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Forfeiture of deposit in AST agreement


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My friend has recieved a new AST agreement from the landlord for a 12 month term with a break clause. The break clause is not well worded (Term: a term certain of 12 months. One months notice to be accepted from tenant...), however the issue is the deposit forfeiture clause. The clause states: "If by agreement with the landlord the contract period is shortened the deposit will be forfeited."

 

Although the landlord verbally states this clause is "standard" and only applies to tenants who abscond, it appears to me to be an unfair term and could also be applied (i.e. landlord retains deposit) in the case in which the tenant gives proper notice before the AST term of 12 months as per the break clause. The landlord knows my friend intends to vacate the property before 12 months, hence the inclusion of the break-clause.

 

Any views?

 

The landlord does wish to retain my friend as a tenant as she is a good tenant, he has reluctently agreed to consider rewording the 'forfeiture-clause' and I would welcome any suggestions of fairer wording.

 

Another option to consider is leaving this clearly unfair term in the AST agreement, as any subsequent court case resulting from the unreasonable withholding of the deposit would rule this an unfair term and strengthen her (possible) legal position, should it come to that.

 

Views welcomed!

 

Thanks.

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It is not unusual in commercial leases for the tenant's right to break to be subject to payment of an agreed sum. There is no reason in practice why this should not apply to ASTs. Drafting the agreement so that if the tenant exercises the break he forfeits the deposit may be construed as a penalty under contract law; in any event what happens if the deposit has already been used? The usual way is to require the payment to be made when notice is given. This would not be an unfair term in any case where it has been individually negotiated.

 

There are many points to be considered when drafting a break clause:

 

1. Should the rent be up-to-date?

 

2. Should all the other terms be complied with?

 

3. What is the period of notice?

 

4. When can the right be exercised?

 

5. Is a payment to be made?

 

and so on.

 

Drafting them is best left to lawyers.

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My friend has recieved a new AST agreement from the landlord for a 12 month term with a break clause. The break clause is not well worded (Term: a term certain of 12 months. One months notice to be accepted from tenant...), however the issue is the deposit forfeiture clause. The clause states: "If by agreement with the landlord the contract period is shortened the deposit will be forfeited."

 

Although the landlord verbally states this clause is "standard" and only applies to tenants who abscond, it appears to me to be an unfair term and could also be applied (i.e. landlord retains deposit) in the case in which the tenant gives proper notice before the AST term of 12 months as per the break clause. The landlord knows my friend intends to vacate the property before 12 months, hence the inclusion of the break-clause.

 

 

In my opinion, the court might decide that the wording you describe, if you have described it correctly, and if there are no other relevent provisions in the tenancy agreement, creates a fixed term of 12 months.

 

The provision for the tenant to give one month's notice might be interpreted by a court as simply imposing a minimum notice period that the tenant shall give to terminate the contract, whatever the circumstances.

 

Assured shorthold tenancies usually turn by default into periodic monthly tenancies on the ending of the fixed term. The clause would seem to apply both before and after the first anniversary of the tenancy.

 

You should consider inserting a term more clearly defining whether it is intended ONLY to apply during the first 12 months.

 

The clause will obviously not work if the tenant absconds, because the clause applies only if the fixed term is "shortened" by agreement.

 

This is not a clause that has been "individually negotiated", not if the landlord inserts it as "standard" automatically into all contracts he issues. So it is potentially capable of being an unfair penalty.

 

It is a mistake to imagine that clauses from commercial contracts can be freely added to residential tenancy agreements, because there are many differences in the laws which apply. In general, a residential tenant has far more statutory protection, and this interferes with the principle of freedom of contract that governs the parties to a commercial lease.

Note

 

This is a self-help forum in which users share their experiences. Assistance is offered informally, without any assumption of liability. Use your own judgement; obtain advice from a qualified and insured professional if you have any doubts.

 

This posting gives general guidance only. It is not an authoritative statement of the law. Consult a Solicitor for specific advice before deciding on any course of action.

 

 

Further information:

 

Assured and Shorthold tenancies - A guide for tenants

 

Renting and Leasehold - Advice from Shelter

 

 

All posts are opinion only

 

 

If you've found my suggestions useful, please click on my star and add a comment

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In my opinion, the court might decide that the wording you describe, if you have described it correctly, and if there are no other relevent provisions in the tenancy agreement, creates a fixed term of 12 months.

 

Agreed.

 

The provision for the tenant to give one month's notice might be interpreted by a court as simply imposing a minimum notice period that the tenant shall give to terminate the contract, whatever the circumstances.

 

Agreed- the wording is horrible!

 

Assured shorthold tenancies usually turn by default into periodic monthly tenancies on the ending of the fixed term.

 

Are there any exceptions other than where the tenancy ceases to be an assured tenancy?

 

 

The clause would seem to apply both before and after the first anniversary of the tenancy.

 

Have to disagree. The agreement refers to "the contract period". In any event, it is not possible for an agreement that grants a fixed term without providing for a contractual periodic tenancy after the fixed term has expired to say anything about notice requirements by the tenant after the fixed term has come to an end.

 

You should consider inserting a term more clearly defining whether it is intended ONLY to apply during the first 12 months.

 

As I said, you need to make it clear when the right to break is exercisable.

 

The clause will obviously not work if the tenant absconds, because the clause applies only if the fixed term is "shortened" by agreement.

 

Clearly a contradiction there. If the fixed term is brought to an end by notice there is no "agreement" - except to the extent that the landlord has agreed the right to break. As I say, the wording is horrible.

 

This is not a clause that has been "individually negotiated", not if the landlord inserts it as "standard" automatically into all contracts he issues. So it is potentially capable of being an unfair penalty.

 

I intended my comment to refer to the new clause that was to be drafted. I have amended my comment to take account of your point.

 

It is a mistake to imagine that clauses from commercial contracts can be freely added to residential tenancy agreements, because there are many differences in the laws which apply. In general, a residential tenant has far more statutory protection, and this interferes with the principle of freedom of contract that governs the parties to a commercial lease.

 

I cannot see that statutory intervention has led to any difference between the way a tenant's right to break a fixed term operates in the residential and commercial spheres.

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