Draft Tenant Fees Bill Third Reading: Minor Victory for Landlords?

On September 5th the Tenant Fees Bill (the Bill) had its’ third reading in the House of Commons and the Bill has now been passed up to the House of Lords for consideration. Helen Porter, Litigation and Dispute Resolution Partner, explains how clarification may have been achieved for landlords in relation to what constitutes default fees, and reviews the penalties that they could face for charging prohibited fees.

The Bill aims to tackle the so-called ‘unfair fees’ levied at tenants by stipulating that they should only be required to pay any up front rent and deposit when securing a property in the private rented sector.  It also seeks to ensure that security deposits are capped at the equivalent of six weeks’ rent.

At present, the Bill prohibits all fees except those that are explicitly permitted, which include:

• rent;
• tenancy deposits (up to six weeks’ worth of rent);
• holding deposit (up to one week’s worth of rent);
• payments in the event of a default;
• payments on variation, assignment or novation of a tenancy (capped at £50 or reasonable costs incurred);
• payments on early termination of a tenancy (capped at the landlord’s loss); and
• payments for council tax, utilities, television licences and communication services.

This approach of expressly prohibiting all fees that are not included in the above list would prevent letting agents from creating new types of fees to circumvent the legislation.

Default fees

There is one prohibited payment that has caused confusion for landlords; names “payment in the event of a default”.  It had been considered prior to the Bill’s third reading, that the lack of a comprehensive definition of “default fees” was a potential area for abuse.  The concerns surrounding this were that landlords or indeed letting agents may cite fees charged to tenants as “default fees” when in reality they would actually be seeking to recoup costs which would otherwise be a prohibited payment, such as renewal fees, inventory charges or exit fees for example.

The inclusion of “default fees” as a fee permitted under the scope of the act was a strong point of consideration at the Bill’s third reading in the House of Commons.  Melanie Onn (member for Great Grimsby) sought to introduce an amendment to remove default fees as a permitted payment and allow the payment of landlord and agent expenses where there is a clear cost due to a tenant fault.

This amendment divided the House, but did not receive enough support to be incorporated into the Bill.  It was considered instead that it would be appropriate for default fees chargeable to tenants to be identified in their Tenancy Agreement, and a ‘general test of reasonableness’ would apply to ensure fairness and transparency.  It was clear however, that it would not be appropriate to list default charges as this list may be insufficient or incomplete over time.

Financial penalties

The financial penalties for landlords and letting agents that charge prohibited fees was also deliberated at the third reading of the Bill.  Prior to the third reading, it had been established that non-compliance by landlords and letting agents would result in a civil offence with a financial penalty of up to £5,000.  Melanie Onn suggested a further amendment to increase the level of financial penalty for non-compliance to £30,000, as a stronger deterrent to landlords/agents who charge prohibited fees.  Once again, the amendment divided the House, but did not receive enough support to be incorporated into the Bill.

The House believed that the financial penalties are set at the correct level in providing a sufficient deterrent, as well as the prospect that those individuals who do not comply on more than one occasion can face an increased fine of up to £30,000 or criminal prosecution.

The Bill had its’ first reading at the House of Lord’s on 6th September where the Bill was read for the first time to the House and was ordered to be printed.  The second reading is scheduled for the 10th October whereby members of the Lords debate the key principles and main purpose of a bill and flag up any concerns or specific areas where they think amendments are needed. 

“If there are no amendments made by the House of Lords and the two Houses agree, the Bill shall receive royal assent and become an Act of Parliament,” explains Helen. “If this is the case, landlords will need to review their tenancies to ensure they comply with the fees they are charging and that nothing falls into a wrong category that could see them face a fine or prosecution.”

If you require further advice about the implications that such changes would have on residential property lettings or to talk to our residential property litigation team, you can contact Laura on 023 8071 7412 or email laurablakemore@warnergoodman.co.uk.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.