Talk to your landlord before you cancel your lease
VAT, fuel and electricity price hikes have put most households under financial pressure this year and for tenants, the obvious answer may seem to be to cancel their lease and move somewhere cheaper.
However, says Andrew Schaefer, MD of leading national property management company Trafalgar*, even though the Consumer Protection Act (CPA) does provide for them do this, they should not be misled into believing there will be no cost involved.
“Section 14 of the CPA does say that if the tenant and the landlord are both ‘natural persons’ – that is, not companies or corporations – the tenant can cancel a lease at any time by giving the landlord 20 working days’ notice in writing.
“However, that is not the end of the matter, as the same section also stipulates that when a tenant cancels a lease in this way, the landlord is entitled to impose a ‘reasonable’ cancellation penalty to cover the financial losses or additional costs arising from the early termination of the contract.”
There is no set amount or formula for this penalty, he says, but decisions in cases that have been taken to the Rental Tribunal indicate that it can include just about any proven expenses or losses, provided that the landlord can also show that he has done everything possible to re-let the property and keep these costs to a minimum.
“Items that could be covered by the penalty include the costs of re-advertising the property in order to find a new tenant, any placement fees that may be payable to a letting agent who finds a new tenant, and even the loss of rental for any period of vacancy until the new tenant moves in.”
In addition, Schaefer says, the tenant will still be liable for the rent and any other amounts owing (such as the council water and electricity charges) until the day he moves out.
“In short, although the CPA does give tenants an ‘escape clause’, it also protects landlords who have signed leases in good faith from incurring unreasonable losses.”
Indeed, he says, tenants who are struggling to meet their monthly commitments are strongly advised not to go the CPA route but rather to approach their landlord, explain their circumstances and try to negotiate a lower rental.
“We have seen many cases where this has worked, especially in cases where the tenant has been reliable for several years. Most landlords would much rather make some allowance for a quality tenant with a track record of paying on time and keeping their property in good condition than go through the stressful and risky process of trying to find a new one.
“And at the same time, the cash-strapped tenant is able to save by not having to pay removal costs, a new damages deposit, and whatever penalty the landlord might have decided to impose for early termination of the lease.”