BEFORE You Sign Any Management Agreement With Your Letting Agent – Make Sure You Read The Termination Clause CAREFULLY
I’ve had way too many conversations with local landlords around the subject of termination penalties. Often what you will find in the Management Contract put forward to you by your letting agent is a section entitled “Termination”
This section is basically intended to lay out the terms and conditions (and penalties) for you wanting to exit the management contract. Often in this section you find mention of Termination Notice Period and Termination Fees.
I can understand an agency wanting to protect itself from landlords wanting pull a fast one, but, if a genuine landlord wants to be released from the contract, then they should be free to do so – after all – you paid the agent for the services provided thus far and you paid them to find the tenant right? SO if you want to self manage or switch agents, you should be free to do so without penalty
These Types Of Punitive Exit Penalties Are Known As Golden Handcuffs
They are so called, because the pain of extracting yourself from them is excessive – and so you stay effectively locked in until any tenancy they have setup comes to an end – if your tenant is there for 10 years, you are handcuffed.
The only way you can “Get Out Of Jail” is to pay the fee.
It is perhaps understandable for the agent to want to charge you a nominal fee to prepare a handover file (say) but many agents will charge a fee equivalent to a full month of rent PLUS vat!
I do not think this is either fair or justified. As most agencies store their documentation electronically today, the sending of an email containing all the relevant electronic documents should not be a massive undertaking.
How To Avoid The Golden Handcuffs
Check the contract before you sign it – Whenever you are considering a contract, you have the right to strike out any clauses you do not agree with. If the other party will not accept your changes to the contract, you should seriously reconsider engaging with the other party. At the very least, you should negotiate an exit clause that you think more reasonable. If the other party digs in their heels and will not compromise – don’t engage with them.
Remember – just because the agent found you the tenant, you are not automatically bound to commit to their management services.
You must be clear up front which services you want, and, assuming they have performed their contract properly you may still be able to negotiate around the termination fee, but the key to avoiding a sting in the tail, is READING THE CONTRACT BEFORE YOU SIGN IT.