The calls have properly begun about the tenant fees ban in England with real-life examples being provided. We’ve had a very interesting call regarding rental payments for a student let which we’re going to go through in detail in this article.
It’s common in the student rental market for rents to be sought in 3 or 4 payments for the whole term rather than say £500 every month.
Under the Tenant Fees Act, it’s prohibited to seek a rental payment which is more in an earlier period than a later period. To use a simple example, if the rent on 1 August is £800 and then for 1 September £700, the £100 difference is a prohibited payment.
In a genuine case on the helpline, we had a very complex situation which required great thought. Thanks to David at Training for Professionals for the consult! We believe we have found the answer but please be patient here because the explanation is very complex and hopefully what we say is right! We will only know for sure when the courts or tribunals start to deal with cases.
Schedule 1 Tenant Fees Act 2019 says that “rent” is a permitted payment but there then follows a set of circumstances which makes part of rent prohibited. As mentioned earlier, it’s where the amount for a period is higher than an amount for a later period.
Schedule 1 – 1(2) provides:
if the amount of rent payable in respect of any relevant period (“P1”) is more than the amount of rent payable in respect of any later relevant period (“P2”), the additional amount payable in respect of P1 is a prohibited payment.
Schedule 1 – 1(7) and (8) defines “relevant period”:
(7) … “relevant period”, in relation to a tenancy, means any period of time in respect of which rent is payable under the tenancy. (8) But “relevant period” does not include a period of time which begins after the end of one year beginning with the first day of the tenancy.
To summarise, “relevant period” means any period of time under a tenancy but not any period after one year.
Therefore, our starting point is to find all periods of rent due under a tenancy for the first 12 months. We don’t need to look beyond that.
A normal letting might look like this:
1 January £800
1 February £800
1 March £800
1 December £800
When we look at this list of payments due under the tenancy, we can see that they are all the same amounts. As such, no period is a lower amount than an earlier period so all is good and we’ve complied with Schedule 1 – 1.
Let’s take another simple example and see if you can spot the problem:
1 January £800
1 February £900
1 March £800
1 December £800
Here, we can see that we have an amount which is higher (“P1”) than a later amount (“P2”).
February (“P1”) is higher than March (“P2”) and as such, “the additional amount payable in respect of P1 is a prohibited payment.”. The £100 higher in P1 (February) than P2 (March) is prohibited.
These examples above are nice and simple because the periods for the amounts are all the same – calendar months.
But, what if we start charging rents for different periods of time? For example, what if we charge £800 for all of January then charge £400 for half a month from 1 February to 14 February? The amount for the later period of February will be a lower amount than for January but, we’re only charging for a lesser amount of time so surely it’s got to be a lower amount?
The legislation allows for this but this is where things get complicated:
Where the later relevant period is a different length of time to the earlier relevant period, the amount of rent payable in respect of the later period is to be treated as the proportionate amount of rent that would be payable in respect of that period if it were the same length of time as the earlier period.
What is “the same length of time”? Is a “calendar month” the “same length of time” as an earlier or later calendar month? Is the whole of “January” the same length of time as the whole of “February”? Given that “relevant period” isn’t defined as daily or anything other than by time, we are presuming that parliament intended calendar months to be the same length of time because otherwise, our normal calendar monthly rentals could start to get messed up.
Where periods are not exactly the same, the only constant we can rely upon is that a day is always 24 hours and the law does not take account of fractions of a day – Bathavon R.D.C. v Carlile (1958) 1 Q.B. 461 (notice to quit is bad if expires at noon).
Below is now an example we need to look at for a proposed student letting. The proposed term is to be 11 months from 1 September 2019 to 31 July 2020. The proposed rent is £408 per calendar month and the rental payments that the agent has produced are:
1st September £1496 (408 x11 / 3)
4th January £1496 (408 x11 / 3)
12 April £1496 (408 x11 / 3)
At first glance, this looks okay because there is no amount lower than an earlier amount. All amounts are £1496. However, there’s a problem. This doesn’t cover 12 months, only 11 and remember, “relevant period” covers “any” period up to 12 months under the tenancy.
Now, before we go on, one thing we don’t know is if “under the tenancy” in relation to a relevant period only includes the fixed term. If the tenancy then goes into a statutory periodic tenancy and as that is a new tenancy (see Superstrike), do the 12 months apply or just the 11 months in this case? Our agreements “continue” as a single tenancy so any continuation is the same tenancy so would require 12 months calculations. We will play it safe and because an assured shorthold tenancy always goes periodic if the tenant remains, we will assume that we always need the full 12 months periods of rent until some court case decides otherwise.
Back to the case in hand. There will always be a provision in the tenancy for rent payable if the tenant didn’t leave at the end of the term when the tenancy rolls on. In this case, that amount will be the normal monthly amount of £408. We, therefore, have to re-write the rental amounts (up to 12 months) as being:
1st September – 3 January £1496
4th January – 11 April £1496
12 April – 31 July £1496
1 August – 31 August £408
Now, we have a relevant period within 12 months where P1 is greater than P2. As such, we trigger the further provisions within schedule 1.
Going back to the different lengths of time provision which we can now break down:
Where the later relevant period is a different length of time to the earlier relevant period – in our case, the later period (1 August – 31 August) is a different length of time to the earlier period (12 April – 31 July) …
the amount of rent payable in respect of the later period is to be treated as the proportionate amount of rent that would be payable in respect of that period if it were the same length of time as the earlier period
We need to treat the later period (1 August – 31 August) as if it were the same length of time as the earlier period (12 April – 31 July).
Because this isn’t an exact number of calendar months, in order to find the “same length of time”, we need to go daily for calculating the length of time.
First, we need to establish how long in time the earlier period is. 12 April to 31 July is 111 days.
We now need to “treat” the later period (1 August) as if it were the same length of time i.e. 111 days. The daily amount for the later period (£408) is £13.41 and next we need to multiply that by 111 days so we treat it as though it were the same period as the earlier period. This produces £1488.51. So, we can re-write the two periods of our rent schedule:
11 April (111 days) £1496
1 August (111 days) £1488.51
Now, we have a problem because P1 (11 April) is greater than P2 (1 August) and as such, the difference is prohibited albeit only by £7.49. On its own, not a huge amount but have in mind, the penalty is up to £5,000 for the first offence. In addition, because the “landlord” has requested the prohibited amount of £7.49 and not the agent (given it’s rent under a tenancy in the landlord’s name), the landlord is now barred from serving a section 21 notice until the prohibited amount is repaid. Because it’s such a small amount, this probably wouldn’t get spotted until a court hearing and as such, costly and lengthy delays could occur.
The answer to the problem was that provided by us on the initial call and that is to make the payments due as follows:
1 September – 31 December £1632 (4 months @ £408)
1 January – 31 March £1224 (3 months @ £408)
1 April – 31 July £1632 (4 months @ £408)
1 August – 31 August £408 (1 month @ £408)
Although there is a lower amount in a later period than an earlier period, the months are precisely equal throughout and so “the same length of time” (assuming calendar months is an acceptable length of time to compare). Another way to achieve would be:
1 September – 31 December £1632
1 January – 30 April £1632
1 May – 31 July £1224
1 August – 31 August £408
This case shows just how easy it is to fall foul of the legislation and is certainly one to look out for. As long as the amounts are always the same for proportionately the same length of time, you will be fine.
There is one slight caveat to the above which isn’t entirely clear and will require a decision to be made – schedule 1 also says in relation to the relevant periods and amounts:
There is to be left out of account any difference between the rent payable in respect of the earlier relevant period and the rent payable in respect of the later relevant period as a result of a variation of the rent payable in respect of the later period—
(a)pursuant to a term in the tenancy agreement which enables the rent under the tenancy to be increased or reduced, according to the circumstances, or
(b)by agreement between the landlord and the tenant after the tenancy agreement has been entered into.
Could it be argued that the term in the tenancy for the rent covering one period or another was “pursuant to a term … which enables the rent to be increased or reduced …”?
We don’t think this applies in this case because it needs some set of circumstances to be triggered for the increase or reduction to happen. For example, there might be a term which says the rent increases or reduces when RPI changes. In which case the amount of rent upon RPI changing would be a circumstance and that amount left out of account. The term also needs to be a mechanism for “enabling” the rent to change. It doesn’t refer to a term actually changing the rent.
We will have to see on that one!