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.