The Tenant Fees Act – being introduced on June 1 – will have a wide-ranging impact on the private rental sector.

Not only will the new laws affect the way letting agents operate, but there will be changes for landlords and tenants too.

The legislation has been a long time coming but now it is finally here, what do landlords need to know? As a landlord, it’s important that you’re aware of your own obligations as well as those required of letting agents.

With this in mind, below we have answered five key questions landlords may have ahead of the official introduction of the fees ban…

Do the new laws apply to all tenancies?

As mentioned above, the Tenant Fees Act comes into force on June 1 2019. From this date, it applies to all new tenancies and renewals.

For any tenancy agreements made before June 1, landlords and agents are still able to charge fees as long as they are in line with the original terms of the tenancy agreement.

After May 31 2020, however, any requirement in a tenancy agreement for fees to be paid will become ineffective. This means that by June 1 2020, all upfront fees in any tenancy agreement – apart from the exemptions outlined below – will be illegal.

The new laws apply to all Assured Shorthold Tenancies – the most common kind of agreement between landlords and tenants – as well as licence agreements and student lettings.

Which fees are banned?

Aside from rent, deposits and the three exemptions detailed below, all fees that you or your letting agent have been charging tenants up until now will be banned.

This means you will no longer be able to charge administration costs, referencing fees, inventory fees, credit check fees and so on.

If there is a fee you’re not sure about, the likelihood is that it’s banned under the Tenant Fees Act, but always be sure to check with your letting agent and the government’s official guidance.

What can I still charge fees for?

The three exemptions that you can still charge fees for are known as ‘default fees’. If you want to charge these fees, they must be included in your tenancy agreements.

The first default fee is lost keys. If you are charging a tenant to replace a lost set of keys, you’ll need to make sure the fee is for a ‘reasonable’ amount and provide receipts as evidence.

Next up are late rent payments. If your tenant is in rent arrears for more than 14 days, you can charge them a late rent fee. The fee can only be charged at up to 3% plus the Bank of England’s base rate of 0.75%.

The final default fee is changes to the tenancy agreement. If a tenant requests a change to their agreement such as changing a name or adding a pet clause, you can charge them up to £50 (more in extenuating circumstances).

If the tenant simply requests a renewal or extension of their contract, however, you are not able to charge them a fee.

How do the deposit caps work?

As well as a ban on fees, the Tenant Fees Act also contains new rules on security and holding deposits.

Security deposits are being capped at five weeks’ rent if the annual rent is below £50,000. For properties with an annual rent higher than this figure, the cap extends to six weeks.

If you have agreements with your tenants where the deposits exceed the cap, you will be required to reduce them after May 31 2020 or when the agreement next renews, whatever comes first.

The deposit cap will also have implications if you allow tenants to keep pets as you will no longer be able to charge a higher deposit to cover the risks associated with having animals in your property. Therefore, any landlords who currently allow pets should think carefully about what they’re going to do after June 1.

Meanwhile, holding deposits – which allow prospective tenants to reserve a property – are being capped at one week’s rent.

Landlords and agents are only allowed to keep holding deposits for 15 days (unless agreed with the tenant) and after this time you must return the money to the tenant within a week.

There are a number of reasons why landlords could be entitled to keep a holding deposit. These include: tenants withdrawing from the property after making a formal application, failing a Right to Rent check, providing misleading information such as a false salary or failing to take reasonable steps to enter into the tenancy agreement.

How can I combat the tenant fees ban?

There’s no doubt the Tenant Fees Act will have a significant effect on the rental market. However, that’s not to say landlords can no longer let property successfully – far from it.

As long as you have the right strategy in place, work alongside an expert letting agency and ensure that you are fully compliant, you can continue to generate impressive returns from your rental property portfolio.

If you have any queries regarding the tenant fees ban, don’t hesitate to get in touch with Key Property Consultants. Meanwhile, you can read the government’s official guidance here.

To find out how much you could be charging in monthly rent, why not request a free and instant online property valuation today?

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