What happens after the Tenant Fees Act transition period ends?

In these unprecedented times, Tenancy Deposit Scheme (TDS) aims to reassure letting agents, landlords and tenants on any legislative changes, relating to tenancy deposit protection, that may affect them in the upcoming weeks.

As the deadline for the end of the transition period for the Tenant Fees Act approaches, Tenancy Deposit Scheme is keen to help letting agents understand what will change after May 31 2020.

The law, which came into effect on June 1 2019 in England, banned letting agents and landlords from charging letting fees to tenants in the private rented sector (PRS), other than rents, tenancy deposits, holding deposits and default charges.

The deposit cap was also introduced, which meant that letting agents and landlords could no longer ask for deposits of more than 5 weeks’ rent (or 6 weeks’ rent if the annual rent is £50,000 or more).

As part of the measures, the law stated that any existing deposit above the 5-week cap should be refunded on any new or renewed fixed-term tenancy agreements created on or after June 1 2019.

The transitional period is about to end

The transitional period is due to end on May 31 2020, which means that from June 1 2020, the Tenant Fees Act will be applicable for all private tenancies, including those that began before the legislation came into effect.

How does this affect tenancy deposits?

Many letting agents and landlords are concerned that after the transition period they will be required to reduce all tenancy deposits to the five/six week cap. This is not the case.

You will not need to reduce the deposit below the cap unless you enter a new or renewed fixed-term tenancy agreement.

Covid-19 and the deposit cap

The impact of Covid-19 has resulted in some landlords and letting agents offering temporary rent reductions to tenants to ease financial burden, but many are concerned these reductions could affect the deposit cap.

The Tenant Fees Act states that the deposit cap is based on the value of rent at the time of the tenancy’s grant, renewal or continuance. In other words, any reduction of rent after the tenancy agreement has been signed will not impact the amount of deposit permitted under the legislation.

However, if a new or renewed tenancy is agreed with the lower rent amount, the deposit would need to be adjusted accordingly in line with the deposit cap.

Online guide and deposit cap calculator

Tenancy Deposit Scheme have produced an online guide with a clear timeline showing letting agents and landlords what they will need to do after the transition period ends. There is also an instant Deposit Cap Calculator and example scenarios for further clarity on fees.

Tenancy Deposit Scheme expands on these changes further in their latest issue of Letterbox magazine, which can be downloaded by members of the tenancy deposit protection scheme for free. Alternatively, you can sign up to receive a copy of the magazine here.

For landlords with properties in England and Wales, it is important to note that legislation is not the same in both countries, and there is currently no deposit cap in Wales.

Take a look at the TDS Fees Matrix to see how the legislation differs between countries.

*Debbie Davies is head of sales and marketing at TDS