Landlord out of pocket costs due to early termination?

by Readers Question

15:43 PM, 10th December 2020
About a month ago

Landlord out of pocket costs due to early termination?

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Landlord out of pocket costs due to early termination?

Who is liable for additional out-of-pocket costs due to early termination of a lease by the tenant? An AST Lease was renewed in November 2019 to end on a fixed date 31 January 2021.

The tenants want to leave on 21 December 2020 and rent has been paid until 31 December 2020.

Because no notice was given, they will pay an amount equal one months rent for January 2021 as a penalty for early termination- all agreed.

Questions
1. What is the new termination date of the tenancy? 21 December 2020 or 31 December 2020.
2. Do they remain liable for any period of Council Tax after 21 December 2020 when they return the keys.
3. The tenants are disputing liability to pay for professional cleaning and a checkout audit as per the original lease due to a change in legislation in June 2020.
Are they correct to do so?

Many thanks

Charles


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Comments

The Forever Tenant

7:37 AM, 11th December 2020
About a month ago

I would guess that the tenancy ends on 31st December as they have paid up until then.

I can't help with the council tax query but for question 3, the tenants are absolutely correct. The TFA now makes it a prohibited payment to insist on checkout fees and cleaning fees at the end of a tenancy, even if they were in the original agreement.

Ian Narbeth

11:15 AM, 11th December 2020
About a month ago

Hi Charles
You could hold the tenant to 31 January. Does the tenancy require the tenant to pay Council Tax. If not, you will become liable for CT as soon as the tenant leaves. The tenancy will end on December 21st for the purpose of Council Tax and any liability for utility standing charges etc.
It is possible to agree a payment for early termination but you need to beware of para 7 of Schedule 1 to the Tenant fees Act 2019:
"7 (1) A payment is a permitted payment if it is a payment to a landlord in
consideration of the termination of a tenancy at the tenant’s request—
(a) in the case of a fixed term tenancy, before the end of the term, or
(b) in the case of a periodic tenancy, without the tenant giving the period
of notice required under the tenancy agreement or by virtue of any
rule of law.
(2) But if the amount of the payment exceeds the loss suffered by the landlord
as a result of the termination of the tenancy, the amount of the excess is a
prohibited payment."
What this means is that if you relet the property before January 31st you will have to refund the tenant. Technically you will have taken a prohibited payment (absurd because it only becomes prohibited when you enter into the new tenancy but that's the law). If you immediately refund the old tenant the rent for the overlapping period you should be OK. It would be harsh in the extreme if the local authority tried to fine you but under the TFA you will technically be in breach as soon as you re-let early.

You might be able to offset Council Tax and other ADDITIONAL costs you suffer while the property is vacant but you need to be careful and be able to prove what loss you have suffered.

John Mac

11:30 AM, 11th December 2020
About a month ago

"Because no notice was given, they will pay an amount equal one months rent for January 2021 as a penalty for early termination- all agreed."
This is where you may have gone wrong IMHO, that rent was lawfully due, the payment is NOT a penalty. As such normally the Tenant would be liable for all costs until termination of Tenancy on 31 Jan but you have agreed they can go early so the contract will be terminated & they will cease to be liable for any ongoing costs, C.T Utilities etc

silversurfer2017

12:04 PM, 11th December 2020
About a month ago

Think yourself fortunate that the tenant is going to pay you for the month of January and you don't have to take legal action to try to recover the one month's rent. (Probably not worth the expense and hassle with no certainty of success). In theory you could find another tenant to move in on January 1st and get paid twice for the same month. If this is a possibility you could even offer a new tenant the first month at half price and still be in pocket.

Ian Narbeth

12:14 PM, 11th December 2020
About a month ago

Reply to the comment left by at 11/12/2020 - 12:04
You write: "In theory you could find another tenant to move in on January 1st and get paid twice for the same month." You will be in breach of the TFA if you do so. It's a one way bet for the tenant. If the landlord recovers a penny more than his proven losses he has taken a prohibited payment.

You might be able to offer the incoming tenant a reduced or concessionary rent initially and not fall foul of the Act but be careful.

David

12:26 PM, 11th December 2020
About a month ago

The tenants are still in a fixed term tenancy so the council tax liability remains theirs if they move out early. However, If you accept their surrender, (which it sounds as though you have), then their liability ends.

silversurfer2017

12:43 PM, 11th December 2020
About a month ago

Reply to the comment left by Ian Narbeth at 11/12/2020 - 12:14
Surely the tenant can't have it both ways? The landlord has agreed the tenant can leave one month early. The tenant will not be paying the council tax or the utility bills for January. (A cold month so larger heating bills). If I understand you correctly then if the landlord gets a new tenant to move in before 31 January, even say on 24th January then the loss that has been mitigated by the new tenant moving in on say January 24th paying one weeks rent, one week's council tax and one week's heating bills then this one week rent money will belong to the old tenant in spite of the fact that the landlord has had to pay the council tax and heating bills for the first 3 weeks of January in the absence of the old tenant?

John Mac

12:48 PM, 11th December 2020
About a month ago

Reply to the comment left by at 11/12/2020 - 12:43
Could be argued either way as the Jan payment has been described & agreed by both parties as a penalty & not rent, so if T not paying rent for Jan why would they be responsible for any other costs?

Ian Narbeth

12:57 PM, 11th December 2020
About a month ago

Reply to the comment left by at 11/12/2020 - 12:43"Surely the tenant can't have it both ways? " Yes he can. As I said in my first post: "You might be able to offset Council Tax and other ADDITIONAL costs you suffer while the property is vacant but you need to be careful and be able to prove what loss you have suffered."
In your example with just 7 days of overlap, the extra costs between 21 December and 24 January might be more than 7 days rent. The landlord should be able to recover heating costs but he will have to prove his loss.
The Act provides a massive disincentive to a landlord to allow a tenant to leave early. If the landlord loses out financially that is his loss. If he were to gain by reletting early he must give up every penny or that gain or potentially be liable to a £5000 fine.
If one of our tenants want to leave early we usually say that we will try to find a new tenant but the tenancy continues until the new tenant moves in.

Seething Landlord

13:17 PM, 11th December 2020
About a month ago

Page 15 of the new "How to rent guide" has the following advice for tenants:
If you wish to leave the property within the
fixed term, or more quickly than permitted
in the tenancy agreement you should discuss
this with your landlord. If your landlord or letting
agent agrees to end the tenancy early, you
should make sure that this is clearly set out in
writing and that you return all your sets of keys.
If you do not, your landlord may make a court
claim against you, to obtain possession of the
property. You could be charged if you want to
end the tenancy early, although this fee must
not exceed the loss incurred by the landlord
or the reasonable costs to your letting agent if
you are renting through them. Unless or until a
suitable replacement tenant is found, you will be
liable for rent until your fixed-term agreement
has ended or, in the case of a statutory periodic
tenancy, until the required notice period under
your tenancy agreement has expired. The
government’s guidance on the Tenant Fees
Act contains more information.

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