Judge rules early termination fees unlawful

 It is common for landlords and/or their agents to charge a tenant the cost of terminating a tenancy early when no break clause is available, but agents and landlords need to be careful what they charge the tenant for.

In a First Tier Tribunal case earlier this month (June 2024) the judge ruled that the early termination fees being charged to the tenant were actually unlawful according to the Tenant Fees Act 2019.

Here property expert Julie Ford explores the case in more detail.

A 24 month assured shorthold tenancy was entered into on 3^rd July 2023 there was a 12 month break clause, however, the tenants circumstances changed and they needed to break the tenancy in November 2023 just 4 months later, the landlord agreed but explained the tenants would need to abide by the agent ( Winkworths) early termination policy, the tenants agreed.

This is where it starts to unravel for the landlord and agent, now under Schedule 1  s7 of Tenant Fees Act 2019 landlords are permitted to charge early termination fees, which are capped at £50, but these need to be the reasonable costs they also cannot exceed the loss suffered by the landlord as a result of the termination of the tenancy as the amount of the excess is a prohibited payment.

The property was put on the market and re-let within 2 days, albeit at a lower rent of £2,600, £200pcm less than the exiting tenants were paying.

So what did the agents termination policy expect the tenant to pay

·       Rent and bills up to the date a new tenant moved in

·       £1,325.02- This was the difference in rent from the £2,800 the tenants were paying to the £2,600 of the agreed new rent, for the remaining 7 month sup to the ASTS natural break clauses.

·       £1802.60 – 7 months management fees for the agent

The first of this list, rent & bills is totally acceptable, it is reasonable to expect a tenant to continue to pay the rent and bills until the day before a new tenant moves in these costs are not in question

The charge for the difference in rent and the agents management fees however, do breach the Tenants Fees act Sch 1 S7. The judge went on to say

“The tribunal finds the applicants are not liable for the loss to the landlord for the lower rent charged to the new incoming tenants. Having accepted and early termination of the tenancy, the landlord is liable to mitigate his losses. The applicants cannot be held responsible for the alleged changes in the letting market”

The judge ruled that the tenants cannot be charge the agents managements fees, stating

“The tribunal finds the landlords loss of letting fees is essentially a ‘double recovery’ as the payment of those fees could reasonably be transferred to the new letting of the premises and do not represent a genuine loss. Therefore, the tribunal finds the fees of £1802.06 forms a prohibited payment and are to be returned to the applicants”

The tenants in this case did agree that the agent/landlord was owed some money for the additional work, but their argument was that the fees put to them in this case were excessive and fell outside the Tenant Fees act and the realm of permitted payments

The total to be refunded to the tenants was £2252.06

Similar cases have been ruled on at Tribunal in recent years for early termination payments.

October 2023 Watfi v  El Hady full £1,178.00 refunded to tenant

October 2022 Stainer v S B Lets Limited, partial refund of £957

September 2022 Watkins v Hogg Check out and Check in fees refunded to tenant

August 2022 Hayes v Rawlins Refund to tenant £111, landlord awarded £50 re-let costs

Brennan v Ludlow Thompsom £343.54 refunded to tenant, agent awarded £50

Its important to remember that the Tenant Fees Act 2019 sets an upper limit on charges of £50 for early termination, only if a landlord or agent can clearly show that their reasonable costs were higher than this would it avoid being a prohibited payment

It is also wise to remember that even it a tenant agrees and pays these fees, they can appeal to the tribunal after the fact and still get a refund as happened in the cases above.

Agents nor landlord can financially benefit from a tenants need to terminate a tenancy early and a landlord is expected to do everything they can to mitigate their losses.

 

140% increase in tenancy application fraud

 As if landlords and agents didnt have enough to worry about, recent data has shown a significant increase in rental market competition is driving a rise in tenancy application fraud.

An analysis by tenant referencing firm Goodlord revealed a 140% increase in tenancy application fraud between 2022 and 2023.

The most common method involves manipulating payslips, either by inflating income or altering the source entirely.

Goodlord analysed over 300,000 applications from each year, showing an increase from 1.2 cases of fraud per 1,000 applications in 2022 to 2.9 cases per 1,000 in 2023.

Nishma Parekh, Goodlord’s head of referencing, stated, "Fraud can take many forms. Some tenants, desperate to secure a property, believe inflating their salary will help.

Given the current pressures on the housing market, it's understandable why we're seeing a rise in this type of fraud."

She added, "However, this approach is inadvisable as it could lead to being listed in the National Fraud Database, impacting future job prospects and other significant life events like securing loans."

The increase in digitalisation also brings new challenges, with criminals using increasingly sophisticated methods, including fake IDs and forged documents to rent a home.

To combat this growing threat, Goodlord advocates for robust referencing practices.

The firm advises landlords and agents to utilise technology such as Open Banking and AI-powered solutions to detect inconsistencies and prevent fraud attempts.

Investing in skilled referencing teams trained to identify red flags in tenant applications is also crucial.

This highlights the  "darker side" to tenant fraud, with criminals using false IDs to secure properties or applicants submitting forged documents.

As the tools for committing fraud become more sophisticated and personal information is increasingly digitised, it's vital that landlords and agents have access to cutting-edge technology designed to combat fraud, ensuring they can let their properties in good faith."

Collaborations with entities like HMRC, payroll providers, and the fraud database, along with Open Banking, enable experts to tackle tenant fraud, making it difficult for fraudsters to exploit the system.

It is more important than ever for landlords and agents to ensure comprehensive referencing is carried out and not to cut costs or corners with minimal checks in the haste to minimise voids and limit short term losses.

These short coming could adult lead to a very costly ending

Local network event celebrates 14 years

Hemel and St Albans Property Network Celebrates 14 Years of Success

Today marks a significant milestone for the Hemel and St Albans Property Network as it celebrates its 14th anniversary.

This fully independent property meet has been a cornerstone of the local property community, offering invaluable advice, guidance, and support to landlords and property professionals in the area.

The network, founded by Julie Ford and later supported by co-host Craig Shepheard, has earned a reputation for its welcoming and inclusive events.

Unlike traditional networking events, the Hemel and St Albans Property Network eschews formal speakers and sales pitches, in favour of old fashioned networking.

This unique approach ensures that attendees have ample time to engage in meaningful conversations, share experiences, and build lasting connections.

A format that in recent years has been replicated by many new event hosts in the circuit.

Julie  vision for the network was to create a safe environment where property professionals could collaborate and support one another without the pressure of formal presentations.

Their commitment to fostering a supportive community has been key to the network's longevity and success.

To cement this success they have recently been nominated for Property Community of the Year at the Blue Bricks Awards, with winners announced on 19th June at the formal awards ceremony.

As the Hemel and St Albans Property Network celebrates this remarkable achievement, Julie and Craig extend their gratitude to all supporters and attendees, especially their team of Ambassadors who have contributed to the network's vibrant and dynamic community.

Here's to many more years of collaboration and growth in the local property sector.

Mouldy homes- not always the landlord’s fault

With more and more tenants increasingly complaining of mould and damp in rental houses, we could be forgiven for believing the mainstream media that this decline in accommodation standards is due to tight landlord not wanting to improve the conditions their tenants are living in.

But Britain’s cold and damp climate, a result of its position on Europe’s Atlantic edge, naturally leads to rainforest-like conditions.

Despite this, the recent push to retrofit insulation in British homes, which are often criticised for being the coldest and draughtiest in Europe, may ironically worsen living standards.

A BBC investigation highlighted that poorly-fitted cavity wall insulation is causing harmful mould growth in homes.

However, the issue isn’t the insulation failing but rather it working too well.

About 25% of Britain’s housing stock predates 1919, built with traditional methods to manage moisture through airflow.

Air-permeable lime mortar and plaster allowed internal moisture to evaporate, while draughty single-pane windows prevented mould by circulating air. Heating these draughty homes was historically managed by burning large amounts of wood or coal.

Post-WWI, with a loss of skilled tradesmen, builders shifted to using gypsum-based plasters and cement mortar, which are impermeable to moisture.

This led to the introduction of air cavities and vents for circulation. Over time, traditional building skills waned, and older homes were renovated with impermeable materials.

Draughty windows were replaced, and chimneys were closed in favour of central heating, reducing airflow and causing damp issues, which led to ineffective solutions like damp-proof courses and chemical injections.

Now, rising energy costs and climate change concerns are driving another push for retrofitting insulation.

 Landlords, believing they were upgrading their rental homes, used government grants for spray foam insulation.

This blocked airflow, leading to moisture buildup, rotting roof structures, and making homes unmortgageable.

Similar problems are arising with foam cavity wall insulation and other retrofits, resulting in wasted taxpayer money and increasingly unliveable homes.

Despite good intentions, the insulation campaign is becoming a scandal, as solutions suited for dry continental climates cause major issues in Britain’s moist environment.

The solution isn’t to demolish and rebuild a quarter of Britain’s housing, but to reinvest in traditional breathable building techniques, turning what is now a niche industry into a widespread practice.

Supporting breathable insulation materials like sheep’s wool would benefit both homes and British farmers.

Additionally, grants for solid fuel-burning stoves could make draughty homes warm and liveable without causing damp and mould.

Often, the simplest, time-tested methods prove to be the best, while well-meaning modern innovations can have unintended negative consequences.