Before signing a property agents’ terms, it is absolutely crucial to make sure you have thoroughly read and fully understood their terms and conditions, especially paying attention to the termination provisions.
Most agents are reasonable, but we have noticed a recent surge in agents, particularly the bigger ones, starting to introduce some pretty unreasonable termination provisions in their contracts.
As a landlord, you need to know that you can get out of an agreement with an agent at any point without too much financial burden and relatively hassle-free.
If you don’t read your contract properly, however, you could end up in a situation where circumstances change with your portfolio or maybe you want to sell, but there will be nothing you can do because of your agents’ restrictive termination clauses in their terms and conditions.
Unfair Termination Clauses: A Real-Life Example #1
At Rocket, we dealt with an issue recently where one of our current landlords, who has two properties with us, they wanted to move their third property in South East London over to us to consolidate their portfolio.
When they informed their managing agent of what they wanted to do with their third property, the landlord received a response outlining that hidden deep within the terms of the last issue of their “confirmation of marketing”, the agent had introduced a new termination provision.
It stated that if the landlord withdrew from their terms while the current tenants that the agent had found were occupying the property, the landlord would be subject to a withdrawal fee equating to six weeks rent plus VAT.
In this case, the landlord was collecting £1325 per month from the rent of this property, so they would have to pay a £2201.47 penalty fee for moving across.
As landlords ourselves here at Rocket, we understood this was not worth doing, even though they were receiving little to no property management support from the current agent.
As such, we advised the landlord to stay with their current agent until the end of the tenancy in October and in the meantime, we will deal with any issues for free and then take over the property at the end of the tenancy to avoid any penalty fees.
These are actually unreasonable terms to the point that they could probably be challenged, but as is understandable, most landlords don’t want to do this as it’s time-consuming, complicated and potentially expensive.
Unfair Termination Clauses: A Real-Life Example #2
Another example of unreasonable agent termination provisions that we have come across recently was with a landlord who owns a house in South West London.
The landlord had become frustrated because they were paying for management, but the tenants had been contacting them directly throughout the tenancy to deal with issues because the agents weren’t replying.
By the time the agents did reply, it was too late and the landlord had already sorted the issues. So, in essence the landlord was paying for nothing.
The landlord came to us for advice, so we reviewed the terms set by their current agent. We discovered a clause stating that upon termination, the current agent retained the exclusive right to relet the property for twelve weeks, during which time the landlord couldn't instruct another agent.
This arrangement meant that the current agent would continue to collect fees even after the tenant had left, effectively locking the landlord into a situation where leaving their current agent could cost them three months' rent.
Similarly to the aforementioned situation, this could probably be challenged, but once again the landlord understandably wanted to avoid the hassle and cost of doing this.
This was yet another wake up call for us here at Rocket to urge landlords to check their terms with their current agent to make sure they’re reasonable, and especially when they’re signing with a new agent.
Understanding Termination Clauses: What’s Reasonable?
As for what we mean by reasonable terms, there are two parts to any agreement with a property agent, the lettings and the management.
When it comes to management, you should be able to terminate at any time with between one to three months’ notice.
At Rocket we require three months’ notice, which we believe is reasonable because it takes some time to pull everything together and this doesn’t equate to a huge amount of money.
The lettings are a little more complicated, however, as the work involved in finding a tenant is extensive and includes marketing, taking professional photos, and conducting viewings, while at Rocket we also include on-going property advice.
At Rocket, our billing process is straightforward and tailored to be fair to landlords. We charge monthly fees, so flexibility is a key part of our service, however this also covers on-going property advice, to ensure all Rocket landlords have access to the best advice and best professionals for each property situation that may occur. As a property advisory business, we could not provide this on-going advice without monthly fees.
However, if we find a tenant and the landlord decides to leave after a month, we simply charge a one-off fee for the initial tenant placement based on the length of the tenancy. This fee is clearly outlined in our terms, ensuring landlords know what to expect upfront.
After fulfilling our agreement, landlords are free to move on without any lingering obligations. We even assist with transitions, whether it's transferring to another agent or serving notice to tenants, due to a sale, change of circumstances etc.
Some agents may charge 12% incl. VAT of the first year's rent upfront and then continue to charge annual lump sums, often without refunds if the contract is terminated mid-year, and also without any on-going advice or even assistance with renewals at the end of tenancies.
We believe fees for the initial term of the tenancy are justified but not beyond unless additional work and advice is provided. After the initial tenancy term, if a tenant remains but no further services are provided or required, continuing to charge a letting fee is unreasonable.
To ensure landlords receive value for their fees, at Rocket, similarly to other conscientious agents, we begin preparing for tenancy renewals three months in advance.
We provide landlords with comparative market analyses to determine if rent increases are feasible and negotiate accordingly with tenants. A renewal contract is then put in place along with checks as required for right-to-rent, amending the deposit amount, and checking all regulatory documents are “within date”, which justifies a renewal fee.
This transparent approach ensures that our clients are not only well-informed but also receive fair treatment consistent with the high level of service we commit to providing.
Fortunately, to this day at Rocket, although we have fair termination clauses set up, we have rarely had to actually implement them.
The only landlords who have left our services did so for personal reasons. One landlord chose to move back into their property, and another had their daughter move in, meaning they no longer needed our services.
But, whether you trust your agent or not, and even if you’re a landlord with Rocket, it’s essential for landlords to review their agent’s terms, particularly the termination clauses, to avoid unfair penalties and ensure fees align with the services provided.
At Rocket, we make these terms clear from the outset, promoting a trustworthy and straightforward relationship with our clients – make sure your agent does the same…
