Further to our post regarding the Tenant Fee Bill and its potential impact on Global Mobility, we can now confirm more details regarding the largest change to the way that property rental prices in England are set.
The changes come into effect on 1 June 2019 with the changes expected to benefit tenants renting properties in England and impacting the fees that can be charged by landlords relating to these properties.
The Tenant Fee Act 2019
Key changes and what you need to know
The UK Government has published guidelines defining the purpose of the act being “to reduce the costs that tenants can face at the outset, and throughout, a tenancy, and is part of a wider package of measures aimed at rebalancing the relationship between tenants and landlords to deliver a fairer, good quality and more affordable private rented sector.”
Greater transparency of fees and rental prices
The UK Government website goes further to say that tenants will benefit from, greater transparency in relation to fees, enabling them to easily see how much a property will cost them in the rental cost shown on advertising without any hidden fees.
The legislation defines that the contracting party (i.e. the landlord) will be responsible for paying for the service. This will ensure that any fees charged are clear and reasonable.
As we learned at Gerson Relocation, the new legislation also takes steps to curtail unreasonable prices being charged for individual services and rental price increases. The changes have been reviewed by our home search team and are outlined below.
Important note
Please note that this articles identifies our understanding of the changes published on the UK government website and through consultation with our approved partner network as of 20 May 2019. This article is for awareness purposes and should not be used as a legal guide. Gerson Relocation do not accept any responsibility for any actions that readers take following this article. Please always check with your relocation agent to ensure that you have the latest and most accurate information before making any decisions.
What type of tenancies will be affected?
It will apply to all Assured Shorthold Tenancy (AST) tenancies or licences to occupy. In other words, the majority of rental agreements used in the market for the rental of residential properties in England. It will therefore be highly pertinent to Global Mobility teams who have expatriate employees arriving in England on assignment from overseas.
Exceptions
At the point of writing we understand that corporate leases, high rent tenancies and university owned student accommodation will come under different legislation.
When will the changes come into effect?
This will affect tenancies in England signed as of 1 June 2019 and thereafter. Any tenancies signed prior to this date will be governed under preceding legislation. However, these tenancies will be renewed by 31 May 2020 where they will come under the terms of the new legislation.
Fees that the tenant will be liable for
The legislation is very clear regarding the fees which can be charged by the landlord. The only 7 types of payments a tenant can be asked to pay in connection with a tenancy are:
1. The regular rental amount which is paid regular basis
2. A holding deposit which is paid for the landlord to cover the risk of taking the property off the market. The amount is capped at no more than one week’s rent. This is refundable and has specific terms under which the refund process is managed.
3. A tenancy deposit capped at no more than five weeks’ rent where the annual rent is less than £50,000, or six weeks’ rent where the total annual rent is £50,000 or above. This is also refundable with specific terms under which the refund process is managed.
4. Costs to change the tenancy requested by the tenant will remain chargeable. These are capped at £50. Higher charges can be charged but must be reasonable.
5. Early termination charges will be applicable where termination of the tenancy is requested by the tenant.
6. Tenants are required to pay costs in relation to council tax, utilities (gas, electricity, water), TV licence, internet and phone services.
7. A default fee for late payment of rent and replacement of a lost key/security device, where required under a tenancy agreement.
Fees that will no longer be liable to the tenant
Tenants will not be liable for anything outside the fees states in points 1 to 7 above. For example; estate agency fees, check in or out fees, cleaning fees – this must now be sought through the dilapidation’s process should the tenant not have cleaned the property to a professional standard, referencing fees and drawing up a tenancy agreement.
A special note on renewal fees
Any tenancy entered into after 1 June 2019 will not have to pay a renewal fee.
A special note on tenancies with pets
Traditionally, landlords have charged a premium for rental agreements including pets. This has been down to the landlord’s discretion and has seen prices vary greatly. The new legislation requires that landlords need to clearly display two rental prices, one with pets and one without pets. The purpose of this is to enable tenants to clearly see the premium they are paying and to provide greater transparency.
A special note on the use of the term “Reasonable”
The new legislation puts a great deal of emphasis on any fees being charged to the tenant must be “reasonable”. For example, in the event of a lost key scenario, it is reasonable to expect the tenant to pay the cost of the key being cut (i.e.the actual fee charged by the key cutter). It would also be reasonable for the managing agency to charge for the cost of delivering the key to the tenant which is capped to £15 per hour (i.e. the delivery of the key).
The impact on your assignees
If your assignees are defined as the signatory on the tenancy and paying directly, then we anticipate that the changes will benefit them by making costs more transparent.
Enforcing the legislation
The legislation will be overseen by Trading Standards who have the power to enforce fines where fees have been charged to the tenant that fail the criteria. The fines are significant. Further breaches of the legislation could result in the party being facing criminal and civil charges against them.
Our observations
When we previously reported on this change, one of the key issues we raised was the potential impact on client policies should there be a sudden increase in rental values as landlords and estate agents try to recoup their loss in fee earnings. We will continue to monitor this situation as it appears to be that corporate leases will still be open to additional fees. We will not know how effective these measures are until the act comes into practice on 1 June 2019 and we will continue to monitor the market in coordination with our approved service partners in the UK.
Another element we will be monitoring is the use of term “reasonable”. This is a potentially grey area, and will no doubt be tested by the rental market. We will be watching the first court cases as these will set the standard for the future.
The new legislation has been designed to provide a net reduction in fees to the tenant. We recommend that home searches being conducted in the last few days of May will benefit from delaying signing the tenancy until 1 June 2019 to benefit from the lower charges. However, we must highlight that this will be at the risk of potentially losing a preferred property by not securing it immediately.
Please always check with your relocation agent to ensure that you have the latest and most accurate information before making any decisions.
Who to call if you have any questions
For any questions please contact:
Laura Robinson
Senior International Relocation Manager
T: +44 (0) 20 3837 5999
laura.robinson@gersonrelocation.com
Further reading
Tenant Fees Act 2019: Guidance for landlords and agents
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/791273/TFA_Guidance_for_LandlordsAgents.pdf
Tenant Fees Act 2019: Guidance for tenants
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/791280/TFA_Guidance_for_Tenants.pdf
Rental Market terminology
https://www.gov.uk/guidance/rent-office-handbook-other/other-glossary-of-terms
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