The Tenant Fees Act revisited

In the years after the Housing Act 1996, which made assured shorthold tenancies (ASTs) the default form of tenancy in the private rented sector, rural estates enjoyed what in retrospect was the high-water mark of landlord control over the tenancy document. Not only did section 21 notices allow possession on two months’ notice as of right, but ASTs themselves were usually heavily weighted in the landlord’s favour. The power of section 21 notices has been eroded in recent years (and may even have gone for good); as a result of the Tenant Fees Act 2019 (TFA) the drafting of ASTs must also now adapt to the shifts in public policy.

31 May 2020 marks the end of the transition period for the TFA. Landlords and their agents can no longer request any prohibited fees for ASTs of 21 years or under or any statutory tenancy arising thereafter (see our other briefing note "The demise of section 21?" for more information). Nor can they require the tenant to enter into a third party contract for services or insurance (subject to limited exceptions). Any terms requiring prohibited payments are invalid. Applying these legislative ‘one size fits all’ parameters to rural estates raises some interesting drafting points for ASTs.

AST clauses under the spotlight

The TFA received considerable publicity for removing a landlord’s ability to charge an inventory fee at the beginning of a term and professional cleaning fees at the end. But many more potential charges, often found in a standard rural AST, fall foul of the new regime. Third party charges such as chimney sweeping or burglar alarm services can no longer be laid at the tenant’s door. A landlord cannot require a tenant to insure their own possessions, merely recommend the prudence of doing so. Costs of removal and storage for tenant possessions left behind at the end of the tenancy cannot automatically be recharged to a tenant.

A mainstay of an AST for a rural cottage with a shared access road will have been the ability of a landlord to collect a fair proportion of the maintenance and repair costs of the access road from each tenant. No longer permitted, landlords must consider likely costs at the outset and rentalise them. A shared septic tank is just as likely in a rural context, in which case a well drafted clause should allow a landlord to recover shared maintenance costs during the tenancy because recharging reasonably incurred sewerage costs is permitted.

The catch-all tenant indemnity (beloved by landlords) is now outlawed, but the TFA still permits a payment of damages by a tenant for breach of the tenancy agreement. Thus an appropriately drafted rural AST can provide some protection for a landlord and certainty of obligation for a tenant, for example, a requirement to yield up the property in a tidy condition and cleaned to a professional standard (this does not require professional cleaning as the tenant may undertake the cleaning themselves). Should the tenant breach their obligation, the landlord may seek damages.

A replacement key charge can be made but only if expressly provided for in the AST and, as the cost must be reasonable, written evidence should be kept. Whilst interest for late payment of rent, and only rent, is permitted, careful attention must be paid to how it is calculated.

Pitfalls with historic ASTs

Landlords and agents well versed in post-TFA AST drafting will also need to consider their interpretation of pre-TFA ASTs. Each payment clause for each property will need to be assessed; not only must landlords and agents ensure they do not claim prohibited payments from a tenant but also that unsolicited prohibited payments are not received from a tenant who has grown accustomed to paying them. The TFA allows only a small grace period for return of payments for pre-1 June 2019 ASTs.

The value of any AST deposit must now comply with the TFA save for one exception. The tenancy deposit cap does not apply to a periodic tenant who is holding over pursuant to a fixed term tenancy which was entered into, and the deposit obtained, before 1 June 2019. However, it is unclear whether such a periodic tenancy commencing on or after 1 June 2020 would fall within this exception as the periodic tenancy might be held to be a new tenancy. The safest course of action in this scenario is to return any excess.

Reasons for change

Continuing the public policy trend to prevent use of section 21 when a landlord is at fault, the TFA prevents use of a section 21 notice until any unlawfully charged fees or an unlawfully retained holding deposit have been returned. It is widely anticipated, of course, that section 21 may be permanently abolished, which means rural estates may be stuck with ASTs in their existing form for many years. Perhaps now is a good time to review their drafting.

If you require further information about anything covered in this briefing, please contact Louisa Passmore, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, May 2020