Tenant Fees Act 2019 changes from 1 June 2020 – Tenancy Deposits

This is part 2 of a 3-part series exploring how the Tenant Fees Act 2019 provisions apply to tenancies from 1 June 2020. Part 1 looked at how the prohibited payment provisions work. This blogpost explores tenancy deposits and how the cap applies to different tenancies.

As discussed in my last blogpost, now that the transitional provisions have come to an end the Act applies to all relevant tenancies in existence. However, as a result of the transitional provisions and the Act not applying retrospectively to all tenancies there are still differences in how the rules apply depending on when the tenancy was granted and when the payment was taken.

Tenancy deposits are a permitted payment under the Act. However, the amount of deposit an agent or landlord is entitled to collect is capped at 5 weeks’ rent (6 weeks where the annual rent is £50,000 or more). Any amount taken that exceeds this figure is a prohibited payment.

How does the TFA apply from 1 June 2020?

Again, it is helpful to look at the various different scenarios to illustrate how the rules apply.

1. New tenancy granted on or after 1 June 2019 including a renewal agreement

The Act has applied since 1 June 2019 to new agreements actively granted on or after this date including renewal agreements. The deposit cap therefore applies to these tenancies from their outset. Any amount taken in excess of the cap is a prohibited payment and the landlord will be in breach of the Act.

A tenancy renewal may trigger the application of the tenancy cap for the first time. Where the landlord holds a deposit that exceeds the cap they will have to return the surplus amount to the tenant. However, if a higher rent is agreed on renewal then the deposit cap will need be re-calculated on the basis of the new rent.

If the tenancy is an AST, the deposit scheme will need to be notified so the excess sum can be released. In such a case the landlord could at that point consider whether the excess amount should be applied towards any liability that the tenant has accrued up to that date, for example, for property damage or rent arrears. Any disagreement in relation to this would need to be dealt with in the usual way through the tenancy deposit scheme. The landlord should record any agreement in writing to avoid any dispute later that the sum should have been returned.

2. Statutory Periodic Tenancy that arose before, on or after 1 June 2019 but before 1 June 2020

Now that the transitional provisions have come to an end, the Act now applies to statutory periodic tenancies that arose during the transition period and any term in the agreement that requires a prohibited payment ceased to be binding on the tenant from 1 June 2020. But what does this mean for a tenancy deposit that continues to be held in relation to a tenancy that became statutory periodic before 1 June 2020? Does the landlord have to return the excess amount to the tenant?

The Government Guidance states that the landlord is not required to return the excess amount to the tenant, as the payment was made before the TFA cap applied to these tenancies. Therefore, the excess amount in this scenario will not be a prohibited payment. However, if a new tenancy is granted, including a renewal agreement, this will trigger the application of the deposit cap (and it will fall within scenario 1 above).

3. Statutory Periodic Tenancy that arose on or after 1 June 2020

What about statutory periodic tenancies that arise after the end of the transition period, so on or after 1 June 2020?

In this scenario it seems the deposit cap will be triggered when the statutory periodic tenancy arises. This is due to the application of the case of Superstrike Ltd v Rodrigues. In Superstrike the Court of Appeal held that a statutory periodic tenancy is a new tenancy and that the deposit is notionally re-received by the landlord in relation to that new tenancy. Therefore, conceptually, this is the same as a renewal agreement explained in scenario 1 and the landlord will have to return any sum in excess of the deposit cap to the tenant.

4. Fixed-term tenancies granted before 1 June 2019 still within their original fixed term and contractual periodic tenancies granted before 1 June 2019  

Finally, what about a fixed-term tenancy that commenced before 1 June 2019 but is still within its fixed term? Some tenancies are for longer periods of 2-3 years. Similarly, what about a contractual periodic tenancy entered into before 1 June 2019 that has continued since then on periodic basis, for example, rolling monthly?

The Act applies to these tenancies from 1 June 2020. However, if a deposit in excess of the cap was collected at the outset of these tenancies then the excess amount should not need to be returned to the tenant. This is because the payment was made to the landlord before the Act applied to these tenancies. Therefore, the excess amount in this scenario will not be a prohibited payment. Again, if the tenancy is renewed (see scenario 1 above) or a statutory periodic tenancy arises at the end of the fixed term (see scenario 3 above) the deposit cap will be triggered and the excess amount will need to be returned at that point.

Conclusion

The application of the Tenant Fees Act to various types of letting agreements is not straightforward. Landlords, tenants and their advisers will need to pay particular attention to the date the tenancy was granted, either expressly or by operation of statute, and the date the deposit payment was made. Any deposit paid now will trigger the tenancy deposit cap. Deposits that are already held by landlords and agents are more complicated and the landlord may have to return any excess sum to the tenant. As is always the case, clear written records should be retained to demonstrate compliance.

In the final part of this blog series we will be look at holding deposits.

Anthony Gold has a team of specialists who can advise on the Tenant Fees Act including issues relating to repossession and tenancy deposits.

*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*