Wales Landlord Guidance

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3.6 Tenant Fees

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The Renting Homes (Fees etc.) (Wales) Act 2019 commenced from 1 September 2019 and bans most tenant fees in Wales.

The Act applies to assured shorthold tenancies at the time of commencement but will extend to standard occupation contracts when the Renting Homes (Wales) Act 2016 commences.

Only a “permitted payment” may be requested from “any person”.

The rules apply to any new tenancy or renewal from 1 September 2019. It’s unclear whether the rules will apply to a statutory periodic tenancy which arises on or after 1 September 2019 (it’s safest to assume that the rules will apply).

The rules do not apply to a requirement imposed before 1 September 2019 nor, a requirement forming part of an assured shorthold tenancy entered into before the 1 September 2019.

Prohibited Payments, Contracts or Loans

From 1 September 2019, it is an offence for a landlord or agent to require-

  • a prohibited payment to be made to the landlord, agent, or any other person in consideration of the grant, renewal or continuance of a standard occupation contract (AST), or pursuant to a term which purports to require the payment to be made.
  • a person to enter into a contract for services with the landlord, agent, or any other person in consideration of the grant, renewal or continuance of a standard occupation contract (AST), or pursuant to a term of which purports to require entry into a contract for services (except the tenancy agreement or letting agent management agreement)
  • the grant of a loan in consideration of the grant, renewal or continuance of a standard occupation contract (or a term purporting such a grant).

It’s important to note the scope of this wording. It’s an offence to require a prohibited payment, contract or loan from “any person” not just the tenant/contract holder. This includes a prospective tenant, guarantor, parent, or any other person.

Permitted Payments

The only payments that are allowed to be requested are known as “permitted payments”. These are listed in section 4 and Schedule 1 to the Act and are-

  • money payable by a landlord to a letting agent in respect of lettings work or property management work carried out by the agent on behalf of the landlord;
  • rent;
  • security deposits;
  • holding deposits;
  • payments in default;
  • payments in respect of council tax;
  • payments in respect of utilities;
  • payments in respect of a television licence;
  • payments in respect of communication services.

Lettings Work or Property Management Work Carried Out by the Agent

A payment by a landlord to a letting agent in respect of lettings work or property management work carried out by the agent on behalf of the landlord is a permitted payment.

This shows the extent of the ban. If the ban only applied to limited specified persons, there would be no need for this permitted payment. However, because of the wide scope and the fact that money is banned to “any person” unless permitted, it’s needed.

Rent

The requesting of rent is a permitted payment. However, if the amount of rent payable in respect of any period (“P1”) is more than the amount of rent payable in respect of any other period (“P2”), the additional amount payable in respect of P1 is a prohibited payment.

For example, if a tenancy starts on 1 October and the rent for October is £900.00 (P1) and then from 1 November it’s £700 per month (P2), the difference is prohibited (in our example the difference is £200 and it is that which is the prohibited payment – the £700 being a permitted payment).

There are further complications if the duration of one period is different to another period in which case an “applicable daily rate” must be calculated. This complicated calculation essentially finds if there is a lower daily rate for one period than another and any difference is prohibited. If the tenancy is setup for a normal calendar monthly rent (e.g. £700 per calendar month payable on the 1st) then the rules specify those periods have the same daily rate (even if the months have a different number of days). But, if the tenancy includes a payment of 6 months rent in advance or payments are set for student terms, in almost every case, without adjustment, there will be a prohibited payment. Advice should be sought for any tenancy agreement which is not for the same amount every calendar month.

Security Deposits

Taking a security deposit is a permitted payment. This is the familiar deposit that would need protecting in a deposit scheme.

There is a provision in the rules to allow the Welsh Government to impose a “prescribed limit” which would limit the amount which can be taken. At the time of writing, no such limit has been prescribed. Any deposit taken should not exceed 1/6 annual rent (2 months rent) so as to avoid it being regarded as a premium which could cause serious problems.

Holding Deposit

A holding deposit is a permitted payment.

Holding deposit is defined as an amount which:

  • before the grant of a standard occupation contract or AST, is paid to a landlord or a letting agent;
  • is paid for the purpose of reserving a right of first refusal in relation to the granting of the contract, subject to suitability checks to be carried out as to the prospective contract-holder and agreement between the parties to enter into the contract;
  • does not exceed an amount equivalent to one week’s rent under the contract. The official guidance suggests calculating one weeks rent by dividing the calendar month amount by 4.35.

There is a strict procedure to follow under Schedule 2 of the Act.

The maximum holding deposit that may be requested is one week’s rent.

Only one holding deposit may be held at any one time for the same property.

There is a deadline for agreement date which is 15 days from the date the holding deposit was received. This deadline for agreement date may be changed by agreement with the tenant in writing.

The holding deposit must be repaid by the person who received it if-

  • the parties enter into the contract before the deadline for agreement and in this case it must be repaid within 7 days of the contract being made, or
  • the parties fail to enter into the contract before the deadline for agreement and in this case, it must be repaid within 7 days of the deadline for agreement date.

Where the landlord and tenant have entered into an agreement, instead of repaying the holding deposit, it may be used against the first rent or tenancy deposit. Otherwise, it would need repaying within 7 days of the tenancy agreement being entered into.

There are a small number of exceptions where the landlord or agent may retain the holding deposit which are:

  • the prospective tenant provides false or misleading information to the landlord or letting agent and, the landlord is reasonably entitled to take into account the difference between the information provided by the contract-holder and the correct information in deciding whether to grant a contract to the contract-holder, or the landlord is reasonably entitled to take the contract-holder’s action in providing false or misleading information into account in deciding whether to grant such a contract
  • the prospective tenant notifies the landlord or letting agent “before the deadline for agreement” that they have decided not to enter into a tenancy
  • the landlord or letting agent takes all reasonable steps to enter into a contract before the deadline for agreement but, the contract-holder fails to take all reasonable steps to enter into a contract before that date, the holding deposit may be retained by the landlord.

There is provision within the rules for the person receiving the holding deposit (usually landlord or agent) to give “prescribed information” to the payer. A failure to give the prescribed information would result in the holding deposit having to be repaid even if there were some reason outlined above allowing it to be retained. At the time of writing, no prescribed information has been published and this is something to look out for.

Payment in the Event of Default

If the tenancy contains a term requiring payment in the event of a failure by the contract-holder to make a payment due or, a payment due to a breach of a term of the contract, then this payment is permitted.

There is provision in the rules for the Welsh Government to introduce a “prescribed limit”, if the default payment relates to a failure to make a payment of rent by the due date. At the time of writing, no prescribed limit has been made.

It’s also allowed under the Fees Act for the Welsh Government to add other defaults to the list (in addition to non-payment of rent) but again, these have not been published (if there are to be any).

Payment in Respect of Council Tax

A payment that a contract-holder is required to make to a billing authority in respect of council tax is a permitted payment if the contract-holder is liable to make the payment by virtue of any of sections 6, 8 or 9 of the Local Government Finance Act 1992.

Note: the wording only allows payment to the “billing authority”. It is not allowed for the contract to make council tax payable to the landlord or agent (or anybody else).

Payment in Respect of Provision of Utilities

Payment for electricity, gas, other fuel, water, sewerage or a green deal plan is a permitted payment if it is required under the contract and it is made in respect of the dwelling subject to the contract.

Note: there is no restriction on who the payment can be made to (unlike the council tax) but, it must only consist of a payment “in respect of the dwelling subject to the contract”.

Payment in Respect of Television Licence

A payment that a contract-holder is required to make to the British Broadcasting Corporation in respect of a television licence is a permitted payment if the contract-holder is required by the contract to make the payment.

Note: similar to council tax, this can only be payable to the BBC and not to any other person.

Payment in Respect of Communication Service

Payment for a service enabling a telephone (other than a mobile telephone), the internet, cable television or satellite television is a permitted payment if it is required under the contract and relates to the dwelling subject to the contract.

Enforcement and Penalties

It’s a criminal offence to breach the Fees Act and a fine may be payable in addition to repayment of any prohibited payment.

Either the local authority or the Rent Smart Wales licensing authority (Cardiff) may enforce the Fees Act.

An authorised officer may, by notice, request documents from landlords, letting agents or contract-holders in order to investigate whether a breach of the Fees Act has occurred. It’s a criminal offence to fail to provide any requested document(s).

A conviction under the Fees Act is a consideration under the “fit and proper person” test for holding a Rent Smart Wales licence.

The enforcing authority may bring proceedings in relation to an offence and a person may also make a civil claim in the county court for recovery of any prohibited payment.

Fixed Penalty Notice

An enforcement officer may give a fixed penalty notice of £1,000 to anyone they suspect of committing an offence under the Fees Act. Payment would be an alternative to criminal proceedings.

Note: the fixed penalty is not “up to” £1,000. It’s a fixed amount of £1,000.

Section 21 Notice Restrictions

No section 21 notice (nor section 173/186 notice when the Renting Homes Act commences) may be given if the landlord has received a prohibited payment and it has not been repaid. This also applies if a holding deposit has been received which has not been repaid (unless there are circumstances to properly retain it or if it has been offset from the rent or tenancy deposit).

Further Guidance

The Welsh Government has issued official guidance on the tenant fees ban in Wales: https://gov.wales/sites/default/files/publications/2019-08/letting-fees-guidance-for-landlords-and-letting-agents.pdf