Charges to tenant on early termination of tenancy?

by Readers Question

15:05 PM, 28th August 2019
About A year ago

Charges to tenant on early termination of tenancy?

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Charges to tenant on early termination of tenancy?

My friend agreed to early termination of the tenancy under the – following clause

11. In the event of a surrender of this Tenancy by agreement between the Landlord and the Tenant, the Tenant will pay the Landlord the sum of £250 towards the administrative costs generated thereby.

The tenant is challenging the clause

What can I charge if a replacement tenant has been found?
Where a suitable replacement tenant is found and the landlord has agreed to an early termination of the tenancy, you can only charge the tenant rent until the new tenancy has started. If you do not stand to lose any rent because of a tenant’s decision to leave, you would not be permitted to consider lost rent in any fee you wish to charge for early termination.
However, you could reasonably charge a fee to cover any referencing and advertising costs that you have incurred as a result of a tenant leaving early, but you should be able to provide evidence to demonstrate these costs.

My friend is not charging for any rent lost, but as per the above clause (11) is charging for administration cost only. Is my friend legally correct to charge the administration cost?

Many thanks

Kirtikumar


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Comments

Neil Patterson

15:08 PM, 28th August 2019
About A year ago

The only payments you can charge in connection with a tenancy are:

-The rent
-A refundable tenancy deposit capped at no more than five weeks’ rent where the annual rent is less than £50,000, or six weeks’ rent where the total annual rent is £50,000 or above
-A refundable holding deposit (to reserve a property) capped at no more than one week’s rent
-Payments to change the tenancy when requested by the tenant, capped at £50, or reasonable costs incurred if higher
-Payments associated with early termination of the tenancy, when requested by the tenant
-Payments in respect of utilities, communication services, TV licence and council tax; and
-A default fee for late payment of rent and replacement of a lost key/security device, where required under a tenancy agreement

If the fee you are charging is not on this list, it is a prohibited payment and you should not charge it. A prohibited payment is a payment outlawed under the ban.

What does this mean for existing tenancy agreements?

If a tenancy agreement was entered before 1 June 2019, you can continue to require a tenant to pay fees written into that agreement (e.g. check-out or renewal fees) until 31 May 2020.

Binks

21:41 PM, 28th August 2019
About A year ago

Reply to the comment left by Neil Patterson at 28/08/2019 - 15:08
I’m not sure that correct Neil, my understanding is that “Where a tenancy agreement was entered into before 1 June 2019, you will still be able to charge fees until 31 May 2020, but only where these are required under an existing tenancy agreement.” Given the landlord is sticking to an agreed clause of the existing tenancy agreement, isn’t the determining question here whether the Tenancy in question was entered into before 1 June 2019?

Neil Patterson

8:58 AM, 29th August 2019
About A year ago

Reply to the comment left by Binks at 28/08/2019 - 21:41
Hi Binks,

Yes that is correct and what I believe I quoted above. Please see our article on government guidance >> https://www.property118.com/official-government-guidance-tenant-fees-ban-released-today/

Gary Nock

9:55 AM, 29th August 2019
About A year ago

If entered into before 1st June the admin charge is legally enforceable. In the absence of them paying the £250 perhaps they would like to pay the full cost of the remainder of the tenancy which they are legally liable for? They can't have their cake and eat it. LL has agreed any early termination but with that comes additional lettings costs. Even under the TFB then £50 is allowed - which is a joke - or "reasonable costs". It takes around 17 hours for a new tenancy to be completed with viewings. taking holding deposits, compilation of the tenancy agreement, serving the How To Rent Guide, protecting the deposit and serving the prescribed information, serving the gas and epc certificates, doing a legionella risk assessment, preparing an inventory ( a digital inventory done using something like property inspector on a 2 bed house will take at least 6-8 hours if done properly. So £250 is a bargain.

Ian Narbeth

10:01 AM, 29th August 2019
About A year ago

The clause is drafted in a curious way:
" In the event of a surrender of this Tenancy by agreement between the Landlord and the Tenant, the Tenant will pay the Landlord the sum of £250 towards the administrative costs generated thereby."
The key words are "by agreement ... Tenant". In other words what is is saying is that if the Landlord and the Tenant later agree to a surrender (neither of course being under an obligation to agree) then the Tenant will pay £250. The clause has no legal force until the later agreement is reached. The clause does not say "The Tenant may terminate the tenancy on X days notice provided the Tenant pays £250".
As such I think it will be lawful. Section 1(6(a)) of the TFA might make the payment unlawful because the landlord is requiring a payment "in consideration of the grant, renewal, continuance, variation, assignment, novation or termination of [the tenancy]". However, section 1(7) says that the landlord does not require the tenant to make a payment if he gives the tenant the option of paying as an alternative to complying with another requirement imposed by the landlord. The alternative of course is to continue to pay rent and perform the tenancy covenants in the AST until the contractual end of the tenancy.
That said, the landlord might be concerned a Council would misread the clause and pursue the landlord. In my view it is now safer not to have such a clause in the AST at all. Instead, let the tenant know that if they want to leave early the landlord may be amenable subject to the tenant paying £250.

Luke P

10:05 AM, 29th August 2019
About A year ago

Also, if it was entered into pre-June, but became *statutory* periodic after June, then that will be considered a new tenancy and therefore new (fee ban) rules will apply.

Even before the fee ban, Judge's weren't keen on and pre-defined charges, rather they had to be reasonable as incurred at the time.

As far as any initial (usually six or twelve) month period is concerned, the tenant is bound by the minimum period.

Ian Narbeth

10:12 AM, 29th August 2019
About A year ago

Reply to the comment left by Luke P at 29/08/2019 - 10:05
Hi Luke, it's not correct that the TFA will apply - see section 30:

"Subject as follows, section 1 (prohibitions applying to landlords) does not
apply to—
(a) a requirement imposed before the coming into force of that section, or
(b) a requirement imposed by or pursuant to a tenancy agreement entered
into before the coming into force of that section."

Luke P

10:40 AM, 29th August 2019
About A year ago

Reply to the comment left by Ian Narbeth at 29/08/2019 - 10:12
SPT is a new tenancy. New tenancies after June are affected. I don't see how the above changes that? Contractual periodic would be unaffected.

Binks

10:42 AM, 29th August 2019
About A year ago

Reply to the comment left by Neil Patterson at 29/08/2019 - 08:58
Ah yes Neil I see your last paragraph now!

Ian Narbeth

12:06 PM, 29th August 2019
About A year ago

Reply to the comment left by Luke P at 29/08/2019 - 10:40Luke
Section 30(2) TFA says:
Subject as follows, section 1 does not apply to a requirement imposed by or
pursuant to an agreement relating to a periodic tenancy which arises—
(a) under section 5(2) of the Housing Act 1988 after the coming into force
of section 1, and
(b) on the coming to an end of a fixed term tenancy which was entered into
before the coming into force of that section,
(referred to in this section as a “relevant statutory tenancy”).
This falls away after 30 May 2020 but until then provided a replacement tenancy is not signed the landlord can charge fees.

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