Most permitted payments are subject to a cap. Any part of a charge that exceeds the permitted amount is a prohibited payment.
From 1 June 2020 the rules apply to the following agreements in the private rented sector:[ 1 ]
The payment of rent is a permitted payment.[ 2 ]
The practice of charging higher rent at the beginning or during the tenancy to compensate for the loss of income through fees is unlawful.[ 3 ] This is referred to as 'front loading'. Any amount gained as a result of 'front loading' is a prohibited payment.
Within the first year of a tenancy a landlord or agent cannot reduce the level of rent unless:[ 4 ]
A rent increase during the first year that is not followed by a period when the rent is lower is not outlawed.
For a 12 month fixed-term tenancy where the contractual rent starts off at £1,500 for the first three months, that is reduced to £1,250 for the next three months, and further reduced to £1,000 for the last six months, there is a prohibited payment of £1,500 during the first three months (3 x £500) plus a further £750 (3 x £250) for the second 3 months, making a total prohibited payment of £2,250. It would be lawful for the rent to start off at £1,000 and rise to £1,500 for each of the last three months of the tenancy.
The payment of a tenancy deposit is a permitted payment
The amount of a tenancy deposit is capped at:[ 5 ]
Any amount over and above the capped amount is a prohibited payment.
Where there is a joint tenancy, the cap relates to the total weekly rent for the tenancy. A landlord cannot ask for a tenancy deposit equivalent to five or six weeks’ rent from each of the joint tenants.[ 6 ]
A holding deposit is a sum of money paid to a landlord or agent to reserve accommodation prior to the signing of a tenancy or licence agreement. This can, for example, allow a landlord to obtain references and carry out credit checks on a prospective tenant.
A holding deposit is capped at the equivalent of one week’s rent.[ 7 ] Any amount over and above the capped amount is a prohibited payment.
Where there is a joint tenancy the cap relates to the total weekly rent for the tenancy. A landlord cannot ask for a holding deposit equivalent to one week’s rent from each of the joint tenants.[ 8 ]
Landlords and agents can only accept one holding deposit for a property at any one time. Any holding deposit paid previously has to be returned, unless they can lawfully retain it under the terms of Schedule 2 of the Tenant Fees Act 2019.[ 9 ]
A deadline for agreement means that a landlord should enter into the tenancy or licence agreement within 15 days from the date on which the holding deposit was received.
A landlord and prospective occupier can agree a shorter or longer deadline in writing.[ 10 ]
The holding deposit must normally be repaid in full within seven days of the date of the:[ 11 ]
Where the person who paid the holding deposit agrees and the tenancy or licence is entered into, the landlord may repay the deposit by paying it towards the first payment of rent or the tenancy deposit.
If the holding deposit is applied to the tenancy deposit for an assured shorthold tenancy, for the purposes of the deposit protection requirements that money is treated as being received on the date of the tenancy agreement.[ 12 ]
The holding deposit must also be returned where the landlord or agent either: [ 13 ]
A landlord or agent can retain a holding deposit only where a prospective tenant or licensee:[ 14 ]
If a tenant or licensee has provided factually correct information, but their references are considered unsatisfactory, they are entitled to a full refund.[ 15 ]
Where the landlord or agent is permitted to retain the holding deposit, they must set out in writing why it is retained within seven days of:[ 16 ]
If this is not done the holding deposit must be returned in full.
If the holding deposit is not returned, the tenant, licensee or another relevant person can take action to recover the money.
A default fee is only permitted where this is allowed for in the tenancy agreement and relates to either the loss of a key or other security device giving access to the accommodation, or late payment of rent.[ 17 ]
The landlord or agent can charge for damages for a breach of a tenancy or licence agreement, or of an agreement between a letting agent and a relevant person.[ 18 ] This allows for damages to be deducted from a tenancy deposit or claimed via court action, for example to cover the cost of repairs caused by the tenant’s action.
The fee must not exceed the reasonable cost of replacing a key or other security device. The landlord must provide written evidence to the tenant of the cost of replacement. Any amount above the reasonable cost is a prohibited payment.[ 19 ]
There might be situations where the reasonable cost could be more than just replacing the key. For example, if the key when lost was on a key ring with the property address on it, it might include the cost of replacing the lock.
Rent must be outstanding for 14 days or more before a fee can be charged.[ 20 ]
The fee cannot be more than three per cent above the Bank of England’s base rate to the amount of rent that remains unpaid at the end of that day.[ 21 ]
To work out the default fee:
This is the maximum fee a landlord can charge. If the amount of rent arrears changes, the calculation should be completed again to account for the new sum, the number of days the new sum has been outstanding, and any change to the base rate.
The Consumer Rights Act 2015 requires that any term of a tenancy is ‘fair’, as such fixed penalty charges or disproportionately high sums for contractor’s work are likely to be unfair and unenforceable.
A payment in respect of the ‘variation, assignment or novation of a tenancy’ at the tenant or licensee’s request is a permitted payment.[ 22 ] This could, for example, include agreeing to a tenant’s or licensee’s request to keep a pet, take in a lodger or assign a tenancy following a relationship breakdown.
Novation occurs where all the parties consent to creating a new agreement. This could happen, for example, where one joint tenant wishes to leave and the landlord agrees for them to find someone to ‘take over’. If all joint tenants (including the leaving tenant) and the landlord agree, a new contract could be created and the original joint tenancy would be in effect surrendered by operation of law.
The fee is capped. Charging more than £50 for each change requested is not permitted, unless the reasonable costs are greater.
In a non-binding case, the First-tier Tribunal held that where the agent’s charges substantially exceeded £50, the agent should have evidenced a particular consideration or reason for exceeding the £50 limit.[ 23 ]
A landlord or agent can charge a fee if the occupier asks to surrender their tenancy or licence.[ 24 ]
The fee charged must not exceed:
A landlord or agent can charge for utilities, TV licence, council tax and communication services, where payment is to be made to the landlord under the tenancy agreement.[ 25 ]
Communication services means telephone landlines, broadband and cable/satellite TV. It should also be noted that other legislation prohibits landlords overcharging tenants for the provision of utilities.[ 26 ]
A landlord or agent cannot require for payments to be made to a third party, unless the payment is for utilities, TV licence, council tax or communication services.
An agent is permitted to charge fees for services if they are not acting for the landlord in respect of the property in question and find accommodation for the tenant or licensee that they then rent.[ 27 ]
Last updated: 26 November 2021