We also look ahead to how the Tenant Fees Act may change if – and most likely now, when – the Renters’ Rights Bill becomes law.
WolfBite - they key takeaways
· The Tenant Fees Act (TFA 2019) came into force on 1 June 2019.· From that date, landlords and lettings agents have been prevented from requiring tenants of private rented housing in England to make payments in connection with a tenancy unless they are on a list of permitted payments.
· Payments not on the list are “prohibited”. These include things like tenancy set-up, credit check and check-out fees.
· If a landlord or letting agent requires a prohibited payment, the landlord cannot serve a notice seeking possession under section 21 of the Housing Act 1988.
· In this case, the landlord had required the tenant to pay a check-out fee when it granted the assured shorthold tenancy in 2018 (before the TFA 2019 took effect), and two further tenancies were entered into later on.
· The Court of Appeal decided that the TFA 2019 is not retrospective and the check-out fees, having been required before the Act came into force, were not prohibited payments.
· The landlord’s section 21 notice had therefore been valid.
What does the Tenant Fees Act 2019 do?
The TFA 2019 came into force on 1 June 2019.The aim of the TFA 2019 was to make renting fairer and more affordable, and to improve transparency and competition in the private rental market in England.
The Act works by preventing or restricting the amounts that landlords and lettings agents can require tenants to pay, except for a list of specified “permitted payments”.
In this way, landlords and lettings agents can ask tenants to pay: rent; deposits (subject to prescribed maximums); reasonable amounts for replacing keys and dealing with the variation or assignment of tenancies; early termination fees; council tax; utilities; TV licence fees; and charges for telephone, internet, cable or satellite television.
Landlords and lettings agents cannot ask tenants to make payments that are not on this list of permitted payments. They cannot, for example, require tenants to pay:
tenancy-set-up fees; viewing fees; credit check fees; check-out fees; or fees for professional cleaning.
The TFA 2019 imposes various sanctions for non-compliance.
If a tenancy agreement includes any terms that breach the prohibitions, those particular terms will not bind the tenant or any guarantor.
Trading Standards could take enforcement action and impose a financial penalty against a landlord or letting agent that has requested a prohibited payment.
It is also open to the tenant (or guarantor) to apply to the First-tier Tribunal for an order forcing the landlord or letting agent to repay the prohibited payment.
Importantly, a landlord is, in addition, prevented from serving a notice seeking possession under section 21 of the Housing Act 1988 (the so-called “no fault” eviction process) if it required the tenant to make a prohibited payment in connection with an AST and it has not repaid it.
What was the issue in Switaj?
In this case, the tenant had entered into an assured shorthold tenancy (AST) in April 2018. This was before the TFA 2019 came into force.The original AST required the tenant to pay an “administration fee” for preparing any documents relating to a renewal or extension of the tenancy, and a “check-out” fee. The tenant paid those fees in March and April 2018.
The tenant then went on to enter into two further ASTs in April 2020 and April 2021 respectively. These tenancies were entered into after the TFA 2019 had come into force.
Neither the 2020 nor 2021 tenancy agreements included terms that required payment of an administration fee or check-out fee, having been re-drafted specifically to comply with the TFA 2019.
In June 2023, the landlord served a section 21 notice.
The question was whether the landlord was prevented by the TFA 2019 from serving a section 21 notice because of the payments it had required the tenant to make when the original AST was granted in 2018.
The tenant argued that the requirement to pay the administration fee and check-out fee contained in the original tenancy agreement had arisen again when a statutory periodic tenancy came into existence at the expiry of the fixed-term and when the new tenancy agreements were entered into in 2020 and 2021.
This argument was not as peculiar as it might first appear. It was based on an earlier authority that decided that a statutory periodic tenancy is a new and distinct tenancy such that a deposit already held by a landlord should be treated as having been paid again when the statutory periodic tenancy was created.
The tenant put forward a second “elaborate” argument. That was to the effect that, although the 2021 tenancy agreement did not require payment of a check-out fee, a check-out was clearly contemplated. The landlord was already holding money that had been earmarked to pay for a check-out fee. There was, so it said, no basis for the landlord to retain it and it should have been repaid to the tenant. As it had not done so, the retention of the check-out fee, so it was argued, could still come within the definition of a prohibited payment as a payment pursuant to a requirement.
What did the Court of Appeal decide?
The Court of Appeal rejected the tenant’s arguments.The 2021 tenancy agreement, being the one in respect of which possession was sought, did not contain a “requirement” to make a prohibited payment.
Nor had the fees been required to be paid in connection with the grant of the current tenancy.
The fees had been required to be paid in consideration of the grant of a tenancy, but in this case “the grant” meant the grant of the original AST
Simply retaining the original check-out fee after the TFA 2019 came into force did not amount to a “requirement” to pay that fee again. Mere silence could not amount to a requirement. There needed to be some “overt act or utterance”.
The tenant had been required to pay, and did pay, the check-out fee long before the TFA 2019 came into force. The tenant had never been required to pay that sum again.
If it was the case that the landlord had set aside funds for the purpose of carrying out a check-out exercise, this did not amount to a requirement to make a prohibited payment or to do so in consideration of the grant of a tenancy after the coming into force of the TFA 2019.
The TFA 2019 was not retrospective. The payments the landlord had required were not prohibited payments. Any requirement to make a payment had been made before the TFA 2019 came into force, and was accordingly not caught by the Act.
The County Court had therefore been entitled to find that the landlord’s section 21 notice was valid, and to make the order for possession that it had.
The TFA 2019 and the Renters’ Rights Bill
The Renters’ Rights Bill (RRB) will make significant changes to residential landlord and tenant law in England (see our earlier article, What will the Renters’ Rights Bill mean for landlords and tenants?).
If passed into law in its current form, the RRB will amend the TFA 2019 so that tenants under periodic assured tenancies will continue to benefit from its financial protections once ASTs have been abolished.
Given that ASTs will cease to exist, it will no longer be possible for landlords to rely on the section 21 notice possession procedure. They will instead have to rely on section 8 notices, and prove that they are entitled to possession under a mandatory or discretionary ground.
Currently, the RRB does not appear to directly prohibit landlords from serving a section 8 notice if they have required a tenant to pay a prohibited payment. The Bill is, however, still just a draft and it could change as it goes through Parliament.
It is also worth noting that the RRB allows regulations to be made to ensure that provisions that currently relate to notices under section 21 continue to apply in relation to notices under section 8. Perhaps we will see similar restrictions transferred to section 8 notices after all.
Another change that is understood to be under consideration is a potential amendment to the RRB, and possibly the TFA 2019, to expressly prohibit the practice of landlords demanding large amounts of rent in advance.
As currently drafted, the RRB will give tenants the right to request to keep a pet, and require landlords not to unreasonably withhold consent to this. In return, the Bill will allow landlords to require tenants to take out insurance covering pet damage. The TFA 2019 will be amended to include pet insurance as a permitted payment.
We will report further on the RRB in 2025!
