Historically, tenants have usually picked up the tab for the charges associated entering into a tenancy agreement. Going forward, the charges that the landlord and their letting agents will be able to recover from tenants will be tightly restricted.
For tenancies entered into from 1 June 2019, fees such as letting agents’ reference fees, check-out fees and renewal fees will no longer be recoverable from tenants. For all but the highest value tenancies, deposit will be capped at five weeks’ rent. If a banned payment has been paid by a tenant, the landlord will not be able to use the popular ‘no fault’ section 21 notice procedure to recover possession of the property until the payment has been returned. Local authorities will be able to impose fines, and in the most serious cases, criminal sanctions.
While the introduction of the ban is a popular move among tenants, it is not clear how much of an impact it will have on the cost of tenancies in the long run: letting agents we have spoken to are already discussing the possibility of increasing rents so that landlords are not left out-of-pocket. In the long run that could lead to increased costs to tenants. If rents do go up to cover landlords’ increased costs, the only real benefit to tenants would be having clarity and consistency in what they will be paying out each month, rather than having expenses spiking at the start and end of a tenancy.
If the cost of the banned charges does end up swept up in increased rent, the real impact of the ban for landlords will be the reduced protection for them in having deposits capped, and a further hoop to jump through to serve a valid section 21 notice. A valid section 21 notice is the first step in initiating ‘no fault’ possession proceedings against tenants, where the landlord does not need to prove a statutory basis for recovering their property after the end of a fixed term of a tenancy. Section 21 has long been a key protection for landlords, allowing them to remove problem tenants quickly at minimal cost.
The new ban is the latest in a series of changes over the last few years tightening regulation of assured shorthold tenancies. For private landlords in particular who own one or two properties, the increased regulation has made buy-to-lets a much less attractive investment, particularly against the backdrop of increased stamp duty for buy-to-lets and second homes since 2016. Going forward, with the Government recently announcing proposals to do away with section 21 altogether, it doesn’t look like the future is getting any brighter for residential landlords.