The Tenant Fees Act has saved tenants nearly £500 million in upfront fees to letting agents and landlords over the past two years — but some property investors are still flouting the law.
The law stopped landlords and their agents from asking for extortionate admin fees from tenants.
But some are trying to skirt the law by asking for a year’s rent upfront.
These landlords obey the strict letter of the law, which bans asking tenants for all but a few fees but does not affect how much rent in advance they can demand.
Tenant Fees Act and the legal loopholes
Since the tenant fees ban came into force, the law has banned landlords and letting agents from demanding upfront fees for services like drafting rental agreements, renewing contracts and carrying out reference and credit checks.
The law also limits landlords and agents asking for up to five weeks’ rent as a security deposit (in England) and one week’s rent as a holding deposit.
Rather than make the private rental sector more accessible, the new act seems to have raised the barrier to enter the market for many renters.
As the law has no stipulations about income thresholds, guarantors or asking for upfront rent, some landlords are using these factors to cherry-pick who they consider the best tenants.
How landlords break the tenant fee ban
Private landlord lobbyists Generation Rent research shows property tribunals have heard 17 cases relating to the tenant fee ban in the 24 months since the law’s introduction.
Disagreements over holding deposits accounted for 11 of the cases.
Landlords and agents take holding deposits to reserve a home pending the signing of the tenancy agreement. The deposit is usually refundable and is a maximum of a week’s rent.
The main tenant gripe was landlords kept the deposit if the tenancy did not go ahead. Some complaints were for more than one infringement of the law.
The cases broke down like this:
- In three cases, the landlord, or agent acted unreasonably by trying to let a home that had tenants or failing to communicate with the applicants
- In five cases, the landlord did not tell the applicants that their deposits would be kept, which led to the landlords repaying the total amount
- In another five cases, landlords repaid some holding deposits after overcharging the applicants
- In one case, the applicant lost their deposit after failing to act reasonably to agree on the tenancy
Five cases related to security deposits. These refundable deposits are limited to five weeks’ rent and held by a deposit protection service.
- One tenant reclaimed paid too much and was refunded the difference between their deposit and five weeks’ rent
- The tribunal rejected three cases because the tenants had not complained to a Deposit Protection Service or a court for the return of their money
- The tribunal upheld another case after the tenant disputed cleaning costs charged by the landlord when they gave up their home
In the last case, a landlord repaid the tenant £150 from a £200 fee for changing the name on a tenancy agreement. The tribunal felt this charge was allowed as a fee, but an unreasonable amount for the work carried out.
Interestingly, the judge set £50 an hour as a reasonable charge for the admin.
Generation Rent also pointed out that landlords were the offenders in most cases, mainly due to letting agents belonging to a redress scheme that dealt with complaints before they went to a tribunal or court.
The argument over upfront rents
Landlords should not ask tenants to pay multiple months of rent when they move into a home, says the Ministry of Housing.
A spokesman explained the tenant fee ban aims to stop landlords from ‘frontloading’ rent, which leads to tenants paying more in the early months of a tenancy.
“Landlords and tenants should agree on the rent and how much that should be paid in advance,” said the spokesman.
“But landlords should not expect to ask for multiple amounts in advance.”
Letting agents suggest private landlords request higher amounts of rent in advance because they cannot cover the cost of referencing tenants by charging a fee at the outset of a tenancy.
London letting agent Foxtons says cases of landlords asking for more than three months’ rent in advance are rare — amounting to fewer than 10 per cent of tenancies.