Tenant fees explained
In June 2019, the long-anticipated tenant fees ban covering many types of fees finally came into force.
If you are a buy-to-let landlord in England, you need to comply with the rules or you face a fine of up to £5,000 for a first offence. Breach the regulations again within five years and you could be hit with an unlimited fine, or even a jail sentence.
As you can see, it’s vital you know what you can and cannot charge tenants for. It’s not worth getting slapped with a huge penalty just for trying to recoup a few costs!
What you can charge tenants for
Let’s start with what you can charge for. In addition to rent and utility bills, landlords and agents can still ask tenants for certain payments. These are:
- A deposit. But note that you can now only ask for up to five weeks’ rent, or six weeks if the yearly rent is over £50,000.
- A holding deposit. You can ask up to one week’s rent, but it must be refundable.
- Default fees. If a rent payment is overdue by 14 days or more, you can charge a ‘default fee’. You can only charge interest at the Bank of England base rate plus 3%.
- Lost keys / key fobs. Also called a ‘default fee’, you can bill ‘reasonable costs’ for replacing lost keys or key fobs.
- Tenancy agreement changes. If the tenant requests a change to the tenancy agreement – such as getting agreement to keep a pet, or adding a new tenant to the contract – you can charge up to £50. If your ‘reasonable costs’ are higher than this, you need to provide evidence such as invoices and receipts.
- Early termination fees. You can charge only for the actual cost you have incurred, and be able to provide evidence of that cost.
As you can see, there are significant changes to most of these fees, limiting how much you can charge. But what fees are you now completely banned from imposing?
What the tenant fees ban seeks to prevent a landlord charging for
The simple answer to this question is ‘pretty much anything else’. But for clarity, these are common charges that are now outlawed.
- Tenancy renewal fees.
- Viewing fees
- ‘Check-out’ fees
- End of tenancy cleaning charges
- Gardening fees
- Charges for allowing a rent guarantor
- Reference checking fees
In short, hidden charges have to go and landlords – not tenants – now have to cover the costs for agreeing, renewing and ending tenancies.
So, what do the rules mean for you as a buy-to-let landlord? If you let out your properties directly, you’ll have to absorb extra costs yourself or raise your rents.
There is one alternative, however. Because many of the fees used to apply when a tenancy was renewed or changed, it could make sense for you to offer longer contracts. In other words, the less often you change your tenants, the less often you’ll need to cover additional expenses.
Of course, the only issue then is to find great tenants who’ll look after your property, stay long enough and pay their rent on time. Something tells us that these changes may make finding them that little bit harder!
Buy to let advice with THP
About Jon Pryse-Jones
Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.
An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”
Jon’s appreciation for THP extends to his fellow team members and the board. “They really know how to run a successful business,” he says. He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.