the agreement, requesting a payment of up to £50 or one equal to the reasonable costs incurred is permitted.

 

Payment on termination of a tenancy

A permitted payment if it is a payment to a landlord or letting agent in consideration of the termination of a tenancy at the tenant’s request. But the amount received cannot be greater than the loss suffered as a result of the termination.

 

Payment in respect of council tax

A council tax bill is a permitted payment. It’s not permitted for a council tax payment to be made directly to the landlord or agent.

 

Payment for utilities and communication services

Landlords and agents are permitted to accept payments for utility, phone and internet bills. However, they may only accept payments equal to the actual charge from the provider and any reasonable associated costs.

 

A minefield for landlords?

It is more important than ever for landlords to act efficiently and to understand the laws which apply to their businesses. Failure to comply with those laws could result in severe financial penalties or the inability to evict a tenant when it would otherwise be possible to do so.

If you are a landlord and feel that keeping up with the regulations or managing your property is becoming too much of a burden, Assetgrove can help. We can take care of everything for you, enabling you to profit from your investment hassle-free and to avoid any legal minefields.

Click here to contact us or call us on 020 8886 4944 today to learn more about our services for landlords.

Neil Jennings

Neil is the Operations Director at Assetgrove Lettings, London's Leading Rent Guarantee Company, providing Landlords with no voids, property maintenance, fee-free property management and stress-free service.

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