New law caps tenancy deposits and regulates letting fees

The Tenant Fees Act that caps tenancy deposits and protects against unfair practices has now received the Royal Assent and passes into law.

The government introduced the new regulations because it believes that unexpected letting fees and high deposits can make properties harder for people to afford and are often not clearly explained upfront – leaving many prospective tenants unaware of the true costs of renting a property.

The Act caps the security deposits that renters pay at the start of their tenancy at 5 weeks’ rent, giving people the assurance that legally they cannot be expected to pay more than this to secure a property.

It also puts an end to costly fees imposed by landlords or agents. It is expected to save tenants across England at least £240m a year, or up to £70 per household.

Breaches of the regulations could lead to fines of £5,000. Persistent offenders could face criminal charges.

Communities Secretary Rt Hon James Brokenshire MP said: “Under the Act, landlords and agents are only able to recover reasonably incurred costs from tenants and must provide evidence of these costs before they can impose any charges.

“This will put a stop to, for example, tenants being charged hundreds of pounds for a damaged item that actually only costs a few pounds to replace – such as £60 to replace smoke alarms.

“The Act also ensures that tenants who have been charged unfair fees get their money back quickly by reducing the timeframe during which landlords and agents must pay back any fees that they have unlawfully charged. Taken together, these provisions help reduce the costs that tenants can face at the outset, renewal and termination of a tenancy.

The Tenant Fees Act will come into effect on 1 June. Its main provisions include:

• capping security deposits at no more than 5 weeks’ rent and holding deposits at no more than 1 week’s rent. It also sets out the proposed requirements on landlords and agents for returning a holding deposit to a tenant.
• capping the amount that can be charged for a change to a tenancy at £50 unless the landlord demonstrates that greater costs were incurred.
• creating a financial penalty with a fine of £5,000 for an initial breach of the ban with a criminal offence where a person has been fined or convicted of the same offence within the last 5 years. Financial penalties of up to £30,000 can be issued as an alternative to prosecution.
• requiring Trading Standards to enforce the ban and to make provision for tenants to be able to recover unlawfully charged fees via the First-tier Tribunal.
• preventing landlords from recovering possession of their property via the section 21 Housing Act 1988 procedure until they have repaid any unlawfully charged fees.
• enabling the appointment of a lead enforcement authority in the lettings sector.
• amending the Consumer Rights Act 2015 to specify that the letting agent transparency requirements should apply to online property portals such as Rightmove and Zoopla.
• enabling local authorities to retain the money raised through financial penalties with this money reserved for future local housing enforcement.

Please contact Jonathan Carr if you would like more information about the issues raised in this article or any aspect of commercial property law.