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Joshua
Joshua, Lawyer
Category: Property Law
Satisfied Customers: 31734
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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I have a more complex question: I need high level advice you

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Hi, I have a more complex question: I need high level advice you whether or not the landlord can enforce a 10% plus VAT charge of the rental income for the remainder of our tenancy.
JA: Because laws vary from place to place, can you tell me where the property is located?
Customer: London
JA: Has anything been filed or reported?
Customer: no
JA: Is there anything else the Lawyer should know before I connect you? Rest assured that they'll be able to help you.
Customer: The two year rental contract had a break clause (after 12 months) which I exercised last month (after the agreed 12 months period). The landlord is still demanding the 10% charge.

Hello and thank you for your question. My name is ***** ***** I will be very pleased to assist you. I'm a practising lawyer in England with over 15 years’ experience. Please be aware that although I will endeavour to reply to you promptly, I am also in full time private practice and so I may not be available to respond immediately and it may also take me a few minutes to prepare a reply. The site will notify you as soon as I respond. I look forward to working with you to answer your question fully.

May I confirm if this is a commercial or residential tenancy please?

Customer: replied 14 days ago.
residential tenancy
Customer: replied 14 days ago.
I just need a high level advice at this point - whether such a fee is enforceable or not
Customer: replied 14 days ago.
I am happy to share the rental agreement and pay a reasonable amount for your advice
Customer: replied 14 days ago.
File attached (V2Q6GTQ)
Customer: replied 14 days ago.
the above mentioned clause for more context

  1. thank you. is there any provision in the tenancy agreement for a rent increase - the clause you kindly uploaded is not a rent increase clause itself?
  2. you say that you exercised a break option. has that break notice been accepted by the landlord?

Customer: replied 14 days ago.
1. there is no provision about rent increase
Customer: replied 14 days ago.
2. yes it was accepted in writing (email)

thank you. Is there a break clause within the tenancy agreement? I presume there is as you mention that you have exercised it

Customer: replied 14 days ago.
File attached (PSZ612T)
Customer: replied 14 days ago.
screenshot attached
Customer: replied 14 days ago.
also important - last update from the landlord:
Customer: replied 14 days ago.
34;I have negotiated a re-let fee for the current prospective tenant with Shane of First Choice Properties for £1,800 incl vat with is way below the 10% + vat agreed to under the AST terms."
Customer: replied 14 days ago.
which is a positive sign I guess but I have doubts about enforceability of the fee as such

thank you. On the basis that you have served notice in accordance with that break clause which you will note cannot be exercised earlier than the 12 months anniversary of the tenancy, and you either have evidence that you said that notice or as I believe is the case here, the landlord has acknowledge service, then the break notice will serve to end the tenancy subject to the one-month notice period you need to give.

based on the extracts you have kindly provided, there is no provision for a rent increase and if the landlord is seeking a 10% increase in rent on the basis of clause 8.7, he misunderstands the purpose of that clause. That clause deals with the situation where tenants such as you request that the landlord or agent remarket the property to find a replacement tenant. This  for example may have applied if you'd wanted to leave within the initial 12 months during which time you could not exercise the break clause. Clause 8.7 allows the landlord or agent to charge 10% plus VAT in respect of the rental income for the remaining period of the tenancy for any replacement tenant that is found. That actually is probably unenforceable under the tenant fees act but we can leave that to the side because as we discussed, that clause is not relevant to the circumstances because you have exercise the break clause and are not seeking the landlord to replace you as a tenant. The clause in fact actually spells this out in black-and-white in its last sentence.

Accordingly, I cannot see the landlord's demand has any merit or basis whatsoever based on the above extracts

Customer: replied 14 days ago.
thank you, ***** ***** landlord is not seeking increased rental - "only" the charge 10% plus VAT in respect of the rental income for the remaining period of the tenancy.
The first part is quite important as I might have misunderstood the break clause terms -> the tenancy started on June 1st 2021, I handed my notice mid April 2022 and acknowledged the full month notice following the next rent payment (end of April) so the tenancy will terminate on May 31st -> is it then in accordance with the break clause or not?

from what you say, you have served a break notice after the first 12 months of the tenancy and as such, subject to the one-month notice period you have given, the tenancy will end and as such, clause 8.7 does not apply and with it the right to 10%.

It is important to note if you have served notice to expire other than at the end of the complete rent period (i.e. the day before rent is payable) you may not be able to recover any pro rata rent for any remaining period of that rent period. e.g. if you can pay rent on the first of each month and you have served a break notice to end on the 15th of the month, you may not be able to recover the other half of the month's rent. Accordingly, hopefully you have served notice to correspond with or at least near to the day before rent is payable

Customer: replied 14 days ago.
perfect, thank you for the explanation
Customer: replied 14 days ago.
I served the notice before the rent is payable
Customer: replied 14 days ago.
I will talk to my landlord and see if he changes his mind - if not what would you suggest as a next step?

You need not pay anything beyond the final rent payment. It will be for the landlord to make a claim for any additional sums he considers he is entitled to which I cannot see being successful.

Customer: replied 14 days ago.
well he has still 2 months deposit (around 5k) so if he decides to deduct the 10% charge (clause 8.7) I would have to claim from him I am afraid

Presumably the deposit is protected in a deposit protection fund?

Customer: replied 14 days ago.
actually, it is not called a deposit in the contract - I agreed to pay 7,095 GBP in advance (just referred to as "rent" in the contract)
Customer: replied 14 days ago.
technically there is no deposit
Customer: replied 14 days ago.
in other words there is no money deposited in the deposit protection fund

The issue of the deposit is a very separate matter and will need to be considered closely - this may (or may not) be a disguised deposit. I would need sight of the entire tenancy agreement in order to confirm the position. If this is something you'd like me to review I am happy to send you an option offer in this respect

Customer: replied 14 days ago.
please send me an offer
Customer: replied 14 days ago.
File attached (ZTZV14L)
Customer: replied 14 days ago.
the contract attached so that you can see it before providing a quote

many thanks. I sent you an entirely optional offer in this respect

Joshua and 2 other Property Law Specialists are ready to help you
thank you for the above. the rent clause as drafted appears to largely comply with the principles laid down by the decision in Johnson v Old as regards ***** ***** in advance is in fact a disguised deposit or not. 

the only thing that gives me pause is the words at the end of 1.5 "except if a mutual agreement is agreed to a new tenure". in order to avoid advance rent been deemed as a disguised deposit, it must be shown to be used for one specific purpose - namely rent for a specific period. this seems relatively clear up until those final words which suggests that in certain circumstances, the money may not be used rent for that period.

However, this is a relatively nuanced point and I doubt you will be very interested in litigating the point.

accordingly, unless you wish to conduct some speculative litigation in respect of the above to determine whether rent is in the view of the court to disguise deposit or not, I think it is reasonable to conclude that the advance payment you have paid is rent.

As such, following expiry of your break notice, there was we have discussed, if you're notice ends on any date other than the day before rent is payable, there will not necessarily be a right to a refund of any apportioned rent for that period of time, as regards ***** ***** period for which you have already paid in advance, these would be refundable to you and if the landlord refuses to refund them, then you would be entitled to bring a claim in the County Court to recover them.

https://www.gov.uk/make-court-claim-for-money