Ombudsman backs CPS Homes’ belief that landlords shouldn’t be out of pocket when a tenancy ends early
In positive news for landlords across Wales, CPS Homes have successfully argued with The Property Ombudsman that where a contract-holder (tenant) wishes to exit their fixed-term tenancy early, a landlord is within their rights to ask for what is essentially an ‘early termination charge’. The charge had previously been queried by Rent Smart Wales and Cardiff Council.
Since The Renting Homes (Fees etc.) (Wales) Act 2019 was introduced, landlords have only been allowed to charge contract-holders for rent, deposits, utilities/council tax and defaults on the terms of the contract. However, the legislation does not appear to prevent a landlord and contract-holder from coming to an agreement to end a tenancy early. Indeed, Welsh Government guidance says “The Act does not prohibit any agreement that a landlord and tenant may reach should the tenant wish to leave the tenancy early.”
Occupiers seeking an early exit from their contractual obligations is common, especially in the student market. Whatever the reason for it may be – it could be a falling out with fellow contract-holders, a withdrawal from university or just a change in personal circumstances – it inevitably poses a problem for the landlord who would have reasonably expected the tenancy to continue through to the end of its fixed-term, as initially agreed. The landlord would be within their rights to insist “the contract is the contract and I am not open to an early exit”, but experience tells us that when a contract-holder is determined to leave, they will do so regardless and invariably fall into rent arrears. As such, we encourage landlords to take a pragmatic approach to the matter, which is to be open to the early end as long as a new, paying contract-holder is lined up.
Putting in the work to set up a new tenancy – which may include viewings, performing a credit check, referencing, drafting a new contract, registering the new deposit and producing a new inventory, amongst other things – is either considerable time out of a landlord’s week or a considerable cost if they instruct an agent to do the work for them. After all, the agent is running a business and won’t work for free, but equally, it’s not right that the landlord is out of pocket because of the occupier’s actions.
Foreseeing the potential for such circumstances, the Written Statement of Occupation Contract we sign with our contract-holders on behalf of landlords contains specially-worded clauses that state if the landlords agrees to the early termination, the departing contract-holder(s) must cover the landlord’s time/cost for setting up a new tenancy.
A wantaway contract-holder recently disputed these clauses, which led to their complaint being heard by The Property Ombudsman (TPO). The same complainant also raised the same grievances with Rent Smart Wales and Cardiff Council, who separately investigated but did not take further action once we explained our bases for the charge. Our argument to all three bodies was based on three factors:
- The legislation does not prevent this agreement being made, and the guidance supports it.
- The landlord is entitled to say “no” and insist the contract is seen through to its end.
- The cost of the early termination charge is likely to be significantly less than having to pay the rent up to the end of the contract.
Pleasingly, The Property Ombudsman agreed with our stance, stating in their decision notes:
“I do not consider that it [the early termination charge] contravened the 2019 Act. The 2019 Act made it an offence for a landlord or letting agent to require a prohibited payment to be made in consideration of arranging the grant, renewal or continuance of a standard occupation contract, or pursuant to a term in a standard occupation contract; however, it did not prevent the landlord from requiring a payment to be made in order to secure his agreement to the termination of the contract, or to release a contract holder when the contract was within a fixed term. This is confirmed in the official guidance to the 2019 Act.
I am unable to make a legal determination on a breach of consumer protection legislation, as this would be a matter for a court of law to determine. However, I would say that I am not persuaded that a term explaining that the Landlord was prepared to release the Tenant from the contract for an amount less than the full rent for the fixed term of the tenancy was unfair, given that the alternative was for the Landlord to insist on his full contractual entitlement to rent for the whole of the fixed term.”
The outcome is a shot in the arm for landlords and cements our belief that they should not run at a loss for a situation that was not their doing. Unsurprisingly, Welsh Government’s model Written Statement of Occupation Contract does not contain the specially-worded clauses that cover landlords in this scenario. Many landlords and agents think they must use Welsh Gov’s model, which is not the case. As proven here, the model puts landlords in a disadvantageous position, and adds to our 10 reasons why it shouldn’t be used.
At CPS Homes, we've become the go-to agent for landlords looking for ironclad contracts and complete legal protection. Many property owners have come to us after their current contracts fell short, and we've been able to help. If you have any questions or require assistance with reviewing your contracts, please don't hesitate to contact our team on 02920 668585. |
The information contained within this article was correct at the date of publishing and is not guaranteed to remain correct in the present day.
