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Landlords Watch Out On Taking Payments From Tenants Going Forward

David Leviten – partner in the Property team at Clough & Willis – on why landlords now need to watch out when taking payments from tenants.

David, can you summarise the Landlords of the Tenant Fees Act 2019 which has just been passed?
The Act controls what payments a landlord or letting agent may require and will fundamentally alter what landlords can demand by way of payments from tenants. It is expected to commence on 1st June 2019 and will cover assured shorthold tenancies, licences (lodger lettings for example) and student lettings that are provided by a specified educational institution.

What is the biggest issue?
The starting point is to understand that ALL payments are essentially prohibited unless expressly “permitted” under the Act. For example, rent and deposits are permitted but even they have restrictions.  It’s not only an offence for a landlord or letting agent to require a prohibited payment but it’s also an offence for a landlord or letting agent to require a tenant to make a prohibited payment to a third party; for example, asking a tenant to pay directly to a referencing company.

What are the penalties?
The penalty for a first offence is up to £5,000. If a person commits a second offence within five years, a penalty of up to £30,000 is payable.  In addition, a second offence is a criminal offence.  Furthermore, a second offence is a banning order offence and - if enforced - would mean the landlord could be banned from letting again during the period of the banning order. Any financial penalty is on top of being required to repay any prohibited payments or holding deposit received.

What about for corporations?
If an offence is committed by a corporate body and is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, an officer of a body corporate, the officer as well as the body corporate commits the offence and is liable to be proceeded against and punished accordingly.

Are tenancy agreements entered into before 1st June 2019 included in the Act?
Where a tenancy was granted before 1 June 2019, if any provision of the tenancy would be prohibited (had the tenancy been granted from 1 June 2019), the provision ceases to be binding on the tenant (or a relevant person) after one year from commencement of section 1 of the Act. However, the agreement continues, so far as practicable, to have effect in every other respect.

What will happen after 12 months?
If, after 1 June 2020, the landlord (or a letting agent) accepts a payment from a tenant pursuant to a prohibited provision, the landlord or letting agent must return the payment within 28 days otherwise they will be treated as having required the tenant to make a prohibited payment. There is no requirement for this repayment to be requested by the tenant (or other relevant person) so this is a strict time-limit and the landlord or agent must be proactive in returning the money.

What permitted payments are landlords or letting agents allowed to receive?
The permitted payments are contained in Schedule 1 of the Act. They are: 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 in respect of council tax, utilities, television licence and communication services. Each one has restrictions and limitations so should be carefully researched.

What would your advice be to landlords and letting agents?
The key thing is to review as a matter of urgency their standard letting agreements as many of the provisions contained will be illegal going forwarded if they are utilised as a means of demanding or taking payments from the tenant. A breach may well also impact on their ability to get tenants out at the end of the tenancies if the provisions are not met.