How the Tenant Fees Ban Can Backfire on Tenants

by Mark Alexander

16:12 PM, 27th August 2019
About 3 weeks ago

How the Tenant Fees Ban Can Backfire on Tenants

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How the Tenant Fees Ban Can Backfire on Tenants

CASE STUDY – based on a true story

Lucy, Amy and Charlie rented a property for 12 months on a Joint Tenancy basis just three months ago. However,  Lucy has been offered a better job closer to her parents, so naturally she wants to move out.

Amy and Charlie have no objection to this because their friend Sharon is happy to move into Lucy’s room.

They contact their landlords, who in turn contacts their Agents for help and advice.

The Agent advises as follows:-

  1. Lucy would like her share of the deposit to be refunded and Sharron is happy to pay this. HOWEVER …
  2. The referencing and Rent Guarantee Insurance “RGI” policy was based on the income from all three of them
  3. Sharon will need to be referenced
  4. The RGI policy will need to be amended
  5. Sharon will need to be served a How to Rent Guide
  6. The Tenancy Deposit will need to be unprotected and protected again in the names of the new tenants
  7. A new Deposit Protection Certificate will need to be issued
  8. You have a choice to issue a new tenancy (if Lucy or any of the other girls serve notice) or as an alternative we can deal with this with a Deed of Assignment if all the girls agree to that

OK, says the landlord, but who is going to pay for all of this?

Well, you will have to pay, says the Agent, because it it now illegal to charge the tenants.

OK, says the landlord, I will not agree to it then. The three of them are jointly liable to pay me the rent for the remaining 9 months of the contract and I am not obliged to agree for Sharon to move in.

How is this fair on any of the girls?

And that, my friends, is why legislation can be so dangerous when the full consequences of it are not thought through properly.

Remind me, who was this Tenant Fees Ban designed to protect again?

However, there was a happy to ending to this particular story.

Giles Peaker of Anthony Gold Solicitors was consulted and he pointed out that MHCLG provides guidance on such matters, which state as follows on Page 7 para E of this linked guide:-

“If a tenant requests to leave before the end of their tenancy you are entitled to charge an early termination fee. This must not exceed the financial loss that a landlord has suffered in permitting, or reasonable costs that have been incurred by the agent in arranging for, the tenant to leave early.

This usually means that a landlord must not charge any more than the rent they would have received before the tenancy reaches its end.

It is good practice to agree to any reasonable request to terminate the tenancy agreement early. If there are no missed rent payments, we encourage you to not charge any early termination fees unless you can demonstrate through evidence to the tenant that specific costs have been incurred (e.g. marketing and referencing costs). Any payment that exceeds the landlord’s financial loss or an agent’s reasonable costs will be a prohibited payment.”

Thankfully, Lucy only had to pay £100 because that is all LettingSupermarket.com charged the landlord to deal with all the matters described above.

Other Agents may well have charged significantly more for all the work described above, which could result in questions over “reasonableness”. That could open up a huge can of worms, and possibly it would be happy days for the lawyers who fight the case, and maybe for the Agents too if they get paid, but not for Tenants or the Landlords.

When Shelter get their teeth into a case of this nature, and I am sure they will at some point, it will again be landlords and agents who are made out to be the baddies, even if it is the agent who charges what a Judge decides after the event are “unreasonable fees”.

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Comments

Monty Bodkin

17:32 PM, 27th August 2019
About 3 weeks ago

legislation can be so dangerous when the full consequences of it are not thought through properly.

Amen to that brother.

What would be the consequences if Sharon's dope dealing boyfriend starts staying over a bit too often. Having his mates round for a bit of drum and bass 'til 2 in the morning. Some low level vandalism and violence. Coppers round a few times but nowhere near enough for the very high proof level of the ASB grounds.
The neighbours aren't happy.
Landlord serves a section 21, tenant's lawyer knocks it back with a claim of unreasonable fees.
Neighbours have a summer of hell whilst the landlord argues the toss about 'reasonable' fees.

Consequences indeed.

Luke P

11:00 AM, 28th August 2019
About 3 weeks ago

Reply to the comment left by Monty Bodkin at 27/08/2019 - 17:32
I've posted the exact same thing on another forum, but it is just as relevant here...

I've come to the conclusion that almost all decision-making in this country is taken by those with the least understanding and it is because there is only time enough to become *either* and expert in a particular field/industry OR a decision-maker/politician. In order to reach positions of real power, you need to do certain things/be in the right places/'befriend' the right people, which is itself a full time, long-term job and therefore cannot wholesale focus on, nor be intimately acquainted with the everyday nuances within the industry you will ultimate take decisions on...!

Ian Narbeth

11:17 AM, 28th August 2019
About 3 weeks ago

As Monty points out, the TFA creates a problem for landlords in that if there is a dispute about the reasonableness of fees, the landlord is on a hiding to nothing. Succeed in justifying your fee/charge and you have wasted hours of time for which you will not be compensated. Fail (and have the fee/charge reduced) and the excess is a prohibited payment and you are immediately in breach and liable to up to a £5000/£30,000 fine and going onto the rogue landlords' register.
Granted, most tenants won't turn around and treat their landlord like that but the law allows them to, and enlists Councils to pursue landlords.
It will only take a few high profile cases of landlords being punished for doing a good deed and landlords generally will become reluctant to be helpful.
It's almost as if the legislators wanted to foment enmity between landlords and tenants.

Ian Narbeth

16:27 PM, 3rd September 2019
About 2 weeks ago

It is also becoming apparent that families with pets can't find landlords prepared to accept them. If they are lucky they may be offered a sub-standard property that needs doing up. The reason? Landlords cannot take more than 5 weeks' rent as deposit, even if the tenant is well able to afford it and offers it.

Mark Alexander

17:39 PM, 3rd September 2019
About 2 weeks ago

Reply to the comment left by Ian Narbeth at 03/09/2019 - 16:27
No but they can buy insurance and charge an increased rent.

I do that for suitable properties and it is a lucrative niche market.

One of my tenants has a cat, two dogs and three horses.

Ian Narbeth

10:14 AM, 4th September 2019
About 2 weeks ago

Reply to the comment left by Mark Alexander at 03/09/2019 - 17:39
Interesting Mark. Is it a special type of policy? Many landlords will be unaware of this option. Have you ever had to make a claim and what was your experience of it?

Mark Alexander

10:19 AM, 4th September 2019
About 2 weeks ago

Reply to the comment left by Ian Narbeth at 04/09/2019 - 10:14
Hi Ian

The policy is arranged through LettingSupermarket.com and is underwritten by DAS.

I have never needed to claim but other clients of LettingSupermarket.com have been successful doing so

Heather G.

12:53 PM, 8th September 2019
About A week ago

“If a tenant requests to leave before the end of their tenancy you are entitled to charge an early termination fee. This must not exceed the financial loss that a landlord has suffered in permitting, or reasonable costs that have been incurred by the agent in arranging for, the tenant to leave early.
If I read this correctly, as a self managing LL I can only charge for my 'losses', not my 'costs'. So I could charge for lost rent, but not the costs of referencing etc?


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