Can I contract that any new tenant provides their own reference?

by Readers Question

10:10 AM, 14th November 2019
About 9 months ago

Can I contract that any new tenant provides their own reference?

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Can I contract that any new tenant provides their own reference?

Looking into the mine field of the consequences of the new tenant fees act. I have several HMO’s with 4 or 5 tenants all on a single joint contract (ie. a shared house scenario).

Generally about once a year, at a point the contract has become periodic, a tenant will want to move out and the others want to stay. At this point I say that’s fine if they want to find another sharer and require the incoming tenant to cover the charge of a reference check. I then draw up a new contract, we all sign, I re-protect the deposit and I make no further charge.

As I understand it, I can no longer charge the incoming tenant for the reference, but could I make it a condition of the contract that when this situation arises, that any new tenant the others want to have join them must provide a current reference from a recognised agent such as the RLA.

Also, is registering the new tenant line up with the deposit protection scheme a reasonable cost as well as drawing up a new contract and liasing with the new tenant.

I’m guessing it’s a big no to all these questions and the only answer is to put the rent up. Thought I’d ask anyway.

Many thanks for all and any replies.

Jamie

Editors Note: Official government guidance for tenant fees ban released

What fees can I ask a tenant to pay?

You cannot require a tenant (or anyone acting on their behalf or guaranteeing their rent) to make certain payments in connection with a tenancy. You cannot require them to enter a contract with a third party or make a loan in connection with a tenancy.

The only payments you can charge in connection with a tenancy are:

  • The rent
  • A refundable tenancy deposit capped at no more than five weeks’ rent where the annual rent is less than £50,000, or six weeks’ rent where the total annual rent is £50,000 or above
  • A refundable holding deposit (to reserve a property) capped at no more than one week’s rent
  • Payments to change the tenancy when requested by the tenant, capped at £50, or reasonable costs incurred if higher
  • Payments associated with early termination of the tenancy, when requested by the tenant
  • Payments in respect of utilities, communication services, TV licence and council tax; and
  • A default fee for late payment of rent and replacement of a lost key/security device, where required under a tenancy agreement

If the fee you are charging is not on this list, it is a prohibited payment and you should not charge it. A prohibited payment is a payment outlawed under the ban.



Comments

Queen Victoria

22:14 PM, 18th November 2019
About 9 months ago

Reply to the comment left by Jim S at 18/11/2019 - 20:47
Gosh. Thanks for that. I didn't know. If I were a tenant I would feel very uncomfortable with that. Would you be ok with it?

Queen Victoria

22:21 PM, 18th November 2019
About 9 months ago

Reply to the comment left by Queen Victoria at 18/11/2019 - 22:14
Ah, I see it now (I have copied the relevant section from pg 40 below for ease). It seems that the purposes to which a bank statement might be used as evidence is 1. proof of address and 2. proof of income. In both cases presumably it would be in order for the tenant to redact all on the statement but the relevant info; that would be less intrusive.

Reasonable requests for information
Q. Can I retain a tenant’s holding deposit if they do not provide all the
necessary information to carry out referencing checks?
You should to take all reasonable steps to engage with the tenant by responding
promptly to any queries and making clear which information that they must provide in
order for a tenancy to proceed. Similarly, a tenant should respond promptly to any
reasonable request for information in respect of the tenancy. This is likely to include:
• proof of ID: passport or any other official form of ID
• proof of residence: recent bank statements, utility bills or voter registration
confirmation or council tax statements
• credit check: you can ask a tenant for any information required in order to
carry out a credit check – you should explain the credit worthiness
requirements and ask the tenant to disclose any relevant information
• proof of income: recent bank statements, employer contact details, signed
contract of employment or a letter from a tenant’s employer

Ian Narbeth

14:35 PM, 19th November 2019
About 9 months ago

Reply to the comment left by Queen Victoria at 18/11/2019 - 19:08
Queen Victoria, amused. Geddit?

You seem to be taking a contrarian, somewhat academic position. Not one of over 150 tenants in the past six years has asked for sight of bank statements.

I have no problem with prospective tenants talking to current tenants about us as landlords and how we look after our tenants and the property. However, it is not pertinent to see our bank statements.

As mentioned previously every tenant is free not to take the property. My gaff, my rules.

Queen Victoria

16:43 PM, 19th November 2019
About 9 months ago

Reply to the comment left by Ian Narbeth at 19/11/2019 - 14:35
I didn't geddit but I do now - yeah, good one. I've never been asked either but then I haven't/wouldn't ask prospective tenants either - I'd feel it was too intrusive. Hey, if I rented from you it would be my gaff then and they'd be my rules !

paul robinson

10:51 AM, 20th November 2019
About 9 months ago

Reply to the comment left by Ian Narbeth at 18/11/2019 - 15:35
Hi Ian,

Just to pick up on the latter part of your response above.

You talk about a tenant agreeing with a landlord £50 assignment fee and then latter complaining to the LA saying that it should have been £30.

Wondered what is your take on a landlord agreeing in writing, a reasonable, but higher than £50 assignment fee with a tenant - based on the actual time it takes to properly and professionally manage an assignment in a shared rental

Do you feel that written agreement of a higher assignment fee would negate any later investigation/action by a LA, should a tenant decide in retrospect to raise a concern over this?

From experience in my shared rentals, 99% of my professional tenants have been happy to pay a reasonable assignment and would not expect their landlord to be out of pocket because of a change in circumstance that requires them to move out early. Especially as we usually have a very good relationship I always assist with find a replacement, despite contractually being their responsibly.

What the Act doesn’t consider (along with many other aspects) how about a tenant who relocating with work and their company are paying full relocation costs. Is it really fair and reasonable for a landlord to just be paid £50 assignment fee when in reality it costs him between £100 to £150.

Ian Narbeth

11:09 AM, 20th November 2019
About 9 months ago

Reply to the comment left by paul robinson at 20/11/2019 - 10:51Hi Paul
Actually, I wrongly referred to assignment. It's early terminations that cause an even greater problem. On re-reading para 6(2) of Sch 1 to the TFA it allows a payment of the greater of £50 or the reasonable costs of the person to whom the payment is to be made in respect of the variation, assignment or novation of the tenancy. So £50 will be OK but a higher figure is open to challenge. I should have said £75 and £50 in my example.

For early termination, para 7 applies and 7(2) refers says that "if the amount of the payment exceeds the loss suffered by the landlord as a result of the termination of the tenancy, the amount of the excess is a prohibited payment".
6(2) refers to "reasonable costs". 7(2) refers to "loss suffered" which is different in law.

I agree with your approach and most of the time landlords will be safe. First because tenants are happy to pay a "reasonable amount" to get out of a liability. Second because many will not be aware of the TFA. Third, because they won't want to spend hours trying to recover a few pounds after they have left and fourth because the Councils will not want to spend hours of officer time dealing with complex arguments over a few pounds.

One of my gripes is that the Act is so one-sided. It could simply have said in this context (where the landlord is usually doing the tenants a favour) that if the charge was found to be a prohibited payment the remedy was that the landlord had to repay it, possibly with interest. Instead the remedy is to fine the landlord up to £5000 for a first "offence" and up to £30,000 for a second within five years and for him to be placed on the rogue landlords' register (which may mean losing your licence from the Council, which may mean severely damaging your business). The Act is completely over the top and provides a disincentive to landlords to assist tenants.

Paul Fay

20:38 PM, 11th December 2019
About 8 months ago

Reply to the comment left by Steve Masters at 15/11/2019 - 11:26
For there to be a contract there needs to be consideration (payment). Requiring a potential tenant to source information at no cost is not requiring them to enter into a contract.

Kate Mellor

21:20 PM, 11th December 2019
About 8 months ago

Reply to the comment left by Paul Fay at 11/12/2019 - 20:38
Thank you Paul! Sometimes we overlook the basics when we start knotting ourselves up trying to interpret legislation 😂

Ian Narbeth

10:45 AM, 12th December 2019
About 8 months ago

Paul
I don't think that's right. In law consideration for a contract does not have to be payment of money. Consideration is "detriment moving from the promisee" (sorry for the legalese and I won't write an essay here about it). Broadly it means that the party to whom a promise of some benefit is made must do something to his or her detriment. E.g. "If you provide personal information about yourself, name, age, home address, employment status, how long you have lived in your current address etc., I will provide a credit check." You don't pay me but you have to provide the information (detriment).
Section 1(2) of the Tenant Fees Act says: "A landlord must not require a relevant person to make a prohibited payment to a third party in connection with a tenancy of housing in England."
Section 1(3) says: "A landlord must not require a relevant person to enter into a contract with a third party in connection with a tenancy of housing in England if that contract is—
(a) a contract for the provision of a service, or
(b) a contract of insurance."
There is no mention of payment in 1(3) which suggests that payment is not required. If the tenant has to go online to get the "free" information they will probably have to accept the terms and conditions of the service provider. That of itself may constitute making a contract.
I accept we are getting into the realms of the abstruse and I very much doubt that Councils will be interested in pursuing such cases even if tenants can be bothered to complain. The problem of course, from a landlord's perspective, is that once a complaint is initiated, his best outcome is to waste a lot of time and not get fined.
Dealing with the Tenant Fees Act is like wading through a vat of treacle.

Kate Mellor

18:40 PM, 12th December 2019
About 8 months ago

Whilst I appreciate your point that consideration can be other than monetary, I don’t agree that there is anything that could be construed as consideration (or detriment) to using a free credit reference agency & I’d personally have no qualms with the risk of it being complained about.
The benefit obtained by the agency for providing a free service to the user is via revenue raised by targeted advertising which the user may or may not respond to. The personal information you mentioned is being provided to the user & not by the user. The site offers links for the user to access the extra services offered by the advertisers, if they wish to. There can be no detriment to a service being available where no obligation exists to use it. That’s my take for what it’s worth anyway.

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