Which of these letting agent fees are illegal ?

I wrote recently about Casehub and the claim they are looking to bring against Foxtons in respect of unlawful letting agent fees.

But what fees can they claim? Which of the many fees charged by agents are illegal and which ones are justified?

Casehub published a blog post on 10 June featuring ‘6 unlawful fees charged by letting agents’

Lets take a look at them.

1. Credit check fees

It is very common for agents to charge fees for carrying out a credit check. However as Casehub rightly point out – the fees charged are often far in excess of the actual cost of checks done.

There is some justification for making a charge as such – particularly if the check shows up that the tenants have been lying about their circumstances. However, it is hard to justify some of the actual fees charged – say £300 if the cost of the check is £15 or £20.

Agents may say that they are entitled to charge for their time making the check – but why should it be the tenants who have to pay? Checking tenants is the agent’s JOB! Surely if anyone is to pay it should be their customers, the landlords?

However, I am not entirely sure what the strictly legal (as opposed to moral) justification would be for reclaiming these fees through the courts. If you have any suggestions please tell us in the comments.

2. Name change fees: a fee to change a name in a tenancy agreement

This depends on when the name is changed. If we are talking about a change before the tenancy is signed – fair enough.  Charging £300 for this is clearly unreasonable.

However, if we are talking about a change after the tenancy agreement has been signed then, to do it properly, it means more than just crossing out one name on a form and writing in another.

Indeed, it’s very doubtful whether just doing  this would be legally valid anyway.

The proper way to deal with a tenant change is to get all parties to sign a new tenancy agreement. This means creating the document and arranging for everyone to sign it.  But it does not end there.

There is also the question of the deposit – strictly speaking, the property will need to have a new inventory done as it is unfair to expect the incoming tenant to pay for damage done before they moved in. The inventory will then have to be checked with all the tenants and any adjustments to the deposit dealt with.

Finally, bringing a new tenant into the property will invalidate any guarantees (as the guarantors guaranteed a tenancy with the original tenants not a tenancy agreement with the incoming tenant – who they may not want to guarantee). So all the guarantees will have to be re-drafted and re-signed before the new tenancy agreement can be signed.

I think the agents are entitled to charge for this work (assuming they do it). I also think that as it is not their, or the landlord’s, fault that one of the tenants is leaving and being replaced by another, it is only fair that the tenants meet the cost of this.

3. Administrative fees: a fee to cover administrative expenses of agencies

If the fees were simply described as ‘administration charges’ they are probably illegal under the Consumer Rights Act 2015 – which I wrote about here.

All fees must now be disclosed, in advance, to both tenants and landlords, and must specify what the work is for. Vague wording such as ‘admin charges’ is not sufficient to satisfy the requirements of the act.

I also agree that it is wrong to expect tenants to pay for letting agents administration charges anyway. That should be billed to their customers – the landlords. Who are normally paying substantial sums by way of commission. The agent’s admin charges should be more than covered by this.

4. Late payment letter fees

Here the law is quite clear. Agents (and landlords) will not be entitled to charge tenants for these unless they are authorised by the tenancy agreement.

If the fee is authorised by the tenancy agreement then the enforceability of the clause will depend on whether it is ‘fair’ or not under the unfair contract terms regulations, which are now part of the Consumer Rights Act 2015.

Modest fees which represent the actual cost of writing the letter will normally be allowed. However, landlords and their agents are not entitled to make a profit out of their tenant’s impecuniosity.

5. Renewal fees: a fee to renew a tenancy agreement

This is a hugely controversial issue – and agents charge this sort of fee not only to tenants but to landlords too.

So far as tenants are concerned, the threat behind this fee is that if the tenants fail to pay it – the tenants will not be allowed to stay on in the property.

There are two issues with this:

• The tenants are entitled to stay on anyway under a periodic tenancy (which will be subject to the same terms and conditions as the preceding fixed term tenancy agreement) – this is something which happens automatically (under s5 of the Housing Act 1988), with no need for any special paperwork
• It is the landlord who would bring any claim to evict the tenants, not the agents.  I suspect that few landlords will want to evict good tenants simply because they baulk at paying £300 to the letting agent.  Agents are not entitled to evict tenants without the knowledge or concurrence of the landlord.

Again though, I am not entirely sure what the legal basis would be for reclaiming these fees from tenants. Maybe that they are not provided for in the tenancy agreement, or that they are inherently unfair. No doubt if the claim goes ahead we will find out.

6. Inventory fees: a fee to check the inventory of a property

I’m afraid I don’t agree with Cashub on this – a decent inventory DOES help tenants. It is proof of the condition of the property at the start and end of the tenancy, which they can use to defend any claims by the landlord for inappropriate charges.

It is generally considered fair if the landlord pays for the inventory check-in and the tenant pays for the inventory checkout fees – or vice versa.  However if agents / landlords try to claim both fees from tenants – that will  be an unfair contract term.  It is only fair if the fees are shared equally.

After the initial 6 ‘unlawful fees’ the Casehub blog post comes up with two more:

7. Proving deceiving information about renewing a tenancy: making tenants believe that they have to pay to enter into a new contract

Not sure about this one. It’s true that a tenancy will run on anyway under a periodic tenancy after the end of the fixed term. However, this can normally be ended on two months notice.

If tenants want more security than this, it is to their advantage to have a new one year (or maybe two or three year) fixed term. There will be some work involved in negotiating this and getting the new tenancy agreements done.

It is arguable that it is not entirely unfair that tenants should pay for this. Although there may be an inherent unfairness if the landlord is being charged for the same thing.

However, there is also the point (as discussed at 5 above) that tenants ARE legally entitled to stay in the property under a periodic tenancy.  So threatening to make them leave, without obtaining a court order first (which agents are not entitled to do themselves – court claims must be brought by the landlords) could be deemed harassment.

Which under the Protection from Eviction Act 1977  is both a criminal offence and could entitle tenants to claim compensation.

8. Not including VAT in pricing.

This is in breach of the fee transparency regulations in the Consumer Rights Act 2015. It is arguable that tenants would only be liable to pay the VAT exclusive figure (ie the one that was advertised).

So the VAT element could be recoverable.

But this is not the whole story

ANY fees which have been charged to tenants which are not set out in the tenancy agreement are without justification and are arguably something which could be claimed back.

Also, any fees which have been paid in respect of contract terms which are unfair, in breach of the Unfair Terms regulations.

There is also the whole question of whether agents should be allowed to charge landlords and tenants fees for the same thing – particularly if the landlords are not aware of this.  (Although that would be a claim for landlords to bring – as discussed here).

Should it be Foxtons?

It may be though that Foxtons are not the best bet for this sort of claim. Many of you will remember that in 2010 Foxtons lost a claim brought by the Office of Fair Trading, based on the Unfair Terms regulations in respect of their agents’ agreements.

It is inconceivable that they have not learned from this, and I suspect that they now draft their legal documents carefully with the regulations in mind.

Casehub may, therefore, be better off going for a different, albeit equally large and prominent, agent who may have been less careful. Goodness knows there are enough of them out there.