While the main impact of the Tenant Fees Act 2019 (the TFA) will have been felt by private landlords and letting agents in the run up to 1 June last year (when it came into force), the transitional period provided by the TFA is now approaching its end, which brings further considerations for those operating in the industry.
Private landlords and letting agents will need to be alive to this, as well as to some other upcoming deadlines and legislative changes that impact their market from both a compliance and budgeting perspective.
The TFA transitional period comes to an end
Landlords and letting agents will be very well versed by now on what fees can and cannot be levied against tenants, given the push to ensure that all new AST agreements were TFA compliant as of early last summer.
From 1 June 2020, the ban on prohibited payments – such as inventory checkout fees and late payment interest exceeding 3% above the Bank of England's base rate – will extend to tenancies entered into prior to 1 June 2019, rendering the collection of prohibited payments outlawed across the board, not just new tenancies.
The ban on prohibited payments may be enforced by the local trading standards authority or the district council. As a reminder, the penalties for taking prohibited payments from tenants are:
- The prohibited payment must be returned to the tenant.
- Fines of up to £5,000 (first offence) and £30,000 (second offence) can be imposed for breaching the TFA.
- Second offences may also incur criminal liability and lead to a banning order (an individual or company may be banned for a minimum of 12 months from acting as a landlord or agent).
Section 21 notices cannot be served where a prohibited payment has been taken by the landlord and not returned.
Going forward:
- landlords and agents should (if they have not already done so) familiarise themselves with what constitutes a prohibited
- payment and review existing and template AST agreements and current practices to ensure that they do not contain provisions
- permitting prohibited payments, and
- investors will want to be sure that the portfolio of lettings they are acquiring is TFA compliant.
The TFA applies only to ASTs so, for example, common law tenancies (commonly seen where the tenant is a company or the annual rent exceeds £100,000) are not caught by the prohibited payments regime under the TFA.
Avoid a sub-standard April Fool's Day
1 April 2020 is the date from which the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (MEES) will apply to existing private residential tenancies, meaning that it will be unlawful to continue letting out 'sub-standard' property (ie with an EPC rating of F or G). This extends the existing prohibition, whereby the grant of new tenancies of sub-standard properties was banned from 1 April 2018.
There are exemptions, summarised briefly below, available to landlords in limited circumstances where, if applicable, continued lettings of sub-standard properties are permitted:
- 'High cost' exemption: broadly, where the cost of implementing the cheapest recommendation on the EPC would exceed £3,500 (including VAT).
- 'All improvements made' exemption: where the property remains sub-standard after all relevant energy efficiency improvements have been made.
- 'Wall insulation' exemption: applies in the event that wall insulation measures have been recommended, but to follow them would in an expert's opinion be unsuitable for that property.
- 'Consent' exemption: may occur when third party consent to energy efficiency improving works is required, but is not forthcoming.
- 'Devaluation' exemption: where an independent RICS surveyor advises that implementing the energy efficiency improving works would reduce the market value of a property by more than 5%.
- 'New Landlord' exemption: temporarily applies in limited cases when a person has suddenly become the landlord.
Landlords will need to apply (with supporting evidence) to be registered on the Private Rental Sector (PRS) Exemptions Register when seeking to rely on an exemption.
Enforcement responsibilities fall to local authorities, who can:
- impose financial penalties (of up to £5,000 per property), and
- add those in breach of MEES to the PRS Exemptions Register, possibly leading to negative PR.
In view of these changes, we recommend that those involved take the following steps:
- Review their property portfolios as soon as possible and, where sub-standard properties are identified, take the appropriate action or ascertain whether an exemption is available.
- PRS investors will want to ensure that the validity and ratings of EPCs across their portfolio are up to scratch when acquiring PRS properties. Good record keeping in connection with existing portfolios will also help avoid transactional delays for landlords considering disposing of their portfolio in the not too distant future.
Remain current on electrical safety regulations in the private rented sector
Due to come into force on 1 July 2020, and to apply to all tenancies granted after that date, is a draft statutory instrument that has been laid before Parliament (the Regulations) which would impose new electrical safety standards on private landlords.
The Regulations would be two-fold in terms of landlords' responsibilities where a property is let to a tenant that uses that property as their primary residence in exchange for rent (regardless of whether it is a market rent or not):
- Electrical inspections: Landlords will need to ensure that the electrical installations at the property are inspected by a qualified person prior to a new tenancy commencing, or by 1 April 2021 for existing tenancies. Inspections must then be carried out at least every five years. Landlords will be required to provide tenants with copies of inspection reports.
- Safety standards: The electrical safety standards – set out in the British Standards BS 7671:2018 (18th Edition of the Wiring Regulations) – must be satisfied at the property.
The Regulations do not apply to certain tenancies, such as where the landlord is a registered provider of social housing, long leases and student halls of residence.
The proposals put potentially far reaching enforcement powers in the hands of local housing authorities. In addition to being able to impose fines of up to £30,000, they can step in and carry out works at the cost of the offending landlord.
Now would be a good time to start lining up inspections and checking portfolios for compliance. Where portfolios are held across various different locations, we recommend getting in touch with your local letting agents and lining up qualified persons to carry out the required inspections.
