COMMENT As the number of households renting in the private sector has increased – from under 10% in 1988, to 19.5% in 2018 – the political influence of the renting classes has grown. Among the first manifestations of that political power was the Tenant Fees Act 2019 (the Act) which became law in 2019 with the aim of addressing “unfair” fees charged by landlords and their letting agents to tenants under short-term occupancy agreements.
These fees covered costs at the beginning of a tenancy (eg preparation of letting documents), costs arising during a tenancy (eg the cost of assignment), and costs at the end (eg the cost of reconciling inventories). Many tenants wrote unexpected cheques, while landlords and agents simply assumed that tenants read their tenancy agreements before signing.
The mechanism adopted by the Act was to ban “prohibited payments”. These include:
- topped up initial rent payments (greater rent in the first month than prior months);
- “excessive” deposits (under the Act deposits are limited to five weeks’ rent for annual rents under £50,000 and six weeks’ deposit for rents above);
- multiple/excessive holding deposits;
- unreasonable/unjustified default fees (eg for a lost key);
- charges of over £50 for dealing with a tenant request to vary, assign or novate a tenancy agreement;
- fines for early termination of a tenancy where there is no loss to the landlord; and
- unreasonable charges for supplying service connections (eg internet, phone, etc).
To deter landlords and agents from continuing to charge prohibited payments, the Act introduced the following measures/deterrents that can be levied against landlords and agents by enforcement authorities:
- financial penalties of up to £5,000 on a first offence (a civil breach);
- financial penalties of up to £30,000 on a further breach within five years of the first offence (a criminal offence);
- banning orders;
- a tenancy agreement not binding a tenant; and
- an inability for the landlord to terminate a tenancy agreement until a prohibited payment has been returned.
Through identifying prohibited payments, and introducing deterrents against their use, the government intends to create a fairer private rental market where services are paid for by the people actually contracting for them, ie usually the landlord, not the tenant.
Problems
Notwithstanding the Act’s good intentions, there are clear oversights within it which are reducing the impact of the Act, as well as the effectiveness of its deterrents. What are these oversights?
Naivety
A major flaw is that the Act naively expects landlords and agents to “play fair”; ie faced with penalties, agents and landlords will stop charging prohibited payments, and the problem goes away. Simple? In practice, unfortunately, prohibited payments are just more transparent with the loss of income from prohibited payments being accounted for within the rent charged – this is what many landlords’ organisations predicted during the consultation that took place before the Act.
Accordingly, headline rents now reflect what tenants actually pay – tenants, despite the Act, bearing the costs, rather than the landlord.
Knowledge
A further problem with the Act is that it: (a) presupposes that tenants will be familiar with the provisions of the Act and can identify prohibited payments; and (b) that tenants will pursue suspected prohibited payments.
Therefore, even if a tenant suspects a prohibited payment, they must report their concerns to their landlord/letting agents in the first instance and, if a tenant is not happy with the response, apply to the Property Ombudsman or the Property Redress Scheme (if available).
Naively again, the Act fails to appreciate that in a competitive lettings market, a tenant, or potential tenant, may not be inclined to report any suspicions in the fear that they might sour an existing relationship with a letting agent, or may not be let a particular property.
Discretion
The Act provides that it is the duty of a local weights and measures authority (ie Trading Standards) to enforce the Act, and a district council (which is not a local weights and measure authority) may, if they choose to do so, enforce the Act. Beyond that there is little information regarding the details of enforcement.
To provide further guidance on enforcement, the Ministry of Housing, Communities & Local Government published Tenant Fees Act 2019: statutory guidance for enforcement authorities. However, although the guidance recommends factors an enforcement authority should take into account when deciding the level of a penalty, it still leaves the detail to enforcement authorities so that they may develop their own policies. This opens enforcement authorities up to inconsistencies in approach.
The National Trading Standards Estate and Letting Agency Team (NTSELAT), which was set up in 2019 to enforce both the Estate Agents Act 1979 and the Tenant Fees Act 2019, has produced additional guidance for stakeholders to help reduce potential inconsistency. Bristol City Council, the designated “lead enforcement authority” of NTSELAT, has published its own, Bristol City Council Enforcement Policy in relation to the “relevant letting agency legislation”, which is of particular note.
It is hoped that this policy will encourage consistency in approach and that other enforcement authorities will use it as a template. However, this does raise the question: why can’t NTSELAT be given the power to set a national policy which enforcement authorities can use with certainty?
Will the Act bite?
NTSELAT has recently revealed that, although agencies have been continuing to breach the Act since it came into force, at least 18 investigations have now been launched by district councils. It will be interesting to monitor the results of these investigations and to see the approaches taken. Indeed, if enforcement authorities can demonstrate that the Act can “bite”, and make some consistent examples of landlords and letting agencies, perhaps, despite the oversights, agencies might start to heed the Act’s “bark” without further measures being introduced.
James Fuller is a solicitor at BDB Pitmans
