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Agent seeking commission from tenants leaving early

HousesHere is a blog clinic question from Peter, who is a tenant

Please help. We are tenants with 3 year lease with a two year break clause and we have to leave due to an employment situation. We have 15 months left on the lease.

The Landlord has agreed to release us from the lease, and we have agreed to pay rent until new tenants are found.

However, the letting/managing agent wants to charge us £4,000 for commission. This is the commission cost for the remaining 15 months which has already been paid by the landlord, which presumably, goes back to the landlord.

When new tenants arrive the landlord is expected to pay the new commission costs for the full term of the new lease to the letting agent. However, the letting agent has told us no commission costs will be refunded back to us despite the landlord paying new commission costs at the beginning of a new leasehold tenancy with the new tenants.

The agency have also said that unless we pay this commission cost of £4k they are not willing to advertise the property to get new tenants. Where do we stand in this situation as landlord and ourselves are keen to to have new tenants rent the property? Also the non-refund of costs means the agent will be making almost double the commission costs(depending on gap between our termination of lease and new tenants lease). Is this legal?

This sounds very wrong to me.  The commission is a matter between the landlord and the agent, and should not be charged to the tenant.

If the agent is a member of any regulatory body such as ARLA or RICS you could consider lodging a complaint, or if not, maybe with the local Trading Standards Office.

You may also get some help via the Office of Fair Trading.  In their guidance on unfair terms, they said that any clause seeking to prevent a tenant from assigning his tenancy would be void unless the tenant could break the tenancy early.

So it may be that if you can find a  replacement tenant yourself you could tell the landlord that you are going to assign it unless he agrees to release you and sign up the new tenants on a new agreement.

The agents couldn’t complain as they would get their commission.

It would be interesting to know what other agents think of this.  Presumably it is not common practice.


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17 Responses to Agent seeking commission from tenants leaving early

  1. I don’t think their demand is enforceable, but the catch is them refusing to advertise therefore costing you more.

    legally they can only charge you until its re let… It therefore may be wise to get everything in writing with receipts. Pay it and come back when they have let it out for refund.

    or does landlord know? It may be wise to let him know you want to meet your agreement but due to agents actions you may have to default.

  2. The mention of a break clause is confusing. As far as I understand it you are leaving before the break clause can kick in, so you are not using the break clause but separately negotiating to be released from your obligations.

    You’re saying that even if the Agent refunded £4000 commission to the landlord for the first let that you should still get the commission refunded to you for the second let? If that were right then the Agent is out of pocket twice! I think you have misunderstood the facts. By your own admission you have ‘presumed’ the agent will refund the £4k fees to the landlord. think you need to clarify this as it’s quite an important point.

    In your agreement it will probably have a clause relating to re-letting fees and these will kick-in where you are negotiating an early release without using a break clause. Basically teh clause will say that you can be held liable for the landlord’s costs if you leave early.

    The landlord wasn’t banking on paying any additional agency fees for three year duration but the agent isn’t going to re-let his property for free, so now the landlord is going to have to pay another lot of commission to re-let the property. This will be charged to you as a re-letting fee.

    The way we do it is charge the tenants for the commission from the release date (the day the new tenants move in) until the contractual end date of the original tenancy. This money is kept by us and the landlord is not charged any commission for this period for the new tenancy. So basically the tenant has covered the landlords additional agency costs so that he is not worse off than if the tenancy had run until the original contractual end date. We expalin this to tenants in wiriting and get them to sign a re-letting form agreeing to it.

    I’m not sure you fully understand the situation and would suggest you get it clarified in writing from the agent. It could be that they just want you to agree to teh re-letting fees before they advertise it, not actually part with the money.

  3. “This sounds very wrong to me. The commission is a matter between the landlord and the agent, and should not be charged to the tenant.”

    Not if it has been separately agreed that the tenant will pay it as part of the settlement to get out of the contract.

  4. “So it may be that if you can find a replacement tenant yourself you could tell the landlord that you are going to assign it unless he agrees to release you and sign up the new tenants on a new agreement.

    The agents couldn’t complain as they would get their commission.”

    The landlord could refuse an assignation of the lease if the new tenants are not referenced properly.

    Provided the outgoing tenant pays for all the costs relating to finding a new tenant, the references and credit check and the costs of assiging the tenancy then yes, everyone should be happy.

  5. @YesAdam “legally they can only charge you until its re let”

    Really? I think that’s a bit ambiguous, can you expand on this please?

  6. Surely after the property is let to another tenant, this ends the tenancy with Peter. He will incur no further ongoing liability although will still be liable for existing matters such as rent up to the date of the tenancy agreement with the new tenant.

  7. Looking at this problem again, Peter if you are ending the tenancy under a break clause, then I don’t see what the agents can do about it. The tenancy will just end once you have activated the clause. Depending on what the break clause says of course.

    If you are ending the tenancy at a different time from that provided for by the break clause, then things are a bit more difficult.

  8. Thank you for your comments. We are ending the tenancy 15 months before the two years break clause. Originally, the estate agent wanted to charge us the landlord’s commission for those 15 months which amounted to £4k. From my understanding the agent charges the landlord commission per contract which is non-refundable.

    There has since been some developments. The estate agent has now backed down and is now only going to charge us a fraction of the costs (had we not protested they would have gotten away with it!). They will charge us only 2 months commission (instead of 15 months!). The 2 months is the time between we move out and the landlords next yearly payment date of his commission to the agent.

    However, all has not turned out that well. Despite the flat being re-advertised and new tennants found, the landlord has chosen to take tenants that cannot move in until the middle of April, over other tenants that could have moved in straight away just after our leaving date. He chose the tenants that would stay the longest out of the two groups of tenants that made an offer. This will cost us £3K in rent from the date we leave until the new tenants move in. So in total we will be paying more than the £4K after other fees.

    So, we won the against the agent’s greed but then have to succumb to the landlord’s greed. Such is life.

  9. So, since these new developments, the issue for us now is, should we be charged the commission for these two months given that the landlord has decided to take on tenants that will not be able to move in for over a month from when we leave over other that could have moved in straight away. Or should we be expected to pay rent for that 1 + month period?

    The new tenants would not have even made an offer had the flat been advertised properly in the first place. It was advertised as being available for the end of March instead of mid march when we our moving out. Given the estate agent’s fault in advertising incorrectly, do we have any argument for reducing fees, costs etc, as there mistake has cost us more rent than would have been necessary. Thank you.

  10. If you are not using the break clause, then you really have to accept what conditions the landlord sets for allowing you to leave early.

    Generally if you are trying to end a tenancy without using a break clause you are not in a strong position.

  11. “He chose the tenants that would stay the longest out of the two groups of tenants that made an offer. This will cost us £3K in rent from the date we leave until the new tenants move in. So in total we will be paying more than the £4K after other fees. ”

    The landlord is just making a perfectly reasonable commercial decsion I’m afraid. What you consider ‘greed’ is the landlord making the best of a bad situation. The landlord’s primary aim is to make money and continue paying his mortgage.

    What you perhaps do not realise is that the landlord is in fact being generous! He could have easily sat back and held you to your tenancy for a further 15 months until the first break clause.

    You signed a contract that you now wish to end early and unfortunately there are going to be some financial repercussions. What you have to pay would seem reasonable on simple inspection.

  12. Jamie

    I don’t know whether you are a lettings agent but you are not correct and neither are some of the other comments in this thread.

    I cannot add more until later today but meanwhile Peter can you put a lot morew detail on this. What are the exact start and end dates, how much is the rent, what is the exact date the break clause can be triggered and how much notice under that?

    In residential lettings a Landlord still has to mitigate the tenant’s costs. There was a commercial case a couple of years ago that said they did not, but this has never been tested in commercial.

    If you can show there is no reason that the other tenants who could have moved in sooner were not as acceptable as those chosen then my view would be you have a strong caswe. Sounds to me as though the Landlord and agent are trying to have their cake and eat it – both at your expense.

    What EXACTLY does the tenancy agreement say about tenant liability if they wish to leave early in terms of covering Landlord costs? Obviously the rent must be paid until new tenants are found (subject to mitigation as above)but anything more than standard re-let fees would never stand up with an OFT UCT challenge

  13. Sorry meant never tested in residential

    Jamie – surely if this is a 36 month lease with a break clause at 24 months and the tenants have 15 months left I assume to end date not break date then they only need to do another 3 months and there is only a year left and the break clause – which I assume is only 1 month hence the query to Peter – kicks in

  14. Peter, don’t feel you have to provide details if you don’t want to.

    And my feeling is that it would probably be best for you to seek legal advice from a solicitor or housing advisor about this. They would be able to see the documents – it is hard, if not impossible, to advise properly without sight of the documents in the case.

    This blog clinic is just here to give general comments. It is not intended to be a replacement for a solicitors consultation.

  15. Tessa

    All I am tryimng to do is understand the timing in all this and the amounts due.

    If anyone is interested in the mitigation case it is Reichmann and Dunn v Beveridge and Gauntlett 2006 – a firm of solicitors trying to force a Landlord to mitigate their liability on leaving premises – how funny is that?!!

    On solicitors andf legal advice I agree. But they cost and Peter has already won a battle (if not the war) with a bit of knowledge and free advice.

    The interesting question is why they need to leave the property early but I limt my queries to the dates and amounts involved

  16. @Industry Observer. No specific dates were given and I didn’t want to make any assumptions of my own without more detail.

    On the part about mitigation of loses, I am aware that the appeal case you are referring to was commercial, but the major consensus (including Painsmith) seems to be that there is no reason to believe it would not be applicable if tested for residential tenancies.

    In any event, in this scenario I would think the length of the new tenancy would be a perfectly good reason for a landlord to prefer one tenant over another. I would say he has taken reasonable steps to mitigate his loses.



About the post author:

Tessa Shepperson

Tessa is a lawyer and specialises in creating products and services which help landlords and letting agents learn and understand landlord & tenant law. For example, she runs the Landlord Law website (now in its 14th year) and is a director of Easy Law Training Ltd and Your Law Store. Tessa also sits on the Property Redress Scheme Council. When not working she enjoys reading, cooking and messing around on the computer. You can also find her on Google

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