My letting agent is trying to charge me a 'renewal fee' every year. Is this actually legal in the UK, especially after the Tenant Fees Act 2019, or is it just them trying to pocket more?
Quick Answer
Since June 2019, the Tenant Fees Act made renewal fees to tenants illegal. Letting agents cannot legally charge tenants for renewal, directly or indirectly. Landlords should check their agreements for any pass-through charges.
## Understanding Tenant Fees Post-2019 Reforms
From June 2019, the Tenant Fees Act 2019 implemented significant changes, making it illegal for letting agents to charge certain fees to tenants in England. Specifically, agents cannot legally charge tenants for tenancy renewals. This legislation was designed to reduce the upfront costs for renters, covering a range of fees such as viewing fees, referencing fees, and fees for drawing up tenancy agreements.
The Act moved the liability for these costs from tenants to landlords. Therefore, while a letting agent cannot charge a tenant a 'renewal fee', they may try to pass this cost onto the landlord through their agency agreement. It is important for landlords to understand that the agent is prohibited from charging the tenant for renewal, whether directly or indirectly. For instance, charging a tenant a £50 'admin fee' to sign a new contract would contravene the Act.
### Does This Affect All Properties?
The Tenant Fees Act 2019 applies to most residential tenancies in England, including assured shorthold tenancies, student accommodation, and licences to occupy. This means if you have a buy-to-let property let on an AST, your letting agent cannot charge your tenant any renewal fees. The Act does not apply to properties in Wales, Scotland, or Northern Ireland, which have their own distinct housing legislation.
Properties which fall outside the scope of the Act include commercial tenancies and long leases (over 21 years with no break clause). Holiday lets are also typically exempt from the direct provisions of this Act because they are not considered 'tenancies' in the same residential sense. Landlords with portfolios spanning different regions or property types must be aware of these geographical and usage-based distinctions.
### How Have Agents Adapted to the Fee Ban?
Following the fee ban, many letting agents adjusted their business models. Some increased their monthly management fees charged to landlords, or introduced specific charges for services like tenancy renewals directly to the landlord. A common scenario is where an agent charges a landlord a fee of 5-10% of the first month's rent for each new tenancy or renewal. For example, if rent is £1,000/month, a 10% fee means a landlord could pay £100 every time a tenancy is renewed, impacting their net rental income significantly.
Agents must be transparent about all charges within their terms of business with the landlord. Any fees levied on the landlord must be clearly outlined in the initial agency agreement. Landlords should pay close attention to clauses relating to tenancy renewals, particularly how long a 'new' tenancy is considered, or if a fee applies should a fixed term roll into a periodic tenancy.
### Identifying Unlawful Charges and Recourse
If a tenant is charged a prohibited payment by an agent, the payment is unlawful. The tenant can apply to the First-tier Tribunal for recovery of the payment, or make a complaint to the agent's redress scheme (they must be part of one by law, such as The Property Ombudsman or Property Redress Scheme). For a landlord, understanding the implications of the Tenant Fees Act is important to ensure their agents are compliant and that tenants are not being unfairly charged.
For example, if your agent charges your tenant a £75 fee for 'contract drafting' upon renewal when the law prohibits this, your tenant can challenge this. If the agent fails to refund the fee, they could face a fine of up to £5,000 for a first offence. Subsequent breaches could lead to prosecution and a fine of up to £30,000.
## Potential Costs of Non-Compliance
* **Financial Penalties for Agents:** A first breach of the Tenant Fees Act can result in a fine of up to **£5,000**. Subsequent breaches can lead to fines of up to **£30,000** and potentially a banning order for the agent.
* **Tenant Compensation:** Tenants can reclaim any prohibited payments made, often through the First-tier Tribunal, which can include recovery of the unlawful fees plus interest.
* **Reputational Damage:** Agents and landlords associated with unlawful fees risk significant damage to their professional reputation, hindering future tenant acquisition.
## Implications for Landlords
* **Increased Management Costs:** Landlords may find their overall management fees have increased since 2019, as agents shifted costs from tenants. A landlord paying a £100 renewal fee on top of £120/month management for a £1,000 rent property now pays £1,540 per year in fees.
* **Need for Due Diligence:** It is essential for landlords to thoroughly review their agency agreements for clarity on all charges related to tenancy management, including renewals and break clauses. This ensures no unexpected costs arise.
* **Risk of Legal Action:** While the penalties primarily target agents, landlords employing non-compliant agents could face issues. An agent levying unlawful charges may cause tenancy disputes, potentially affecting a landlord's rental income or leading to void periods.
## Steve's Rule of Thumb
Always ensure your management agreement transparently itemises every potential charge an agent can levy against you, particularly for tenancy renewals, and verify your agent's compliance with tenant fee legislation.
## What This Means For You
Landlords must be fully aware of current legislation, particularly the Tenant Fees Act 2019, to ensure their agents are operating legally. Failing to scrutinise agency agreements for renewal charges can directly impact your buy-to-let profitability, making seemingly good yields less attractive. If you want to understand all the hidden costs and legalities of landlord-agent relationships, this is exactly what we cover within Property Legacy Education.
Steven's Take
The Tenant Fees Act fundamentally shifted who pays for what in the letting process. Agents can no longer charge tenants for renewals, meaning those costs are either absorbed by agents or passed to landlords. It's not about an agent being 'greedy'; it's about legislative changes. Landlords need to diligently check their agency contracts for these charges and ensure they're not inadvertently authorising an agent to make unlawful charges to tenants, which could still lead to issues down the line. It's a critical aspect of your operating costs.
What You Can Do Next
Review your current letting agent's agreement: Find the clause detailing renewal fees and whom they are charged to. Check for any periodic fees and compare with the Tenant Fees Act 2019 on gov.uk/tenant-fees-ban.
Verify your agent's redress scheme membership: All letting agents must be members of a government-approved redress scheme (The Property Ombudsman or Property Redress Scheme). Confirm their membership via their website or relevant scheme websites.
Discuss with your agent: If you find any discrepancies or clauses you don't understand, contact your agent for clarification. Request any amendments to your agreement in writing.
Seek professional property legal advice: If you believe your agent is acting unlawfully or making prohibited charges, consult a solicitor specialising in property law for guidance specific to your situation.
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