Deposit Protection for Scotland
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Charges in Tenancy Agreements
If you’re putting charges as standard terms into your tenancy agreement you need to know whether you can rely on
them in dispute resolution. They must be allowable by law, fair and not over and above what is reasonable.
The fees can be split into two categories:
1. Charges in the tenancy which are compulsory;
2. Contractual penalties applicable where the Tenant has breached an obligation of the tenancy.
The Office of Fair Trading (Guidance to Unfair Terms in a Tenancy Agreement) is very clear on the subject of
charges which are drafted as standard terms into a contract and which are fair, as opposed to penalty clauses which
are potentially unfair and unenforceable. A standard term is deemed as unfair if it causes a significant imbalance to
the parties’ rights and obligations under the contract, to the detriment of the consumer.
Q. Can I charge the Tenant any fees for entering into or renewing a A.
Tenancy Agreement?
No. All premium charges are prohibited under the Housing (Scotland) Act 1988 which makes it an offence
for Landlords to charge the Tenant any premium. A premium is defined as a sum of money that a Tenant
pays to the Landlord as a pre-condition of being allowed to have or renew a tenancy. Such fees would include
general administration costs, fees for setting up a lease agreement, tenant reference fee or the cost of the
preparation of a check-in inventory report. Therefore, if you attempt to charge a compulsory fee in relation to
the granting, renewal or continuance of a lease, that fee is unlawful under Scottish law.
Q. The Tenancy Agreement expressly states that an Agent is allowed A.
to charge an administration fee for arranging works at the end of a tenancy if there are breaches of the Tenancy Agreement. Now, the property requires cleaning at the end of the term – how much can we charge for the administration of the dilapidation process?
Any penalty charges detailed within a lease should not be excessive, otherwise they may be seen as an Unfair
Contract Term. There is also an argument that if the Landlord is instructing an Agent to carry out these works
on their behalf, then the Landlord should be paying any fee incurred to the Agent rather than the Tenant.
However, if the lease specifies an administration charge for arranging work required due to a Tenant’s breach
of their obligations this may be seen as reasonable as long as:
• It is not subsequently duplicated elsewhere in the claim and;
• The Agent can justify any losses, time costs, inspecting works or administration fees etc. incurred as a result.
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A Government-approved Tenancy Deposit Scheme
The OFT guidance states:
3.48 We may object to a penalty that stipulates a fixed sum to be paid in all instances, if the amount is too high in some cases. For example, a fixed charge for repairs, following damage or default by the tenant, may not
reflect the actual costs involved and may be challenged on that basis.
3.44 A term may be unfair if it has the object or effect of requiring any consumer who fails to fulfil his obligation to
pay a disproportionately high sum in compensation.
3.45 It is unfair to impose excessive sanctions for a breach of contract. A term that requires the tenant to pay more
in compensation for a breach than a reasonable pre-estimate of the loss caused to the landlord is likely to be
void as a penalty under common law.
3.47 Other kinds of penal provisions which may be unfair are damages and costs clauses stating that the landlord or
agents can claim:
• all their costs and expenses, not just their net costs
• both their costs and their loss of profit, if this would lead to ‘double counting’, and
• their legal costs on an ‘indemnity’ basis, not just those reasonable costs reasonably incurred, as this could
allow the landlord to incur unreasonable legal costs (for example, by serving a notice on the tenant when
this is not legally necessary) and pass them on to the tenant. The words ‘indemnity’ and ‘indemnify’ are
also objectionable as legal jargon (see Chapter 5, Group 19).
Q. Can I charge an administration fee for chasing late rent? Can this be
charged for repeated breaches?
A.
These sorts of penalties should be reasonable, and not excessive. Monitoring rent and sending letters
requesting late rent is part of an Agent’s general management duties and therefore Landlords are advised
to include late interest penalty clauses in the Tenancy Agreement regarding penalty figures; these are easier
to justify than a flat fee for each occurrence of late payment of rent. A sizable fee for each reminder or
letter sent is likely to be deemed excessive and an Adjudicator would award what would be considered a fair
amount for the work undertaken.
The OFT guidance states:
3.46 We regard a requirement to pay unreasonable interest on arrears of rent, at a rate substantially above the
clearing banks’ base rates, as an unfair penalty. We regard the imposition of a fixed daily or monthly charge
for overdue rent, and regardless of the amount due or the surrounding circumstances, as being penal rather
than compensatory in nature, and unfair. Tenants would have to pay more than the cost of making up the
deficit caused by their default.
MYDSCICO v3 08 15_5799
3.50 We consider that terms providing for fixed charges for sending reminders for overdue rent at fixed intervals
are unfair if they do not take into account the circumstances or the need for such reminders. Landlords are
entitled to recover the reasonable costs they incur in obtaining outstanding rent or other amounts due to
them, but should not impose arbitrary charges, either directly or through their agents. We object to terms
making tenants liable for all costs arising if rent arrears are transferred to debt collection agencies, because
the circumstances may not justify a tenant having to face the liability for all of the costs and so a court may
direct that the tenant should not have to pay those costs. The landlord’s remedy for non-payment of rent
arrears is a civil claim and the tenant is entitled to the protection of the court in this matter.
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