Terminating a Letting Agent’s Contract

Letting Agent Contracts:

One common question asked by landlords is, “how do I terminate my relationship with my letting agent?”

For one reason or another, landlords sometimes wish to end their relationship with their letting agent and want to know how to go about it.

Requests to terminate usually occur for one of two reasons:

1 – At the end of the first term the landlord wishes to renew the tenancy directly with the tenant and take over management, thus avoiding an agency renewal fee.

2 – During the tenancy the landlord is not happy with the service being delivered by the agency, and/or the relationship breaks down completely.

The generally accepted principle with landlord – agent relationships, which has been custom and practice in the industry, is that once a tenant has been introduced and signed up to a tenancy, on a full management basis, the agent will be retained with renewal fees payable until that tenant leaves.

A contract is a contract and will be enforced by a court of law, so whatever you have agreed with your agent when your relationship commenced is something you are obliged to abide by, failing which the courts will award damages and costs against you.

Unless there is very poor performance and blatant breaches of contract the agent can hold the landlord to the agreement.

Good letting agents will have a strongly worded clause in their contract, something to the effect that: so long as one of the original tenants or licensees introduced by the agent to the landlord is still in the property, fees will be payable on-going, including on tenancy renewals.

Some agents will be willing to pursue the matter through the courts where a landlord unilaterally rescinds their contract, and the courts will usually enforce the contract where the terms are deemed to be fair and reasonable.

However, the Office of Fair Trading (OFT) and the courts do not like to see contacts tying businesses and consumers into open ended long-term agreements, so there are statutory rules and codes of conduct such as The Unfair Terms in Consumer Contracts Regulations 1999, and courts will decide if business contract terms are fair and reasonable.

Furthermore, all good agents are members of one of the main agent professional associations. These have their own codes of conduct offering landlords some form of redress should an agent’s conduct fall below that which should be reasonably expected of them. They also have client money protection measures in place (now a statutory requirement)  which protects landlords and tenancy deposits in case of an agent going into administration.

Regardless of the legal requirements, good agents will invariably be members of one or more of these:

– The National Association of Estate Agents – NAEA
– The Royal Institution of Chartered Surveyors – RICS
– National Approved Lettings Scheme – NALS
– Association of Residential Letting Agents – ARLA
– The Property Ombudsman Service

Also, ALL letting agents now have to register with 1 of 3 redress schemes, to ensure tenants and leaseholders have a straightforward option to hold their agents to account. Anyone who feels they get a poor deal from their letting agent will then be able to take their complaint to the redress scheme, and could receive compensation.

This has been a legal requirement since 1 October 2014.

Letting agent redress schemes can help you solve a dispute between landlords and their letting agents.

Landlords and also tenants can complain to the schemes, which help to mediate in disputes between landlords, letting agents and tenants over letting agent failings.

Once the letting agent’s internal complaints procedure has been exhausted, the landlord can take the complaint to one of these schemes.

The letting agent must clearly state which scheme they are members of. The three government-backed schemes are:

The Property Ombudsman (TPO)
Ombudsman Services Property
The Property Redress Scheme

A local council can issue a fixed penalty fine of up to £5,000 to any branch of a letting agency that fails to join one of these schemes.

Furthermore, as of now (July 2018) it will soon be mandatory that all letting agents have in place client money protection (CMP) insurance.

Termination Clause

It would be usual to expect that a landlord / agent agreement has a termination clause and a notice period, allowing for situations where either party wishes to end the relationship.

One way of doing this for the landlord, ideally in a friendly and amicable way, is to discuss and agree a once-and-for-all termination fee (equivalent to an introduction fee) which might be, for example, something like a three month or 6 month management fee equivalent.

These negotiations should be documented in writing in case the dispute ends up in court, but when a landlord has offered what is seen to be reasonable compensation for termination this would go in his or her favour. In any case most agents would not want to pursue the matter for small amounts of a few hundred pounds, so the offer of compensation is usually accepted.

As with all disputes, documentary evidence is the key to winning a case, so keep all correspondence and notes of discussions, especially where the agent has fallen down on his/her performance. Documentary evidence is the key to winning any dispute.

Landlords should bear in mind that agents do not charge fees for no reason: they have overheads including all the usual business staffing and office costs, insurance, professional fees etc to be covered.

What’s more, their fees don’t just cover the work they do or have done for you; they also cover what they might have to do, like turning out on a holiday week-end to fix a leaking pipe on a blown fuse.

Landlords should also bear in mind that with increasingly complex regulations around the management of lettings, a good professional agent is “worth his or her weight in gold” when it comes to making sure the letting is compliant with the law.

A let-only arrangement automatically terminates when the letting is complete and the tenancy commences, so in those cases there is no problem, providing the landlord has not agreed to anything in a written contract with the letting agent regarding renewals, renewal fees etc.

The Foxton’s case ruling had a bearing on renewal fees but only in as much as these should not be unreasonable, with no hidden terms tucked away in the small print.

Where there is no written contract between the landlord and the agent, a situation you would not expect when dealing with a professional agent, though still surprisingly common, the verbal contract cannot specify termination rules, renewal fees etc, so it’s just an opened ended arrangement where the landlord is expected to continue paying the management fees.

If it came to a legal argument a court would normally decide what contractual terms should be implied given the actions of the parties and what is reasonable in the circumstances given normal business practice.

Most agents, though, would not go to court over a few hundred pounds and risk damaging their reputation in the process.

Landlords should bear in mind when agreeing contracts with their agents that it’s best to have it in writing and caveat emptor – buyer beware – read the small print, negotiate and remove terms before signing if you are not happy, and ideally deal only with agents of repute.

Landlords should be particularly aware of contracted fees which are excessive or estate agency fees to be paid in the event of a sale of the rental property.

How do I terminate my agency contract?

1. Are you experienced enough and confident enough to take on the responsibilities of managing the property yourself, and do you feel you have good reasons to terminate both legally and morally?

2. The starting point is to read the contract carefully and see what you have agreed to. Are the contract terms fair and reasonable and is there a reasonable termination clause which gives you a get out.

3. Accepting that the agent is entitled to some notice and compensation; can you negotiate an amicable settlement?

4. Is the agent willing to hand over monies owed and the tenancy file with all the documents including tenancy application form, tenancy agreement, deposit protection details, gas check certificates, EPC certificates etc, and transfer management of the tenancy to you by contacting the tenant, including re-arranging standing order rent payment particulars.

5. Failing all this, are you well prepared if the matter goes to court, with good reasons and good documentary evidence to hand?

As a landlord, you own the property and you can do as you like within reason, after all the agent is acting for you at all times under your instructions. But if you expect to just dump your agent for no good reason, or simply because you have come to resent paying out fees, then you should remember there’s a contract in place whether written or not, and your tenant has also built up a relationship with the agent.

The tenant may or may not be happy to transfer dealing from the agent to you – some tenants prefer the independence and professionalism of an agent – and there’s all the hassle of convincing the tenant mid-tenancy of the safety of his/her deposit. At the end of the day you could lose an agent and a tenant as well.

Finally, good agents are like gold dust, as has been said above, if you have a good one than manages you property and tenants well, and saves you lot of hassle, why change?

How to Find a Good Letting Agent

MyDeposits Guide for landlords using a letting agent – see here

By Tom Entwistle, LandlordZONE®

If you have any questions about any of the issues here, post your question to the LandlordZONE® Forums – these are the busiest Rental Property Forums in the UK – you will have an answer in no time at all.

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