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New legislation to restrict landlords' ability to request large deposits

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On 12 February, the Tenant Fees Bill 2017-2019 received royal assent and became the Tenant Fees Act 2019.

This legislation, when it comes into force on 1 June 2019, will apply to tenants and prospective tenants of Assured Shorthold Tenancy Agreements and student accommodation in England; as well as both new and renewal leases and licences (excluding periodic tenancies).  From 1 June 2020, the legislation will apply to existing residential leases and licences

The legislation provides that landlords and letting agents can only take a deposit of no more than five weeks’ rent if the annual rent is less than £50,000.  If the annual rent is £50,000 or more, the cap will be six weeks’ rent.  The legislation also prohibits landlords from setting a higher level of rent for the first part of the tenancy and then reducing it later as a way of usurping the legislation. Furthermore, the legislation requires that holding deposits must not exceed one month’s rent and must (save for limited exceptions) be fully repaid. 

Terms which breach the legislation will not bind the tenant, and the landlord or agent could incur a fine of up to £5,000. If a second breach is committed by them within a five-year period, a criminal offence will be committed and a fine and banning order may be imposed. In the alternative, the enforcing authority can impose a civil penalty on the landlord (or agent) of up to £30,000. The tenants or licensees will also be able to recover the money they wrongfully paid to the landlord (or agent).

As well as the financial penalties, the landlord will be unable to serve a Section 21 Notice (requiring possession from the tenant and terminating the tenancy) whilst holding a prohibited payment. Therefore a landlord would have to pay back any money over the five-week threshold before being able to serve the Section 21 Notice. This itself can cause issues if the landlord (or agent) does not have the tenant’s bank details. If a tenant is savvy, they may refuse to cash a cheque sent to the property as they know as soon as they accept the payment a notice can be served.

This legislation increases the risks for landlords when renting the property to a new tenant.  Whilst it is acknowledged that this legislation will open up the rental market to tenants who were previously prohibited from renting due to the large deposits required, it also means that if tenants damage the property, landlords may have to then look to bring a money claim for any costs of repair exceeding the amount of deposit. If the tenants have left no forwarding address upon vacating, and if they have no assets, landlords could be significantly out of pocket. 

There are some simple steps which landlords can take to protect themselves, however.  It is crucial that they inspect the property regularly (ensuring they give the requisite notice in line with the tenancy agreement). Prior to the tenant going into occupation, landlords are advised to take numerous photos of the property and annex these to the agreement, so there is proof of the condition at the start of any tenancy.   They should also attend to any repair issues as soon as possible, so as not to prevent any possession notices from being able to be served.

If you need any help with problem tenants, please contact our Property Litigation team on 01775 842500 and ask to speak to Michelle Moore or George Faulkner.