The Act, which came into force on 1 June 2019, places significant limits on the types of charges that may be levied on students under their accommodation agreements. In summary, unless a payment is specifically permitted under the Act it will be treated as a prohibited payment, and landlords or agents can face civil or even criminal sanctions for the charging prohibited payments.
So which charges are still permitted and what do you need to watch out for? The following are the most relevant points for education establishments.
Perhaps obvious, but the rent is a permitted payment under the Act, but there are new requirements specifying that rent is payable at regular, specified intervals and in particular you must not charge a larger instalment at the start of the accommodation agreement than you charge for a later rental period unless by agreement with the tenant or pursuant to a rent review clause in accommodation agreement which allows upwards or downwards review.
For the purposes of the vast majority student accommodation agreements there is a new specified limit on amount of tenancy deposit of 5 weeks’ rent. Other rules as to repayment of the deposit are specified in the Act. You may of course also have to comply with existing requirements applying to Assured Shorthold Tenancies relating to the registration of deposits with a tenancy deposit scheme, unless (as with many of HE institutions) you are a specified educational institution under Schedule 1 of the Housing Act 1988 in which case your student accommodation agreements will mostly fall outside of the Tenancy Deposit Scheme Requirements.
Holding deposits will be permitted, but capped at one week’s rent and subject to a number of specific rules, which you should review carefully if you have a policy taking holding deposits.
Default fees and damages
We suspect that this is the area in which the most changes will need to be made. Fees charged for the late payment of rent are permitted, but only if the right to charge is written into the agreement, the rental payment is more than 14 days overdue and, most importantly, that the fee does not exceed interest on the overdue sum at 3% above the Bank of England Base rate.
Default fees for the loss and replacement of a key or security device are also permitted if the agreement provides for it, but must be based on the reasonable costs to the landlord or agent of replacement of the key/device. It may also be possible to recover associated call out time or taxi costs for example, and there is useful Government guidance on this on point.
It is still possible to recover damages for breach of contract, but be careful how these are framed if mention is made in your agreement. For example a ‘a fixed fee of ‘x’ for breach of obligation ‘y’ is likely to be prohibited. You need to ensure you have clearly identified tenant obligations, eg not to cause damage, so that a clear justification for charging for the breach can be made; damages for breach will then be based on the recovery of costs to the landlord for putting the landlord back in the same position before the breach; costs will have to be supported by evidence. Similarly, termination fees where a tenant/licensee requests an early termination of the tenancy agreement are specifically permitted under the Act, but must be based on and not exceed the financial loss to the landlord and/or reasonable costs to the landlord or agent in arranging for the tenant to leave early.
Utilities and communications services etc
Charges for utilities and communications services or Council Tax where applicable are permitted if the accommodation agreement provides for such payments to be made, but there must not be any over-charging.
Variation, assignment or novation
A charge is permitted if the change is being made at the request of the tenant, although it is capped at £50, or (if higher) the reasonable costs of the person to whom it is made.
Which charges to steer clear of?
Importantly, other types of fees which may commonly be specified in accommodation agreements, eg fixed fees for sending reminder letters, viewing fees, set up fee, check out fees, legal fees for enforcement of contract (unless under a court order) are all prohibited under the Act.
If you would like to discuss the Tenants Fees Act further, please get in touch with Dwight Patten or Ian Rattenbury. If you want to know more about Birketts’ Education Team please visit our webpages.