Covering losses if your tenant wants to leave early

The Tenant Fees Act 2019 has been in force since the 1st June of that year and we are now seeing cases being brought by tenants against landlords in the First Tier Tribunal.

These vary from landlords not returning holding deposits to whether an early surrender charge is allowable. This latter one interests me because the Act itself is a little vague so it is good to start seeing rulings around this as it clears up what is a bit of a grey area.

An early surrender is where a tenant asks to leave the tenancy before it is due to end. So, for example, if you have a 12 month tenancy from January to December and the tenant asks to leave in June, then as a landlord you can say yes or no to that request.

Where the landlord agrees then it is reasonable to ask the tenant to pay for any costs associated with this. That is going to include any loss of rent, letting agent fees or any other loss that might be incurred.

What does the law say?

Schedule 1 of the Act states:

“A payment is a permitted payment if it is a payment to a landlord in consideration of the termination of a tenancy at the tenant’s request—

(a)in the case of a fixed term tenancy, before the end of the term”

It goes on to say:

“a payment is a permitted payment if it is a payment to a letting agent in consideration of arranging the termination of a tenancy …. but if the amount of the payment
exceeds the reasonable costs of the letting agent in respect of the termination of the tenancy, the amount of the excess is a prohibited payment”

All fairly straight forward.

First Tier Tribunal Case

Earlier this year the tribunal were faced with a claim brought by a tenant against their landlord who they felt had overcharged them. In short the tenants had asked to leave ten months early and the landlord agreed. As a result of the slower market at that time of year the landlords agent managed to find new tenants but at a lower rent of £150 pcm.

The total deduction made from the deposit for the losses incurred was £2,270 and was broken down as follows:

Loss of rent (10 x £150.00 per month) 1,500.00
Landlord’s agents fee for setting up a new tenancy 420.00
Inventory check out fee 145.00
Inventory check in fee 145.00
Deposit registration fee £60.00
Total 2,270.00

The tenants argued that they should not have been charged the loss of rent and that the agents fees exceeded reasonable costs, and therefore these were not permitted payments under the Act.

The Tribunal disagreed and found in favour of the landlord. In fact they agreed with all of the claimed costs, except £145 for the check in and out fee. These two appointments were done a day apart and the tribunal felt they could have been done on the same day.

So there we have it. If your tenant asks to leave early then you can make a request for reasonable payments in return for your agreement. It is important though to set out your costs in a transparent manner so that any tribunal can see how you have arrived at your figures.

Please note the date this article was published as the law or the essence may have changed since it was posted. You should always seek independent legal advice if you are intending to rely on any of the contents. Unless stated otherwise this article only reflects the position for the Private Rented Sector in England and therefore may not apply to other countries within the United Kingdom.