Tenant Fees Act 2019: reducing rent in a pandemic

The Tenant Fees Act 2019 (“the Act”), which came into full effect on 1 June 2020, introduced a 5-week limit on deposits. The Act could have important implications in the current climate, where many landlords have agreed to temporary reduce rent for tenant that have been adversely impacted by the pandemic.

Issue

This article looks at one particular issue: does a landlord that is in receipt of the maximally permitted deposit (ie. 5-weeks’s rent) breach the Act by (1) agreeing to a rental reduction, but (2) keeping the original deposit? Clearly, in this situation the landlord is holding on to a deposit that now exceeds 5-weeks’ rent (at the reduced rate). However, whether this actually constitutes a breach of the Act will depend on the date that the tenancy commenced and the nature of the agreed reduction.

Scenario 1: Fixed Tenancy, commenced before 1 June 2019

If the landlord and tenant agreed that the rental reduction was a temporary measure, the landlord will not be in breach of the Act and may keep the entire deposit. This is because the agreement does not amount to a tenancy renewal and the deposit, which would have been received before the Act came into force, is not regulated by the Act.

Scenario 2: Statutory Periodic Tenancy, commenced on or after 1 June 2020 where the fixed-term commenced before 1 June 2019

As above, the Act will not have been breached if the rental reduction was a temporary measure.

Scenario 3: Fixed Tenancy, commenced or renewed on or after 1 June 2019

Here, the Act takes full effect; the landlord is likely to be in breach and a deposit reduction will be required.

However, there will not have a breach if the rental reduction amounts to a temporary measure (and not the renewal of a tenancy). The Act calculates the 5-week limit on deposits by reference to the annual rent for which the tenant was liable immediately after the most recent grant, renewal or continuation of the tenancy (“the Relevant Annual Rent”). Consequently, if the rental reduction forms part of a continuing tenancy, the Relevant Annual Rent will be the original rent (ie. the rate prior to the reduction) and the deposit will be within the maximally permitted limit. Conversely, if the rental reduction amounted to a renewal (or the tenancy was renewed with a reduced rent), the Relevant Annual Rent will be the reduced rent (ie. not the original rate) and the deposit will exceed the permitted amount.

Consequence of a breach

If a landlord holds an excessive deposit, they are not required to issue a repayment to the tenant. Rather, the Act allows for excessive sums to be allocated by the landlord to some other payment due by the tenant under the tenancy (eg. rent arears).

However, if the landlord fails to properly rectify their breach, the ability to evict a tenant may be severely hampered.

Conclusion

This article has demonstrated a number of the complexities involved in determining whether an original deposit conforms with the regulations laid out in the Act in circumstances where a reduced rent has been agreed between landlord and tenant. Both parties are strongly advised to seek professional legal advice if they are impacted by any of the matters discussed in this article.

Contact our Real Estate Dispute Resolution  team today

If you would like to discuss any issue relating to this blog, please do not hesitate to contact a member of the Real Estate Dispute Resolution Team on 01895 207835 or 01895 207295, or email us at propertydisputes@ibblaw.co.uk