The unintended consequences of the Tenant Fees Act on lets with pets

Almost 12 million households in the UK own a pet so you could question why a landlord would exclude such a large proportion of the population by stipulating ‘no pets’ when they advertise their property for rent.

Traditionally many landlords have recognised how widespread pet ownership is and how tenants with pets can make good long-term tenants. Pets are often welcomed by landlords subject to certain conditions including payment of a higher deposit and an agreement that the tenant would have the carpets professionally cleaned at the end of the tenancy.

The arrival of the Tenant Fees Act on 1st June 2019 is a game-changer and is likely to have a negative effect on tenants with pets. Three parts of the Act that will have an effect on tenancies with pets are:

1. Tenancy Deposits are now capped at 5 weeks rent – landlords can no longer require a tenant pays a tenancy deposit higher than 5 weeks rent.

2. A landlord must not require the tenant enters into a contract for the provision of a service with a third party in connection with a tenancy – landlords can no longer require a tenant to enter into a contract with a vet, pest controller or cleaner.

3. A landlord must not require the tenant enters into a contract for insurance with a third party in connection with a tenancy – landlords can no longer require a tenant to have tenant liability insurance or third party liability insurance for their pet.

Likely Outcome

1. Landlords are less likely to let their property to tenants with pets – the changes the Act brings will be perceived to expose landlords to higher risk and cost so many landlords will simply advertise their properties as ‘no pets’. For those landlords who never welcomed tenants with pets their stance will harden and more than ever these landlords will refuse to consider tenants with pets.

2. Higher rents – of those landlords who welcomed pets in the past many (but not all) will continue to do so ‘subject to negotiation’ and landlords will expect tenants with pets to offer and pay a higher rent to cover three things:

• Treating the property for fleas and other parasites at the end of the tenancy
• Cleaning the flooring and soft furnishings at the end of the tenancy
• Additional rent in lieu of the additional tenancy deposit (pet deposit) previously collected to cover any damage caused by the pet

A few points of note on this:

• 9% of the UK population have a pet allergy. 1 in 4 cats and 1 in 7 dogs are carrying fleas, and about 11 per cent of these fleas are infected with potentially pathogenic bacteria (Bartonella). For the sake of the health of the next occupier of their property landlords can only hope, but cannot require, outgoing tenants will treat the property for fleas and other parasites and clean the flooring and soft furnishings so will need to take responsibility for this. The only way to legally recover the cost of this is to charge tenants with pets a higher rent.

• The cost of the flea treatment and cleaning will reasonably need to be collected during the term certain for the tenancy (fixed term of the tenancy). Under the Act landlords cannot charge a higher rent for a period at the start of the tenancy and reduce the rent for a later period in the tenancy. The larger the property and the shorter the fixed term, the higher the premium will be and with most tenancies continuing beyond the fixed term, tenants with pets will ultimately be paying more in increased rent than the cost of the fees they paid before the Act became law. Good news for landlords, bad news for tenants with pets.

• Landlords will need to ensure, and make it clear, tenants are paying a ‘higher rent’ and not a ‘pet fee’ or ‘pet deposit’ as these fees or deposits are prohibited under the Act.

• Section 13 rent increases during a tenancy for which a tenant is paying a premium rent could prove to be awkward as tenants could challenge the increase on the grounds that the rent is unreasonable and a rent above market value may be considered unreasonable by a tribunal. A possible workaround for landlords is to include a rent review clause in the tenancy agreement. Rent review clauses apply to fixed term tenancies and contractual periodic tenancies only.

Further Reading

1 in 4 cats and 1 in 7 dogs carrying fleas with high levels of bacteria, finds Big Flea Project (Bristol University)

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What payments are landlords and letting agents permitted to take from tenants on or after 1st June 2019?

1. Rent

2. Tenancy Deposit – maximum five weeks’ rent where the annual rent in respect of the tenancy immediately after its grant, renewal or continuance is less than £50,000, or six weeks’ rent, where the annual rent in respect of the tenancy immediately after its grant, renewal or continuance is £50,000 or more.

3. Holding Deposit – maximum one week’s rent.

4. Payment in the event of a default – for the loss of a key to, or other security device giving access to, the housing to which the tenancy relates pay the costs which are reasonably incurred by the Landlord or his Agent as a result of the default. {my understanding from this is that ‘security device giving access’ is a fob or card – sometimes called proximity devices}

5. Payment in the event of a default – for the failure to make a payment of rent in full before the end of the period of 14 days beginning with the date (“the due date”) on which the payment is required to be made in accordance with the tenancy agreement pay 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 3% above the Bank of England base rate to the amount of rent that remains unpaid at the end of that day.

6. Payment of damages for breach of a tenancy agreement or an agreement between a letting agent and a relevant person

7. On variation, assignment or novation of a tenancy at the tenant’s request pay the greatest of £50 and the reasonable costs of the person to whom the payment is to be made in respect of the variation, assignment or novation of the tenancy.

8. On termination of a tenancy at the tenant’s request in the case of a fixed term tenancy, before the end of the term, or in the case of a periodic tenancy, without the tenant giving the period of notice required under the tenancy agreement or by virtue of any rule of law pay the Landlord the loss suffered by the Landlord and pay his Agent the reasonable costs of the Agent for arranging the termination of a tenancy.

9. Payment in respect of council tax

10. Payment in respect of utilities

11. Payment in respect of a television licence

12. Payment in respect of communication services

A Landlord or Agent taking any other payments from a Tenant on or after 1st June 2019 in consideration of the grant, renewal, continuance, variation, assignment, novation or termination of a tenancy are prohibited.

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Can a letting agent represent a landlord in court?

Only ‘authorised persons’ e.g. solicitors and barristers are permitted to represent someone in court. If the letting agent is an authorised person then they could of course represent the landlord in court. With leave of the court a letting agent who is not an authorised person could attend a court hearing in the following situations:

  • If the landlord is a company, the company can appoint a syndic to represent it
  • As a witness
  • As a McKenzie Friend (sometimes referred to as a next friend)

It is entirely at the discretion of the judge whether they ‘hear’ a person who is not an authorised person so it cannot and should not be relied on.

Non-authorised persons should not sign any forms in connection with litigation on behalf of the litigant (the landlord) and landlords and letting agents should consider carefully what activity the letting agent’s indemnity insurance covers in legal situations.

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When should a follow-up right to rent check be conducted?

Where the initial right to rent checks are satisfied with a document from List B, or where the Landlords Checking Service has provided a ‘yes’ response to a request for verification of a right to rent, a landlord establishes a time-limited statutory excuse. This time-limited statutory excuse lasts until the later of the following:

• 12 months
• until expiry of the person’s permission to be in the UK
• until expiry of the validity of their document which evidences their right to be in the UK

Follow-up checks should be undertaken before this time-limited statutory excuse expires or as soon as reasonably practicable thereafter in order to maintain a statutory excuse.

Further Reading

Code of practice on illegal immigrants and private rented accommodation

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What does the law say about when is rent due, payable and in arrears?

Due

Rent becomes due on the morning of the day specified for payment in the tenancy agreement. This day is commonly referred to as the ‘rent day’ and is a core term of the tenancy.

Payable

Rent may lawfully be made payable on any day including a Sunday.

Rent due upon a bank-holiday will not be payable until the following day.

If a term of the tenancy is to pay rent by Standing Order, this will restrict the days the rent will be received by the landlord as the bank may not process Standing Orders on weekends and although the bank may deduct the rent from tenant’s available balance it may not be credited to the landlord until the next working day.

Overdue

If rent is not paid by midnight on rent day then it is held to be in arrears.

References

Re Aspinall v Aspinall (1961)

Dibble v Bowater (1853)

Child v Edwards (1909)

s.1 Banking and Financial Dealings Act 1971

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Questions landlords need to ask before increasing the rent

Just as the cost of living can rise, so too can rents but before landlords increase the rent there are some questions they need to ask themselves…

Is it permitted?

Rent increases are largely governed by Section 13 of the Housing Act 1988 and some associated case law that has helped clarify the intent of the legislation.

In summary here are some of the rules…

• Section 13, and the notice referred therein, only applies to statutory periodic tenancies and other periodic tenancies that have no provision for increasing the rent (commonly referred to as rent review clauses). {some legal practitioners believe it is possible to serve a section 13 notice during a fixed term to take effect during the follow-on periodic tenancy – section 13 explicitly states it applies to periodic tenancies and the belief that the notice can be served during a fixed term is untested in a Court of law}.

• A new rent proposed in a section 13 notice cannot take effect earlier than the date that falls 52 weeks after the date on which the first period of a contractual periodic tenancy began.

• A landlord cannot serve a section 13 notice in the prescribed form proposing a new rent to take effect at the beginning of a new period of the tenancy beginning earlier than the minimum period after the date of the service of the notice which for a monthly periodic tenancy, is one month.

• For statutory periodic tenancies arising at the end of a fixed term tenancy, any rent review clause contained in the expired fixed term tenancy will be overridden by the section 13 procedures.

• Rent review clauses apply to fixed term tenancies and contractual periodic tenancies only.

• Where the rent has previously been increased by virtue of a section 13 notice, the landlord cannot serve on the tenant a section 13 notice proposing a new rent to take effect earlier than the date that falls 52 weeks after the date on which the previously increased rent took effect.

Is it fair?

A rent review clause that does not comply with the requirements of consumer protection legislation may be an unfair term. An unfair term in a tenancy is one which creates a significant imbalance in the relationship of the landlord and tenant to the detriment of the tenant.

Clauses which provide for very large increases will normally be void – for example where the rent increase is not to achieve a fair rent for the property but to increase the rent to a level where the tenant might be forced to leave or artificially raising it over £100,000 to cease the tenancy from being an assured shorthold tenancy. If the tenant feels the rent increase is too high then they can refer it to the First-Tier Tribunal (Property Chamber – Residential Property) (for England).

Can the tenant afford it?

Even if the tenant accepts the rent increase, can they afford it? Affordability checks carried out at the initial referencing stage are based on the rent and the tenant’s income at that point in time. Things may have changed, and the tenant may now be earning less, and it is possible the tenant may not be able to afford the increased rent. This is especially relevant when wages are not increasing at the same rate as rents.

If the tenant accepts the increase, not wanting to leave the property but also not seriously considering the implications on their finances, it may cause them to fall into arrears. Even a small rent increase could cause arrears and it could end up costing the landlord a significant amount if they needed to seek possession of the property through the courts because of arrears.

Will it offend the tenant?

It might only be a small amount you are increasing the rent by, but don’t underestimate how this could offend a good tenant who pays rent on time and looks after the property. If you reward good tenants who want to stay and make your property their home for a long period of time, does it really make a difference to get a bit extra each month?

Are there any outstanding repairs or decoration at the property?

With higher rent comes higher expectations. The tenant will be less accepting of the increase if there are outstanding repairs at the property, the decoration or flooring is past its reasonable life expectancy or any fixtures, fittings or contents are dated.

Can you afford a void period?

Consideration needs to be given to the possibility of the tenant not accepting the increase and serving notice to terminate the tenancy. The landlord then has to prepare the property for re-let and arrange and conduct viewings whilst relying on the support of a disgruntled tenant who is still occupying the property, or the landlord may choose to wait until the tenant has vacated and with it, accept a longer void period. With the departure of the tenant an inevitable void period will follow and with it the loss of rental income during the void. The end of the tenancy may be the time the landlord decides to do repairs or improvements they had previously delayed – again incurring costs perhaps the landlord had not yet planned for. Finally, the landlord would need to consider other costs associated with the start and end of tenancies such as fees paid to agents, referencing companies and inventory clerks.

Do you really need to increase the rent?

If you’re achieving a good yield then remember this is a long term investment based also on the capital growth of the property. Of course there are expenses for you as a landlord but on balance it might be better to keep hold of a long-term tenant that looks after your investment and pays the rent in full and on time each month.

How will you justify the rent increase to the tenant?

Whilst you do not need to justify the rent increase to the tenant, you should as a matter of courtesy explain why you have decided to do so.

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Simple steps landlords can take to protect their property from fraud

We are amazed how many landlords do little or nothing to protect their property from fraud when there are some simple and free steps landlords can take to prevent what is an increasing area of fraud:

1. Check your property is registered with HM Land Registry – your property should be registered if you bought it or mortgaged it since 1998.

2. Track changes to the register by signing up to get property alerts if someone applies to change the register of your property, for example if someone tries to use your property for a mortgage.

3. Put a restriction on your title to stop HM Land Registry registering a sale or mortgage on your property unless a conveyancer or solicitor certifies the application was made by you.

More information can be found here

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Can an agent charge a landlord a fee for terminating their contract?

Yes – however there are some things to consider….

Contract (Agency Agreement/Client Agreement)

The contract between the landlord and the agent should clearly define how the landlord can terminate the contract and any charges that would apply.

If the landlord terminates the client agreement with a letting agent, the agent has a right to protect themselves, but what the agent charges the landlord must take into account what the agent is actually losing as a result. If the charges are excessive they will be deemed unfair and unenforceable even if they are defined in the agreement.

In J Spurling Ltd v Bradshaw, Denning LJ made the famous red hand comment:

the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.

If an agent is going to impose a significant financial penalty on a landlord for terminating a contract they should make it clear what that penalty is. If there were to be a dispute, the burden of proof that the agent made it clear in pointing it out to the landlord may rest with the agent.

Consumer Rights Act

Effective 1st October 2015, part 1 of schedule 2 of the Consumer Rights Act 2015 defines contract terms which may be regarded as unfair. Paragraph 5 states:

A term which has the object or effect of requiring that, where the consumer decides not to conclude or perform the contract, the consumer must pay the trader a disproportionately high sum in compensation or for services which have not been supplied.


From this, a letting agent charging a landlord for services which have not been supplied such as property management during a continuing tenancy may be regarded as unfair.

Under the same Act, an agent must display a list of fees at the agent’s premises and on their website.

Guidance on this point states:

All fees, charges or penalties (however expressed) which are payable to the agent by a landlord or tenant in respect of letting agency work and property management work carried out by the agent in connection with an assured tenancy. This includes fees, charges or penalties in connection with an assured tenancy of a property or a property that is, has been or is proposed to be let under an assured tenancy.

If charges and penalties are not displayed as required by law, aside from the fact that the agent has broken the law, it may throw into question that the charges are enforceable on the grounds that the agent was not making the charges clear – they are attempting to hide them.

Further Reading

Consumer Rights Act 2015 Schedule 2

Consumer Rights Act 2015 Section 83

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Is there a minimum size for a room that is to be used as a bedroom?

What is a bedroom?

A bedroom is a room that is available as sleeping accommodation if it is of a type normally used in the locality either as a living room or as a bedroom. {Housing Act 1985, Chapter 68, Part X}

The answer to the topic question is dependent on a number of factors including:

* Number of occupiers using the bedroom
* Age of occupiers using the bedroom
* Whether the property is a licensed HMO
* Type of occupant

Number and age of occupants
One of the criteria for assessing overcrowding under the Housing Act 1985 is the floor space based on the number and age of occupants.

For a child aged under 1 there is no minimum space standard.

For a child aged 1 or over but under 10 the floor are of the room must be at least 50 sq. ft. (4.65 sq. metres).

For two children aged 1 or over but under 10 sharing a bedroom or 1 person aged 10 or over the floor area of the room must be at least 70 sq. ft. (6.51 sq. metres).

For two adults living together as a couple the floor area of the room must be at least 110 sq. ft. (10.22 sq. metres).

{Housing Act 1985}

HMO

In 2018 the government announced that it will proceed with introducing a national minimum room size for bedrooms in licensed HMOs:

Rooms used for sleeping by 1 person over 10 will have to be no smaller than 6.51 square metres, and those slept in by 2 people over 10 will have to be no smaller than 10.22 square metres. Rooms slept in by children of 10 years and younger will have to be no smaller than 4.64 square metres


Type of occupant

The type of occupant has also been shown to be relevant in room size cases. This was illustrated in the case of Nottingham City Council v Dominic Parr and Trevor Parr Associates Ltd [2017] EWCA Civ 188 which was heard last year in the Court of Appeal. The Council’s guidance suggested that 8 sq. metres was an acceptable bedroom size and the licences issued prohibited the use of two attic rooms until the usable floor space had been increased. The First-Tier Tribunal had deleted the condition and imposed an alternative condition that the rooms could be used by full-time student who resided in the room for a maximum of 10 months of the year. This was upheld by the Upper Tribunal and the Court of Appeal concluded that there was nothing unlawful about a HMO licence restricting occupation of a bedroom to students only. The Supreme Court has granted permission to Nottingham City Council to appeal the decision.

Further Reading

Shelter – Overcrowding
HMO National Minimum Room Size and Suitability {Anthony Gold blog}
Housing Act 1985, Chapter 68, Part X
When is a bedroom not a bedroom {Jungle Property blog}

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Can an agent refuse to provide tenant referencing reports to the landlord?

No – probably not…


Fiduciary relationship


The agent is contracted by the landlord to act on behalf of the landlord (the principal). Agents have what is known as a ‘fiduciary relationship’ with the landlord. Data collected, or artefacts created, by the agent in performance of the contractual obligations is collected or created on behalf of the landlord.


If the landlord signs a contract which specifically states that he will not have access to the tenant’s reference report, he will probably be bound by this but where the contract is silent, it is the property of the landlord as it was obtained by the agent for the purpose of the landlord’s property, in his capacity as agent for the landlord.


Data protection


Agents will sometimes argue that passing the reference report on will be in breach of the Data Protection Act. Guidance from the Information Commissioners Office (ICO) here states:


Can landlords see references which were provided to the letting agents?
The agent can pass this information to the landlord, as long as, when the reference is asked for, they make clear to the tenant and the referee that this will happen.


This ICO guidance is not entirely consistent with the opinion of many legal experts who see passing on the reference report as an automatic right as the agent is an extension of the landlord.


Duty of obedience


An agent has a duty of obedience – express instructions are paramount and this duty takes precedence over the duty to exercise all reasonable care and skill.


Tenant referencing reports belong to the landlord not the agent and the agent should not disobey the landlord’s instructions to provide them.


Why a landlord should see reference reports


There are two important reasons why the landlord should be entitled to see the reference reports if he wishes, before the tenancy is granted:


1. Landlords can suffer massive losses through bad tenants being allowed into their property, both through unpaid rent and through the tenant damaging the fabric of the property itself.


2. The landlord may want to check that the agent has carried out any referencing at all. Sadly, it is not unknown for agents to pocket the reference fees and not actually obtain references. There have been many cases where the referencing carried out was grossly inadequate for the type of property being let and as a result the landlord suffered great losses (see Saul Shevlin v. Sequence (UK) Limited below).


If the agent is able to say “sorry, we can’t tell you anything about the references we have because of the data protection”, how can the landlord be sure that this important part of the agent’s job has been done properly?


Saul Shevlin v. Sequence (UK) Limited


This case heard in June 2016 in Colchester County Court found Sequence to be negligent as they had referenced a (bad) tenant and granted a tenancy, refusing to pass on the reference report to the landlord (they had done so previously). The landlord approached the company commissioned to carry out the referencing directly and was emailed the report. The reported highlighted a number of ‘red flags’ which the agent should have investigated.


This case is interesting with regard to this topic question because a). the company who were commissioned to compile the reference report provided it to the landlord directly after the agent refused b). had the landlord been provided with a copy of the report when it was first compiled, the tenancy would almost certainly not have been granted.


Advice for landlords


Make it very clear, when you instruct an agent, that you will want to see the reference reports, before the tenant’s application is approved.


Make it clear to the agent that it is the agent’s responsibility to take such steps as are necessary (i.e. tell the tenants and the reference company) in order to prevent their being in breach of data protection legislation in passing reference reports to the landlord.


Further Reading


Landlord wins long-running case against agent after tenancy went wrong (Property Industry Eye article)


Can an agent withhold part payment of 6 months rent in advance?
(Jungle Property blog article)


Are landlords entitled to see tenants references obtained by their agents? (The Landlord Law Blog article)

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