What Rental Charges Can Landlords Demand Before a Tenancy?

The coronavirus pandemic has dented many people’s finances, leaving landlords and letting agents needing to be as cautious as possible when taking on new tenants. Without being able to charge for referencing, credit checks, preparing the tenancy and many other aspects of letting, as dictated by the Tenant Fees Act, onboarding new renters can be an expensive task and, if they then fail to pay their rent, you could be severely out of pocket. So, what rental charges can landlords demand before a tenancy? This article helps you to protect yourself and stay on the right side of the law.

The BBC’s Wake Up to Money programme recently reported on a Syrian man who had to borrow money to cover a lump sum of six months’ rent upfront to secure a flat in Manchester. The man could not provide a guarantor to cover his rent if he could not afford it and, combined with him being unemployed and receiving Universal Credit, the landlord requested that he make the lump sum payment before agreeing to the tenancy.

The National Residential Landlords Association (NRLA) warned against landlords involving themselves with similar schemes but did point out the vulnerability of private landlords. According to government figures, 45% of landlords in the country own just one property, meaning that having a tenant that does not pay their rent can cause catastrophic consequences.

What You Can Charge For Before a Tenancy

Before a tenancy, there are certain rental charges that are still allowable:

• Rent – Of course, landlords can charge their tenants rent to live in their property. This is most often one month’s payment in advance. However, there are no laws about how many months’ rent a landlord can ask for in one go. The landlord in Manchester was well within their rights to ask for a lump sum if they deemed the tenant to be a payment risk. The obvious downside is that, if you charge too much, you will struggle to fill the tenancy as few people will be able to afford to spend so much in one go.

• Tenancy Deposit – Landlords can take up to five weeks’ rent as a tenancy deposit, which must be placed in one of three government-approved schemes and paid back at the end of the tenancy, as long as the tenant is up to date with their rent and leave the property in satisfactory condition.

• Holding Deposit – If a tenant wants to reserve a property, they can pay a holding deposit equivalent to the cost of up to one week’s rent. This is refundable and should either be paid back to the tenant when they move in or deducted from the first month’s rent or the tenancy deposit.

There are also various charges that are allowed during the course of the tenancy too.

What You Cannot Charge For Before a Tenancy

Under the Tenant Fees Act 2020, you cannot impose these rental charges before the tenancy begins:

• Credit Check – The landlord must pay to check whether the tenant’s credit score is adequate to minimise the risk of renting the property to them.

• Referencing – It is on the landlord to bear the cost of sourcing references to show the good standing of the prospective tenant.

• Inventory – It is no longer possible to pass on the cost of an inventory of the property to check its contents and their condition before the rental begins.

• Tenant Set-Up Fees – Landlords must pay all the costs of the various stages of preparing the documentation ahead of the tenancy.

How to Protect Yourself Against Tenants Defaulting

An NRLA spokesperson told the BBC, “we would encourage landlords to look for alternatives to asking for high levels of rent upfront. Where necessary, it is usually simpler to obtain a guarantor or suitable insurance product to provide assurance to tenants and landlords that rents will be covered."

Other than those suggestions, landlords and letting agents should take their time to make sure prospective tenants are suitable for a property. This means not skimping on asking for documentation. Payslips and contracts of employment can help you form an idea of their ability to pay their rent each month on time.

To help keep renters paying, it is also an idea to remind them that their rent is due soon a few days in advance. You should also keep communication lines open with them so that you can head off any potential issues before they become serious problems. It is better to negotiate ways of achieving payment before the account is in major arrears.

For tenancy admin services, rent collection and more, talk to us about outsourcing your property management. We keep up to date with the latest rules on renting, including rental charges, and we take the weight off your shoulders so you can concentrate on driving your business forwards.