Here is a question to the blog clinic from Barry (not his real name) who is a landlord
I entered into a 3 year tenancy agreement as landlord with a group of tenants. Which is what the estate agent told me.
However, I have since discovered the tenants were told this is what I wanted. Both the tenants and I are unhappy with the management company, and I would like to terminate the contract with the management company.
Summary of issues.
1. 3 year agreement with no break clause. I now know the tenants were told this was on my request.
2. Fees collected within first 18 months. No issue there, but deposit also used up as part of their fees.
3. Suspiciously high charges by their repair contractors.Are there any grounds for me to use in order to exit out of the contract? Can the tenants and I decide to opt out together?
Answer
It is a question for you rather than the tenants, as the agent is employed by you and not by them.
The first thing to do is to take a look at your agency agreement. You need to particularly at two things:
- What are the agent’s duties under the contract – what have they agreed to do? and
- What does the contract say about ending the agency arrangement?
If the agreement allows you to end it on, say, two months notice, then just give the two months notice and end it.
However most agency agreements will try to tie you in for the whole of the period of the tenancy, including any renewals after the fixed term has ended. They will therefore want you to pay compensation for lost commission if you end the agreement early.
They often justify this by saying that you would never have found such good tenants without their help and so this entitles them to ongoing commission.
You need to know what your agreement says about this.
Are the agents in breach of contract or law?
You then need to consider whether the agents have breached any of the terms of their agreement, or not done anything that they are supposed to do, which has caused you loss.
As this is a service contract, the agents will also be bound by the Supply for Goods and Services Act which says that the agent must act with ‘reasonable care and skill’.
Then as they are acting as your agent, they are also covered by the law of agency which says that the agent has a particular duty of good faith, known as the ‘fidiciary duty’ meaning that the agent must act in your best interests at all times and not make any ‘secret profit’.
Now from what you have said, several things spring to mind.
- The agents have tied you into a long fixed term, without any break clause, which may not be in your best interests
- They have lied both to you and to the tenants about this
- I suspect they may have done this so they can take the whole of their commission for this long fixed term, up front. Which is putting their interests ahead of yours
- The high charges from tradesmen look as if they may be taking commission from them and the tradesman may be passing these costs on to you – which is a breach of the agents fiduciary duty and their duty to be transparent about their fees (see this article about the claim being brought against Foxtons on this point by solicitors Leigh Day)
- You say the agents have taken the deposit against their commission – but this is not something they can do – the deposit money belongs to the tenants.
Before taking any action, there are some things I would suggest you check –
- Has the deposit money been protected with a statutory scheme and served the prescribed information? If not, then they are at fault here.
Note however that you are also liable for the penalty (even though it was the agent’s fault) so you will need to arrange to protect it yourself asap (and serve the prescribed information). You will also be responsible for returning the money to the tenants out of your own pocket if the agents have spent it or run off with it.
- Have the tradesmen been paying commission? It may be hard to find this out but do what you can.
Ending the agent’s contract
It sounds to me very likely that the agents are in breach of contract or their duties under law in connection with the deposit, or that they are in breach of agency law.
This will entitle you to end the contract with them either by giving them notice or immediately (depending on how serious the breach is).
If the agents have taken the whole of their commission for the three years up front, they will in fact suffer no financial loss from this – they will have been paid and then not have to do any work!
So if they start objecting you could threaten to claim against them for the return of the commission taken by them.
Or, if they threaten to take YOU to court for ending the agreement early, you can say that you will then counterclaim for a refund of the commission taken by them and for compensation for breach of their fiduciary duty as agents and also for any ‘secret profit’ they have made from commission from tradesmen.
It is important, by the way, that no further rent is paid to them by your tenants (as you may experience problems recovering it from these agents, particularly after you end the contract) so you should make arrangements for the rent to be paid to you direct in future by the tenants.
You will also need to sort out the deposit and make sure that it is properly protected.
Note by the way, that if both you and the tenants want to end the tenancy early at any time, there is no reason why, if you are both in agreement, you should not do this.
You don’t HAVE to continue for the whole three years if you are both in agreement to end it early.
Obtaining Redress
Finally, all agents must belong to an Ombudsman or Property Redress Scheme.
If your agents fail to deal with issues properly you can lodge a complaint with them. If the agents are not with a scheme, then they are vulnerable to being fined £5,000 by the Council.
Note there is further guidance on my Landlord Law service which you can read about here.
Jamie says
By making fairly broad assumptions, the agent may be ripping you off, on the other hand, without more explanation they may not be. Have you discussed your concerns with the agent?
1) People don’t always tell the truth, especially if they want to get out of a binding tenancy agreement. If an agent is going to rip you off they more usually suggest a shorter term so they can take more on renewal fees.
2) “Fees collected within first 18 months. No issue there, but deposit also used up as part of their fees.”
This needs more explanation. How exactly were you billed for the fees? Have you paid them for 18 months or three years? Make sure you are not confusing a holding deposit with a tenancy deposit. It is often the case that holding deposits are subsequently used towards the initial rent payment, which in turn may have been used to cover your fees. On your statement it may just simply say ‘deposit’.
3) Regarding contractor prices, you need to get some estimates for comparison. You can only really act on evidence, not suspicion. Landlords often don’t realise that if the agent is using properly qualified contractors with the right H&S procedures and PI/employers liability cover, then this can make it significantly more expensive than using a mate who is handy with a screwdriver, especially in and around London.
Finally, I would just like to say there are lots of agents out there who don’t bind landlords for the duration of the tenancy and any subsequent renewals. We only offer a full management service (payable monthly) and the landlord can end the contract after 12 months. We only charge fees on rent collected.
Barry says
Hi Jamie,
Thanks for the response.
We are 2 months into the 36 month agreement. Indeed I was aware of that I would pay their fees during the first 18 months of the contract. The deposit I refer to is the tenancy deposit which I was told to guarantee with mydeposit.co.uk
Contractor costs.
Example one; I was charged 150 pounds to move a wardrobe from one floor to the floor below. I challenged it after I found out the tenants had actually done the move themselves.
Example two: I received a bill for about 350 pounds for a new wardrobe sliding mechanism. Turns out the old door is still place, and the contractor just inserted a new spring.
Example three: bathroom sink that has been secure for 8 years comes away from the wall. Whether tenant or agent’s plumber damaged it still in dispute. But I was quoted 250 pounds to investigate why it was broken. It took me 2 seconds to peer behind the sink and see the fixtures had come loose.
All this within 2 months of the management agreement.
I have dealt with a number of management agents over the past 10 years, but these guys are unlike any I have dealt with.
Jamie says
Still unsure what you mean about your fees. When and how much were/are you due to pay?
It doesn’t look like the deposit has been used to cover your agency fees as they have given it to you to protect in a custodial scheme (surprised they don’t do this for you as part of the service).
Regarding the charges for works, this certainly sounds like you’re being ripped off. What did the agents say when you confronted them about it?
All we can do is provide general advice. As Tessa said, the ability to cancel depends on the specific terms of your contract with the agent.
Industry Observer says
Is the contractor totally independent – doesn’t sound like it.
Jamie – valiant defence, but there are an awful lot of agents doing a Foxton’s on secret commissions.
Just one word of warning on Tessa’s suggestion to surrender and regrant. That will not get you off the hook if the termination clause is really well written in the agent’s favour. My guess is it will be and will refer to commission being payable if anyone introduced to the property is still in occupancy.
On no matter what tenancy basis, formal or informal and whether created by this agent or not. Basically have anyone occupying the property originally introduced by the agent and you have to pay agent commission for the period of occupancy.
Jamie says
Of course, there are some agents charging secret commissions, but without the facts in this case it’s difficult to judge what the OP means by ‘suspiciously high charges’.
“On no matter what tenancy basis, formal or informal and whether created by this agent or not. Basically have anyone occupying the property originally introduced by the agent and you have to pay agent commission for the period of occupancy.”
Huge assumption. I know this is often the case, but there are also lots of other agents like us who do not have such restrictive terms.
Tessa Shepperson says
Er I didn’t suggest a surrender and regrant!
I just said that if both parties want to end the tenancy they can. Provided they BOTH agree then it can be ended whenever the want.
So the fact that they have signed a 3 year contract does not necessarily mean that the contract HAS to last for 3 years.
Nothing about a re-grant.
Barry says
What I am concluding from this discussion is that agreeing with the tenants to early terminate the contract will also terminate the property management agreement. As long as the tenants move out, I should not be made liable for the outstanding fees.
Am I correct?
Oh, and Tessa, this is a wonderful resource. A real life saver.
Tessa Shepperson says
Agreeing with the tenants to end the tenancy will not of itself end the agency agreement. It will just end the tenancy.
You need to read the agency agreement first to see what it says and then follow the advice above.
However if you have already paid the agents for the whole 3 years I think it will be difficult for them to claim anything else off you.
Rent Rebel says
Barry, did you not know you were signing them for 3 years then? Did you think it just 18 months?