Tenant awarded £2,252.06 for prohibited payments under Tenant Fees Act 2019

OUTCOME: Allowed

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00BG/HTC/2024/0005 Property : [ADDRESS] [POSTCODE] Applicants : [redacted] [NAME] : N/A Respondents : [redacted] [NAME] : N/A Type of [NAME] : For recovery of all or part of a prohibited payment or holding deposit: Tenant Fees Act 2019 Tribunal member : Judge Tagliavini Venue : 10 [ADDRESS] [POSTCODE] Date of decision : 11 June 2024

DECISION

2

Decisions of the tribunal (1) The tribunal directs the landlord [NAME] and/or the agent [RESPONDENT] [NAME] are to pay to the applicants the sum of £2,252.06 within 21 days of this decision being received. _____________________________________________________ The [NAME] 1. This is an [NAME] for an order for the recovery of a prohibited

payment under subsection 15(3) and (5) of the Act and subparagraph

7(4) of Schedule 1 of the Act, because it is said it exceeded the reasonable costs of the letting agent in respect of the termination of the tenancy. The tenant seeks recovery of part of £3,577.08 in respect of a proposed tenancy of [ADDRESS] [POSTCODE] pursuant to section 15 of the Tenant Fees Act 2019 calculated as:-

(i) From the Agent, the sum of £2,252.06, minus their

reasonable costs as assessed (which the Applicants say

is zero or close to zero; or

(ii) From the Landlord the sum of £2,252.06; or

(iii) From the Landlord the sum of £2,252.06, minus the

Agent’s reasonable costs as assessed (which the

Applicants say is zero or close to zero); and

(iv) An order that Agent or Landlord repay the Applicants

£1,325.02 for breach of their duty to mitigate losses The background The applicants’ case 2. The applicant’s case is that they entered into an assured shorthold

tenancy in respect of the property for a period of 24 months with a

break clause at 12 months at an initial rental of £2,800.00. The

applicants assert that in November 2023, they requested an early

termination of the agreement. The landlord agreed to this on condition

that the applicants adhered to the agents early termination process. The applicants subsequently paid the sum of £3,577.08 in respect of fees for

the early termination of their tenancy agreement. 3, The terms were set out in an email dated 6 November 2023 from

[NAME] and stated:

3

The terms are as follows:

(1) You are responsible for the rent, bill and all other

contractual obligations until a [NAME] takes possession of

the property.

(2) Due to market conditions, the rent achieved from [NAME] may be lower than the £2800pcm you pay currently and

so you would be required to compensate up to this amount

depending on the rent achieved from the [NAME].

(3) If a [NAME] were to move in on 02/12/23, the fee that is

to be reimbursed to the landlord is calculated at £1,881.60 inc

VAT (7 months’ worth of tenancy left). The monthly fee rate is

£268.80 inc VAT and so if you vacate the property with 7

months remaining then the fee to be reimbursed would be

£1,881.60 (7 x 268.00).

(4) You must also pay for admin and referencing costs that the

landlord incurs as a result of having to find a replacement early.

(£75 per tenant reference and £300 admin fee).

(5) The compensation due will depend on how soon you would

like to vacate, so if the date is later than 02/12/23 then the

compensation would reduce." 4. The applicants assert that they did adhere to the process in respect of

the early termination of the tenancy. The applicants now assert the

amount claimed by the landlord/agent is excessive and prohibited

under the 2019 Act. The applicants accept the agent had costs to

cover and had to carry out work, commit resources and perform

administration and work in setting up the future tenancy. However, they submit a commission-based fee, provided for by a contract to which the applicants were not privy, is an unlawful basis on which to value those

services. 5. The applicants asserted the Agent is permitted by the Act to claim their

reasonable costs but the issue of ‘reasonableness’ does not depend on

the agency agreement, nor does it relate to any kind of “pro rata”

assessment. Reasonableness” does not depend on the Agent’s belief as to the market value of their services to their clients, or on any comparison

to other letting agents’ fees. Nor does the reasonableness of the Agent’s

fees depend on the reason for termination as whatever the case, the

Agent will perform the same services. 6. Similarly, the applicants’ opinion as expressed in reviews is not

relevant in determining the value of the Agent’s services. The fact that

the applicants left positive Google reviews for the Agent is therefore

irrelevant to the determination of this dispute. Nevertheless, by way of

explanation, we left the reviews at the request of the Agent before our

4

bond had been returned. We were concerned that we could be treated

unfavourably if we did not comply with their request and felt relatively

powerless in the circumstances. We did whatever we could to keep the

Agent happy until we had received our bond back. 7. The applicants also asserted the Agent may claim a reasonable fee that

is based wholly on actual services rendered. Previous First-tier Tribunal

decisions referred to in the [NAME] offer good examples of how

such services may be particularised and valued. However, in this

case, the Agent has made no claim of that kind, except for the landlord

administration fee and tenant reference fees, which it has now waived. The respondents’ case 8. [COMPANY] [NAME] provided a response

to the [NAME] in which it rejected the applicants’ claims and state

the fees claimed were in accordance with Paragraph 7 of Schedule 1

of the Tenant Fees Act 2019 and a permitted payments as it is: –

(i) Payment on termination of a tenancy. The payment was

requested from the Applicants to compensate our Clients’ losses

suffered as a result of their early termination of their tenancy

during a fixed term before the end of that term.

9. The respondents asserted that [NAME] was instructed by the

landlord Mr [COUNSEL] on the 24th April 2023 to begin marketing his

property [ADDRESS] [POSTCODE] for let. The

terms of business and service fees were agreed between the parties.

[COMPANY] were appointed as Managing Agent. The

applicants and Mr [NAME] entered into an Assured Shorthold Tenancy on

the 3rd of July 2023 for a period of 24 months with a 12 month

break clause. Mr [NAME] paid [NAME] fees for the letting service. 10. Subsequently, the applicants and Mr [NAME] met 5 months after the

tenancy commencement in November 2023 and discussed the

possibility of an early termination of the tenancy. No mitigating

circumstances for the early termination were given by the applicants.

Mr [NAME] provisionally agreed to an early determination subject to

consultation with the Agent and adherence to their early termination

process confirmed between [NAME] and the applicants on the 6th

November 2023. 11. The property was put back on to the market on the 14th November

2023 and a new tenancy agreed on the 16th November 2023. This new

tenancy began on the 15th December 2023 at a monthly rent pf £2,600

pcm and therefore £200 pcm lower than the applicants £2800 cm rent

payable.. On the 5th December, the applicants paid £3577.08 to

[NAME] which was then transferred to Mr [RESPONDENT].

5 12. The landlord’s revised losses were calculated as:

7 months letting fees (£268.80pcm inc VAT) - £1802.60

Difference in rent achieved (£200 pcm loss) - £1325.02

£3127.62 13. It was accepted by the respondents there had been errors made on the

part of the managing agent in relation to the Landlord Administration

and Tenant Reference costs quoted (those being £300.00 and £150.00

respectively). These amounts are our standard rates for those elements

of our fees and this landlord is on reduced fees of £185.00 and

£120.00 which should have been factored into the calculations for the

early termination costs reimbursed to the Landlord. Due to this error,

this recalculation generated a refund to the applicants of £450.00 and

was made on the 3rd of May 2024. Consequently, in respect of the

[NAME] this will leave an amount of £3127.62 remaining in dispute.

The reasons for the tribunal’s decision 14. Paragraph 7 of Schedule 1 of the Tenants Fees Act 2019 states:

7(1)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, or

(b)in the case of a periodic tenancy, without the tenant giving

the period of notice required under the tenancy agreement or

by virtue of any rule of law.

(2)But if the amount of the payment exceeds the loss suffered by

the landlord as a result of the termination of the tenancy, the

amount of the excess is a prohibited payment.

(3)A payment is a permitted payment if it is a payment to a

letting agent in consideration of arranging 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, or

6

by virtue of any rule of law.

(4)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.

(5)In this paragraph “fixed term tenancy” means any tenancy

other than a periodic tenancy.

15. It was unclear to the tribunal how the applicants calculated the sum

they claimed was a prohibited payment. In any event the tribunal has

no jurisdiction to make any award or order that Agent or Landlord

repay the Applicants £1,325.02 for breach of their duty to mitigate

losses 16. The tribunal finds the landlords loss of letting fees is essentially a

‘double recovery’ as the payment of those fees could reasonably be

transferred to the new letting of the premises and do not represent a

genuine loss. Therefore, the tribunal finds the fees of £1802.06 forms a

prohibited payment and are to be returned to the applicants.

17. The tribunal finds the applicants are not liable for the loss to the landlord for the lower rent charged to the new incoming tenants. Having

accepted and early termination of the tenancy, the landlord is liable to

mitigate his losses. The applicants cannot be held responsible for the

alleged changes in the letting market. Arguably, had the landlord been

able to let the subject property for more than the £2,800 pcm they might argue they should have been entitled to receive the difference. In any

event the loss of rental income does not represent a loss to the

agent pursuant to paragraph 7(4) of Schedule 1.

18. The tribunal accepts the tenant’s reference fee and the landlord

administration fee have been reimbursed to the applicants and therefore are no longer in issue.

19. The applicants accept that some (albeit limited) administration fees are

payable to the agent for the administration of the early termination of

the tenancy. Therefore, doing the best it can on the information

provided by the parties, the tribunal directs the sum of £2,252.06

should be paid to the applicants by the landlord and/or agent within 21

days of the date this decision being sent to the parties, This sum

represents the proportion of the payments the applicants assert are

prohibited.

7

Name: Judge Tagliavini Date: 11 June 2024

Rights of appeal By rule 36(2) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, the tribunal is required to notify the parties about any right of appeal they may have. If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber), then a written [NAME] for permission must be made to the First-tier Tribunal at the [NAME] which has been dealing with the case. The [NAME] for permission to appeal must arrive at the [NAME] within 28 days after the tribunal sends written reasons for the decision to the [NAME]. If the [NAME] is not made within the 28-day time limit, such [NAME] must include a request for an extension of time and the reason for not complying with the 28-day time limit; the tribunal will then look at such reason(s) and decide whether to allow the [NAME] for permission to appeal to proceed, despite not being within the time limit. The [NAME] for permission to appeal must identify the decision of the tribunal to which it relates (i.e. give the date, the property and the case number), state the grounds of appeal and state the result the party [NAME] the [NAME] is seeking. If the tribunal refuses to grant permission to appeal, a further [NAME] for permission may be made to the Upper Tribunal (Lands Chamber).