This post is by Robin Stewart of Anthony Gold.
The Tenant Fees Act 2019 restricts the ability of landlords and letting agents to charge fees to tenants in England, but the Act does not ban all fees and charges. There are various ‘permitted payments’ which can still be imposed, and these include fees paid to the landlord or agent for the variation, assignment or novation of a tenancy.
Variation, assignment or novation of a tenancy
Any change to the terms of the tenancy agreement could be a variation of the tenancy. The Government’s guidance for tenants on the Tenant Fees Act suggests that this could be
making changes to the tenancy agreement to enable:
- pets to be kept in the property
- a change of sharer in a joint tenancy
- permission to sub-let
- a business to be run from the property
- or any other amendment which alters the obligations of the agreement
Assignment of the tenancy means the transfer of the rights of the tenant to another person – in other words, a change of tenant. The landlord would usually want to check whether the proposed new tenant is suitable by taking references before re-issuing the tenancy agreement and dealing with the outgoing and incoming tenants’ deposits.
‘Novation’ describes another way of changing the tenant, when rather than simply transfer the tenant’s rights to someone else, the original tenancy contract is terminated and replaced with a new contract.
Amount of these permitted fees
The Tenant Fees Act allows landlords and agents to charge a fee for their work dealing with a variation, assignment or novation of a tenancy at the tenant’s request. That fee may be £50, or if higher, the landlord or agent’s reasonable costs.
If the landlord or agent charges more than £50 and more than ‘reasonable costs’, the excess amount is a ‘prohibited payment’. The tenant can demand the prohibited payment back, and the agent could be fined by the local authority. Sometimes it will also prevent a valid section 21 notice being served.
Neither the legislation nor the Government’s guidance give many clues about what level of fees is reasonable. The Act does not explain what is meant by reasonable costs, and the guidance states that “the general expectation is that this charge should not exceed £50” but “in some circumstances, it may be appropriate for this to be higher.”
It is clear that the Government wants fees in excess of £50 to be reserved for exceptional cases only, even thought that is not what the legislation actually made says. In general agents have responded pragmatically, charging a flat fee of £50 when any fee may be charged, but not generally going above that level.
Tribunal proceedings to recover a £250 fee
Agents ‘College and County’ took a different approach, charging a fee of £250 for a variation of a tenancy to allow for subletting during a period when the tenant was going to be abroad. A tenant who was charged this fee paid the fee under protest, and then made an application to the First-tier Tribunal Property Chamber to recover the money.
There was a disagreement between the parties about how much work had been done by the agents and the Tribunal sided with the tenant, noting that the agent’s case really amounted to assertions rather than evidence – the agents had only provided a few emails to support their case, and had not provided evidence of expenditure. (It would have been a good idea for the agents to provide the Tribunal with evidence about any reference checks carried out).
The Tribunal also accepted that the charge had the appearance of a fixed fee and was clearly a standard charge rather than a charge reflecting the reasonable costs of this case.
The Tribunal noted that the agent had estimated the cost of their time at £60 per hour, and applying this figure to the amount of work done by the agent the judge concluded that £100 was a reasonable figure for the cost of the work done. The Tribunal awarded the tenant a partial refund of £150. The full decision can be read here.
This is a First-tier Tribunal decision and as such does not create any form of legal precedent, but First-tier decisions can provide some useful insight into the views of judges.
It is interesting that the Tribunal adopted the hourly rate of £60 for the agent. This is considerably higher than the hourly cost of £15.20 for agents assumed in the Tenant Fees Bill impact assessment; that figure was calculated by applying an uplift of 1.3 (to allow for non-wage costs) to the average salary for an agent in ONS 2017 Provisional Annual Survey of Hours and Earnings.
However, the £60 per hour rate seemingly accepted by the judge here accords better with what agents have told me about their costs, and this strikes me as a far more plausible figure than £15 per hour, particularly in London and South East.
Agents might view the outcome of this case as a reason to start charging fees of £100 rather than £50, since this is what was allowed by the Tribunal here. However, it is still difficult to predict what fee a judge is likely to accept as being reasonable for variation, assignment or novation or a tenancy in any particular case.
Since agents face reputational risks and other sanctions if they overcharge tenants it will always be safer to not charge tenants more than £50.
Where a landlord has taken a prohibited payment this will amount to a defence if the landlord serves a section 21 notice before returning a prohibited payment. Any charge exceeding £50 for variation, assignment or novation of a tenancy will be vulnerable to challenge and landlords may prefer to return doubtful fees rather than risk losing a possession claim.
This post was originally published on the Anthony Gold website.