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Do I have to pay all this compensation for ending the tenancy early?

Horrified tenantHere is a question to the blog clinic from Raymond (not his real name) who is a tenant:

I found a house to rent in London for me and my 14 year old daughter. It was the perfect location as her current school was close by.

I negotiated a rental price of £3000 pcm but only wanted a 12 month contract. The landlord was happy to agree to £3000 pcm month but only if I was to sign for a longer contract. The letting agency pushed me to sign a 2 ½ year contract which the landlord was happy with.

I signed the contract for the rental agreement to start on the 2nd January 2014 when I would take possession of the keys and move in. I gave the letting agency £3000 for the first month’s rent and £4500 deposit which was 1 ½ times the rent.

I signed the contract on the 12th November 2013 and the lettings agency sent it back to me completed on the 20th November 2013 which is the day it was signed by the landlord and lettings agency.

At this point I had never been advised by the letting agency about any compensation payments to the landlord or themselves if I needed to cancel the tenancy which obviously at the time I didn’t need to do.

Unfortunately my circumstances changed quite dramatically and left me in a position where I had to inform the lettings agency that I needed to cancel the tenancy because I couldn’t stay in London and had to find a property in the Northwest of England immediately instead.

I told the lettings agency about this on the 2nd December 2013 some 12 days after the completion of the tenancy agreement. This is when they informed me that I couldn’t get out of the agreement and I was obliged to carry on paying the landlord rent when it starts.

I negotiated with them and they placed the property back on the market for rent. I asked for my deposit back and my first month’s rent and they refused. The lettings agency now informed me to read a section in the tenancy agreement which stated I needed to compensate the landlord for his payment to the lettings agency.

What I never ever knew or was told was the landlord had already paid the lettings agency 8 ½ % of the 2 ½ years rent as a finder’s fee. This totalled £9180, £7650 plus £1530 VAT.

I was gobsmacked and never expected this and voiced my concern to the lettings agency. They have told me that my deposit and 1st month’s rent will be going to the landlord and I will not see any of my money.

I spoke to the landlord and he has told me that I also need to give him the difference to make up the £9180. Even after this payment they are saying that I am liable to pay the £3000 rent even though I am not going to be living in the property.

Obviously if they find a new tenant, I will not need to pay any rent. I have told them I will not be paying rent for a house I am not living in. I have looked at the tenancy agreement again and it does not mention anything about how much the landlord had to pay the agency so I was totally unaware of this.

It does state as a special tenancy condition that “in the event of the tenant vacating the property prior to the expiration of the term the tenant shall be responsible to compensate the landlord of any sums paid to the agent as a form of commission for the remainder of the term”.

I was never informed of this before signing the agreement or else I would never have agreed to this. 12 days after receiving the agreement is when I informed the lettings agency about my unfortunate situation and need to cancel the agreement.

Surely like with most things you buy or agree to you have a cooling off period where you can actually say no I wish to cancel? Even as I write this the actual agreed date for the tenancy to start is still 2 ½ weeks away. Can you help please? Thanks you.

I am afraid you are in a rather difficult place.  Let us take a look at the issues one by one:

1. Cooling off period.

I am afraid tenants do not get a cooling off period unless the property was rented without being viewed first (as happens with some student lets).  >> See here for more information on this.

2. Ongoing rent

Again, I am afraid that once you sign the tenancy agreement you are bound by its terms and the landlord is entitled to be paid rent, on a month by month basis, until then end of the fixed term – whether you are living there or not.

After all so far as the landlord is concerned, its not his fault that you are moving to the North.  He has performed his part of the bargain by making the property available to you.

However:

  • Break clause – Take a look at the tenancy agreement and see if there is a break clause.  There should be for such a long term.  If so I suggest you activate it immediately.  That will at least limit the period of time you are required to pay rent.
  • Finding another tenant – If you are able to find a suitable tenant yourself, your landlord should agree to re-let to them and let you off the hook.  If they refuse (and there is no provision on the tenancy agreement for ending early), then the Office of Fair Trading Guidance on unfair terms indicates that any contract clause forbidding assignment of the lease after 3 months will be invalid.

So the best thing to do is see if you can find a replacement tenant yourself.  There is no legal obligation on the landlord to do this by the way.  So there is no comeback against the landlord or his agents if they don’t find anyone.

3. Compensation for early termination

I have to say that, in common I suspect with many readers of this column, I am (like you) gobsmacked at the amount of compensation they are asking from you.

My view is that this clause is unfair and therefore void, for the following reasons:

  • It was buried in the ‘small print’ and never properly explained to you before you signed and
  • The sum is based on a payment made to the agent under the terms of an agreement which you have never seen and knew nothing about .  It is a general rule that you cannot be bound by an agreement where you have not been provided with a copy of it or informed of its terms (or those terms which affect you).

The concept of compensation for early termination is not of itself unfair and I would have no problems with a charge for re-marketing the property and maybe drawing up a new tenancy agreement.  However I think the claim for the agents fee charged to the landlord is unfair and unenforceable.

So in summary – you are not entitled to a cooling off period, you are responsible for the rent until the property is re-let to a new tenant or the fixed term comes to an end, but I do not think the clause regarding compensating the landlord for the agents fee is enforceable.

What should you do?

It would be a good idea to try and find some replacement tenants yourself, if you can.

So far as the agents fee is concerned, I suggest you tell the agents that this charge is unenforceable against you under the Unfair Terms in Consumer Contracts Regulations, and that if they attempt to charge you this you will challenge it, in the courts if necessary.

If the agents are a member of ARLA, or the Property Ombudsman scheme or any other regulatory body, you could threaten to make a complaint if they continue to impose this charge.

You could also threaten to report them to Trading Standards who, along with the Office of Fair Trading, police the Unfair Terms in Consumer Contracts  Regulations.

Finally, if you need further advice and representation, the Landlord Law associated solicitors Anthony Gold would be able to assist.

There is a >> fixed fee telephone advice service on Landlord Law which can be used for preliminary advice.

About the author

Tessa Shepperson Tessa is a lawyer specialising in residential landlord and tenant law. She runs the Landlord Law website (now in its 12th year) and is also a director of Easy Law Training Ltd and Your Law Store. When not working she enjoys reading, cooking and messing around on the computer. You can also find her on Google

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25 Responses to Do I have to pay all this compensation for ending the tenancy early?

  1. While the quantum of money sought by the agent to cover the landlord’s re-letting costs may seem staggering, it does need to be viewed in the context of the total amount of rent this tenant had committed to pay, i.e. £90,000 (That’s the more mind blowing figure).
    I don’t think the argument about “hidden in the small print” stands scrutiny on two counts. Firstly, the entire tenancy agreement is “the small print” and anyone committing to a two and a half year tenancy at £90k for the term would surely be expected to read and understand the entire agreement. Secondly, to afford rent at £36,000 per annum the referencing company will have wanted to see earnings of c£100,000 per annum, so to earn this, the tenant must be of sufficient intellect to have understood what they were getting themselves into.
    Nonetheless, a re-let fee of £7650 cannot be justified by the agent even with the high overheads a London based agent has to incur. If the property media is to be believed, there is a queue of waiting tenants for good London property, so re-letting shouldn’t be an issue. Both agent and landlord should be compensated for the time wasting caused by this tenant and provided the landlord receives all of the rent due without suffering a void and the agent’s actual cost of re-letting is covered, I would have thought a charge of say £1200 plus vat would be reasonable and fair.
    As a side note, I would never want to leave it in the hands of the early release tenant to find a replacement. To them a “suitable replacement” will be whomsoever wants to move in and they will have no regard whatsoever for the replacement’s bona fides. In our experience, a good agent needs to take control of the situation and manage it through to an early mutually satisfactory conclusion for all parties involved.

  2. Industry Observer says:

    The whole key here is the deposit has it been handled 100% squeaky clean and correctly. In particular go over the PIN with the finest tooth comb you can find as if you can find an error or omission you can sue the LL for the deposit return plus up to x3 penalty.

    That should focus the minds of all concerned

  3. Raymond says:

    Thank you for your reply Tessa at least this gives me some answers and possible solutions to my problem.
    Thank you also to Mike White Martin & Co Norwich for your contribution.

    The lettings agency is already looking for new tenants and they were instructed by the landlord to do this immediately after I informed them on the 2nd December of my cancellation. They are now asking for £3445 pcm which doesn’t help my cause in finding a new tenant quickly. I have been in contact with both of them constantly to rectify this situation and totally understand what is happening.

    My problem is the fact that although I am intelligent enough to understand the rental amount per annum and what I can and can’t afford with my income (which is more then £100,000 per annum) the fact that I wasn’t informed or nothing was placed in writing on the agreement to inform me of the amount of compensation is what startles and annoys me.

    I am actually a landlord myself with property up north and the fee I get charged by my letting agent to find a new tenant is £350. I pay 10% of the rental income per month to them to manage my properties. The landlord was going to manage the property in London himself so he paid 8 ½ % to the lettings agency for the whole 2 ½ year agreement. I wasn’t informed of this whatsoever.

    Because I wasn’t informed of the cost that would be incurred by the landlord and the compensation fees if I cancelled this is why I consider the amount the lettings agency are demanding is far too much. I have already told them I am willing to compensate but this is just unbelievable. The agreement gives me the option to give notice after 4 months and vacate after 6 months. I would still need to compensate for the remaining 2 years but again there are no figures to tell me what it is. Unfortunately what I have done here is assume the costs for the landlord are similar to what I pay because there is nothing stating otherwise and if there was then I would never have agreed to the agreement.

  4. Industry Observer says:

    If you can give 2 months notice after 4 months and vacate end of month 6 who says you then have to pay anything more and why? This is a standard break clause as suggested by Tessa.

    These agents are they in full management or more likely is it a tenant find only case? Who were you to pay the rent to after initially paying first month to the agent?

  5. Raymond says:

    Thanks for your reply. Yes I can give 2 months notice after 4 months to vacate after 6 months but the agreement states, “in the event of the tenant vacating the property prior to the expiration of the term, the tenant shall be responsible to compensate the landlord of any sums paid to the agent as a form of commission for the remainder of the term”. It’s the fact that I wasn’t informed about any figures or where they derive theirt calculations from that now annoys me.

  6. Raymond says:

    The agents were a tenant find only and I was to pay the rent to the landlord directly. I negotiated a 3000 pcm rent and now they are advertising it for 3445 pcm. That also doesn’t help me get a tenant in quicker. They should advertise it for 3000 pcm.

  7. As I said in the post, I don’t think that clause is enforceable.

    Your tenancy agreement cannot incorporate the terms of another agreement (ie your landlords agency agreement) unless you are specifically provided with information about it in advance of signing your contract, so you are properly informed.

  8. Raymond says:

    Sorry my apologies, it states I have got to pay the rent to the landlords agent. They told me they were only to find the tennant.

  9. Raymond says:

    Thanks Tessa, but poorly informed or not, it still means they do not have to inform me of the costs if it were terminated???

  10. Industry Observer says:

    It is arguable the break clause makes it a 6 month term anyway.

    I ask again is it a fully managed, let and collect or tenant find only situation for the agent?

    Have you had the Prescribed Information yet?

    WHEN DID YOU HAND OVER THE DEPOSIT?

  11. Raymond says:

    I was told by the landlord that the agency was used to find a tenant only and he was going to manage the property himself. Looking at the agreement again it states the rent will be paid into the landlords agents account by standing order.

  12. Raymond says:

    What is the Prescribed Information?

    I handed over the deposit approximately the 12th November some 7 or 8 days before I received the signed contract back with their signatures on it.

  13. Dave Griffith says:

    As I understand it, possibly wrongly, unless you move into the property no tenancy will ever exist so I am not sure if you can be bound by any of the terms in the tenancy agreement.

    What you have is a contract to create a tenancy which is what you want to cancel. The landlord is entitled to compensation for any reasonable costs incurred in finding a new tenant and any lost rent but he should also try and mitigate his loss and this would not include paying an agency fee twice for the same period.

  14. Raymond says:

    Thanks for your comment Dave, much appreciated. I have said this to the lettings agency also but I am getting nowhere. Looks like I will have to pay a solicitor to act on my behalf now and try to sort this mess out best i can.

  15. A tenancy agreement, technically, is a transfer of an interest in land (for a period of time – thats what a lease/tenancy is) and you do not have to live there to own it.

    But even if this were not the case, you have signed a contract and are bound by the terms of this. Insofar, that is, as the terms are enforceable.

    I think using a decent solicitor would be a good idea as they can negotiate on your behalf with the agents and perhaps bring a bit of sense into the situation. Thats why I mentioned the Anthony Gold service in the post.

  16. Raymond says:

    Many thanks Tessa, much appreciated.

  17. Jamie says:

    Dave, the contracts have been executed so there is a legally binding tenancy agreement whether or not Raymond moved in and subsequently he he is bound by the terms.

    I would agree with Tessa that it is questionable whether Raymond can be bound by the terms of an agreement between the landlord and the agent where those conditions are not specified in the tenancy agreement. The clause potentially breaches several tests of fairness in the OFT guidelines.

    However, the penalty may not be seen as excessive when viewed against the £90,000 rent liability if there was no break clause.

    The OFT’s starting point in assessing the fairness of a term is to ask what would be the position for the tenant if it did not appear in the contract. In this case without the break clause Raymond would be paying paying £90,000 in rent for 2.5 years instead of £27,180 (£9180 + max 6 month rent liabilty £18,000).

    Also put yourself in the landlord’s shoes. He has paid £9180 to the agent on the understanding that the tenant will stay for 2.5 years. He will now have to pay an additional £9180 to the agent for the subsequent let to release Raymond from his obligations.

    Don’t be blinded by the numbers and automatically assume it is unfair – I don’t think it is as clear cut as you think.

  18. Raymond says:

    Thanks for your comments Jamie, much appreciated.

    I have looked at the contract over and over again now and something else that stands out to me is the following.

    I work offshore on a rotation of 5 weeks away and 5 weeks at home. I informed the lettings agency about this as the tenancy agreement stated that the property will not be vacant for more then 28 days. When I informed the lettings agency about this they said to me don’t worry about it this will be ok. I would have been away for more than 28 days and they never changed this in the agreement before I signed. It still says the 28 days. Also it states no pets allowed and yet they said I can take my dog with me into the house. The plan was that when I went away my daughter and my dog would stay with my ex so the property would be left unoccupied for 5 or more weeks.

    Is this significant????

  19. Strictly speaking you are supposed to check the agreement over before you sign and insist on things you don’t want being removed ….

  20. Industry Observer says:

    Raymond

    The person you want at Anthony Gold is Phillipa Graham.

    I agree with Tessa that many of the angles you are looking at and contractual issues have merit but probably not enough, or the agent is actually blameless.

    I would check out the execution date issue though and if it has not been completed top of the agreement that may be worth pursuing to query if you were ever as committed as the agent says. But I think you will be.

    The clause in the agreement saying even if you give notice you have to compensate the Landlord I agree with Tessa and looks unenforceable to me. The OFT hates any clauses that attempt to tie a tenant in knots anyway.

    Other issue here is that there is plenty of time before the tenancy is due to start and there should be more than enough time to re-let it. The issue on you finding a tenant and how acceptable that is to Mike in Norwich is what I would expect from an agent or Landlord. What matters is the tenant’s right to sub-let or assign the tenancy, and the OFT hates those clauses too so just because they are in an agreement preventing it without Landlord consent doesn’t mean those clauses will hold up either.

    My view is don’t pay any more and see if they sue for the balance in which case you can counterclaim.

    Meanwhile Prescribed Information is the second part of tenancy deposit protection (TDP) as introduced by the 2004 Housing Act. In simple terms two things have to be done within 30 days of a deposit being paid – it must be protected via one of the three schemes, and Prescribed Information (PI) must be served on the tenant and any Relevant Person (someone paying part of the deposit) if there is one.
    The encouraging news for most tenants including I would guess you from your responses, is that most agents and almost all private landlords screw up the PI. They either don’t do it, or they get it wrong. If they do once that 30 day clock has stopped ticking that is it, offence committed and no escape. So you make a claim under s213 of the 2004 Act for return of deposit and a penalty award of between one and three times the deposit. So you are bound to get £9000 minimum.
    Speak to Philippa at Anthony Gold it is by far your best route for focusing minds. The offence is the Landlord’s, the payment will be the agent’s as if the LL pays he will then sue the agent, who probably should have served it. Often in tenant find only cases both think the other is doing it, and neither does.

    A s213 claim or the threat of it is by far your best bet.

  21. Dave Griffith says:

    I have been trying find information to back up the assertion in my previous post that “unless you move into the property no tenancy will ever exist”. As is often the case with housing law its not simple but it is explained well by Lawcruncher on the landlordzone forum:-

    “The law is set out in sections 52 to 54 of the Law of Property Act 1925. Whilst not immediately obvious, the effect of those sections is that a tenancy can only be created in one of two ways:

    1. By deed. When a tenancy is granted by deed the tenancy is created by the deed and does not depends on occupation. It makes no difference if the tenancy is expressed to start at a future date (so long as it is not more than 21 years ahead). However, the deed must contain words of grant – making an agreement to grant a tenancy a deed will not on its own create a tenancy.

    2. By complying with the conditions set out in section 54(2), that is:

    (a) the tenancy must take effect in possession

    (b) it must be for a term of three years or less

    (c) it must be at the best rent which can be reasonably obtained without taking a fine

    Condition (b) is clear enough except to mention that it includes a periodic tenancy and (c) is unlikely to come into play in the grant of an arm’s length AST. That leaves us with (a) as the important point for most ASTs. We can ignore the technical point that possession includes receipt of rents and profits as again unlikely to have much relevance to ASTs. Possession in the sense of occupation is what is required.

    Since a tenancy can only be created where there is a deed or the tenant takes up occupation it has to follow that the purported grant of a tenancy by writing which is not a deed cannot on its own create a tenancy. Writing can of course create a contract to grant/take a tenancy, but that is not the same thing as an actual grant of a tenancy. Such an agreement is binding like any other contract, but since there is no tenancy there is neither landlord nor tenant and the rule that a landlord is not required to mitigate his losses does not apply. They do not seem to have stressed that in the blog.”

    (I have tried to link to the post as there are some other useful comments but the post is rejected if a link is included)

    So, if this is correct it means that the worst case scenario of being liable to pay rent for the full fixed term is avoided. However you are still breaking the contract to create a tenancy and, not unreasonably, the landlord should not end up out of pocket.

    As advised by Industry Observer research whether the deposit protection requirements have been fully met, given you asked what the prescribed information is, I suspect not.

    If you can show that the agent has not handled the deposit correctly and left the landlord open to a claim for the return of the deposit and a penalty of between 1 and 3 times the deposit it would be a useful bargaining tool.

  22. Raymond says:

    Hi, thank you for your comments, much appreciated.

    I have sent Philippa an email now asking for help and advice. It mentions this PI in the contract and ebven states if I haven’t recieved anything in 30 days then the tenant should seek legal advice from a solicitor.

    Thanks again.

  23. Raymond says:

    Dave, thank you so much for your efforts, it really is very much appreciated.

    I have so much to go on here and I will post an eventual outcome as to what happens.

    Thank you all for your help and advice and I wish you all a lovely festive holiday period.

  24. Jamie says:

    Good info Dave. If correct then the landlord is still £9180 out of pocket and can sue for breach of contract. If Raymond counter claimed for lack of PI and won, I guess the landlord would then have to sue the agent for negligence! What a nightmare for the landlord.

  25. arfan says:

    Better minds have already given their view here. I’ve had thesame situation before a few times with some clients. The most practical approach as suggested above is:
    a) check deposit protected
    b) did you get prescribed info (including booklets etc) c) a without prejudice offer.

    Good luck and keep us in the loop.




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