Round #1126

A landlord charges the tenant £75 described on the contract as a "default fee for late payment of rent" each time rent is more than three days late. Rent is £950 pcm. The landlord has applied this fee five times in 2024-2025. Tenant now disputes the charges as prohibited payments under section 1 of the Tenant Fees Act 2019, arguing the contractual interest rate prescribed by schedule 1 paragraph 4 is the binding cap. What is the legal position on default fees of this shape?

# Legal Analysis: Default Fees for Late Rent under the Tenant Fees Act 2019 ## 1. The Statutory Framework ### Section 1 TFA 2019 — The Prohibition Section 1(1) prohibits a landlord from requiring a "relevant person" to make a prohibited payment in connection with a tenancy. A payment is prohibited unless it falls within the permitted payments listed in **Schedule 1**. ### The Relevant Permitted Payments For default fees, **Schedule 1 paragraph 4** is the operative provision: > *"A payment in respect of a default by a relevant person… if—* > *(a) the payment is a default fee of a description specified in the tenancy agreement, and* > *(b) the amount of the payment does not exceed the loss suffered by the landlord as a result of the default."* **Paragraph 4(2)** then specifies the **only two categories** of default for which a landlord may charge: - **(a)** loss of a key or security device; and - **(b)** a default in the payment of rent that has been outstanding for **14 days or more**, capped at **3% above the Bank of England base rate** on the outstanding rent per annum. --- ## 2. The Critical Point: Paragraph 4(2)(b) is Exhaustive This is the central legal issue. The structure of paragraph 4 is **not** that the landlord may charge *any* default fee described in the contract subject to a loss cap — the permitted defaults are **taxonomically closed**. Parliament specified exactly which defaults may attract fees. Late payment of rent **is** one of them, but only within strictly defined parameters: | Condition | Requirement | |-----------|-------------| | Trigger period | Rent outstanding for **14 days or more** — *not* 3 days | | Rate cap | **3% above BoE base rate** per annum on the outstanding sum | | Form | Must be expressed as interest on the outstanding sum, not a flat fee | | Loss principle | Cannot exceed loss suffered | --- ## 3. Analysis of this Specific Fee ### (a) The Trigger-Period Defect The contract triggers the fee at **three days** of lateness. Paragraph 4(2)(b) only permits a charge where rent has been outstanding for **14 days or more**. A contractual term purporting to charge for earlier default has no Schedule 1 protection and is therefore a **prohibited payment** under s.1 regardless of its amount. ### (b) The Flat-Fee Structural Defect Even if the trigger were compliant, paragraph 4(2)(b) envisages **interest** (a percentage rate applied to the outstanding sum over time), not a **flat fee**. This is confirmed by the explicit prescription of a percentage rate (3% above base). A flat £75 charge does not match this structure. It cannot be reverse-engineered into compliance by checking whether £75 happens to be less than the equivalent interest amount, because the *form* of the payment also matters to the "does not exceed the loss" requirement under paragraph 4(1)(b) — loss from late rent accrues daily and is inherently time-and-sum-dependent. ### (c) The Quantum Issue On £950 rent, 3% above BoE base rate (say base = 5.25%, so cap = 8.25% p.a.) yields: ``` £950 × 8.25% ÷ 365 = approximately £0.215 per day ``` £75 as a flat fee would require the rent to remain outstanding for approximately **349 days** to reach equivalence — plainly disproportionate to any short-term lateness scenario. ### (d) The "Loss Suffered" Requirement Even under a charitable reading, paragraph 4(1)(b) requires the payment not to exceed the loss *actually suffered*. Late payment of rent for a few days causes negligible financial loss. A fixed £75 charge bears no rational relationship to actual loss and would fail this limb independently. --- ## 4. Consequences of Prohibited Payment Status ### Section 6 TFA 2019 — Civil Liability Where a landlord has received a prohibited payment, the tenant may recover it. The landlord holds the money **on trust** for the tenant (s.6(2)) and must repay it. The tenant is entitled to recover all **five payments = £375**. ### Section 12 — Enforcement A trading standards authority may impose a **financial penalty** of up to **£5,000** per breach on a first occurrence. Repeat breaches within five years may attract prosecution or a penalty of up to £30,000. ### Section 18 — Retention During Prohibited Payments If a landlord has received a prohibited payment and has not repaid it, the landlord **cannot lawfully serve a valid section 21 notice** (no-fault eviction) — s.18(3) prevents a section 21 notice taking effect while the prohibited payment remains unreturned. ### Contractual Effect The contractual term is **unenforceable** to the extent it requires a prohibited payment (s.6(1)). The tenant has no legal obligation to pay it and has a right to recover amounts already paid. --- ## 5. Landlord's Counterarguments Considered | Argument | Assessment | |----------|------------| | "The contract expressly provides for it" | Contractual specification is a *necessary* but not *sufficient* condition under para 4(1)(a); para 4(2) requirements must also be met | | "£75 is reasonable/modest" | Irrelevant; the statutory structure does not permit a flat fee at all for this category | | "Paragraph 4 is just a cap, not a prescription of form" | Incorrect; the 14-day threshold and interest-rate mechanism are conditions of the exemption, not merely limits on it | | "This compensates admin costs" | Admin costs are not recoverable under any Schedule 1 head; they were deliberately excluded by Parliament | --- ## 6. Summary Conclusion The £75 flat fee is a **prohibited payment** on at least two independent grounds: 1. **The trigger is wrong** — three days' lateness does not satisfy the 14-day minimum in paragraph 4(2)(b). 2. **The form is wrong** — a flat fee is not the interest-based mechanism prescribed by paragraph 4(2)(b), and necessarily cannot satisfy the "not exceeding loss" requirement for short-term lateness. The tenant is entitled to **repayment of all five charges (£375)** under section 6, the landlord is potentially liable to a civil penalty under section 12, and any pending section 21 notice is invalid until repayment is made. The tenant should formally demand repayment in writing, refer the matter to the local trading standards authority, and if proceedings are brought, raise the prohibited payment as a complete defence to any claim for the fees. --- *This analysis is based on the Tenant Fees Act 2019 as in force in England. Different rules apply in Wales under the Renting Homes (Fees etc.) (Wales) Act 2019, and the TFA 2019 does not apply in Scotland or Northern Ireland.*

## Legal Position: Default Fees for Late Rent Under the Tenant Fees Act 2019 --- ### The Statutory Framework Under **section 1(1) Tenant Fees Act 2019**, a landlord must not require a relevant person to make a prohibited payment in connection with a tenancy. A payment is **prohibited** unless it falls within the **permitted payments** listed in **Schedule 1**. **Schedule 1, paragraph 4** is the only route by which a late payment charge can be lawful. It provides: > A payment in respect of a default by the relevant person is a permitted payment if — > (a) the payment does not exceed the **reasonable costs** incurred by the landlord as a result of the default, **and** > (b) the default fee is **expressly set out in the tenancy agreement**. However, paragraph 4 is qualified by the **specific provision in paragraph 6** (often conflated with paragraph 4 in practice), which adds the critical restriction for **interest on late rent**: > Interest charged on a payment of rent that is **more than 14 days late** is a permitted payment only if the rate does not exceed **3% above the Bank of England base rate** per annum. These two provisions operate in parallel and must be read carefully together. --- ### The Precise Nature of This Landlord's Fee The £75 flat fee triggers on rent being **more than 3 days late**. This is legally problematic on **three independent grounds**: **1. The 14-Day Threshold Is Mandatory** Paragraph 6 Schedule 1 permits interest-style charges only once rent is **14 days** late. A contractual trigger of **3 days** is therefore prohibited on its face regardless of quantum. The landlord cannot by private contract substitute a shorter period — Schedule 1 is exhaustive and non-derogable by virtue of section 1(3). **2. The Flat Fee Fails the Reasonable Costs Test** A fixed-sum "default fee" is only permitted under paragraph 4 if it does not exceed the landlord's **reasonable costs actually incurred** as a result of the default. "Reasonable costs" is not defined in the Act but per **section 30** must be evidenced. A pre-set £75 flat fee: - Presumes a cost without evidence; - Cannot by definition track the actual administrative cost of each individual late payment event; - MHCLG guidance confirms a blanket tariff does not satisfy this test. **3. The 3% + Base Rate Cap Is the Binding Maximum for Interest** Even if one were to accept an interest-framed charge (the only potentially lawful instrument for late rent), the cap under paragraph 6 is **3% above Bank of England base rate per annum** on the overdue sum. On £950 rent, assuming base rate at 5.25% (2024), the maximum annual rate is **8.25%**. Per day on £950 that is approximately **£0.215/day**. Even over a 30-day period the permitted maximum is approximately **£6.45** — a fraction of £75. A £75 charge is therefore **grossly in excess of the permitted ceiling** if reframed as interest. --- ### Consequence of Prohibition | Question | Answer | |---|---| | Is the £75 fee a prohibited payment? | **Yes**, on multiple grounds | | Is the contractual clause enforceable? | **No** — section 3 renders the term void to the extent it requires a prohibited payment | | Can the landlord retain sums already paid? | **No** — section 2 creates a duty to repay prohibited payments; they are held on trust pending repayment | | What is the penalty exposure per breach? | **£5,000** per prohibited payment under section 12; a second or subsequent breach within 5 years is a **criminal offence** | | How many breaches here? | **Five** — each application of the fee is a separate prohibited payment event | | Total civil penalty exposure | Up to **£25,000** (5 × £5,000), with the 5th breach potentially criminal | --- ### The Tenant's Position The tenant is **correct** that Schedule 1 paragraph 4/6 sets a binding cap and that the contractual fee is prohibited. The tenant can: 1. **Demand repayment** of all five charges (5 × £75 = £375) directly; 2. **Complain to the local housing authority** under section 8 — the authority *must* impose a financial penalty if satisfied a prohibited payment was taken; 3. **Apply to the First-tier Tribunal** (Property Chamber in England) under section 14 for recovery of the prohibited payment; 4. Rely on the fee being **void** if the landlord attempts to use non-payment of the charge as a basis for arrears or section 8 possession proceedings — a tribunal would not treat lawfully challenged prohibited charges as rent arrears. --- ### Summary The fee is unlawful in this configuration because: (i) it triggers below the 14-day statutory threshold; (ii) it is a flat fee rather than evidenced actual cost; and (iii) its quantum vastly exceeds the 3%+base rate interest ceiling that represents the only permitted mechanism for monetising late rent. All five charges are prohibited payments under section 1 TFA 2019. The contractual clause is void under section 3. The landlord is exposed to five separate financial penalties and potential criminal liability on the fifth breach.