Being a landlord can offer a lot of financial benefits and buy-to-let an investment property for many people is seen as a great alternative, or supplement, to their retirement planning.
However, legislation is one of the biggest headaches for landlords and with constant changes over the recent years, it is challenging to make sure you remain compliant with the law. Those that don’t could face serious consequences if they don’t, including hefty fines and, at worse, criminal convictions.
In this guide, we cover the most recent changes to the tenancy industry with the introduction of the Tenant Fee Ban as well as provide an at-a-glance checklist to make sure you have all your bases covered.
Tenant Fees Act 2019: Simplified
Coming into force as of 1st June 2019, the Tenant Fees Act is a piece of legislation that has been introduced by the UK Government to cut the cost of renting a property.
The heart of the act is a simple ban on the charging of fees to your tenants for those services and costs that have traditionally been passed on. This includes credit check fees, referencing and the cost for inventory clerks as well as other charges.
There are three exceptions to the Act in terms of those charges that can be levied to your tenants in addition to Rent and Deposits, namely those fees that are applicable if your tenant breaks the terms of their rental agreement:
- Late Rent Fees: Tenants that pay their rent more than 2 weeks later than the agreed date can be charged interest fees. This is capped at 3% plus the Bank of England’s base interest rate (pro-rata).
- Lost Keys: You will be able to charge your tenants for the replacement cost of a lost key (or security device if you have other access technology). However, this cost must be reasonable and fair plus you must be able to produce a receipt as evidence of the actual cost to you with no additional charges applied.
- Changes to Tenancy: Landlords may charge a fee of up to £50 for making any amendments to the rental agreement such as the addition of another tenant or allowing pets etc. Importantly this fee may not be charged for any changes in the length of the tenancy such as when a renewal is agreed.
Under the Tenant Fees Act, security deposits will be limited to a maximum of five weeks rent for any property where the annual rental fees are under £50,000 (c£4,167 pcm). Landlords of any rental properties over this threshold may secure six weeks rent as a security deposit.
Holding deposits on the other hand shall now be limited to a maximum of one week’s rent. This fee, charged to secure the rental of a property when it is being marketed, must also be returned to the tenant either as a direct refund or be used in part payment of either the first month’s rental or as part of the security deposit.
The holding deposit must be returned or applied to one of the other settlement methods within 15 days of receipt unless another date is agreed by both the tenant and the landlord. Once the deadline has passed, the landlord must return (or otherwise apply) the holding deposit within seven days.
The landlord may only keep the holding deposit if:
- The tenant does not complete all reasonable steps to enter the tenancy within an agreed time.
- The tenant withdraws from the agreement prior to competition.
- The tenant fails a Right to Rent check (see below) or they provide misleading or false information which affects their suitability as a tenant of the property.
Failure to Comply with The Tenant Fees Act
Landlords who fail to comply with these new regulations can face civil prosecution for their first offence which carries fines of up to £5000.
If that landlord is found guilty of a second offence within a period of five years then this may be deemed a criminal offence and could lead to fines of up to £30,000.
In both cases, the landlord would also be responsible for repaying any fees charged outside of the terms of this Act plus settle any legal costs incurred by the tenants.
The Act will be under the jurisdiction of the Local Trading Standards authorities.
Landlord’s Legislation Checklist
So, there you have it. The latest in a long line of legislative requirements for landlords to act in their tenants safety and best interests. Do you know what else is expected of you legally as a landlord?
We’ve put together a quick checklist of the key laws which you must comply with if you rent out a domestic property.
Right to Rent Checks
All landlords who rent out residential property in England and Wales must perform a Right to Rent check with their prospective tenants. This is a statutory requirement which has been in place since 1 February 2016 and forms part of the UK Government’s immigration laws.
Using original documentation such as passports or ID cards, landlord must complete a series of checks to ensure that the tenant, or sub-tenant, even if there is no tenancy agreement, has the right to rent a property in the UK.
Failure to comply with this legislation carries serious consequences and you landlords could receive unlimited fines or even face a sentence of up to five years in prison.
You can find out more about the Right to Rent Scheme in our guide on how the Immigration Act 2014 affects landlords.
Government Licensed Tenants Deposit Scheme
Since 2007, it has been a legal requirement for landlords to protect their tenant’s deposits in a government-approved deposit protection scheme, known as a TDP.
Not only does this keep the money safe during the period of any agreed rental but the TDPs can also arbitrate in any disputes between the landlord and tenant.
There are currently three registered schemes you can place a deposit in:
Housing Health & Safety Rating System
Landlords are required, first and foremostly, to provide living accommodation for their tenants that is habitable and safe.
This means complying with regulations in relation to:
- Gas Safety
- Electrical Safety
- Fire Safety
It also means that the home is free of health and safety hazards which can include trip hazards from word/frayed carpets to issues with damp and a whole range of things in between.
Local councils can use the Housing Health and Safety Rating System (HHSRS) as a means to enforce minimum standards and it is recommended that landlords familiarise themselves with the guidelines contained in this tool.
Ignorance of the state of repair of a property is not a reliable form of defence should there be an accident resulting from poor maintenance and upkeep of your rental property.
Energy Performance Certificate (EPC)
EPCs have been around since 2007 and landlords who already rent out their properties will not be strangers to this piece legislation. Valid for ten years unless major changes are made to the dwelling, the tenant must be provided with a copy of the certificate before the move in.
However, since April 2018, all new tenancies agreed on privately let properties must meet a minimum EPC rating of E or above.
Where a property does not meet the minimum threshold rating, steps must be taken by the landlord (at his own expense) to improve the property’s energy efficiency.
This will also apply to any existing tenancies from April 2020.
Failure to bring a property up to the minimum ‘E’ rating or above can result in fines being levied of up to £4000.
Only applicable if your rental property is classed as an HMO (House in Multiple Occupation), a license is sometimes required by landlords.
According to the government definition, an HMO is a property in which at least three tenants share toilet, bathroom and/or kitchen facilities.
However, since 2018 local councils have been granted permission to define an HMO more specifically in their own area. Designed to allow councils to tackle issues such as poor housing stock, this ruling could have an impact on your rental arrangements.
It is recommended that landlords check with their local council to obtain a formal definition of an HMO within their area and confirm if there are any special license requirements.
HMRC and Tax
Lastly, as a landlord, your income from your rental properties is subject to the same taxation rules as any other form of income. As a result, you should make sure that your tax returns are filed with the HMRC and that you keep relevant financial records in case you are audited.
Property Assistant and Lettings Management
Managing a rental property can take a lot of time and effort to ensure compliance with the various laws and regulations. In addition, whilst most tenancies are straightforward, some properties and tenants can take up a lot more of your headspace to keep happy.
Here at Property Assistant, we offer a range of lettings services for landlords including simple marketing to find you a tenant or comprehensive property management.
If you’d like to know more about how we can free you up from your rental property and make sure your tenancies are fully compliant, contact us today on 0118 912 2370.