Tenant Fee Ban now in force

The Renting Homes (Fees Etc.) (Wales) Act 2019, banning landlords and letting agents from charging fees to tenants, came into effect this week. It is now illegal for tenants to be charged by landlords or letting agents in Wales in order to set up or renew a tenancy in the private rented sector.

The new law will not just mean a ban on letting fees, but also the majority of other upfront fees payable by tenants to rent a property in Wales.

The Welsh government estimates the new law will save tenants, on average, close to £200 per tenancy.

However, the cost of referencing, credit checking etc will now fall on landlords and agents and as an increase in rents is likely as landlords and agents loook for ways to replace this lost income. After all they are not charities. 

Landlords and letting agents re now only allowed to require a payment for rent, security deposits, holding deposits, a payment in default (when a tenant breaches a contract), and payments related to council tax, utilities, a television licence or communication services.

One industry pundit said  "Agents do spend quite a lot of time helping those who find it more challenging to go through a standard referencing process, some of those people might be on low incomes or from overseas and not used to the system.

"Because fees are being banned agents are more likely to say: 'I'm going to choose that person because they understand the system, they've got a good paying job'... over someone who may be presenting under universal credit which is a very complex system.

“That's really one of our bigger long-term concerns is in a hot rental market with under-supply of rental properties, that landlords and agents have the ability to pick and choose who goes in there before they even get to the point of being able to apply for the tenancy.”

A ban on lettings fees in England came into force in June.

12 month tenancies could become mandatory in Wales

Plans to extend the notice period for so-called ‘no fault’ evictions in Wales would give tenants 12-month contracts by default.

Minister for Housing and Local Government Julie James AM, has launched a consultation asking for views on proposals that include extending the minimum notice period applicable to a section 173 notice from two to six months. 

Section 173 of the Renting Homes (Wales) Act 2016, as currently drafted, allows a property owner to seek possession of a property without a breach of contract occurring with two months’ notice. However, the Minister believes there is more the Welsh Government can do about the use of no-fault evictions and has launched a consultation asking for views about amending the Renting Homes Act before it comes into force.

Under the consultation are main proposals for periodic contracts (those contracts with no end-date):

• Extending the minimum notice period applicable to a section 173 notice from two to six months;
• Restricting a landlord from serving a section 173 notice within the first six months of a periodic contract, rather than four months as currently provided for;
• Placing a six-month restriction on issuing a section 173 notice following the expiry of a previous notice.

The main proposals for fixed-term contracts (those contracts with a pre-agreed end-date) are:

• Removal of a landlord’s ability to end a fixed term standard contract under section 186;
• To consider the use of break clauses in fixed term contracts.

The Welsh Government are also seeking views about other proposals including:

• Restrictions on issuing possession notices to landlords which the courts have found to have carried out retaliatory eviction;
• Restrictions on issuing possession notices to property owners in breach of other laws related to rented housing, such as not having an Energy Performance Certificate or a valid gas safety certificate.

If implemented this could create a situation where a property cannot be repossessed within the first six months and then introducing a further six-month notice period could cause huge problems for landlords.

They will be left powerless when it comes to problem tenants, who will be legally allowed to stay in the property for a year. If tenants are not paying rent, huge arrears could build up in this time.

How does the Tenant Fees Act impact tenants?

The 1st of June 2019 marks the introduction of the Tenant Fees Act in England. The Government says the legislation is being implemented with tenants in mind, that it aims to protect them from "unfair fees" and make it more affordable for them to move between rental properties.

Who does the 'tenant fee ban' apply to?

This will depend on the type of Tenancy Agreement. The Act is coming in to force in England and applies to all Assured Shorthold Tenancies (which is the most common type of tenancy), licenses (which include lodgers) and student lettings. Contractual lettings, such as a company let, the rules set out in the Tenant Fees Act may not apply to these agreement.

When does the 'tenant fee ban' come into force?

The Tenant Fees Act takes effect for all designated new tenancies and renewals from June 1st 2019. If tenancy was granted before this date, fees can still be charged in accordance with the Tenancy Agreement until May 31st 2020.

If a landlord or letting agent requires a payment to be made under a term within a tenancy which was entered into before the ban came into force, such as check-out or renewal fees, it can continue to be charged until 31 May 2020. After this date, any requirement to pay a fee that is not permitted by law will be ineffective.

What fees are banned by the Tenant Fees Act?

All upfront fees, except those which are exempt by law (we cover those below), can no longer be charged to renters by landlords or letting agents, this includes payments to third parties.

What fees can I still be charged for?

Alongside rent, security deposits and holding deposits, there are three fees which are exempt from the Tenant Fees Act, which tenants can still be charged. If landlords or agents want to be able to charge these default fees, they must be included in the Tenancy Agreement.

1. Losing  keys

If a tenant lose keys, the landlord can still charge to replace them. However, the cost must be for a 'reasonable amount' and whoever is charging the fee must be able to provide a receipt for the costs incurred.

2. Late rent payment fees

If  rent is paid late by over two weeks, the landlord or their letting agent can charge a late rent fee. This fee can be charged at 3% plus the Bank of England base interest rate.

There is a change however, which means that the late fees can only be charged and landlords will no longer be able to charge you for the costs incurred by chasing late rent such as letters and the administration costs.

3. Changes made to the Tenancy Agreement at your request

If a tenant requests a change to the terms of the Tenancy Agreement, then they will be liable for a fee of up to £50 or reasonable costs incurred if it’s higher. Landlord or letting agent would need to demonstrate that their costs in making changes to the Tenancy Agreement cost more than £50, then they could, in theory, charge  more. Tenants cannot be charged for renewing a tenancy or making it longer.

What happens if a tenant is charged a fee that is banned by the Tenant Fees Act?

If fee is charged  which isn't  legal, tenants should first bring their concerns to the attention of landlord or the letting agent. Professional letting agents managing properties will be aware of the legislation, if there’s been a legitimate mistake they could rescind the charge, or be able to show why they’re entitled to charge a fee in this instance, for example if it’s a fee for losing the keys to the property.

One of the many benefits of having a letting agent managing the property is a clear route of communication. Professional letting agents will also be members of a Government approved redress scheme, if a letting agent manages the property there are two redress schemes The Property Ombudsman (TPO) and The Property Redress Scheme. Tenants can only complain to a redress scheme if they are unhappy with the final response from the letting agent or if 8 weeks have passed since the initial complaint and the issue is unresolved.

The key is communication, it’s important that tenants talk to their landlord or letting agent if they are  unsure about the cost associated with the rented property. If communication with the landlord or letting agent doesn't clear things up, tenants could contact a charity such as Citizens Advice to ask for their guidance.

Are deposits changing as part of the Tenant Fees Act?

Yes, the introduction of the Tenant Fees Act will also include changes to the deposit system, with caps being introduced, changes to the way holding deposits are charged and repaid.

How are security deposits changing?

The deposits paid when a tenant moves into a property is now capped at five weeks' rent, provided the annual rent is below £50,000. For properties with a yearly rental value of over £50,000, security deposits are capped at six weeks.

What if a deposit for a current property is above the deposit cap?

If existing deposits are above the amount set out in the new rules, landlord will need to reduce the deposit the next time the tenancy renews or after May 31st 2020 (whichever comes first).

What does this mean for deposits that are higher because of pets?

In the past, landlords who have allowed tenants to keep pets have often charged a higher security deposit in order to cover the additional risk of damage and cleaning that can come with animals.

The landlord can no longer charge a higher deposit to offset the fact you have pets in the property. This might understandably impact the landlords’ appetite to let a property with pets, but it’s always important to be honest with landlord or letting agent about pets, to avoid the risk of breaching Tenancy Agreements.

Can a holding deposit be charged to secure a property?

Under the Tenant Fees Act, holding deposits are capped at one week's rent and landlords or agents will only be able to hold this money for 15 days (unless an alternative date is agreed by both parties in writing).

Once the deadline expires, the deposit must be repaid within seven days. Tenants can choose to have the holding deposit repaid back to them, put towards the first rent payment or put towards thesecurity deposit. The scenarios in which a landlord or letting agent can keep the holding deposit are if:

1. A tenant withdraws.
2. A tenant fails a Right-to-Rent check.
3. A tenant fails to take 'reasonable steps' to enter into the tenancy or provide misleading information (such as a false salary) which 'materially affects' the suitability to rent the property.

Will rents increase because of the Tenant Fees Act?

Whilst the Government's aim is to reduce the costs that tenants can face, landlords and letting agents still need to cover the costs that are incurred when setting up a tenancy. With landlords already feeling the impact of taxation changes, the expectation is that costs may be passed back to tenants through higher rents, particularly for new tenancies. Landlords’ ability to increase rents will largely be determined by local market dynamics of supply and demand for property.

Can a landlord or letting agent charge a higher rent for part of the tenancy term?

No, landlords and agents are not allowed to do this under the rules set out in the Tenant Fees Act, they cannot charge an increased rent at the beginning of a tenancy and then reduce it thereafter. For example, charging £900 for the first month’s rent and then reducing the figure to rent of £700 from month two onwards.

Why has the Tenant Fees Act been introduced?

The view from some tenants, certain consumer groups and charities (such as Shelter and Citizens Advice), was that fees charged by some landlords and letting agents were excessive. The Ministry of Housing, Communities and Local Government says the Tenant Fees Act "represents a move to rebalance the relationship between tenants and landlords to deliver a fairer, good quality and more affordable private rented sector". It says that "the system will also be clearer and less complicated for renters, allowing them to see how much a property is going to cost them with no hidden charges".

Does the Tenant Fees Act cover the whole of the UK?

The Tenant Fees Act is only effective in England. Letting agent fees have been banned in Scotland since 2012. In Wales, a similar initiative, ‘The Renting Homes (Fees etc.) (Wales) Bill ’, is being introduced on September 1st 2019 and includes a similar range of measures related to banning upfront fees and capping deposits.

Top tips for first-time landlords

We all know that investing in a buy-to-let (BTL) property is a huge responsibility, here are some top tips, to ensure that your legal obligations are understood and that you do not risk falling foul of ever-growing legislation.

Rent Smart Wales

Since 23 November 2015, there has been a legal obligation for all Landlords operating in Wales is to register in order  to comply with the law. In order to register a landlord must provide accurate and up-to-date information  about themselves and their rental properties in Wales. This  requirement comes from Part 1 of the  Housing (Wales) Act 2014.

Does this apply to me?

Do you own a property in Wales that you don’t live in?

Do you allow someone else to live in that property (as their main residence),

and do they pay you money to live there?

Is the property rented on an assured, assured shorthold or regulated tenancy?

If you answer yes to these questions you are a landlord and need to comply with the

registration requirements in Wales.

Do you allow someone else to live in that property (as their main residence), 

and do they pay you money to live there?

Is the property rented on an assured, assured shorthold or regulated tenancy?

If you answer yes to these questions you are a landlord and need to comply with the 

registration requirements in Wales.

HMO. Do you need a licence?

Depending on which local authority your property sits in, you may need to apply for a landlord licence before you can legally rent it out. This system is in place to ensure all properties are maintained to a high standard, and although it was introduced in 2006, it hasn’t been adopted by all local authorities, so it’s worth checking if you need one.

Preparing your property

Get to know the area your property is in. Is it in a student area, near commuter links or suitable for a family? If you’re near a university, you should probably furnish the property, whereas if you’re near commuter links, you’re more likely to have a young professional or a family who may own furniture already.

You should consider if the kitchen or bathroom need to be updated, whether the floor coverings or blinds or curtains need replacing, and if the overall décor needs an overhaul. Some improvements don’t have to cost the earth but will make the property more attractive to prospective tenants. Other small things you could consider include installing USB plug sockets throughout the house, replacing lamp shades and ensuring the doorbell works.

Finding suitable tenants 

As a landlord, you will need to reference new tenants to check they will be able to meet monthly rent payments. An agent will be able to help you with these checks, which include credit eligibility, affordability, employer checks and any references from previous landlords. You are also legally obliged to confirm prospective tenants have the right to lawfully live in the UK through Right to Rent checks under the Immigration Acts 2014 and 2016 (Currently England Only)

Putting a contract in place

It isn’t a legal obligation to have a tenancy agreement, but it is strongly advised and best practice. A contract protects you, your property and your tenants from anything which you may disagree on such as rent payments, the deposit, length of tenancy, who lives there, whether your tenants are allowed to keep pets and how the property and anything inside it should be treated. Your agent will help you produce a legally binding contract that all parties should sign before the keys are handed over.

Tenancy Deposit Protection (TDP)

If you’re taking a deposit from your tenants, it must be protected in one of the Government-authorised TDP schemes. There are three available – Deposit Protection Service (DPS), MyDeposits or the Tenancy Deposit Scheme (TDS). You will need to protect the deposit within 30 days of receiving it and provide your tenants with the Deposit Protection Certificate and completed Prescribed Information, and (Currently England in only) the Government’s How to Rent guide. If you don’t do this, you won’t be able to evict your tenant and you might be ordered to return the full deposit and be given a fine of up to three times the value of the deposit. In order to support any proposed deductions from the deposit at the end of the tenancy, it is best practice that an Inventory and Schedule of Condition are completed at the beginning and end of the tenancy for comparison. Taking photographs is a further safeguard.

Energy Performance Certificate (EPC)

Your property must be at least EPC band E before letting it out, and you have to serve your tenants with an EPC. If you arrange a tenancy without ensuring your property is up to these standards, you could be fined up to £4,000.

Safety checks

It’s your responsibility to ensure the property is safe for your tenants, and as a part of this, you are legally required to get all gas appliances checked by a Gas Safe registered engineer every year. You must then provide tenants with a Gas Safety Certificate within 28 days of the annual check taking place.

You also need to ensure there are working smoke alarms fitted on every storey of the property from the start of the agreement, and carbon monoxide detectors must be in any room where solid fuel is used – both alarms must be tested on the first day of the tenancy. Though not compulsory, it’s recommended to install carbon monoxide detectors where gas appliances are present. (Regulations vary between England & Wales)

Maintaining the property

You should open a line of communication for your tenants at the start of any agreement. If you have an agent managing the property on your behalf, ensure contact details have been exchanged and if you’re managing it yourself, be clear about the best way to reach you, and how long they can expect to wait for a response on both basic repairs and more urgent issues.

Inspections

Although it’s your property, it’s illegal and classed as trespassing if you enter the property without your tenants’ permission. Best practice is to give them 24- or 48-hours’ written notice, and this should be stipulated in the tenancy agreement. If you don’t receive a response, you shouldn’t enter the property.

Landlord insurance

You risk invalidating your buildings insurance if you don’t inform your insurer that you’re renting the property out. Most standard policies don’t provide the protection you require as a landlord, so it’s worth taking out specialist landlord insurance. A good policy will cover loss of rent, damage, legal expenses and liabilities.

Welsh Fee Ban Bill receives Royal Assent

A new law to ban letting fees in Wales has been given Royal Assent by Her Majesty the Queen.

At an official sealing ceremony held earlier this week, the Renting Homes (Fees etc.) (Wales) Bill became an Act of the Assembly.

From 1 September 2019, agents and landlords will no longer be able to charge fees to set up, renew or continue a standard occupation contract except those explicitly permitted by the Bill.

Standard occupation contracts will replace assured shorthold tenancies when the Renting Homes (Wales) Act 2016 is introduced later this year.

Letting agents and landlords will only be permitted to require a payment for rent, security deposits, holding deposits, a payment in default (when a tenant breaches a contract), and payments in respect of council tax, utilities, a television licence, or communication services.

The Act will cap holding deposits, paid to reserve a property before the signing of a rental contract, to the equivalent of a week’s rent and create provisions to ensure their prompt repayment. It will also give the Welsh Government the power, should it wish to use it in the future, to limit the level of security deposits.

The Tenant Fees Act comes into force in England, on 1 June.

Renting Homes (Fee etc.) (Wales) Bill summary available HERE

Are no fault evictions a ‘disaster’ for landlords?

In what they have described as ‘the biggest change to the private rental sector for a generation’, the government has unveiled plans to hold a consultation on their proposal to abolish ‘no-fault evictions’.

The proposals are part of the government’s promise to tackle the housing crisis, increasing tenant security and balancing the bargaining power between tenants and landlords (indeed, reforms banning letting fees and capping rent deposits will take effect  in England on 1 June 2019 and in Wales on 1st September 2019). The proposals have been widely reported as great news for tenants, but in practice, this is unlikely to be the case.

‘No-fault evictions’, or section 21 notices, allow landlords to terminate Assured Shorthold Tenancies (“ASTs”) on or after the end of a fixed term, giving at least two months’ written notice but importantly, not providing any ground for the termination.

Should the landlord wish to terminate the tenancy agreement during the fixed term, they must follow the Section 8 notice procedure; obtaining a court order and evidencing one of the statutory grounds – for example – where rent has not been paid.

The primary concern is that the proposals effectively create indefinite tenancies. The proposals would require landlords to evidence a statutory ground in order to evict tenants and unsurprisingly, the desire to re-let a property for an increased sum is not a statutory ground. After all, landlords are running a business and businesses need to make money. But fear not.

Rent reviews will continue to be allowed annually, restricted only by the tenants’ right to challenge where they do not agree that the review reflects market value. In other words, landlords can continue to ensure that they receive the market rate for their properties.

This is the case in Scotland, where similar proposals were implemented in 2017. Scottish landlords have continued to exercise their right to review rent annually, thereby ensuring that they receive the market rate. The proposals will therefore either allow landlords to continue to receive increased rents or with the prospect of increased rent, will lead to the tenant ending their occupation (hardly the aim of the proposals).

When faced with the prospect of ‘indefinite tenancies’, landlords will understandably be far less likely to take on tenants who they perceive as “risky”. Landlords can protect their interest, increasing scrutiny during the vetting process and demanding lengthier or stricter guarantees.

In this way, the proposals are likely to leave landlords unable to accept the risk that accompanies the most vulnerable of tenants and in turn these tenants will struggle to find properties to rent.

The proposals include amendments to the Section 8 statutory grounds, enabling landlords to regain their property where they wish to sell or move into it. The NLA explains that the Section 8 procedure requires landlords to endure a slow and expensive court process simply to end the tenancy legitimately.

As such, landlords often rely on Section 21 notices, not because they are without good reason, but because the end result is delivered far more cost-effectively.

To combat this, the government pledge to expedite the court process, allowing repossession where rent is unpaid or the property has been damaged. This is, however, easier said than done and proposals to ‘digitise the court process’ and ‘provide better guidance’ are hardly ground-breaking. Indeed any reform that removes a tried-and-tested process in favour of increasing the court’s workload is unlikely to be well-received.

So, the proposals require court orders to be obtained before tenants can be evicted (unpopular with landlords) and will invite more stringent due diligence before tenants are able to rent properties (unpopular with tenants).

In short, the consultation is unlikely to receive a positive response and concrete legislative reform that can truly be described as ‘the biggest change for a generation’ remains a long way off.

In fact, these proposals result from the government’s previous consultation, where proposals for a minimum three year AST term failed to garner a mandate from either tenants or landlords.

A more cynical view could argue that the proposals are well-timed sound bites aimed at the ever-growing pool of tenant voters. The housing crisis is an undeniable reality, but whether the latest proposals provide the solution and lead to legislative reform remains to be seen.

Fitness for Human Habitation Act

On 20th March 2019, the Government introduced the Fitness for Human Habitation Act in England. This law, which is also known as the Homes Act, essentially ensures that all rental properties are deemed safe.

While the majority of landlords will only rent out properties that are safe, the new law protects tenants should their landlord fail to keep them safe. 

Who does the act apply to? 

The Fitness for Human Habitation Act is applicable to all social or private rental properties. This means landlords are responsible for adhering to the Act, and tenants can take action using the Act if their landlord doesn’t keep to the new laws. 

Tenants who signed a tenancy agreement from 20^th March 2019 will be able to use the Fitness for Human Habitation Act straight away, if they feel their rental property is not safe. 

However, tenants who signed a tenancy agreement before 20^th March 2019 won’t be able to use the Fitness for Human Habitation Act. If you have a secure or assured tenancy, statutory tenancy or a private periodic tenancy, you will be able to use the Act from 20^th March 2020. However, if the tenancy is a fixed term contract that began before 20^th March 2019, then tenants will have to wait until the end of the tenancy. 

That’s not to say that any problems tenants – who signed their tenancy before 20th March this year – face with their rental property cannot be dealt with, as you can still complain to your letting agent or local council about taking action. 

Exceptions to the rule 

While tenants are entitled to a home that’s safe and fit for habitation, there are some exceptions where your landlord wouldn’t be responsible. 

One instance is if the tenant is responsible for the reason why a property is no longer fit for habitation. This could be due to damage caused by the tenant or through illegal activity. Where this is the case, the tenant will actually be the one responsible for putting the problem right. 

When it comes to possessions, the landlord is only responsible for possessions that are included in the inventory at the start of the tenancy, and not the tenant’s own possessions. 

Landlords may also need to seek permission from all parties before taking action on making a rental property fit for habitation. For example, in the case of flats, landlords will have to get permission from the building owners, and even the council, before they can make certain changes to a property. 

Lastly, landlords are not held accountable for acts of God, such as fires, storms and floods, as these are beyond a landlord’s control.

Although only currently applying to England you can be sure that the Welsh Government will follow suite at some point.