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Landmark Decision in the Court of Appeal: Tenant Fees Act 2019

In a pivotal legal ruling, the Court of Appeal in Switaj v McClenaghan [2024] EWCA Civ 1457 clarified the interpretation of the Tenant Fees Act 2019 (TFA). The case addressed whether payments made by a tenant before the TFA came into force could retroactively be deemed prohibited payments, thereby invalidating a Section 21 notice served by the landlord. This decision resolves critical ambiguities in the TFA, providing much-needed clarity for landlords, letting agents, and tenants.

Understanding the Tenant Fees Act 2019

The Tenant Fees Act 2019, implemented on June 1, 2019, sought to make renting fairer and more affordable by prohibiting landlords and letting agents from requiring payments not expressly permitted under the legislation.

Section 1 of the TFA outlines these prohibitions and precludes landlords from serving a Section 21 notice to regain possession if they breach the restrictions. The key issue in this case was whether payments made before the TFA’s enactment could retrospectively fall within its scope and affect the validity of a Section 21 notice.

The TFS sets out a landlord must not ‘require’ a prohibited payment ‘in consideration of’ a tenancy. And the Court of Appeal has provided a definition of these words in the Act, as a definition of such words is absent in the TFA.

Case Background

The dispute originated from tenancy agreements between Ms. Switaj and her landlord, Mr. McClenaghan, for a property in Holloway, North London. In April 2018, before the TFA’s enforcement, Ms. Switaj entered into an Assured Shorthold Tenancy (AST). Under the terms of the tenancy, she paid a security deposit, an administration fee for preparing renewal documents, and a check-out fee for inventory and condition reporting. All payments were made and settled before July 2018, at a time when such fees were lawful.

After the TFA came into force, new AST agreements were signed in April 2020 and April 2021. These agreements removed prohibited charges like administration and check-out fees, ensuring compliance with the TFA. There was no evidence of any payments (other than rent) made during the later tenancies that would fall foul of the Act. In June 2023, the landlord served a Section 21 notice to terminate the tenancy.

Ms. Switaj contested the section 21 notice, arguing that the payments made in 2018 should now be considered prohibited payments under the TFA, thereby invalidating the notice.

Ms. Switaj’s defence was that these fees were ‘required in consideration of’ the new tenancies thereby falling in the scope of the TFA. Although the new AST’s were revised to comply with the TFA and did not require any prohibited payments to be made, it was argued by Ms. Switaj that the Superstrike principal applied. That is to say that the admin and checkout fees paid prior to the TFA coming into force were considered as having been repaid in connection with the new AST’s which fell in the scope of the TFA.

The District Judge rejected this argument holding that Superstrike was distinguished, and ruled in favor of the landlord. The tenant appealed to the Court of Appeal.

Legal Questions and Rulings

The Court of Appeal considered whether payments made before the TFA’s enforcement could be classified as prohibited under the Act, thereby invalidating a Section 21 notice issued under a compliant post-TFA tenancy.

The Court examined the definition of ‘require’ under s.1 of the TFA. The Court held that the word ‘requires’ implies an explicit or implied demand by the landlord. Payments made before the TFA’s enactment did not meet this criterion, as they were not demanded under the terms of the later tenancies and the landlords silence could amount to requiring such payments. The term ‘in consideration of’ was also analysed. The Court held that there must be a clear connection between a payment and the granting or renewal of a tenancy. It found that the payments made in 2018 were tied exclusively to the original tenancy agreement and had no connection to the compliant 2020 and 2021 agreements.

The Court effectively adopted the interpretation of the ‘required’ and ‘in consideration of’ as proposed by Counsel Mr Decker who represented the landlord Mr McClenaghan in the appeal.

The tenant’s argument relied heavily on drawing inferences that retaining the 2018 payments implied they were required for subsequent tenancies. The Court dismissed this reasoning, emphasising the absence of refund requests and the landlord’s demonstrated compliance with the TFA. It further noted that the retention of 2018 payments did not amount to a ‘requirement’ under the Act and that the TFA explicitly does not apply retrospectively.

The Court made obiter comments relating to the fact that it was never pleaded by Ms Switaj before the District Judge that the Court should draw an inferences, and therefore Ms Switaj could not now state the District Judge erred in law on an issue that was never raised.

Final Decision and Implications

The Court of Appeal upheld the validity of the Section 21 notice and dismissed the appeal, concluding that payments made before the TFA’s enforcement were not subject to its restrictions. The ruling confirms that the TFA does not have retrospective application, and compliant tenancies established after the Act’s implementation are unaffected by lawful payments made before its enforcement.

This decision provides reassurance for landlords and letting agents that the TFA applies only to tenancies and payments made after its commencement. It also underscores the importance of ensuring tenancy agreements remain compliant with current legislation. For tenants, the case highlights the necessity of reviewing agreements carefully and addressing any disputes over fees promptly.

The appeal was live streamed via the Court of Appeal’s official YouTube Channel and can be watched here.

This judgment represents a significant clarification of the TFA, balancing fairness for landlords and tenants while ensuring compliance with the Act’s provisions.