New Tenant Fees laws = new problems for landlords?

by Readers Question

9:37 AM, 6th December 2019
About 4 months ago

New Tenant Fees laws = new problems for landlords?

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New Tenant Fees laws = new problems for landlords?

Something has come up and I am a tad worried about it, as I am not sure that I have correctly complied with the new laws.

Prior to the new legislation, I always asked the tenant to pay the small fee (only £20) for their reference checks, making it clear that I wouldn’t entertain renting to them without them being fully reference checked (i.e. their choice). I would of course sell this to them by rightly saying that it not only protected me, but the tenant too, since its an HMO and its a way of trying to ensure that all the tenants are more likely not to be a problem to each other. This seemed to work well and I never really had any complaints, as most reasonable people understood that it was them that needed to be checked out.

I decided to have a break with no tenants for a while as I was doing work upgrading the property so my last tenant left a couple of months before the new law came into force. I read up about the law as much as I could at the time it came in, and I thought that it was reasonably straight forward, that in future I would not be able to ask for the £20 upfront to reference check them. No problem I thought I will just ask them to get the references explaining that I was no longer able to do this on their behalf. Well that is what I thought!

I have had a situation recently, whereby someone paid a deposit and despite many requests for them to get references done and sent to me, they simply ignored me. After a month I have just been asked for the deposit back, despite it being partly for reserving a particular room that they wanted, and since having to tell other possible tenants that it had been reserved. I have since read up a little more on this because I wanted to know if I was able to make deductions for basically being messed around and having potentially losing out on other tenants who also wanted that particular room. It turns out, apart from the maximum 5 weeks deposit (mine was much less than that) the maximum holding deposit is now ONLY 1 weeks rent, in this case just £75. The deposit paid was £200, which I feel is fairly low and I only ask for it to give myself minimum protection, more of a good will gesture by the tenant to show willing and that they are serious about taking up a tenancy. Had this person come forward with satisfactory references I would have simply made it a normal deposit and as I am a resident landlord banked it, as you don’t need to do the government deposit scheme in such circumstances.

My concern is that I asked this person (who I now believe to have something to hide hence no references supplied) to apply to my normal referencing company for the references, believing that as I am not taking any money from them that is was fine. However, I have now read a guide (produced since the law came into effect) on their website which states ‘This means you will no longer be allowed to ask tenants to cover the cost of their own referencing. You also won’t be able to charge check-in, inventory or admin fees’. Obviously this was news to me and I have asked them to obtain references and referred them to the website.

It’s a real mess and another kick in the teeth for landlords. What am I supposed to say to them, I want references but cannot in any way tell you how to obtain them, but here is the list? It’s ridiculous. Like any landlord I don’t see why I should be lumbered with paying out for reference checks to make sure they are a good tenant, if you had 4 people going for one room are you supposed to shell out £80? I only ever ask for a reference after meeting them face to face and getting a good gut feeling about them (albeit I obviously got it wrong with this last one!).

So, has anyone else come across this problem and what are you all doing? Personally there is no way I would ever let anyone into my property without being fully reference checked as I made this mistake many years ago, similar to this latest one, she paid a deposit and avoided being checked out and the only money I received was the deposit, it took me 6 months to get her out, thankfully the house wasn’t too bad and I never let it again, I sold it due to the bad experience.

Obviously I learned a hard lesson, but I am now concerned about how to actually ask for a reference! I cannot even say look on the internet because there might be an inference that you are pushing them towards referencing companies. I am really not sure what to do for the next person who comes to view and starts asking me questions, other than to send them an email and say this is what I need, up to you how you go about getting it! These stupid politicians who decide on these laws have no idea the problems that they cause!

Anyway, I hope I have helped make Landlords aware of this problem and look forward to your experiences and suggestions.

All the best…Tony



Comments

JJ

10:12 AM, 16th December 2019
About 4 months ago

Reply to the comment left by Marie at 09/12/2019 - 18:27
I don't take holding deposits as I leave all that to my agent but my understanding is that the law allows landlords to only take a maximum of one weeks rent as a holding deposit and that has to be returned within 15 days of the tenancy commencing. The tenancy deposit is something else and that is a maximum of 5 weeks rent.

Ian Narbeth

14:18 PM, 16th December 2019
About 4 months ago

Reply to the comment left by JJ at 16/12/2019 - 10:12
Hi JJ
You are almost correct. The holding deposit can be up to one week's rent (not a penny more, so don't round up the figure to the nearest pound). The parties have 15 days from receipt of the holding deposit to enter into the tenancy agreement, though they can agree to extend that deadline. If the tenancy goes ahead the Landlord must repay the deposit within 7 days (not 15 days) of the date of the tenancy agreement but this "does not apply if or to the extent that the amount of the deposit is applied, with the consent of the person by whom it was paid—(a) towards the first payment of rent under the tenancy, or (b) towards the payment of the tenancy deposit in respect of the tenancy."

This is a trap for landlords as I have written about here.

The maximum deposit is six weeks' rent if the annual rent is £50,000 or more.

David Price

12:54 PM, 30th December 2019
About 3 months ago

I wish to encourage my tenants to pay by standing order rather than cash, is it now legal for me to offer a discount for an automated payment?

Ian Narbeth

17:35 PM, 31st December 2019
About 3 months ago

Reply to the comment left by David Price at 30/12/2019 - 12:54Hi David
Yes it is legal to offer a discount for prompt payment or for payment by standing order. However you should frame it as:
"The rent is £[1000] a month but if it is paid by standing order on or before the [first working day] of the month the landlord will accept £[990]."

That way it is clearly a reward for prompt payment and not a penalty for late payment. You should specify the due date for payment so that the tenant doesn't simply change the standing order to a later date without your agreement.

David Price

7:41 AM, 1st January 2020
About 3 months ago

Reply to the comment left by Ian Narbeth at 31/12/2019 - 17:35
Thank you for the information Ian, an interesting nuance - a reward for prompt payment not a penalty for late payment - surely this is not what the politicians intended (Rhetorical question)?

Ian Narbeth

12:57 PM, 1st January 2020
About 3 months ago

Reply to the comment left by David Price at 01/01/2020 - 07:41Hi David
In fact this is settled law and nothing particularly to do with the Tenant Fees Act. It is quite common in business to give a discount for early or prompt payment. It is also in contract law permissible to charge interest and an admin charge for late payment. However the TFA has outlawed admin charges and interest is restricted to 3% over Base Rate (the rate for landlords owing money under the Act - and other debtors - is 8%!). In some cases you can have what are called liquidated and ascertained damages e.g. in construction contracts where if the builder is late he has to pay £X per day. What you cannot do at common law is charge a penalty which bears no relation to the creditor's loss.
So if the rent were £950 per month but you said that if not paid on time an additional £50 per week (or even per month) was payable that would be a penalty. I am not aware of cases on the TFA yet but if, in my example, you said the rent is £990 but £1000 if not paid on time the court might say: "Ah, the £10 is a penalty because under the Act the maximum interest payable is 3 3/4% pa which is about 10 pence per day. Even at a funding rate of say 5%pa the landlord's "loss" is only 13 to 14 pence a day,"

My scheme has not been tested under the TFA but having run it past senior lawyers we cannot see the court striking it down as to do so will be contrary to precedent.

Robert Mellors

14:26 PM, 1st January 2020
About 3 months ago

Reply to the comment left by Ian Narbeth at 01/01/2020 - 12:57
The example you give of £1000 pcm rent, reduced to £990 pcm if paid on time, is perhaps not a massive incentive for tenants. How big could the incentive be? For example, would it be okay to charge a rent of £1100 pcm, but with a £100 pcm incentive to pay on time, thus in effect making the rent £1000 pcm (but only if paid on time)? Doe the size of the incentive make a difference to the legality of offering the incentive?

Ian Narbeth

16:49 PM, 1st January 2020
About 3 months ago

Reply to the comment left by Robert Mellors at 01/01/2020 - 14:26
That's why I put square brackets round it. Make it £20 or £25 difference if you prefer.

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