Letting agency to repay £2,352 to tenants following early termination

The use of early termination clauses by letting agencies is under the spotlight following a Property Tribunal case involving Winkworth, which asked two tenants to pay the difference in rent between theirs and an incoming tenant as well as ‘lost fees’.

Judge Lorna Tagliavini has now ruled that an early termination payment of £3,577 charged to Marcus Thomson and Sophie Rolph by landlord Lazlo Biro and his agent Winkworth Shoreditch was in part not allowed under the Tenant Fees Act 2019.

The ruling is likely to be a surprise to many of the letting agencies who uses these kinds of early termination T&Cs, but is not the first time they have been highlighted.

Break clause

Thomson and Rolph entered into an AST for the flat in Whitechapel, central London (main image) during July 2023 running for 24 months with a break clause at 12 months.

But they then decided to leave early in November 2023 and the landlord agreed, on condition that they adhere to Winkworth’s early termination process.

The terms set by Winkworth were that the tenants were responsible for the rent, bills and all other contractual obligations until a new tenant was found to replace them; must pay the difference if a new tenant paid less rent than theirs for the duration of the contract term remaining; and pay the admin and referencing costs for the new tenants.

But the tenants subsequently suspected that some of this payment was not not allowed under the Tenant Fees Act because the fees charged were ‘prohibited payments’ under its rules.

Winkworth disagreed, telling the Tribunal that they believed the payments were compliant with Paragraph 7 of Schedule 1 of the Tenant Fees Act 2019 (see below).

Hearing

The hearing hinged on what is ‘reasonable’ to charge a tenant when they ask to leave a tenancy early and what constitutes a prohibited payment.

After much debate among the parties, the judge ruled that the lost ‘letting fees’ had been double-counted as a loss both for Winkworth and the landlord, and that outgoing tenants cannot be held responsible for lower rents paid by incoming tenants even if they have given notice early.

“The [tenants involved] cannot be held responsible for the alleged changes in the letting market,” said Tagliavini.
Thomson and Rolph had already been given back the landlord administration and referencing costs of £450 after Winkworth accepted that there had been errors made in calculating them.

Based on her findings, the judge has ordered the landlord and Winkworth to return £2,252 to the two tenants.

What 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…
(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.
(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.

Read the ruling in full.