GL #4: Tips for signing up with letting agents


In this week’s episode of Good Landlording, Suzanne Smith and Richard Jackson discuss tips to help landlords understand what to look out for in the contract with letting agents, so they know how to strike a fair deal when signing up with them 

This is a practical episode that not only gives the perspective of letting agents, but also explores the experience that landlords have when dealing with agents, the ins and outs of the different services letting agents provide, what to look out for in the agency agreement, and what protection landlords have under the law.

It’s is the second episode in the series on letting agents, carrying on from Episode #3: Guide to selecting good letting agents.

There are golden nuggets all the way through, but there’s a particularly good one at the end.

wording in the contract with a letting agetn

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1. The competitive environment for letting agents

The competitive environment has become very challenging for letting agents over the past few years. The Tenant Fees Act 2019 reduced income streams for letting agents as they could no longer charge tenants fees. Landlords have baulked at the extra costs, especially as interest rates and general costs like insurance and service changes have gone up.

There are very low barriers to entry for letting agents as no minimum qualifications or licensing are required. There are unfortunately lots of agents who compete on price, at the expense of a quality service, and others who try to lock in landlords through unfair terms in contracts.

Disruption from technology is beginning to gather steam, first with OpenRent who have already become the biggest agent in the UK, albeit an online platform. There are also new entrants like Hello Neighbour with their fixed price, no lock-in property management, and recently their new self-service letting package to compete with OpenRent. (Hello Neighbour advertise on Good Landlording, but Good Landlording is not an affiliate of Hello Neighbour). The NRLA are also doing more online. This all increases the pressure on traditional “high street” agents.

The industry has been consolidating, with big players like Countrywide buying up small local firms. Some are doubling down on customer service. A prime example is Kristjan Byfield’s Base Property Specialists in London, who genuinely care about providing a quality service both for tenants and for landlords.

Unfortunately, others try to stop landlords from leaving by tying them in or charging them a high exit fee if they want to terminate property management or in rent collection. This can make it very difficult for landlords to terminate rent collection and property management contracts.

2. What packages do letting agents offer landlords?

These are the four key packages of services that letting agents typically offer landlords:

a. Let-only / Tenant Find / Introduction Service

This is the most basic level of service, and not all agents offer it. It’s popular with self-managing landlords. The agents find tenants for the landlord, and hand the baton over to the landlord once they have checked in the tenant.

The agents typically advertise and market the property, carry out viewings, and recommend a short list. Once the landlord makes a decision, the agent will carry out referencing and the right to rent checks. The landlord will usually pay extra for an inventory and the tenancy agreement. The agent handles the deposit and the first month’s rent, and checks in the tenants.

The landlord pays an upfront fee for this which can range from 3-8 weeks’ rent, including all the costs. Suzanne said that the last time she used agents for a let-only service she paid 13% of the first year’s rent up front, equal to over 5 weeks’ rent.

Nothing was payable by Suzanne after she paid the up front fee unless she chose to use the agents to review the rent and/or “renew” the agreement. Agents usually encourage landlords to “renew” the fixed term tenancy when it expires, even though this is not necessary as it will automatically become a rolling periodic tenancy, either by statute or contract, without any action needed by the landlord or agent.

It’s easy for landlords to increase the rent themselves by agreement with the tenant or by serving a Section 13 notice. They don’t need to pay agents to do this.

b. Rent Collection / Rent Managment

The next level of service, which is often the entry level for some of the bigger letting agents like Savills, Foxtons or Dexters in London, is rent collection or rent management. This is like the basic tenant-find service but the agent doesn’t hand the baton onto the landlord when the tenant moves in. Instead, the agent collects rent from the tenant and remits it onto the landlord. The agent chases tenants for late payments and provides landlords with rent schedules.

The price ranges from 11% of the gross rent for Dexters to 15% for Savills. Foxtons charge 13.2% for the initial introduction of the tenant, with a renewal commission of 12% payable for the next two years and 8.4% thereafter if the tenant remains in the property. None of these agents permit the landlords to terminate the rent collection service for so long as the tenants continue to stay in the property, locking landlords in for an indefinite period.

OpenRent on the other hand charges £10 per month for its rent collection service.

Landlords should be aware that they may be locked in to staying with the letting agent if they choose rent collection if the contract states the landlord has to pay renewal fees each year, even if they terminate. It’s very important to check whether they will be able to terminate their rent collection service in the future without having to continue paying the fees, if that is an option they wish to retain.

However, this can be less of an issue with flats where tenants don’t tend to stay as long as they do in houses. It is more of an issue for landlords with long-term tenants who may not want to be locked into using the agent’s rent collection service and paying the renewal fees.

That said, landlords should consider how much value they really get from their letting agent collecting the rent and remitting it, less the rent collection fee, especially where they have good tenants who don’t need chasing for rent. If they do sign up for rent collection, they should do it with their eyes wide open, and realise they may have to pay renewal fees to the agent for so long as the tenant stays in the property.

It’s very important before landlords sign up with an agent for rent collection, they ask to see the contract, which probably isn’t on their website, so they are clear whether they can terminate the rent collection service without changing tenants.

>> Hello Neighbour: Campaign to stop renewal fees

c. Full Management

With full property management, the letting agent manages both the tenant and the property. This is useful for people who don’t have the skill or the inclination to manage the property themselves, or perhaps if the landlord isn’t local to the property. It’s also valuable with students, who tend to be higher maintenance in terms of management.

Fees are typically a percentage of the rent – typically from 10-20%. This means that full management gets very expensive where the rent is high, even though the amount of management might not be any different from a property with a lower rent.

Some letting agents (like Hello Neighbour) provide full management for a fixed monthly charge, with six monthly inspections as standard, and no tie-ins.

>> The Independent Landlord: What landlords need to know about full property management services

d. Premier Full management

Some letting agents have a fourth tier which includes rent guarantee insurance and other services.

Taking the example of Leaders, their Premier Service includes enhanced applicant assessment, enhanced tenancy management and rent guarantee. The fee is 4.2%

Rent guarantee insurance is not expensive, and it’s easy for landlords to take out themselves, assuming the tenants pass credit checks.

3. What should landlords look out for in agents’ terms and conditions

a. Being locked in beyond the initial fixed term

The first thing landlords should check is whether the terms lock them in beyond the initial fixed term.

Letting agents do this in different ways, for instance with a high termination fee or an automatic renewal fee for so long as the tenant stays in the property.

Some agents are fair, and allow landlords to terminate with reasonable notice (say three months’ notice), at any time after the initial fixed term. But this is not always the case. For instance Leaders who charge a withdrawal fee of two months rent plus VAT, even after the initial fixed term. This is more than a year’s worth of fees.

b. Sole agency period over four weeks

Check that the sole agency is for no more than four weeks.

If the agents haven’t let the property within 4 weeks, they’re not doing a good job. They’ve either pitched the rent too high or haven’t marketed it properly. If a landlord signs up to a long sole agency period, they can’t leave and use another agent or do it themselves, without still having to pay commission to the first agent.

c. Commission on the sale of the property to a tenant

Agents should not include a term that entitles them to charge a commission if the landlord sells the property to the tenants.

d. Compliance fees

Compliance fees are another bugbear of landlords. Compliance with the law should be included within the basic fee, and not charged an extra. Some agents charge extra if the property needs a licence.

e. Markup on repairs and maintenance

Letting agents often charge a markup on repairs of 10-15%. Whilst this is fine if they actually do project manage and supervise the work, there is is little value to the landlord if it’s a question of (say) arranging for a new boiler.

An example is Leaders who charge 12% of the contractor’s invoice to “project manage” works over £500, and £30 to arrange a gas safety certificate or EICR on top of the contractor’s invoice, even if they are managing the property.

It makes sense for landlords to keep a list of trusted trades people and arrange repairs themselves.

>> Blog post: The Independent Landlord guide to the small print of letting agent contracts

4. What protection do landlords from unfair terms in agency contracts?

Landlords who are “consumers” benefit from consumer protection under Section 62 of the Consumer Rights Act 2015 which states that “unfair terms” are not binding on the consumer.

An example of an unfair term is something that allows letting agents to increase charges or impose changes to the contract without the agreement of the consumer. This means the consumer must be given the opportunity to terminate the contract if the letting agent wants to change the terms of the contract.

What is a consumer landlord?

Landlords are likely to be considered as consumers if they own their rental properties in their own name and are not a full-time landlord. They’ll have another source of income. If a landlord has a full-time job and does not own the properties through a limited company, it will be difficult for a letting agent to argue that the landlord is not a consumer, even if they have a lot of properties.

Breach of contract

If the service is so bad that it breaches fundamental terms under the letting agent contract, landlords can treat the contract as discharged and not be bound by it, whether or not they are a consumer. This is a question of contract law and not contract law.

For instance, a letting agent does not carry out inspections, fails to renew gas safety certificates when the tenants haven’t refused to grant access.

However, it can be difficult to expensive if the dispute end up in court, which is why its important to make a complaint and go to the redress scheme if unhappy with the outcome. We discuss this in Episode #5, out 8 May.

5. Why it’s important to keep copies of all records

Even if landlords use letting agents, they should always ask for copies of all records so they have a full history on the tenancy. For instance, receipts from contractors, copies of tenancy agreements and records of repair requests.

Keeping records ensures that the landlord can demonstrate what happened if there ever is a dispute , they change agents or the agents go out of business.

The records belong to the landlord, and the landlord should ask for them.

Golden nugget

Landlords are usually happy to negotiate on price when they buy a property, or even on the fees with letting agents. They are less willing to negotiate on the terms in the contract with the letting agent.

Standard terms can always be amended, and if the letting agent won’t amend them, the landlord can go somewhere else. There are plenty of letting agents out there. Landlords need to be more demanding and refuse to do business with agents who treat landlords unfairly and try and lock landlords in.

Prevention is better than cure, and it’s better to negotiate to remove unfair terms than try to use consumer protection law to say they’re not binding.

Landlords should also make sure they’re comparing like for like. One agent may charge a higher percentage, but they don’t charge extra fees. Another agent might charge you a lower percentage, but then they add on all these hidden costs. All these things can be negotiated.

So the golden nugget is to negotiate.

Credits

Music: “Paradise Found” by Kevin MacLeod of Incompetech. Licensed under Creative Commons: Attribution 4.0 License.

episode #4 what to look out for when signing up with letting agents, terms of contract

1 thought on “GL #4: Tips for signing up with letting agents”

  1. Yasmin Ferrari

    I will try to terminate Rent Collection fee of 8% with [xxxx] . It’s year three and twice I have tried to negotiate that they at least reduce the fee. They have said no. Let’s see what happens. Do you know of anyone who has succeeded without having to go to tribunal and spend a fortune which I am not prepared to do. Thanks for all the ongoing information.

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