Tribunal Judge: special reasons needed to justify tenant fees higher than £50

What is a reasonable fee for a letting agent to charge for arranging the variation, assignment or novation of a tenancy?

In England the Tenant Fees Act 2019 regulates the charges which landlords and letting agents may impose on residential tenants. Most fees are banned, but in limited circumstances it is permissible to charge tenants ‘reasonable costs’. Previously I have discussed the difficulties in establishing what is a reasonable fee on the Anthony Gold blog.

A fee for ‘novation’ of a tenancy

In a recent First-tier Tribunal decision, Judge Professor Richard Percival interpreted the rules regarding reasonable costs in an interesting way – with a result that will benefit tenants if his approach is adopted by other judges.

The case concerned a charge of £393.54 imposed by letting agents on a tenant who wished to be replaced. Judge Percival described this as “an ordinary, run of the mill example of tenant churn in shared rented housing”. (This use of the word ‘churn’ appears to have established itself in the housing law lexicon after it was used in the same way by His Honour Judge Luba QC in Sturgis v Boddy earlier in the year). The tenant argued that the fee was excessive, while the agent argued that the sum was reasonable compensation for the work done. The total fees were broken down by the agent as follows:

Referencing the new tenant: £23.94

Inspection £58.80

Creating new tenancy agreement £274.80

Re-registration of deposits £36

As evidence to support the charges the agent provided an itemised list of tasks they had performed: “issuing replacement guidelines to the landlord and tenants, negotiating certain matters with the landlord, collecting rent and the deposit from the new tenant and providing advice and assistance on the return of the Applicant’s deposit.”

However, rather than assess the time taken and hourly rate charged by the agents (which is how an assessment of reasonable legal costs or service charges would be carried out), Judge Percival held that where the Tenant Fees Act allows a charge the higher of £50 or “reasonable costs”, weight should be given to the “determinate sum” of £50 specified by Parliament, and that this sum should ordinarily be the most that is charged to tenants:

“The better approach, then, is that, to escape the £50 upper limit, a landlord or letting agent must show that there is some proper particular consideration or reason for the Tribunal to conclude that £50 should not be considered a reasonable limit. This need not be something truly exceptional, but the landlord or letting agent must be able to point to something that makes the charge at least somewhat out of the ordinary run of similar transactions.”

The judge supports this conclusion by drawing on the Government’s guidance. As noted in the Tribunal’s decision, this guidance is not authoritative in its interpretation of the law, and I suspect other courts and tribunals might be more reluctant to rely on it as a guide to interpreting the text of the Act. The starting point is the meaning the text of the legislation, not what the government say it means.

This is only a First-tier Tribunal decision and does not create any binding legal precedent. Ordinarily legal commentators tend not to write about non-binding first-instances cases like this, but I think this is an interesting and important decision because the Tenant Fees Act was hugely significant change for the private rented sector, and there has been relatively little litigation about it. If this interpretation of Schedule 1 Tenant Fees Act is adopted more widely this would be a significant boost to tenants.

Novation or early termination?

One other interesting feature of this case is that all parties, including the Tribunal, treated the case as a ‘novation’ of the tenancy, and applied those rules. Novation is not defined in the Act, but the glossary published with Government guidance on the Act defined it as “different from assignment, [as] it involves the creation of a new contract and requiring consent of all parties.”.

The facts described in the Tribunal’s decision do fit a novation, but it would also be possible to characterise the ‘churn’ of replacing a tenant as a ‘early termination of the tenancy at the tenant’s request’ – the replacement of the outgoing tenant takes effect as a surrender of the old tenancy and the grant of a new tenancy to someone else, and that is an early termination of the original tenancy at the tenant’s request. The charges which the Tenant Fees Act permits for an early termination are subtly different from those for a novation – agents are restricted to ‘reasonable costs’, but landlords are allowed to claim the “loss suffered <…> as a result of the termination of the tenancy”. There is no mention of reasonableness in this context, and no £50 “determinate sum”.

This raises some questions which I will not attempt to answer here: firstly, if the facts of the case fit either ‘novation’ or ‘early termination’, which rules should apply? And secondly, does the absence of any defined £50 sum for early termination cases support or undermine Judge Percival’s concept of the ‘determinate sum’?

There have been relatively few tenant fees cases in the Tribunal, and no reported appeals decisions. This means that lots of important questions about how the Act operates are still open to debate.

*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*