The Tenant Fees Act strictly limits what landlords can and can't charge tenants. Landlords must stay compliant to avoid hefty fines..
Written by
Ben Luxon
PUBLISHED ON
14
Jan
2022
Logan Ransley: The co-founder of Landlord Studio, a rental accounting and property management tool helping landlords to automate business tasks, as well as allowing them to keep track of their financial position for the tax season. | LinkedIn
Sue Maxwell Smith: A landlord and property investor of 30 years. She owns and runs an accounting practice with a specialism in property. | LinkedIn
Phil Turtle: A compliance director with Landlord Licensing and Defence. “We do two things: we help people to get their properties compliant with all the hundreds of regulations and legislation, and we also help them defend themselves against councils who get somewhat aggressive and a bit greedy for massive fines.” | LinkedIn
Watch the full episode on Youtube, listen to the podcast on My Property World Podcast or read the edited transcript below.
Logan Ransley
Today we’re going to be taking a look at the Tenant Fees Act of 2019. This essentially prohibits landlords and agents from passing or charging the majority of the property-related fees to tenants. So what we want to do today is just discuss why it was introduced, what some of those fees you can charge the tenant and what you can’t charge the tenant.
Also, some of those penalties may apply to landlords that are not compliant. We’d love to hear some stories from everyone on the panel here about their experiences.
Will Mallard
So in terms of why it was introduced, it is a consistent thing that we’ve been, talking about in previous podcasts, where the government is wanting to professionalise the business of being a landlord. They effectively want to, over time move a category of tax into limited companies.
Where people hold second, third, fourth properties they want them moved into limited companies. Because these have a higher level of visibility there’s an ability to stay on top of it from an HMRC point of view.
Now in line with this, there’s also an increasing expectation for landlords to be more professional when it comes to things like housing standards, and the building, maintaining, letting, and management of their properties.
Now, what does it mean is another thing altogether. Sue, what are the sort of themes that you’ve seen discussed by landlords as far as tenant fees go?
Sue Maxwell Smith
Well, I think a lot of the fuss about it has died down in the last couple of years since it was introduced the first year was very, it was very much the topic of the year.
But I do believe that it’s another one of these things that have been brought on partially, if not wholly by letting agents’ ever-increasing fees. It kind of got out of control, certain letting agents were really soaking the tenants as well as the landlord. And there was a huge growth in letting agents because it was a profitable business. Then overnight it went completely the other way.
Now the overhead of a landlord has risen markedly because he carries all the fees. He has to feed the letting agent. I think more letting agents are adding secret commissions because they have to eat. Suddenly taking away the fees was like going cold turkey, there’s always a health effect after that. It doesn’t come up so much now, people have mostly gotten used to it.
Will Mallard
That’s really the nature of the economy, someone has to pay somewhere.
Sue Maxwell Smith
This is another tenant tax effectively – it will almost certainly have knocked into rents.
Logan Ransley
So what were some examples of tenant fees that were charged prior to this act and, why were they deemed unsuitable or not necessary?
Will Mallard
A typical example was the application fees. If you had multiple tenants applying for a property, and if you think about some of the city locations that were popular, you, could be charging dozens of tenants fees for applying for the same property. And there were referencing fees as well. So you’d end up paying the letting agents a fee as a job in addition to paying the landlord for the rent and the deposits and things of which the letting agent will get a percentage of it. It was a double-dipping on the agent’s part would be my perspective.
Sue Maxwell Smith
In London, it got very silly. Your Foxtons type of agents and other agents are available, but they were particularly expensive. It was ridiculous. Capping it would have been more effective I believe.
Phil Turtle
One of the difficulties is that whichever way it happens it ends up on the tenants, it results in increased rents.
Sue Maxwell Smith
This is another thing, this government is overtly looking to win the tenant vote, but their actions are actually costing them in terms of rent.
Phil Turtle
I’ve pulled up one of the government documents on the disallowed tenant fees and thought it might be helpful to whiz through that…
And it just goes on and on there’s loads and loads of things that were being charged that now cannot.
Logan Ransley
Basically, all you can charge is rent.
Phil Turtle
Almost. The allowed fees list is very short. The only fees that a landlord can charge a tenant are the rent, a refundable tenancy deposit, or refundable holding deposit, and a payment associated with early termination of the tenancy when requested by the tenant, and a default fee for late payment of rent, or replacement of a key if it’s specifically stated in the tenancy agreement.
And it then says if any fee you are charging is not on this list. I just read it’s a prohibited payment and you should not charge it, a very short list.
Will Mallard
One of the underlying bases of this is that the government are looking to improve access to housing for tenants.
I’d like your thoughts on how that’s working out and are things better for tenants now versus two or three years ago.
Phil Turtle
It certainly makes it easier at the application stage. The other thing we’ve not mentioned is deposits were getting out of hand as well. Some agents were charging three months rent as deposits. Now that’s now been limited to five weeks worth or six if it’s a very expensive property, but for most people, it’s five. So, you’ve not got to find a massive amount of money upfront and I guess that’s helped. On the other hand, it’s now become much more difficult to use finances to weed out people that you don’t want.
Sue Maxwell Smith
And now the tenant can apply for multiple properties because it doesn’t cost them to do so.
Which actually leads to a lot of abortive applications if you’re a letting agent. Which can become quite expensive, time and cash wise for letting agents.
Phil Turtle
That’s very true, they’ve got, their admin for showing people around, and they’ve probably got a referencing fee before the offer is firm.
Logan Ransley
Before we kind of kicked off a podcast. You mentioned Phil, that your perspective on charging deposits you were more for not charging deposits. Love to get your opinion on that or your perspective.
Phil Turtle
Deposits have become a very dangerous place to be.
We act for an awful lot of landlords who haven’t understood that they now need to protect their deposits with one of the three government-backed schemes and do so within 30 days. Otherwise, they are liable to a fine or repayment to the tenant of between one and three times the deposit. And there’s an awful lot of these, no win, no fee lawyers that used to be doing PPI and now needed something else to do. If you look on the internet, there are loads of adverts for people offering to do no win no fee rent deposit reclaims.
Landlords are getting stung by this left right and centre because not only are landlords failing to protect deposits, you’ve probably seen all the hoo-ha about Purple Bricks who failed to protect the deposits of thousands of landlords, and it’s not Purple Bricks that are liable in this case, it’s actually the landlord. They’ve made the landlord at risk for a massive amount of money.
Now, the other thing, and this is a bit more hearsay, is that the deposit protection schemes have a tendency to come down on the side of the tenant, not the landlord. Now, when I put those two things on a balance, there’s the risk of having to pay back three times the deposit, and it’s easy to get wrong, there’s a lot of hoops to jump through, getting things in on time and then giving the information to the tenants. I would never recommend that a landlord does it themselves. Then on the other side, you’ve got very little benefit because you’re not going to get the money anyway.
My, preference and my advice to landlords these days are to put a clause in your, contract, that they are responsible for any damage and breakages and take a guarantor and go through it that way. Either get the money from the guarantor or take them out on a money claim online. But the risk to me of having a deposit, there’s very little benefit from it and there’s much that can go wrong.
Sue Maxwell Smith
You slipped in the key thing there, which is the guarantor. If there is no guarantor available and no deposit, what is stopping the tenant from behaving exactly as they want. If they’ve got some money in the game then at least there should be a deterrent effect. But I think the guarantor is key, I might go without a deposit if I had a guarantor – a home-owning guarantor.
Phil Turtle
There’s an awful lot of people now, myself included who, even if there is no guarantor still won’t take the deposit cause you’re not going to get your hands on it.
Sue Maxwell Smith
It was the deterrent effect rather than the reality that I would aim for.
Phil Turtle
I don’t believe that exists anymore, to be honest. There’s much publicity now, tenants are wise as to what they can take their landlords for. They all know about rent repayment orders. Some will actually set landlords up for rent repayment. They check out before they move in whether the property is licensed, find out it isn’t, move in, stay 12 months, and then claim back 12 months rent. We get loads of those cases. In deposit protection cases, landlords are clueless and they don’t protect them properly. They think they can put the money in their own ISA, and that’s protected. No, it’s not. And they get hit with these three times, two, three times deposit repayments.
Will Mallard
I think the fact that there’s an independent regulated body that looks after that money really is a good thing.
When it comes to taking, tracking and protecting your deposit there are solutions, like Landlord Studio which can make things easier. Landlord Studio has the ability to administer and provide evidence regarding the taking of deposits, where you’ve stored it, and for tracking any deductions that you want to take.
What does the judge ask you, Phil, if you’re pulled up in court and they’re asking about a deposit?
Phil Turtle
Essentially, they’ll ask, show me the evidence. Prove that the prescribed information was served at the correct times, the deposit is protected in one of the government-backed schemes, and that the deposit was protected within the 30 days allowed.
Will Mallard
And let’s be very clear, you’ve got to have the receipt, proof that you received it, you’ve got to have documents proving that you have deposited it, and you’ve got to document that you’ve shared the information with the tenant, all within the relevant timelines and guidelines.
If we think about the average across England you’re talking about an average of maybe a net cash flow of somewhere between £150 and maybe £250 per property per month. If you’re talking about 3-4 times a month’s this could very quickly be more than your year’s profit.
Phil Turtle
And if you’re doing fixed-term tenancies then it can be for each successive tenancy. We’ve seen people charged eight times, nine times because they’ve been multiple tenancies, same tenant, same properties.
Sue Maxwell Smith
Well, I hadn’t thought of that. It’s another argument against renewing tenancies.
Phil Turtle
There was a case with one landlord where they were sued by their tenant for £83,000 because there were four follow-on tenancies times. They ended up paying out a bit less than that, but it was still a massive amount of money.
We see a lot of cases like that coming through our firm. And to be honest, we, don’t let such things usually go to court. We negotiate settlements cause it’s just too expensive, too difficult, too dangerous to end up in court over it. But yeah, it can be a quite frightening amount of money.
Will Mallard
The average smaller portfolio landlord likely wouldn’t have passed a courthouse, let alone been inside one and effectively accused of being a criminal. There’s a pretty big fear factor, and people don’t necessarily think about that when they’re becoming a landlord.
Approximately 17% of the housing stock is held in the private rented sector. And the vast majority of landlords have got under five properties. And I’m sure you’ve got some stats on this Phil, but I suspect the vast majority have actually only got one rental property.
Phil Turtle
Something like 80% have four or less.
Will Mallard
I suspect that over half of those would only have one, rental property. We’ve spoken previously about the hundreds of pieces of UK legislation that you’ve got to be compliant with. Within that, there’s a plethora of clauses and nuances. And that’s before you start getting into the local authorities interpretations and local regulations. If you’re a busy person, you might have another career, other interests, friends and family, and without the time to read up on this stuff constantly it’s very easy to get into trouble.
What would be a couple of examples of people that you know Sue, where people have effectively run aground on the rocks below the surface as they’re coming through the safe Harbor entrance and there’s been a bit of a storm that’s blowing them onto the rocks?
Sue Maxwell Smith
I don’t think I know anybody personally who’s suffered a rent repayment order or a court case brought by a tenant. Myself earlier in my career, I had a situation where, though I usually use agents, I found a tenant personally and was slow in protecting the deposit and her father tackled me about it and I paid them. But I’ve never been to court about it. This was years and years ago and I had protected it, I just missed the 30-day window. But he came to me for three times the deposit and rather than having a stink, I decided to pay them.
Phil Turtle
And that’s usually the best way because otherwise, you’re going to end up potentially with a criminal record. All of these things under the housing act, deposit protection falls under the housing act as does all the management regulation like health and safety for every rental property. But all of those things, any transgression is a criminal act. I mean, there’s one thing you can guarantee we are all made criminals because you cannot possibly keep on top of all this stuff. I mean, in our firm, I don’t think there’s one person that really would claim to know all of it. We have our specialisms, I concentrate more on the health and safety side and the management regulations, but there’s a raft of other stuff. The tenant fees act, I mean, that in itself is 60 pages and that’s just one thing.
Sue Maxwell Smith
Geez, 60 pages?!
Phil Turtle
And The Housing Act, well that’s inches thick and it’s nearly as interesting as reading a dictionary.
Everything in it is a tripwire. And I guess the things we see landlords tripped up on most are three and four bedroom HMO’s that nobody realizes is an HMO. And then they go, but we don’t have to license them.” Which is right, but you’re covered by the management regulations.
I got a landlord up in, Salford who had a load of two up two downs, three up two downs, converted into five person HMO’s. He had, inadequate fire doors, inadequate fire alarms, never got around to it and never knew it was necessary. The Salford council comes along and slaps him with a £28,500 fine just on regulation 4 of the management regs safety. Plus, they added a load of other stuff. He was looking at 50 – 60 grand per property in fines.
What people also don’t realize, not only did the council issue all these fines, they get to keep all the money. So, they’re a little motivated to go out and get it.
Will Mallard
And there’s a chronic underfunding of councils, so I don’t think any council is going to turn down any money from any source, and people sort of forget that that’s going on in the background.
Sue Maxwell Smith
The landlord has become a profit centre.
Will Mallard
Exactly. There are obviously quite different attitudes between different offices and different councils, some have been overwhelmingly helpful.
Sue Maxwell Smith
I think there’s a north-south divide.
Down south, you don’t get the long service people who care about customer service. You get more temporary, less capable employees who care less. Whereas up north the council job has more status, is more valued.
Phil Turtle
I’d suggest it’s actually even worse than that. Many of the old hands, the EHO’s, environmental health officers for housing, the ones who are well-qualified, well-experienced, and actually interested in improving the quality of the housing stock for the tenants while actually educating and taking landlords along with them to achieve the end result, which is better quality housing; they’re being pushed out.
Instead, they’re bringing in a new breed that they call enforcement offices. Their only job is to collect revenue. They know nothing about housing and have no interest in improving the market or protecting tenants. It’s horrendous. It’s all now driven by the finance department. They’re only interested in money.
Sue Maxwell Smith
It does frighten me how many people are pouring into to buy to let who only see the numbers, because they’ve learned about it through lockdown on YouTube or online and you have no talk of tenants or compliance issues, only of rent.
And I think the quality of landlords is dropping again. We have the old school guys who have been landlords since the sixties who are now retiring, but the newcomers, it seems to be all about the money.
It seems worse and worse each day that there are people, say my tenant hasn’t paid rent. It was due yesterday. It’s now eight 30 in the morning. Can I change the locks?
No one has, for example, mentioned that only the tenant or the court can end a tenancy. They only see the money and other people’s lives don’t seem to matter.
I’ve said before that I believe landlords ought to be licensed. Being appraised of the 190 rules would put a great number of people off, and would dramatically improve the matter.
Phil Turtle
So often, we see landlords getting themselves into such a pickle. But really, my job shouldn’t need to exist. But unfortunately, nobody actually educates landlords and most won’t pay for an education.
Sue Maxwell Smith
The rise of the starving council and the lack of industry education are a sort of pincer movement.
Phil Turtle
I’ve actually managed to infiltrate a couple of enforcement officer training courses, and they actually teach them that we landlords are all criminals. And it’s simply because no one can stay ahead of all of this stuff.
Will Mallard
As part of this, a big aspect is keeping all your admin and paperwork and accounting in order.
This is where software like Landlord Studio comes in. It’s a super simple and easy to use app with various accolades and over 30,000 already on the system.
It captures information, particularly financial information and compliance information. You can set reminders for things like electrical, or gas and fire safety certificates.
I think now we can maybe do a little summary of what we’ve been talking about and the impact of this legislation and others on both landlords and tenants. What’s one or two things that a landlord can do?
Sue Maxwell Smith
One of the things that we’ve missed about higher rents is there’s then tax for the government. The landlord won’t carry on doing it if he’s not making a profit, and that profit will be taxable. The government is not only apparently helping the tenant to have access to all properties, but they are again, serving their purpose to collect tax.
What am I taking away from this? From Phil and his prediction that it’ll get me one day, it’s frightening really, with the enforcement people out there who won’t eat unless they catch someone.
Phil Turtle
Yeah, it is. And I think it needs to be said that if somebody, as experienced as yourself, can get caught out it just underlines how easy it is for what we call the amateur landlords to get caught out by it.
One thing I would say to, to the amateur to landlords for goodness sake, find yourself a decent ARLA qualified letting agent don’t try doing it yourself. It’s just too damned complicated. It may seem like you’ve got to give away 10% – 12%. But, do it, because the costs for getting it wrong, the fines that people are looking at and getting these days are just so horrendous. In particular for HMO’s. HMO’s are a dangerous business to be in.
Logan Ransley
I guess my takeaway is that landlords getting into the game, even the more experienced landlords, need to constantly update their education, get proper legal advice, proper tax advice, and really treat it as a proper business so that they don’t get caught out with all these fines.
Will Mallard
One of the things that I encourage all landlords to at least have a look at over the course of the next weeks and months to have a look at what’s going on and your local area, and other categories of property, what’s happening commercially, what’s happening with the retail, what’s happening within the area, what’s the community looking like.
People often talk about the ability as an investor to see around the corner and they talk about it as if it’s some sort of which doctor exercise. But everyone has access to the same information.
I’ve seen some, stats recently on the London commercial property market and there have been some enormous leases signed. We’re talking about millions of square feet of commercial and office space to big businesses. And these are going to bring people into the area. And that’s a good thing. There’s a flow-on effect. People want a shorter commute. So you can expect pressure on local housing, and even in the commuter areas, it lifts values, changes the dynamics of the retail scenes, and you start getting more viability for more development.
So you have to do a little bit of research. And my view, being in property as a choice, is you should make the most of this data, structure your investments long term, even change how you’re currently investing, and make a well-structured exit plan.
Thank you very much to Logan from Landlord Studio, Sue Maxwell Smith from UK Property World, an accountancy practice owner and longstanding portfolio landlord, and our special guests today Phil Turtle from Landlord Licensing and Defence.