When are tenant fees unreasonable?

Is £50 a reasonable fee to charge a renter who wants to cancel their tenancy agreement early and replace themselves with an alternative tenant?

According to the Tenant Fees Act 2019 (TFA) a fee can be charged by a letting agent where this situation arises due to the additional cost involved. However, the TFA states that the fee chargeable is limited to either £50 or “the reasonable costs of the person to whom the payment is to be made in respect of the variation, assignment or novation of the tenancy”.

How much a 'reasonable cost’ might amount to was tested recently when estate agent Ludlow Thompson ended up at planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>Tribunal because they had charged the actual cost – which it felt to be reasonable – of changing the tenancy agreement. In the event, the planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>Tribunal ruled that the charge of £393.54 was unreasonable.

But was it? Commenting on the case last week, one solicitor concluded that this ruling could pose a problem for both agents and tenants. This is because agents’ actual charges are likely to be more than £50 so they will find themselves out of pocket. If they then decide to recover any costs over and above the specified £50 from landlords, they in turn may decide not to accept a change of tenant – which they are under no obligation to do.

The real cost of making such changes to tenancy agreements depends on whether or not you are working with a Notice, a Deed or a Licence and in our experience the market rate is anything from £80 to £150. So in our view £50 is certainly unreasonable but there is no way of knowing, except by taking other cases to the planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>Tribunal, what they would consider a ‘reasonable’ fee to be.

So should Ludlow Thompson go to appeal on this one? Yes, they probably should – but it is unlikely that anyone has the appetite for it. Why risk wasting more unrecoverable fees? The reality is that all too often the people who can spare the time to sit on planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>tribunal panels are retired and they are not always in touch with the day-to-day costs of running a business. Unfortunately it is hard to see how that will change unless people who are actively working in the market are willing to take on the role. Most of us are too busy earning a living.