Rent, Deposits and Fees
At the start of a tenancy there are certain upfront financial outlays that a tenant will need to pay and there are very specific rules around what fees a tenant can be charged for starting a tenancy:
- The rent amount, how often it is paid and the date on which it needs to be paid is set out in the tenancy agreement. A tenant will normally pay one month’s rent at the start of the tenancy and then pay each month, or whatever the payment period is, in advance.
- There are two types of deposit that a tenant could be asked to pay
- A holding deposit. This is a payment that the tenant makes to have the property taken off of the market while referencing is carried out. This is capped at 1 week’s rent and is refundable under most conditions.
- The security deposit is paid at the start of the tenancy and is capped at 5 weeks’ rent for properties where the annual rent is less than £50,000 and 6 weeks where the annual rent is more than £50,000. A landlord cannot ask for a larger deposit if it is agreed that pets can stay in the property. The deposit must be registered or deposited with a government approved scheme. The landlord can deposit the money in their own account but will still need to register the deposit with a scheme. This is called an insured deposit. The landlord can also deposit the money directly with the scheme and this is called a custodial deposit.
- As part of administering a tenancy there are certain fees that can be charged but these are restricted to:
- Interest on rent which is more than 14 days overdue and this is capped at a rate of 3% above the bank of England base rate
- Early termination costs which are capped at the financial loss incurred by the landlord if the tenancy is terminated early
- Payment for changing the contract which is capped at £50 inc VAT.
- Lost keys can only be charged for at a reasonable replacement cost.
- The following fees are prohibited:
- Property viewing
- Administration charges
- Guarantors (this can be a condition of the tenancy but the landlord or agent cannot charge fees for meeting this condition)
- Inventory checks (both check in and check out)
- Right to Rent checks (the landlord or agent are liable for this cost, unless the tenant fails the check)
- Pet fees/deposits
- Renewal/exit fees
- Interest on permitted payments
- Professional end of tenancy cleaning – as a special clause (breach of contract ONLY)
- Third party fees (unless the tenant chooses to undertake the services themselves)
- Gardening services (unless included within the rent)
Talking about finances, the last bit to cover is some jargon and myth busting around bills and rent payments as we often get asked what some of the acronyms mean and how they are applied.
Who pays council tax tenant or landlord?
This is a question we get asked a lot and it all depends on what is in the contract. For most AST agreements council tax will be paid by the tenant. Always check the agreement though as this will be clear about who pays. It does get a little more complex when a contract rolls over to a periodic tenancy though. If the tenancy rolls over to a contractual periodic tenancy the tenant, if they are liable for council tax, is liable right up until the end of their notice period, even if they leave the property early. If the contract rolled over to a statutory periodic tenancy, which are new tenancies with no fixed term, then, the tenant is only liable for council tax while they live in the property. This means, if they vacate the property early and without due notice, liability for the council tax reverts to the landlord.
How much can a landlord raise rent in a year?
The first thing a tenant needs to know is that, without the express agreement of the tenant, the landlord cannot increase rent during the fixed term of the contract. Any rent increases after the fixed term will either be covered under the rent review clause in the contract or by using what is called a section 13 notice and filling out form 4 as shown on the Government’s website. Where the rent is paid monthly or less the minimum notice that must be given is 1 month. We mentioned earlier that, after a fixed term a periodic tenancy is formed unless a new fixed term contract is signed and that there are two types of periodic tenancy. The rules around rent increases are different for the two types of periodic tenancy. If you have a contractual periodic tenancy, then rent can only be increased once a year. If there was a 6 month fixed term, then the rent can still only be increased after 12 months have passed. For statutory periodic tenancies, though, which had a 6 month fixed term, the rent can be increased immediately at the end of the fixed term.
Some other questions we encounter about rental payments are:
What is the average increase in rent per year?
There is no average as it all depends on market conditions, the prevalent mortgage interest rates and inflation. As an example, though, in the 12 months to August 2022, according to the office of national statistics average rents increased 3.4% in England whereas in the same time period a year before the average rent increase in England was 1.2%
What’s the most a landlord can increase rent?
There is no legally set limit and any rent increase should be fair and realistic.
What is a fair rent increase?
A fair rent increase is a bit of a moving feast but essentially an increase that is carried out using the right process, giving the right amount of notice and which is in line with the local market for similar properties is likely to be fair. So, if for example similar properties are renting for £1,100 per month an increase to £1,100 per month is likely to be fair, but the % increase should also be in-line with local market increases so an increase of 20% to match local market rents if the local market rent increases are only 5% might not be fair.
What is a section 13 rent increase?
A section 13 rent increase is really only needed when a rent increase cannot be mutually agreed or where the tenancy agreement does not contain a rent review clause, which will have already been agreed by signing the contract. In this case the landlord can propose a rent increase using form 4 as mentioned above. This is governed under section 13 of the Housing Act 1988 which is why it is referred to as a section 13 rent increase.
What is a rent increase notice?
A rent increase notice is the document which the landlord serves on a tenant to propose a rent increase. This is, as mentioned, tenancy form 4, which must be filled out properly and served with the right level of notice, which is at least 1 month.
Can I reject a rent increase?
Yes, a tenant can reject a rent increase. The first thing to do is simply try to negotiate with the landlord. In the meantime you should continue to pay the required rent at the previous rate, though. If no agreement can be made then either the landlord or the tenant can ask a tribunal to make a decision.
Moving on to look at one of the main acronyms used when it comes to rents in the UK.
What does PCM mean for Rent?
You will see PCM quite a lot in rental adverts and it simply means per calendar month. This means that the rent is payable on the same day every month. If your tenancy starts on the 11th of the month, then you will pay your rent the 11th of every month moving forwards when paying per calendar month. One area of confusion that some people have and we get asked is whether rent pcm is per person. Typically, not if a whole property is being rented and the pcm value is for the property irrespective of how many people are living there. The only real exception here is when an individual room or rooms are being rented and then the advertised price is likely to be per room, but again this is unlikely to be per person. Saying that, though, make sure you check with the landlord or agent as there are exceptions to every rule.
The final question we often get relates to PW.
What does PW mean for rent?
This simply means per week and suggests that rent is payable weekly rather than monthly.
So, we have covered a lot of ground already and now it is time to cover the landlord and tenant’s legal obligations when it comes to renting a property.