Contract Fees

The Renting Homes (Fees etc.) (Wales) Act 2019 commenced on 1 September 2019 and banned most tenant fees in Wales.

The Act applies to standard occupation contracts.

Only a "permitted payment" may be requested from "any person".

Fees for Written Statements of the Occupation Contract

While the Renting Homes (Fees etc.) (Wales) Act 2019 prohibits most fees charged to contract-holders under standard occupation contracts, it is important to note an exception under the Renting Homes (Wales) Act 2016 regarding written statements of the occupation contract.

A landlord must not charge any fee for providing the initial written statement of the occupation contract to the contract-holder. This is a free entitlement and must be supplied within 14 days of the occupation date or change in contract-holder identity.

However, if a contract-holder requests a further copy of the written statement at any point after the initial provision, the landlord may charge a reasonable fee for supplying this additional copy. This fee should reflect only the reasonable administrative costs incurred (such as printing or postage) and must not be excessive.

The landlord must provide the further written statement within 14 days of the request, and if a fee is charged, the statement should be supplied once the contract-holder has paid the fee.

This limited charging right for further written statements does not conflict with the tenant fees ban, as it is specifically permitted under the Renting Homes (Wales) Act 2016 and relates solely to the provision of written contract documentation rather than tenancy-related fees.

Prohibited Payments, Contracts or Loans

It is an offence for a landlord or agent to require-

a prohibited payment to a landlord, agent, or another person in consideration of the grant, renewal or continuance of a standard occupation contract or under a term which purports to require the payment to be made.
a person to enter into a contract for services with the landlord, agent, or any other person in consideration of the grant, renewal or continuance of a standard occupation contract or under a term which purports to require entry into a contract for services (except the occupation contract or letting agent management agreement)
the grant of a loan in consideration of the grant, renewal or continuance of a standard occupation contract (or a term purporting such a grant).

It's important to note the scope of this wording. It's an offence to require a prohibited payment, contract or loan from "any person", not just the tenant/contract holder. This includes a prospective tenant, guarantor, parent, or another person.

Permitted Payments

The only payments allowed to be requested are known as "permitted payments". These are listed in Section 4 and Schedule 1 of the Act and are-

money payable by a landlord to a letting agent in respect of lettings work or property management work carried out by the agent on behalf of the landlord;

rent;
security deposits;
holding deposits;
payments in default;
payments in respect of council tax;
payments in respect of utilities;
payments in respect of a television licence;
payments in respect of communication services.

Lettings Work or Property Management Work Carried Out by the Agent

A payment by a landlord to a letting agent in respect of lettings work or property management work carried out by the agent on behalf of the landlord is a permitted payment.

Permitting a payment to an agent shows the extent of the ban. If the prohibition only applied to limited specified persons, there would be no need for this permitted payment.

Rent

The rent request is a permitted payment. However, if the amount of rent payable in respect of any period ("P1") is more than the amount of rent payable in respect of any other period ("P2"), the additional amount payable in respect of P1 is a prohibited payment.

For example, if a contract starts on 1 October and the rent for October is £900.00 (P1). Then from 1 November, it's £700 per month (P2), the difference is prohibited (in our example, the difference is £200, and it is that which is the prohibited payment – the £700 being a permitted payment).

There are further complications if one period's duration is different from another period, in which case an "applicable daily rate" must be calculated. This complicated calculation essentially finds if there is a lower daily rate for one period than another, and any difference is prohibited. If the contract is set up for a regular calendar monthly rent (e.g. £700 per calendar month payable on the 1st), then the rules specify those periods have the same daily rate (even if the months have a different number of days). But, if the contract includes a payment of 6 months rent in advance or payments are set for student terms, in almost every case, without adjustment, there will be a prohibited payment. You should seek advice for any occupation contract which is not for the same amount every calendar month.

Rent Smart Wales's view is that the request for a 'summer retainer' is a prohibited payment. In particular, if the contract-holder is not permitted to occupy during that time, they regard the retainer, not as 'rent' (due to the tenant not being allowed to occupy).

Security Deposits

Taking a security deposit is a permitted payment, and this is the familiar deposit that would need protecting in a deposit scheme.

There is a provision in the rules to allow the Welsh Government to impose a "prescribed limit" to limit the amount taken. At the time of writing, no such limit has been prescribed. Any deposit taken should not exceed 1/6 annual rent (2 months rent) to avoid being regarded as a premium that could cause serious problems.

Holding Deposit

A holding deposit is a permitted payment.

A holding deposit is defined as an amount which:

before the grant of a standard occupation contract is paid to a landlord or a letting agent;
is paid to reserve a right of first refusal for a contract, subject to suitability checks to be carried out and an agreement between the parties to enter into the contract;
does not exceed an amount equivalent to one week's rent under the contract. The official guidance suggests calculating one week's rent by dividing the calendar month amount by 4.35.

There is a strict procedure to follow under Schedule 2 of the Act.

The maximum holding deposit that may be requested is one week's rent.

Only one holding deposit may be held at any one time for the same property.

There is a deadline for agreement date which is 15 days from when the holding deposit was received. This deadline for agreement date may be changed by agreement with the tenant in writing.

The holding deposit must be repaid by the person who received it if-

the parties enter into the contract before the deadline for agreement, and in this case, it must be repaid within seven days of the contract, or
the parties fail to enter into the contract before the deadline for agreement, and in this case, it must be repaid within seven days of the deadline for agreement date.

Where the landlord and tenant have entered into a contract, instead of repaying the holding deposit, you may use it against the first rent or tenancy deposit. Otherwise, it would need repaying within seven days of the contract.

There are a small number of exceptions where the landlord or agent may retain the holding deposit, which are:

the prospective tenant provides false or misleading information to the landlord or letting agent, and the landlord is reasonably entitled to take into account the difference between the information provided by the contract-holder and the correct information in deciding whether to grant a contract to the contract-holder, or the landlord is reasonably entitled to take the contract-holder's action in providing false or misleading information into account in deciding whether to grant such a contract
the prospective tenant notifies the landlord or letting agent "before the deadline for agreement" that they have decided not to enter into a contract
the landlord or letting agent takes all reasonable steps to enter into a contract before the deadline for agreement. Still, the contract-holder fails to take all reasonable steps to enter into a contract before that date.

From 28 February 2020, the landlord or letting agent receiving the holding deposit must give the prospective contract holder specified information BEFORE receiving the holding deposit.

The specified information which you must give is:

amount of holding deposit (which is limited to no more than one week's rent)
address of the dwelling in respect of which the deposit is paid,
where a holding deposit is to be paid to a letting agent, the name and contact details of that letting agent,
where a holding deposit is to be paid to a landlord, the name and contact details of that landlord,
duration of the contract
proposed occupation date
amount of rent or other consideration
rental period
any proposed additional contract terms or proposed modifications to fundamental or supplementary terms or terms proposed to be omitted from the contract,
amount of any security deposit
whether a guarantor is required and, if so, any relevant conditions
reference checks the landlord (or letting agent) will undertake
information the landlord or letting agent requires from the prospective contract-holder

You must provide the information to a prospective contract-holder in writing. It may be given in person or delivered electronically if the prospective contract-holder consents to receive it electronically.

A failure to give the specified information would result in the holding deposit being repaid even if some reason was outlined above (except the contract holder providing false information), allowing it to be retained.

Payment in the Event of Default

If the contract contains a term requiring payment due to a failure by the contract-holder to make a payment due or pay for a breach, then this payment is permitted.

However, the Fees Act allows for prescribed limits to amounts you can charge for certain specified defaults. The Renting Homes (Fees etc.) (Prescribed Limits of Default Payments) (Wales) Regulations 2020 took effect on 28 April 2020 and provide the following limits on what can be charged in respect of a failure to pay rent or locks and keys/security devices.

Failure to pay rent

If there's a failure to pay rent, the amount which you can charge is:

before the end of the period of seven days from when due, you can charge zero
after the end of the period of seven days from due, you may charge 3% above the Bank of England base rate.

The actual formula for calculating the 3% plus base rate is:

the aggregate of the amounts found by applying, in relation to each day after the due date for which the rent remains unpaid, an annual percentage rate of three per cent above the Bank of England base rate to the amount of rent that remains unpaid at the end of that day.

Loss of a key or security device

If the tenant breaches the tenancy, which leads to:

a lock requiring to be changed, added or removed; or
a key or security device is lost and needs to be replaced

A charge can be made but only for the "actual cost" of the replacement, change, addition or replacement of the key, security device or lock (as evidenced by an invoice or receipt).

Where a contractor undertakes the replacement of a key/security device or the change, addition or removal of a lock for the landlord, the "actual cost" includes the cost of the contractor's labour "as evidenced by an invoice or receipt".

Other breach of contract

For other breaches of contract, such as damage, the following conditions apply:

The occupation contract must include an express term allowing the charge.
Any charge made must be reasonable and cover only the costs (or losses) directly related to the breach.

For example, a landlord may charge a contract holder for a missed contractor appointment, but only if:

The occupation contract contains an express term permitting such a charge,
The contract holder has previously agreed to the date and time of the appointment, and
The charge relates to a breach of contract (i.e. failing to allow access as agreed).

Payment in Respect of Council Tax

A payment that a contract-holder is required to make to a billing authority regarding council tax is permitted if the contract-holder is liable to make the payment by any of sections 6, 8 or 9 of the Local Government Finance Act 1992.

Note: the wording only allows payment to the "billing authority". It is not allowed for the contract to make council tax payable to the landlord or agent (or anybody else).

Payment in Respect of Provision of Utilities

Payment for electricity, gas, other fuel, water, sewerage, or a green deal plan is a permitted payment if required under the contract and made according to the dwelling subject to the contract.

Note: there is no restriction on who the payment can be made to (unlike the council tax), but it must only consist of a payment "in respect of the dwelling subject to the contract".

Payment in Respect of Television Licence

A payment that a contract-holder is required to make to the British Broadcasting Corporation regarding a television licence is a permitted payment if the contract-holder is required to make the payment.

Note: similar to council tax; this can only be payable to the BBC and not to any other person.

Payment in Respect of Communication Service

Payment for a service enabling a telephone (other than a mobile telephone), the internet, cable television or satellite television is a permitted payment if required under the contract and relates to the dwelling subject to the contract.

Enforcement and Penalties

It's a criminal offence to breach the Fees Act, and a fine may be payable in addition to repayment of any prohibited payment.

Either the local authority or the Rent Smart Wales licensing authority (Cardiff) may enforce the Fees Act.

An authorised officer may, by notice, request documents from landlords, letting agents or contract-holders to investigate whether a breach of the Fees Act has occurred. It's a criminal offence to fail to provide any requested document(s).

A conviction under the Fees Act is considered under the "fit and proper person" test for holding a Rent Smart Wales licence.

The enforcing authority may bring proceedings about an offence, and a person may also make a civil claim in the county court for recovery of any prohibited payment.

Fixed Penalty Notice

An enforcement officer may give a fixed penalty notice of £1,000 to anyone they suspect of committing an offence under the Fees Act. Payment would be an alternative to criminal proceedings.

Note: the fixed penalty is not "up to" £1,000; it's a fixed amount of £1,000.

Section 173, 186 or landlord's break clause restrictions

The landlord may give no section 173/186 notice (no reason notice or landlord's break clause) if the landlord has received a prohibited payment and has not been repaid. This also applies to a holding deposit that has not been reimbursed (unless there are circumstances to properly retain it or offset it from rent or tenancy deposit).

Further Guidance

The Welsh Government has issued official guidance on the tenant fees ban.

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