Landlords Exploit Loophole in Tenant Fees ActWritten By PropertyLoop July 27, 2021
It has recently been reported that landlords and letting agents across the UK have found a way in which to navigate laws introduced to make the private rental sector more accessible. This comes at a time where fraudulent tenancy applications have surged to previously unheard of numbers, and where landlords and tenants are scrambling to keep themselves afloat as the financial stability of millions is in question.
As can be expected whilst in the midst of such a harsh economic climate, record numbers of renters are set to accumulate significant rental arrears thanks to an uncertain income on the back of fluctuating and unpredictable working hours leaving tenants clinging to the government imposed eviction ban to sustain the roof over their head.
But whilst this may sound like the stereotypical story of those that choose to rent being pitted up against the almighty and deep pocketed landlord, if anything recent times have dispelled such notions showing the rental landscape to be more level than first assumed, albeit dismal. With this in mind a recent government report revealed that almost half, 45%, of all UK landlords are exclusively dependent on a single rental property for their income, meaning if their tenants are unable to pay their rent, the landlord is not only left without any earnings but is left exposed to their buy to let mortgage repayments, the associated costs of property maintenance or repair, and the many other costs that come with managing a rental property.
Naturally both sides of the tenancy agreement have been seeking additional financial security throughout this time. Whereas a tenant may try and negotiate a repayment plan to address arrears with their landlord, put in place a period where a reduced rate is paid or seek housing support from the UK government, some landlords have utilised a flaw in the Tenant Fees Act.
Whilst the tenant Fees Act was introduced in 2019 in an effort to prohibit landlord placing a high finical barrier for renters wishing to let out their property, placing a limit on the amount they are able to take for deposits, alongside the aspects of establishing a tenancy they are able to charge a tenant for, no such restrictions where placed on the amount of rent a landlords can ask the aspiring occupants to pay before they move in.
“I” has reported that these demands from rental property owners, although somewhat understandable and if less extreme perhaps even justifiable, have been unscrupulous in their impact on aspiring renters, with those earning far beyond the average household income of £29,900 being met with demands that a quarter of their annual earnings must be paid in advance to the landlord.
Some have argued that this move by rental property owners is not only short sighted, cutting of a significant portion of aspiring renters that could feasible afford to rent out their property, but also somewhat unnecessary as there are existing measures already in place across the rental sector to protect landlords in the event that their tenant is unable to meet their rental obligation.
Similarly to the provisions that are commonly in place when a landlord wished to let out their rental property to a full time student, a guarantor could be added to the tenancy agreement. This would add another party to the rental agreement that is legally responsible for any payments that the tenant has failed to make. Therefore if in the event that the occupant of the property neglects to pay their rent, regardless of the reason, the guarantor would then be pursued for the relevant amount. Whilst this is commonly associated with a tenant’s inability to pay their rent, the guarantor would also be required to cover the costs of any repairs needed to the rental property at the close of the fixed term if the taken tenancy deposit is not sufficient. With this being said, a guarantor will be subject to the same scrutiny as the tenant when they complete the referencing process, seeing their annual earnings, credit history and employment status be evaluated, making this an unrealistic alternative for some renters.
In response to these excessive demands from rental property owners, The National Residential Landlords Association told the BBC, “We would encourage landlords to look for alternatives to asking for high levels of rent upfront. Where necessary, it is usually simpler to obtain a guarantor or suitable insurance product to provide assurance to tenants and landlords that rents will be covered.”
Do You Have to Pay Rent in Advance?
Simply put, under no circumstance can a tenant be legally compelled to pay any amount of rent in advance, however, this doesn’t account for the offer to let the property being withdrawn if the aspiring tenant is unable to provide the sums requested by the landlord.
Although a landlord does not have to request that their prospective tenants pay any amount of rent in advance, when this is asked of the future occupants this is typically only a single month; however, it is not unheard of for rental property owners to ask their tenants to pay up to six months’ rent in advance in exceptional cases. It is worth noting that not all tenants should expect to pay such amounts before they move in as landlords will commonly implement such measures as a financial safeguard against renters they believe could pose a risk to their income. With this in mind if a tenant is renting for the first time, has an inconsistent income or has failed certain financial elements of the referencing process, they are far more likely to be asked to pay some amount of rent in advance.
Whilst requesting that a tenant pays an agreed upon amount of rent before moving in is perfectly legal, rental property owners are strictly prohibited from requesting these amounts and disguising extra fees as these advanced payments. To this end it is essential that when any amount of rent is paid in advance the tenant is supplied with an irrefutable breakdown of the duration of rent they have paid in advance, whilst ensuring this is not more than the “usual” amount they would expect to pay during the fixed term, as outlined within the terms of the tenancy agreement. The landlord should also make it abundantly clear to the tenant when their next rental payment is due and the period that this imminent payment will cover, allowing the tenancy to function as expected with regular rental payments being made by the occupants to the landlord.
It is also imperative that these advance payments are not confused with the multiple deposits a tenant will be required to pay before moving into a rental property. Receipts should be provided to each tenant once the appropriate payments have been taken, with the reasoning for these payments being clearly outlined for the benefit of their understanding.
Online property portal OpenRent reported that from 1750,000 properties that were let out through the platform in the last year, 95% of landlords requested that the future occupants of the accommodation provided them with at least one month’s worth of rental payments before they moved in. Further to this OpenRent revealed that from the 9,000 instances where more than one months’ rent was requested in advance almost 25% of rental property owners requested their aspiring tenants paid six months’ rent in advance.
What Is the Tenant Fees Act?
As we previously mentioned the tenant fees act was introduced in June 2019 in an effort to make the private rental sector more accessible for tenants, preventing them from coming up against excessive upfront costs when trying to rent their next home. Historically, many of the aspects of establishing a tenancy such as the referencing process, carrying out the property inventory, renewing the tenancy and other administrative aspects were charged to the occupants of the rental property by the landlord. However, these actions were brought to an end under the act as landlords are no longer able to pass on these costs to their tenants, despite the efforts of some rental property owners to disguise these as rental payments in advance.
Not only have these often exorbitant fees been abolished, but he Tenant fees Act also placed a limit on the amount a landlord is able to request from their tenants to serve as the holding and tenancy deposits. Before moving into a rental property the aspiring renters must first provide the landlord with what is referred to as a holding deposit. This sum in essence “reserves” he rental property, with its payment legally compelling the landlord to remove the rental opportunity from the market and begin negotiations with the renters to form the terms of the tenancy agreement. Whilst this is often returned to the tenants through the form of a deduction off their initial rental payment, it still presents a financial hurdle that the tenants must overcome in order to begin renting the property. With this in mind the tenant Fees Act prevents landlords for requesting more than the equivalent cost of a single weeks’ rent for the holding deposit.
Further to this the act also places a firm threshold on the amount a landlord is able to request from their tenants to serve as the tenancy, or security deposit. Whilst across recent years this could have been as high as a few months’ rent, especially in city centre locations, the tenant fees act prohibits landlords from requesting such amounts. The amount a landlord is able to take from aspiring renters for the security deposit is dictated by the amount they will charge their tenants for use of the property each year. If the annual rental charge for the accommodation is up to or bellow £50,000, the owner of the rental is only able to request a maximum of five weeks rent from the tenants; however, if the amount the tenants pay in rent each year is over this amount the landlord is able to ask for as much as the equivalent cost of six weeks rent for this deposit.
If the landlord or letting agent neglects to adhere to these financial thresholds and illegally charges the tenant for fees and costs they should not incur, the owner of the rental property could not only face legal action, but fines of up to £5000. However, if after this first offence they continue to neglect their proper conduct as a landlord and consistently prove their will to unjustly charge tenants, they will not only face a substantially greater fine of up to £30,000, but also be landed with a criminal record for their disregard.
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