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Hot Topic Highlight - Impacts of the Tenant Fees Act 2019



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What is today's blog about?


This week's blog is guest written by David Schermer BA (Hons) MARLA Inv. He is an independent inventory clerk in the private rented sector. He has been a buy-to-let landlord since 1986 and is a National Landlords Association accredited landlord. David was also a director of a leasehold management business for 12 years.


In this blog, we take a look at how the Tenant Fees Act 2019 is affecting the residential sector and inventory taking. Essential reading for residential AssocRICS and RICS APC candidates.


You can also listen to our CPD podcast on Anchor for more free AssocRICS and RICS APC training and support.


How is the Tenant Fees Act 2019 affecting the residential sector?


Already, since its introduction on 1st June 2019, the Tenant Fees Act 2019 is having an unintended impact on the residential private rented sector, particularly in relation to inventories (the Ins) and checkouts (the Outs).


The Act prevents landlords and agents from charging fees to tenants in relation to a tenancy, subject to a very limited list of exceptions. It also caps security deposits to a maximum of five or six week’s rent (depending on the annual rent) and so may reduce a landlord’s ‘safety net’ at the end of a tenancy.


To minimise loss of revenue from tenants, agents are looking to pass on charges to client   landlords, including inspection reports. In turn, private landlords, who must now start covering costs such as tenant referencing, are asking if property inspections are in fact a service they can do without.


Is an inventory a legal requirement at the start of a tenancy?


No.


However, a professionally undertaken inventory helps the landlord (and letting agent) to meet legal obligations, for example, by evidencing that there is a working smoke detector on each storey of the property immediately prior to occupation by the tenant.


By including reference to key documents within the inventory, the tenant can confirm receipt by signing the inventory. Again, the landlord and/or letting agent can evidence they have supplied prescribed information such as a gas safety certificate and How to Rent Guide.


So, can a private landlord produce their own inventory to save paying a fee?


Yes, they can - there are a number of software packages and mobile apps to facilitate this.


However, preparing a thorough inventory and schedule of condition can take a surprising amount of time – especially if a landlord does not do this work regularly and is not familiar with the software or mobile systems.


More importantly, if there is a dispute at the end of the tenancy, deposit adjudication schemes prefer a professionally produced independent inventory clerk’s report. This will include, for example, high quality, date stamped photographs embedded in the document.


What about mid-tenancy inspections?


While previously, landlords could expect routine property inspections to be included as part of their letting agent’s management package, some agents are now making an additional charge to landlords for this service to help recoup the loss of tenant fees.


Just like an inventory, an inspection report will evidence any breach of tenancy (such as subletting, unauthorised pets, etc.), as well as identifying maintenance issues before they become more urgent and costly.


Therefore, any inspection is best carried out by someone familiar with the terms of the tenancy agreement and is competent to carry out a basic risk assessment in order to identify common hazards, e.g. loose electrical socket or worn stairs carpet.


Why would the Tenant Fees Act affect disputes at the end of a tenancy?


An independently produced checkout report is strongly recommended when the tenant vacates, although the landlord, not the tenant, must now pay for this service.


The check out process is essential to document any damage caused to the property, any tenant’s belongings or waste left at the property, any cleaning required and any debt on utility meters. All of these are typically deducted from the tenant’s deposit.


To do so, the landlord must evidence a “before and after” schedule of the property. As such, there is little point having an inventory without a checkout report, and vice versa.


Without evidence, the tenant has the right to dispute any of these deductions. Therefore, the temptation for landlords to avoid new overheads and decide not to pay for an independent inventory and/or checkout report only makes disputes more likely, and also much more difficult to defend.


What are the most common areas of dispute over tenancy deposits?


The number one cause of disputes is usually cleaning. It is irrelevant whether the tenant has occupied the property for six months or six years, cleanliness is different to wear and tear.


Secondly, both landlord and tenant can misunderstand the concept of wear and tear. This can be defined as the reasonable use of the property and the effect of natural forces such as weather. Crucially, wear and tear depends not only on the length of the tenancy, but also the number and type of tenant(s). For example, a hall carpet can be expected to last longer with a single adult tenant who is out at work all day, compared with a family with two young children.


Similarly, a landlord cannot expect to be financially or materially better off at the end of the tenancy – known as betterment. If that same hallway carpet needs replacing, the tenant is only liable for like-for-like costs. If the carpet was new at the start of the tenancy, then the tenant can only be liable for the cost of a carpet of the same quality. If the carpet was not new (but in good condition), then the cost of the replacement carpet must be apportioned to cover the shortened lifespan of the old carpet.


Lastly, removal of goods– that is to say, disputes often arise when the tenant leaves behind belongings after vacating the property. Although a landlord cannot summarily dispose of the tenant’s belongings (under the Torts (Interference with Goods) Act 1977), the tenant may be liable for the landlord’s costs if the correct procedures are followed under this act. However, with security deposits now limited to not much more than one month’s rent, the financial impact of an end of tenancy dispute on a landlord may be significant.


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N.b. Nothing in this article constitutes legal or financial advice.