Letting agents agreements and some pitfalls for landlords to watch out for

Mistakes can cost you dear when choosing a letting agent.

So you need to be careful what you are letting yourself in for. You need to know what your rights and obligations are.

These are usually set out in an agency agreement which your agent will require you to sign before they start managing your property.

Don’t treat this as a bit of useless paperwork and just sign it willy nilly. Check it out carefully. Here are some things to watch out for.

Initial warning signs

First of all – there should BE an agency agreement. So if an agent doesn’t get you to sign one – that is a warning sign.

Then you can learn a lot about the way they go about getting you to sign their agreement and from the agreement itself.

For example is it clearly laid out and easy to understand? Did the agent explain it to you? Is there any explanatory literature?

After all, if the agent does not take care in signing up you as a customer, will they take any more care in signing up your tenants? Probably not …

Looking at the agreement

There are two main types of agreement –

• those where the agent will just find a tenant for you and you manage the property thereafter, and
• those where the agent will take over the management of the property

It needs to be clear which type of agreement you are signing.

Then the agreement needs to cover all areas of your contract with the agent. So it needs to set out

• what they are going to do,
• what they expect you to do,
• how the relationship is going to work,
• what their charges are and
• how the agreement can be terminated.

Some common problem areas

Deposits

You need to be clear about who is going to protect the deposit. If the agent is going to protect it – which scheme are they going to use?

Remember that if the agent fails to protect the deposit or (worst case scenario) runs off with it – you are still responsible for paying the money back to the tenant.

Your rent

When and how are they going to pay it over to you?

As mentioned in my earlier article, you need to be sure that your agent is a member of SafeAgent or an organisation such as ARLA which requires them to have client money protection.

Their fees

Some agents will have all inclusive fees so you know more or less where you are, while others will be more like EasyJet and have a charge for everything.

You need to satisfy yourself what their fees are and when they will be payable.

Incidentally – watch out for agents who try to persuade you to sign up to a long fixed term with a tenant – say two to three years.

In most cases they will then deduct their whole fee for the two (or three) years from the first couple of months rent (so you get nothing) and then be less than helpful when the tenant turns out to be a nightmare tenant.

Who, of course, you are then unable to evict under section 21 for several years – because of the long fixed term they told you was such a good idea.

The other big problem with agents commission is when they insert clauses providing for them to get continuing commission when tenancy agreements are renewed when they are not managing the property.

Indeed there was a big case about this, the Office of Fair Trading v. Foxtons case in 2010 where the Court held that these clauses were vulnerable to being found unfair under the Unfair Terms in Consumer Contracts Regulations.

You can read more about this case here.

Note that not ALL of these commission clauses will be void under the regulations –

• If they are for a limited period of time (normally two years) and for a lower rate of interest they may be enforceable.
• If they are open ended and for the same rate of interest as the initial term (where the agent did a bit of work) they probably won’t.  Particularly if they were buried in the small print and you weren’t told about them.

Termination

It is not unknown for agency agreements to be heavy on fees and light on how to terminate the agreement.

Often there will be a clause, sometimes buried in the small print, saying that you cannot end the agreement while the tenant they have chosen is still in the property. This however will not normally be enforceable if the agent is in breach of contract.

You need to be clear exactly how the agreement can be ended, and how much notice is required.

Unfair terms regulations

The Unfair Terms in Consumer Contracts Regulations 1999 will apply to most agency agreements – provided the landlord is contracting with the agent as a ‘consumer’.

When will this be? Well generally where landlord is not a professional landlord.

• So if you just rent out the one property (which you inherited maybe from your Great Aunt Mary) and your real job is doing something else other than renting property – you will almost certainly be deemed to be a ‘consumer’.
• If on the other hand you are a large portfolio landlord, the rental of which provides your main income, and you are using this agent to manage part of your portfolio – you will probably be deemed to be a business customer and will not be able to take advantage of the regulations.

I’m not going to go into the regulations in any details here – suffice it to say that they applies to the agents standard terms and conditions.  So if any clause tries to take away a right you would otherwise have had or is drafted in a way that is difficult to understand – it will probably be void under the regulations.

A useful recent case on the regulations is this one.

Getting clauses changed

If you don’t like a clause in the agreement – what do you do?

Ideally the offending clause in the agreement should be crossed out and you and the agent should initial the crossing out to make it clear that this clause is not included.

DO NOT rely on the agent just saying that the clause will not be used or will be interpreted in a certain way.  If push comes to shove – how will you prove that they said it?  Indeed that staff member may have left the agency by then.

At the very least have things in writing – either a letter or an exchange of emails.

And finally

The letting agents agreement is an important document as it will set out the business relationship between you. You need to read it and understand what it says before signing.

If you can’t understand it, and the agent seems to be rushing you to sign without explaining it – then this is a bad sign and you need to re-consider using this agency.

It goes without saying that you need to be provided with a copy of the agreement after you have signed it.

Your property is a very valuable investment. Your agents will be in a powerful position – as they will have the right to instal tenants in your property who you will not be able to evict without going to court – which may be expensive and time consuming.

You need to be sure that you are using a responsible firm who will deal with things properly. Take care.

Note – If you are a landlord experiencing problems with YOUR agent, you will find some guidance via my Landlord Law service here.