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Charges – what can landlords claim?

Rebecca Brough of Fidler and Pepper explores the world of fees and charges in respect to a landlords rental agreement. What are the reasonable charges that a landlord can make and how enforceable are these charges in reality?

Starting point is the tenancy agreement

Most landlords who seek possession of the property from the tenants are happy to forego any costs, the main thing for them to get the property back and re-let. However, it is useful to know what you can claim back from your tenant in costs, and indeed if you used a letting agent they would often charge the tenants various additional costs. You can include terms in the tenancy agreement that allow you to charge your tenant for various costs – but what can you charge for and how much?

The Unfair Terms in Consumer Contracts Regulations 1999 apply to tenancies.

Regulation 5(1) states that a term is unfair if "contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising out of the contract, to the detriment of the consumer"

But what does this mean? It basically applies a test of fairness to the particular clause.

Therefore, if you are going to include a term in the contract it must be in clear plain English and set out what you will charge for. A Judge would not allow you to claim for something unless it is set out clearly in the tenancy agreement. In the case of Director General of Fair Trading v First National Bank plc (2001) it stated that "a landlord should not take advantage of a tenant’s weaker bargaining position or lack of experience. Standard terms should use plain and intelligible language and tenants need a chance to read all the terms before agreeing to the contract".

There are several clauses you may wish to consider adding to your tenancy agreement (or already have them in). I will set these out individually.

Clauses in the tenancy agreement (for charges):

Late payment of rent

It’s perfectly reasonable to have a clause in your tenancy agreement charging your tenant for interest on any late payments of rent, however, the interest charged should be reasonable, there is no guideline but the interest rate applied by the Court would be a good indicator, this is 8% per annum.

You could also include a clause stating that there is a charge for letters sent chasing payment. With this you would have to bear in mind what a reasonable admin charge would be and also how regularly you send the letters. It would be for the Judge to decide what is reasonable, but as a guideline I would say that a charge of £15-£25 per letter would be reasonable; certainly £50 upwards would not. You would have to be prepared to justify the charge to a Judge.

With regard to how often letters are sent – I would say that it would be reasonable to send a letter 7-10 days after rent falls due and then maybe another one a couple of weeks to a month later. Sending letters every couple of days would not be reasonable and it could well be argued by the Judge that it is unfair to charge the tenant for excessive letters when it becomes clear that they are not able and/or going to pay the rent, and you should then consider other options open to you.

Of course you can send as many letters as you want, the test of fairness only comes into play when you are seeking to claim this cost from the tenant.

Issue of Notice

You can include a clause in your tenancy agreement that the tenant can be charged for Notices Seeking Possession, however it would only be reasonable and fair to charge the tenant for a Notice arising out of their breach of the tenancy. It would not be fair to charge the tenant for service of a Section 21 Notice if in fact you wanted the property back to sell.

However, it would be reasonable to charge the tenant for a Section 8 Notice for breach of rent arrears. Most tenancies would not stipulate an amount and it would be left for the Judge to decide what is reasonable to claim.

Cost of Possession Proceedings

The court automatically allows you to claim the Court fee of £175. You can also claim fixed legal costs if you instruct a Solicitor, however these are unlikely to cover the cost of your Solicitor.

You can include in your contract a term allowing you to claim all your reasonable costs of obtaining possession from the tenant. If you wished to do this you would have to produce a Schedule of Costs to the Court and the Judge would then consider what is reasonable to order the tenant to pay.

The Case of Church Commissioners v Ibrahim (1997) stated that where the tenancy agreement makes specific provision as to costs the landlord is "not to be deprived of his contractual rights to costs where he has claimed them unless there is a good reason to do so and that applied both to the making of a costs order in his favour and to the extent that costs are to be paid to him" even in a straight forward possession action.

Claims from deposit

You may be able to claim some of these costs from the deposit, but you will only be able to do this if there is a clause in your tenancy agreement that allows you to claim these costs from the deposit. When making the claim through your deposit scheme you will need to produce evidence to the scheme provider of the terms in your contract and what costs you have incurred. Again, as with the Courts the test of fairness will be applied and it will be for the Adjudicator to decide what is reasonable to claim.

However, something you to bear in mind, it is all very well charging your tenant extra money but if they don’t have any money in the first place, what are your chances of getting it back. By all means have the clauses in your tenancy agreements and then review it on a case to case basis, seek to claim the costs back from a tenant you know is good for the money, but do not waste time and Court fees seeking to claim something you will not get back.

If you would like any advice on including these costs in your tenancy agreement or claiming them back from your tenant please do not hesitate to contact me at propertyhawk@fidler.co.uk

Rebecca

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