Mar

YOUR forum questions answered: Early termination fees and invoices

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The hugely popular LandlordZONE forum is a friendly community where landlords share their experiences, exchange tips and ask for advice. Here we answer a recent question and ask the experts at Hamilton Fraser to give their best answer!

The question:

The tenant wants to leave the rental property before the end of the tenancy and is questioning whether the early termination costs the agent is asking for are reasonable. The landlord is happy to agree to an early termination of the tenancy, providing another tenant can be found and the tenant carries on paying the rent in the meantime. The tenant intends to help find a replacement tenant themselves. Are the costs proposed by the agent for early termination reasonable?

The answer:

Suzy Hershman (pictured, below), Head of Dispute Resolution at mydeposits, part of the Hamilton Fraser family, explains:

We’ve been getting a lot of queries relating to the topic of early termination fees at mydeposits recently, highlighting that many tenants, landlords and agents don’t yet fully understand the importance of providing evidence in this type of scenario, following the implementation of the Tenant Fees Act (TFA).One of the changes the TFA introduced when it came into force in 2019, was changes to early termination fees. Although the TFA prohibited agents and landlords from charging fees to tenants, the act clearly lists early termination fees as a ‘permitted fee’ – one that can be charged to a tenant.

But, although early termination fees can be charged to a tenant, any early termination charges must be reasonable, clear and backed up by evidence of their actual costs. This is quite a significant change – before the TFA came into force, if a tenant disputed early termination fees and a case went to a mydeposits adjudicator, we would award if the tenant had simply been given a cost breakdown of the re-letting costs and any commission fees. The tenant could then choose whether to accept and move out or disagree and stay. If the tenant disputed the fees, we would have been unlikely to accept a dispute, although we might have taken a view in relation to the ‘reasonable’ test (which I’ll explain below).

The key change, following the TFA, is that agents and landlords must prove that they are out of pocket as a consequence of the tenant ending the tenancy early, by providing evidence in the form of invoices for the actual costs incurred. Before the TFA, we did not require invoices to make an award. Now, if the tenant disputes the proposed cost, the landlord or agent will only be able to charge fees if they have invoices to prove the loss.

Agents may generate their own invoices if the property is fully managed, or landlords and agents may have separate invoices for costs such as marketing the property or referencing prospective new tenants. All of this will be valuable evidence when it comes to proving reasonable costs.

We do have some discretion when making decisions, and this is where the ‘reasonable’ test comes in. This could apply to the specific question in the scenario outlined on the Forum, if the tenant is successful in finding a replacement tenant. It is likely to be unreasonable to award a claim of £750.00 for re-letting fees where a tenant has asked to leave early, disagreed with the proposed costs, and found the new tenant themselves before leaving. My view is that a landlord or agent would have difficulty proving this is their actual loss.

Likewise, with commission fees, it would be unreasonable to make an award where the evidence shows the agent has agreed to waive the outstanding commission in return for re-letting the property and fully managing it.

Although this approach adds more work for landlords and agents at the evidence gathering stage, ahead of a discussion or dispute, this more thorough way of doing things ties in with the transparency and clarity required by the Tenant Fees Act, and everyone knows where they stand, the tenant included.

At mydeposits, we’ve been getting a lot of questions recently on this topic in response to our new Early termination fees guide, which also provides more information on what you need to know about both re-letting and commission fees. You can read a more detailed article are sending out to our members on early termination fees and the importance of providing evidence and invoices here.

Join LandlordZONE’s forum here.

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