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?
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.
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.