STRUTT and Parker takes a look at The Tenant Fees Act, which will come into force on June 1, having received Royal Assent on the February 12.

At a glance:

• Most fees charged by landlords and their agents to tenants will be banned, apart from a number of ‘permitted payments’.

• The ban will apply from June 1, 2019, for new and renewed Assured Shorthold Tenancies and licences to occupy. It will apply to pre-existing tenancies from June 1, 2020.

• Landlords and their agents must ensure that their practices are compliant. Tenancy agreements should be reviewed to ensure they do not charge or refer to any prohibited payments.

The Act aims to deliver the Government’s manifesto commitment to ban landlord and letting fees paid by tenants and improve fairness, competition and affordability in the lettings sector.

The Government announced its intention to ban fees in the Autumn Statement in 2016, following the private members bill proposed by Baroness Grender, the Liberal Democrat peer.

The Government estimates that the Act will save tenants around £240 million a year in letting fees, which will come from letting agents’ fees (£160m) and knock-on costs to landlords (£80m).

The ban will apply to both Assured Shorthold Tenancies and licences to occupy. It does not cover long leaseholds, tenancies of social housing or holiday lets.

While the ban on fees initially applies to tenancy renewals, statutory periodic tenancies and new tenancies excludes contractual periodic tenancies that arise after 1 June, the fees ban will be applicable to pre-existing tenancies from June 2020.

Therefore, any fees charged to tenants after this date must comply with the Act otherwise they could make notices, such as section 21 notices for recovering possession of properties let under Assured Shorthold Tenancies, ineffective.

The Association of Residential Letting Agents (ARLA) opposed the ban, saying that the average fee charged by an ARLA Propertymark Protected agent is £202 per tenant, which it considers reasonable for the checks carried out on tenants before a property is let.

Research commissioned by ARLA from Capital Economics found that landlords are likely to pass on higher agents’ fees to tenants in the form of higher rent.

In the most plausible outcome (according to ARLA), letting agents will lose £0.2 billion in turnover, landlords lose £0.3 billion in income and tenants pay an increased rent of £103 per annum.

To discuss this new legislation further and how it might affect the management of your property, contact George Greaves in Strutt and Parker’s Exeter Land Management Department on 01392 229417.