Fees for escaping a tenancy – tenants challenge fees of £2,270 they had agreed to pay in Deed of Surrender

The Tenant Fees Act 2019 limits the fees which landlord and agents can charge to residential tenants. Some fees are banned entirely, and others are restricted to a ‘reasonable amount’. The legislation has substantially reduced fees payable by tenants, but there is still one situation where tenants are being asked to pay high fees: when they want to escape from a fixed term tenancy early.

Landlords and agents are permitted to charge fees to tenants who ask to leave a fixed term tenancy early. The rules differ slightly depending on whether the tenant wants to terminate the tenancy early, transfer it to someone else, or have the landlord grant a replacement tenancy to someone else, but in any of those situations a landlord who allows the tenant to leave may charge their reasonable costs to the outgoing tenant.

Last year I wrote about an interesting but non-binding First-tier Tribunal decision where a judge had ruled that an agent would need to demonstrate special reasons to justify charges higher than £50.

In another recent First-tier Tribunal decision, the tribunal took a very different approach, and two aspects of the decision are interesting.

The charges being challenged

The tenants had entered into a tenancy with a fixed term of one year. Soon after moving in, the tenants asked to terminate the tenancy early, and the landlord agreed. The parties signed a deed of surrender which took effect two months into the fixed term, and the tenants agreed to pay a fixed sum of £2,270 as the compensation to the landlord. The tenants had paid a deposit and most of that compensation came from the landlord retaining the deposit.

The landlord did find a replacement tenant to move in in place of the outgoing tenants, but the new rent was £150 per month lower than what the original tenants had been paying.

The agreed compensation sum of £2,270 was made up of the following elements:

1. Loss of rent (10 x £150.00 per month): £1,500.00
2. Landlord’s agent’s fee for setting up a new tenancy: £420.00
3. Inventory check out fee: £145.00
4. Inventory check in fee: £145.00
5. Deposit registration fee: £60.00

Later, the tenants challenged the amount of compensation which they had been required to pay to escape from their tenancy by making an application to the First-tier Tribunal Property Chamber.

The Tribunal’s Analysis

The decision notes the figure of £2,270 had been recorded in the deed of surrender which was agreed by both parties. However, the judge did not see this as preventing him from making a ruling about whether or not the charges were lawful, noting that the Tenants Fees Act 2019 was “primary legislation” and therefore “it overrides any Deed of Tenancy Surrender even though the terms may have been ‘agreed’ at the time.”

However, the Tribunal was not persuaded that the fees were excessive. Claiming the loss in rent from the tenants was reasonable and permitted. As for the fees, the judge was willing to rely on his many years’ experience as a First-tier Tribunal member in the Property Chamber, to make an assessment on whether the agent’s fees were reasonable. In this case, the judge found that “the fees claimed are, in my view, reasonable except for the fees claimed for check out and check in.” Claiming £145 twice was unreasonable because: “Those 2 processes in this case were undertaken on following days i.e. termination of the subject tenancy was on the 3rd February and the new tenancy commenced on the 4th February 2022.”

The result was the tenants were awarded just £145 from the £2,270 they had paid.

Comments

I expect the tenants will be very disappointed by this result. Other judges in the First-tier Tribunal have interpreted the law differently and either held that £50 is the default fee (unless there are special reasons) or assessed the amount of work done by the letting agents charging a fee. Previous First-tier Tribunal decisions were cited to the judge, but since they would not be binding in law, there was no obligation for the Tribunal to follow them.

This uncertainly makes it difficult for local authorities to take enforcement action against agents charging higher fees; until the law is clarified, imposing fines is very difficult.

As for the Tribunal’s willingness to intervene even after the parties had agreed what fees would be paid in the deed of surrender, it is clearly right that primary legislation (i.e. Acts of Parliament) can override contractual agreements and deeds of this nature. The use of ‘agree’ in inverted commas in the decision seems to me to allude to the reality that a tenant who wants to escape from a tenancy is in a weak bargaining position and is likely to ‘agree’ to any terms or fees if they feel that is necessary to escape from a tenancy. This decision will provide some encouragement to tenants who feel their only option is to pay a fee, and then challenge the reasonableness of that fee later. Landlords and agents should be aware that exploiting their leverage to charge high fees can result in challenges like in this case, and possibly fines from the local authority.

The Upper Tribunal has not issued any judgements relating to the Tenant Fees Act yet, and some clarity on the meaning of ‘reasonable’ fees would be of real benefit to the sector. However, there may be good reasons why these cases have not been reaching the Upper Tribunal. Firstly, the amounts of money involved in these cases mean that appealing to the Upper Tribunal is not a very attractive option for the landlords, tenants and agents involved. Secondly, while no fee is payable to the Tribunal for a tenant to start proceedings in the First-tier Tribunal to recover a prohibited payment, that exclusion from fees does not appear to extend into the Upper Tribunal as far as I can see – a tenant who was dissatisfied by the decision of the First-tier Tribunal to uphold a landlord’s fees might conclude that the Upper Tribunal’s fees (£220 to apply for permission to appeal, £275 to lodge a notice of appeal, and £550 for the hearing of the appeal) are disproportionate.