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Government issues draft Tenant Fees Bill banning residential letting fees

Earlier this year, we blogged on the government’s proposals to ban residential letting fees.  On 1 November, the government took the next step towards realising those proposals by publishing the draft Tenant Fees Bill.

The Draft Bill

The draft legislation bans landlords and agents in England from charging residential tenants and licensees fees or other charges on top of the rent as a condition of the grant, renewal or continuance of a tenancy.  The ban covers letting agents’ fees as well as fees charged by landlords and any required payments to third parties (for example credit checks).  There are a handful of exceptions: a refundable security deposit (capped at six weeks’ rent, which is an increase from the one months’ rent originally proposed), a refundable holding deposit (capped at one weeks’ rent) and tenant default fees.

The ban will apply only in relation to tenancy agreements and licences entered into after any legislation comes into force.  It does not apply to long residential leases or social housing tenancies.

It does not bite on assignments of tenancy agreements.  In reality, assignments of Assured Shorthold Tenancies are rare as ASTs are often short term and personal.

The draft Bill includes anti-avoidance measures by preventing a rent at a higher initial sum which subsequently drops during the first year of the tenancy.  It does not prevent an increase in rent spread over the term of the tenancy.  However, the devil is in the detail, and the final legislation will need to be unpicked to fully understand what the anti-avoidance measures prohibit.

Where agents seek to pass fees onto landlords, there is nothing that prevents a landlord from reflecting such fees in a higher rent spread evenly across the term.  Whether they do so is likely to depend on supply and demand of similar properties in the area and therefore the extent to which tenants can shop around for rental properties.

Enforcement of the ban will be carried out by local authorities (Trading Standards).  An initial breach would result in a civil penalty of up to £5,000.  Subsequent breaches within five years would be a criminal offence but with a civil penalty of up to £30,000 as an alternative to prosecution.

In his written statement to parliament, Sajid Javid (Secretary of State for Communities and Local Government) highlighted the government’s aim to create “a more transparent and competitive private rented market with a higher quality of service” by sharpening and increasing letting agents’ incentives to compete for landlords’ business.  The ban will also do away with the risk of unfair practices in the form of double charging.

The draft Bill has only this week been introduced in parliament and it will not come into force for some time.  However, the message from the government is clear and consistent: it is a case of when not if we see the end of letting fees.