Understanding the Tenant Fees Ban in Wales
This article has been updated to include the specified information (28 February 2020) and prescribed limits regulations (28 April 2020).
Transitional Provisions Relating to Assured Shorthold Tenancies
Much of the Fees Act quoted in this article will refer to a “contract-holder” and a “standard occupation contract” or similar because the Fees Act has been written with the Renting Homes Act in mind. However, provision needs to be made for existing assured shorthold tenancies.
Under The Renting Homes (Fees etc.) (Wales) Act 2019 (Transitional Provision for Assured Shorthold Tenancies) Regulations 2019, which also commences from 1 September 2019, these provisions are made to allow for terminology to apply to ASTs in Wales. Simply put, any reference in the Fees Act to a contract-holder or standard occupation contract is to be read as though it’s a reference to a tenant of an AST or an AST:
Parts 1 to 5 and 7 of the Act (including section 20, when read as provided for in this regulation) are to be treated as having effect in relation to assured shorthold tenancies, and for this purpose—
(a) references in the Act to a standard occupation contract are to be read as references to an assured shorthold tenancy, (b) references in the Act to a contract-holder are to be read as references to a tenant under an assured shorthold tenancy, (c) references in the Act to a landlord are to be read as having the same meaning as do references to a landlord in the Housing Act 1988, …
Tenancies Which Apply to the Fees Act
At the time of commencement, the Fees Act will only apply to assured shorthold tenancies. Once the Renting Homes Act commences, it will also apply to “standard occupation contracts”. Therefore, at commencement, the Fees Act does not apply to contractual tenancies (company lets, rents over £100k etc.), nor does it apply to licences (lodger agreements, for example).
Prohibited Payments to Landlords and Letting Agents
From 1 September 2019, it is an offence for a landlord or agent to require a prohibited payment to be made to the landlord, agent, or any other person in consideration of the grant, renewal or continuance of a standard occupation contract (AST), or under a term which purports to require the payment to be made.
It’s important to note the scope of this wording. It’s an offence to require a prohibited payment from “any person”, not just the tenant contract holder.
This includes a prospective tenant, guarantor, parent, or another person. The starting point for a prohibited payment is “any money” is prohibited unless it is specifically permitted within the Fees Act.
The permitted payments are:
- money payable by a landlord to a letting agent in respect of lettings work or property management work carried out by the agent on behalf of the landlord;
- security deposits;
- holding deposits;
- payments in default;
- payments in respect of council tax;
- payments in respect of utilities;
- payments in respect of a television licence;
- payments in respect of communication services.
Each of these permitted payments will be dealt with individually shortly. Any term requiring a prohibited payment is not binding on the contract holder (tenant), but the contract continues, so far as practicable, to have effect in every other respect.
Prohibited payments would include, for example (but are not limited to): admin fees, referencing fees, check-in fees, inventory charges etc.
Prohibition on Contracts for Services With Landlord or Agent
In addition to prohibited payments, it’s an offence for a landlord or agent to require a person to enter into a contract for services with the landlord, agent, or any other person in consideration of the grant, renewal or continuance of a standard occupation contract (AST), or under a term of which purports to require entry into the contract for services.
There are two exceptions allowed:
- the tenancy agreement between landlord and tenant is a permitted contract for service.
- The management agreement between landlord and letting agent is a permitted contract for a service if the contract for services concerned is a contract between a landlord and a letting agent only, in respect of lettings work or property management work to be carried out by the agent on the landlord’s behalf.
Again, note the wording. The ban on requiring a person to enter a service contract applies to anyone.
That’s why the legislation needs to permit the actual tenancy agreement and management agreement because otherwise, “a person” would have disallowed those service contracts.
Any term requiring a prohibited contract of service is not binding on the contract holder (tenant). Still, the contract continues, so far as practicable, to have effect in every other respect.
A prohibited service would include a referencing company, for example.
Prohibition on Requiring the Grant of a Loan
Finally, it’s also an offence to require the grant of a loan in consideration of the grant, renewal or continuance of a standard occupation contract (or a term purporting such a grant). Any term requiring a prohibited grant of a loan is not binding on the contract holder (tenant). Still, the contract continues, so far as practicable, to have effect in every other respect.
As explained earlier, requiring any money, contract for service or grant of a loan is prohibited unless expressly permitted under the Fees Act. Here we list each of the allowed payments.
Lettings Work or Property Management Work Carried Out by the Agent
Section 4 permits payment by a landlord to a letting agent in respect of lettings work or property management work carried out by the agent on behalf of the landlord.
This shows the extent of the ban. If the prohibition only applied to limited specified persons, there would be no need for this permitted payment. However, it's needed because of the broad scope and because money is banned to “any person” unless permitted.
“Letting agent” means a person who carries out lettings or property management work (whether or not the person carries out other work).
“Lettings work” is the exact definition in section 10 Housing (Wales) Act 2014.
“Property management work” is contained in section 12 Housing (Wales) Act 2014.
Thankfully rent is a permitted payment! However, there are some restrictions.
… if the amount of rent payable in respect of a relevant period (“P1”) is more than the amount of rent payable in respect of another relevant period (“P2”), the additional amount payable in respect of P1 is a prohibited payment.
A “relevant period” means any period in respect of which a payment of rent falls to be made, and this is any period being higher than any other period.
For example, if we have the following payments due: 1 October (P1) £700 1 November (P2) £500, the difference between the two is prohibited (£200).
In addition, the following example is also prohibited £200: 1 October (P1) £500 1 November (P1) £700. In particular, landlords may charge 3 or 4 different amounts during an entire term with student lets.
Because there may be differing amounts and differing periods, it gets even more complicated.
Note: this part is very complex and challenging to explain, so please be patient and don’t worry if it doesn’t sink in at first read! Thanks again to David at Training for Professionals for the consult!
Where the duration of one relevant period (P1) differs from that of another (P2), the following steps are to be taken.
- Step 1 for each of P1 and P2, the applicable daily rate of rent (the “ADR”) is to be calculated (and in the case of an amount that is not a whole number of pennies, then rounded up to the nearest penny) by dividing the total amount of rent for the period by the number of days in the period.
- Step 2 if there is no difference between the ADR for each period, there is no prohibited payment.
- Step 3 but if the ADR for P1 differs from that for P2, determine which of the rates is the lower (the “lower ADR”) and which is the higher (the “higher ADR”).
- Step 4 for whichever period in respect of which the higher ADR is payable, calculate the amount of rent that would have been payable for it if rent had been payable in respect of that period at the lower ADR.
- Step 5 calculate the difference between the amount of rent calculated under Step 4, and the amount of rent actually payable in respect of the period in which the higher ADR is payable.
The resulting amount is a prohibited payment.
Let’s put this into a sample using a genuine student let's example that an agent was going to put in a tenancy agreement where the rent is £408 per month, and it’s an 11-month term.
- 1st September - 3 January £1496
- 4th January - 10 April £1496
- 11 April - 31 July £1496
- 1 August - 31 August (and after that) £408
Because the periods are not calendar months and are for different lengths, the 5 step calculation to establish the applicable daily rate has been triggered.
Step 1 First, we have to calculate the rent for each period and get the ADR. We need to find the number of days in each period and divide the rent by those days. 1 September 2019 - 3 January 2020 = 125 days, £1496 / 125 = £11.97 ADR 4 January 2020 - 10 April 2020 = 98 days, £1496 / 98 = £15.27 ADR 11 April 2020 - 31 July 2020 = 112 days, £1496 / 112 = £13.36 1 August 2020 - 31 August 2020 = 31 days, £408 / 31 = £13.17
Step 2 This step checks if the ADR is the same for each period. We have £11.97, £15.27, £13.36 and £13.17 so they’re not the same amounts. We, therefore, must move to step 3.
Step 3 For this step, we must find the highest and lowest ADR in P1 and P2. Starting with the first two, the “lower ADR” is £11.97, and the “higher ADR” is £15.27.
Step 4 In this step, we find the period for the higher ADR, which is 4 January 2020 - 10 April 2020 (£15.27 ADR). Then, calculate the amount of rent that would have been payable for it if the rent had been payable in respect of that period at the lower ADR. The lower ADR is £11.97, and the number of days for the period with the higher ADR is 98. So we calculate 98 x £11.97, which equals £1173.06.
Step 5 Finally, we must calculate the difference between what we just got from step 4 and the actual rent payable for the period with the higher ADR (January - April). Therefore, £1496 - £1173.06 = £322.94. We then need to repeat this calculation for each P1 and P2 where the length of time differs (in our case, all of them).
This resulting £515.23 is the prohibited payment of rent which is an offence and would prohibit the landlord from serving a section 21 notice until repaid, plus attract a fine or fixed penalty (see later).
Interestingly, using the exact dates in England produces only £7.49 prohibited payment due to the different way it’s calculated.
Don’t worry too much if you don’t follow the above. Where there are different lengths of periods as above, the daily rate of rent being charged must always be the same for each period.
Six Months Rental in Advance
Sometimes a landlord will want to take six months' rent in advance. However, this might be prohibited under the steps shown earlier. It all depends on the number of days within a period.
As an example, let’s say the rent is £595.00 per calendar month, and the landlord wants to take the following payments:
1 October 2019 - 31 March 2020, £3570 (£595 x 6)
1 April 2020 - 30 April 2020, £595 (and after that at £595).
Here we have different payments for different length periods (one payment is for six months, and the other is for one month).
As we did earlier; first, we get the ADR for P1 and P2:
P1 1 October 2019 - 31 March 2020 = 183 days, £3570 / 183 = £19.51 ADR
P2 1 April 2020 - 30 April 2020 = 30 days, £595 / 30 = £19.84 ADR
The lower ADR is P1 (£19.51), and the higher (£19.84) is in P2.
We now need to calculate the lower ADR (P1 £19.51) as if that had been charged for the period for the higher ADR (P2 30 days). £19.51 x 30 = £585.30. £585.30 - £595.00 = £9.70 difference. This difference of £9.70 is a prohibited payment!
Calendar Monthly Amounts
What about the position of a regular calendar monthly rental (e.g. £595 per calendar month)? Surely this is caught because January has a different number of days to February? The Fees Act allows for calendar monthly rents and provides that where it’s the same rent payable for each period AND each period is a specific number of calendar months. Each calendar month period is to be treated as having the same daily rate (ADR):
(5) Where- (a) rent is payable monthly in respect of P1 and P2, or P1 and P2 are both periods calculated by reference to the same number of calendar months, and (b) the amount of rent payable in respect of P1 and P2 is the same, P1 and P2 are to be treated for the purposes of Step 2 … as having the same ADR.
This allows for calendar monthly, quarterly, two calendars monthly etc., payments without worry about the number of days in each calendar month. For this reason, in the earlier examples, we did not need to continue our calculation because the ADR of the periodic calendar monthly payments are treated as the same.
Comment about Different Periods and Different Amounts
Under schedule 1, it states that-
No account is to be taken of any difference between the rent payable in respect of P1 and another relevant period to the extent that it results from a permitted variation of the rent.
A permitted variation is defined as a variation made -
- by agreement between the landlord and the contract-holder
- under a term in the contract which provides for variation of the rent under the contract, or
- by or as a result of an enactment.
Could it be argued that the different amounts specified in the tenancy (using the examples above) are variations in the rent pursuant to a term in the contract which provides for variation of the rent under the contract?
We don’t believe this could apply because if it did, we could put anything we like in the tenancy (for example, £10,000 for the first period and then £400 per month)!
We believe the permitted variation intends to be for a term varying the rent at some future date, for example, a clause linking the rent to RPI.
If the rent increased as a result of RPI after 12 months, no account would be taken of that variation.
However, we will have to wait for the courts to decide on this point.
Furthermore, we would like to point out that this is new and as yet untested legislation. It seems bizarre that in the six months rent in advance example, despite charging a lower ADR rate for the six months, there still resulted in a prohibited payment of £9.70. This makes no sense and goes against the intention.
However, we believe we’ve done the maths correctly and followed the steps perfectly. We will have to wait and see how the courts calculate and interpret the legislation.
Taking a security deposit is a permitted payment, which is the familiar deposit that would need protection in a deposit scheme.
However, the amount which can be taken must not exceed a “prescribed limit”. This prescribed limit is to be made by regulations and, at the time of writing, hasn’t been published.
A holding deposit of a maximum of one week's rent is a permitted payment. A holding deposit is defined as an amount which:
- before the grant of a standard occupation contract or AST is paid to a landlord or a letting agent;
- is paid to reserve a right of first refusal to the granting of the contract, subject to suitability checks to be carried out as to the prospective contract-holder and agreement between the parties to enter into the contract;
- does not exceed an amount equivalent to one week’s rent under the contract.
Any excess over one week's rent is a prohibited payment.
Unfortunately, there’s no legislated calculation for finding one week's rent, but the official guidance suggests dividing the calendar monthly amount by 4.35.
Remember, this is a “maximum” amount, so you must round down for this calculation (contrary to the example calculation in the guidance).
Only one holding deposit can be taken per property (because the payer must be given the first refusal).
A particular procedure for holding deposits is found in schedule 2 of the Fees Act, which will be dealt with next.
When receiving a holding deposit from a prospective tenant, from 28 February 2020, specified information must be given to the prospective tenant BEFORE a holding deposit is received.
The information required is:
- amount of holding deposit (which is limited to no more than one week's rent)
- address of the dwelling in respect of which the deposit is paid,
- where a holding deposit is to be paid to a letting agent, the name and contact details of that letting agent,
- where a holding deposit is to be paid to a landlord, the name and contact details of that landlord,
- duration of the contract
- proposed occupation date
- amount of rent or other consideration
- rental period
- any proposed additional contract terms or proposed modifications to fundamental or supplementary terms or terms proposed to be omitted from the contract,
- amount of any security deposit
- whether a guarantor is required and, if so, any relevant conditions
- reference checks the landlord (or letting agent) will undertake
- information the landlord or letting agent needs from the prospective contract-holder
Our holding deposit receipt and agreement for Wales have been updated and contain this information.
A failure to provide the prescribed information results in the holding deposit having to be returned even if there is some reason allowing a landlord or agent to retain the holding deposit (except if the tenant has provided false information, see in a moment).
Deadline for Agreement
There’s a “deadline for agreement”, which is the date by which the holding deposit must have been repaid in one form or another (unless an exception applies, see in a moment).
The default date is 15 days beginning with the day the holding deposit is paid. But, this date can be changed by agreement “in writing” between the parties.
Repayment of Holding Deposit
The default position is that the holding deposit must be repaid.
The person who received the holding deposit must repay it if—
- the parties enter into the contract before the deadline for agreement, and in this case, it must be refunded within seven days of the contract being made, or
- the parties fail to enter into the contract before the deadline for agreement; in this case, it must be repaid within seven days of the deadline for the agreement date.
Regarding repaying, where a contract has been entered into “before” the deadline for the agreement date, it’s acceptable for the holding deposit amount to be applied towards the first payment of rent or the security deposit. Suppose all or part of the holding deposit is applied towards the security deposit. When the contract is made, the amount applied is treated as a tenancy deposit.
When the Holding Deposit Can Be Retained
There are several exceptions to repaying the holding deposit allowing the landlord or agent to retain it.
Prospective Tenant Provides False or Misleading Information
The landlord or letting agent may retain the holding deposit if the prospective tenant provides false or misleading information to the landlord or letting agent and:
- the landlord is reasonably entitled to take into account the difference between the information provided by the contract-holder and the correct information in deciding whether to grant a contract to the contract-holder, or
- the landlord is reasonably entitled to take the contract-holder’s action in providing false or misleading information into account in deciding whether to grant such a contract.
The Prospective Tenant Has Decided Not to Enter Into a Contract
Suppose the prospective tenant notifies the landlord or letting agent “before the deadline for agreement” that they have decided not to enter into a tenancy. In that case, the landlord or agent may retain the holding deposit (but only if specified information was given before receiving the holding deposit).
Landlord or Agent Takes All Reasonable Steps to Enter Into a Contract
Where the landlord or letting agent takes all reasonable steps to enter into a contract before the deadline for agreement but, the contract-holder fails to take all reasonable steps to enter into a contract before that date, the landlord may retain the holding deposit. Again, this is subject to the specified information given before receipt of the holding deposit.
Useful Forms and Templates
We have produced some useful forms and templates for subscribers to use for holding deposits:
- Receipt for holding deposit
- Letter that retaining holding deposit due to false or misleading information
- Letter that retaining holding deposit due to the tenant not proceeding
- Letter Informing Not Return Holding Deposit - Reasonable Steps to Grant Tenancy
- Letter Returning Holding Deposit in Full - No Tenancy Granted
Payment in the Event of Default
Getting back to the list of permitted payments, if the tenancy contains a term requiring payment in the event of a failure by the contract-holder to make a payment due or payment due to a breach of a contract term, then this payment is permitted.
However, the Fees Act allows for prescribed limits to amounts which can be charged for certain specified defaults. From 28 April 2020, the Renting Homes (Fees etc.) (Prescribed Limits of Default Payments) (Wales) Regulations 2020 commence.
Failure to pay rent
If there's a failure to pay rent, the prescribed limits regulations limit the amount which can be charged to the following:
- before the end of the period of seven days from when due, zero can be charged
- After seven days from due, 3% above the Bank of England base rate may be charged after the end of the period of seven days.
The actual formula for calculating the 3% plus base rate is:
the aggregate of the amounts found by applying, in relation to each day after the due date for which the rent remains unpaid, an annual percentage rate of three per cent above the Bank of England base rate to the amount of rent that remains unpaid at the end of that day.
Loss of a key or security device
If the tenant breaches the tenancy, it leads to:
- a lock requiring to be changed, added or removed; or
- a key or security device is lost and needs to be replaced
A charge can be made but only for the “actual cost” of the replacement, change, addition or replacement of the key, security device or lock.
“Actual cost” means the cost of the key, security device or lock “as evidenced by an invoice or receipt”.
However, where a contractor undertakes the replacement of a key/security device or the change, addition or removal of a lock on behalf of the landlord, the “actual cost” includes the cost of the contractor’s labour “as evidenced by an invoice or receipt”.
Payment in Respect of Council Tax
A payment that a contract-holder must make to a billing authority in respect of council tax is a permitted payment if the contract-holder is liable to make the payment by any of sections 6, 8 or 9 of the Local Government Finance Act 1992.
Note: the wording only allows payment to the “billing authority”. It is not allowed for the contract to make council tax payable to the landlord or agent (or anybody else).
Furthermore, the term in the contract can only allow for payment to be made if the tenant is liable under the legislation for council tax (for example, in a council tax HMO, the landlord is responsible for paying the council tax, so it will not be lawful to have a clause requiring the tenant to make payment).
Payment in Respect of Provision of Utilities
Payment for electricity, gas, other fuel, water, sewerage or a green deal plan is a permitted payment if it is required under the contract and is made in respect of the dwelling subject to the contract. Note: there is no restriction on who the payment can be made to (unlike the council tax), but it must only consist of a payment “in respect of the dwelling subject to the contract”.
The definition of a dwelling is found in section 146 of Renting Homes (Wales) Act 2016, which provides:
For the purposes of this Act “dwelling” means a dwelling which is wholly in Wales, and— (a) does not include any structure or vehicle which is capable of being moved from one place to another, but (b) includes any land occupied together with the dwelling, unless the land is agricultural land exceeding 0.809 hectares.
Payment in respect of television licence
A payment that a contract-holder must make to the British Broadcasting Corporation in respect of a television licence is permitted if the contract-holder is required by the contract to make the payment.
Note: This can only be payable to the BBC and not to any other person, like council tax.
Payment in respect of communication service
Payment for a service enabling a telephone (other than a mobile telephone), the internet, cable television or satellite television is permitted if required under the contract and relates to the dwelling subject to the agreement.
Existing Tenancies Before 1 September 2019
The prohibited payments, service contracts or granting of a loan do not apply in respect of:
- a requirement imposed before 1 September 2019, nor
- a requirement forming part of an AST entered before 1 September 2019.
It will, however, apply to all new tenancies or renewals on or after 1 September 2019. It will likely apply to any statutory periodic tenancy commencing on or after 1 September 2019 (but not a contractual periodic tenancy which our agreements continue to).
Enforcement and Penalties
It’s a criminal offence to breach the Fees Act, and a fine may be payable in addition to repayment of any prohibited payment.
The local authority or the licensing authority (Cardiff) may enforce the Fees Act.
An authorised officer may, by notice, request documents from landlords, letting agents or contract-holders investigate whether a breach of the Fees Act has occurred. Failure to provide any requested document(s) is a criminal offence.
A conviction under the Fees Act is a consideration under the “fit and proper person” test for holding a Rent Smart Wales Licence. The enforcing authority may bring proceedings concerning an offence, and a person may also make a civil claim in the county court to recover any prohibited payment. A civil claim may not be made if criminal proceedings have been commenced and not discontinued.
Fixed Penalty Notice
An enforcement officer may give a fixed penalty notice of £1,000 to anyone they suspect committing an offence under the Fees Act. Payment would be an alternative to criminal proceedings.
Note: the fixed penalty is not “up to” £1,000. It’s a fixed amount of £1,000.
Section 21 Notice Restrictions
No section 21 notice (nor section 173/186 notice when the Renting Homes Act commences) may be given if the landlord has received a prohibited payment and has not been repaid. This also applies if a holding deposit has been received which has not been reimbursed (unless there are circumstances to retain it correctly or if it has been offset from the rent or tenancy deposit).
The Welsh Government has issued official guidance on the tenant fees ban in Wales.
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