The bare facts behind signing a tenancy and it starting….or not?
What is a tenant’s responsibility to a landlord, when the tenancy agreement has been prepared and signed by all parties, but then the tenant(s) don’t move in?
While this is not a new issue, it has become more common in the uncertain climate we are experiencing as a result of the COVID-19 pandemic, and one that is often misunderstood. To offer you a more in-depth understanding, this guide aims to break this situation down, by looking at a number of possible scenarios that may result in tenants not moving into a property, despite the tenancy agreement having been signed by all parties.
When does the tenancy agreement become a binding contract?
Sometimes a tenancy is arranged using the phrase “subject to contract”. If it is signed but not ‘executed’ then there is no tenancy contract. In this situation, tenants can pull out but may still be bound by any separate holding deposit agreement they signed up to.
A tenancy will only have been ‘entered’ into properly if all parties have signed the agreement, including all joint tenants where there is more than one tenant, and the tenancy agreement has been ‘executed’ by dating it at the point of signing.
Tip: It should be clearly explained to tenants, before signing, that there is no cooling off period for tenancies.
In practice, landlords may struggle to collect the rent from tenants who do not want to move in. In this scenario, we would encourage both parties to communicate and negotiate a solution, which might include the original tenant providing some compensation to the landlord to cover the period the property remains empty, while the landlord attempts to find a replacement tenant.
What happens if:
Q. The tenancy is signed and executed but the tenant chooses not to move in?
A. The tenant(s) will remain responsible for paying rent for the full term of the tenancy. The tenant will need to ask to end the tenancy early and could be responsible for reasonable re-letting costs. For more information please see our guide to early termination fees.
Q. For whatever reason the tenant is unable to move in, due to reasons outside anyone’s control, such as the COVID-19 pandemic?
A. This will not stop the contract from being binding and the landlord will have the option to sue for damages.
Q. One or two tenants, out of three or four, want to pull out?
A. As tenants who have signed a joint agreement are joint and severally liable for all the rent, it will make no difference if two or three try to pull out.
Q. The landlord doesn’t make the property available to the tenant on the start date?
A. Then the landlord is likely to have revoked the tenancy, leaving the tenant in the position as if the contract was never made. The tenant then has the option of taking legal advice and suing the landlord for breach of contract.
Q. The tenant(s) say that the landlord has a duty to re-let the property, minimising the rent owed by the tenant up to the end of the fixed term?
A. In the case of rent, a landlord has no duty to minimise any loss; this is only the case in other breaches (Reichman v Beveridge 2006).
Q. A landlord’s agent wants to keep commission and other payments for a tenant who has not moved in?
A. Agents keeping money will depend on the agreement between the landlord and agent. However, usually an agent can take a fee if they have found a tenant who is “ready, willing and able” to enter into a tenancy.
If the tenant did enter into the tenancy then the agent can keep the fee.
Where the tenant did not enter into the tenancy, and depending on the specific circumstances, it could be argued that the tenant was not “willing and able” to enter into a tenancy and so the agent would not be able to charge a fee.
Q. Does the tenancy need to make specific reference to holding the deposit if the tenant does not move in?
A. If a deposit is taken, then the tenancy agreement must include a deposit clause which confirms that a deposit which is taken is there to cover damages and breach of contract. As the tenant not moving in is a breach of the contract, the landlord can make a claim for the deposit to cover costs for finding new tenants and outstanding rents.
Q. The tenancy agreement has been signed and witnessed, as a deed, rather than just signed as a standard agreement? Does the tenant’s level of responsibility differ?
A. There is no difference between deeds and standard agreements in relation to tenants’ responsibilities.
Q. A tenant claims that the contract is not valid because they were deliberately misled into signing the contract?
A. In this case, the tenant would need to prove they were deliberately misled. It would not be sufficient for the tenant to simply say they were not told that signing the contract was immediately binding.
We always encourage agents, landlords and tenants to communicate to resolve any issues. Our sister company, the Property Redress Scheme, has a tenancy mediation service to help all parties reach a mutual agreement should a situation like this happen. You can find out more about the Property Redress Scheme’s tenancy mediation service here.