There is a big argument going on about letting agent fees. And in particular – letting agents charging fees to tenants.
For example, there is the private members’ bill, the Renters Rights Bill, which wants to ban letting agent fees to tenants, which has had its second reading in the House of Lords. I understand that this has little chance of getting onto the statute book right now, but it clearly expresses what many people think.
I wrote a post about agent fees to tenants here but in that post, I was looking specifically at the legality of these fees. Not whether they were right or wrong.
It’s a difficult question.
On the whole, I am against agents fees. But let me clear up one point first.
I’m not anti letting agents
In fact, I think good letting agents perform a valuable and important service – not just for landlords but often also for tenants. Indeed I wrote here about seven benefits of using a really good letting agent. I have known many fantastic letting agents.
However, there is a problem. Many agents are not ‘really good’. In fact, some of them are terrible. Greedy, incompetent, even dishonest sometimes.
And the problem is that it is very difficult for the ordinary landlord or tenant (who are often unaware of the issues or the importance of such things as ARLA membership) to tell the difference between a good agent and a bad one.
Focusing on tenant fees
If we look specifically at fees charged to tenants – there is a huge difference in what is actually charged. By which I mean fees in respect of agents’ charges as opposed to things like the rent and deposit.
- Some agents will just make a modest charge to cover the cost of referencing.
- Others will charge tenants hundreds of pounds, not just for referencing, but also fees for ‘admin’ and tenancy agreements, plus fees for renewing the tenancy and for sending letters.
Which means that:
- Some tenants, the lucky ones, will just pay a modest £100 or so, the deposit and their rent.
- Others, the unlucky ones, will end up paying hundreds, maybe over the period of the tenancy, thousands of pounds in addition to their rent – which will be in respect of the agents work for that tenancy.
Who is the agent’s client?
But here’s the thing. The agents’ customer is the LANDLORD. It is the landlord who employs the agent.
So why should the tenant have to pay anything at all towards the agent’s fees?
Surely this should come out of the agent’s commission. After all, that is what the landlord is paying the agent FOR – finding a tenant and then (if there is a management contract) managing the property.
Charging tenants means that the agent gets paid twice. And sometimes they charge twice for extras too.
Double payment
Take tenancy agreements. You would have thought the cost of drafting a tenancy agreement would be included in the agent’s general admin fees, paid by their landlords – via the commission.
However, many agents charge extra, not just to their landlords but also to the tenants. Some agents are raking in combined fees of £500 or more for what is essentially a simple task – filling in the blanks of a standard document. It’s not as if they employ solicitors to draft tenancy agreements from scratch every time.
Which is outrageous – when perfectly acceptable tenancy agreements can be bought off the shelf for under a tenner (and agents can get unlimited use of my tenancy agreements service for £20 pm).
Frequently landlords are unaware of the charge to tenants. Indeed one of the bases of the claim being brought by Leigh Day on behalf of landlords against Foxtons is this double charging without the authorisation of the landlords.
Double charging in many cases is a breach of the agents’ duty to act in good faith and not make a secret profit – a duty which is implied into all agency agreements. Unfortunately (for tenants) it is only the landlords who have a cause of action and can bring a claim. On this basis anyway.
But won’t the rent go up if tenant fees are banned?
This is the big argument that’s always raised. That it’s against tenant’s interests to object to this practice as their rent will go up.
Which of course it probably will. If agents are unable to sustain their business on the basis of the landlords’ commission payments alone, and if landlords end up paying more to their agents, then, of course, this will result in higher rents.
Rent is charged to cover the landlord’s costs of maintaining the property, the running and administrative costs, and to give him (or her) a reasonable profit – or ‘return on their investment’. Landlords renting out property are engaged in a business activity so naturally, they will want to make a profit. Otherwise, there is no point in doing it.
But why is this a problem?
Tenants are paying these fees anyway. Surely it’s better for them to pay via higher rents meaning that the payment will be spread over a long period of time? At least then they know from the start what they are paying and won’t be ‘ambushed’ by massive admin fee demands at short notice when they have committed themselves to the property (as apparently often happens).
I think if I were a tenant, I would prefer to pay just the deposit and rent, even if that rent were a bit higher than have to fork out substantial additional sums at the start of the tenancy.
Exceptions
If there is a ban on agents fees I would support an exception for the following fees:
- The actual cost of reference checks – normally, I understand, in the region of £15-£65
- Half of the cost of an inventory check. (NB At the moment a tenancy agreement contract clause is considered fair if the landlord pays for either the check in or check out and the tenant pays for the other – but not if the tenant pays both)
- Fees if the tenants want to change tenants mid term or end the tenancy early
The reasons I support these exceptions are that:
- Paying for reference costs will discourage tenants applying for multiple properties when they know they will not pass referencing, and
- The inventory checkin/checkout is of benefit to tenants as well as landlords
- It is unfair for landlords to have to pay the additional costs which would be incurred in these circumstances
However, I suspect that if agents fees to tenants are banned – these will be included (although I think agents will still be able to make a charge to tenants for the third item as a condition of agreeing to the tenants’ request).
A more transparent system is needed
If agents are not allowed to charge tenant fees, and if all their costs are paid by the landlords, who then pass them on to rent, it is easier for tenants to assess the true cost of renting the property.
Because at present – a more expensive property might actually work out as cheaper long term if the tenant is not faced with large admin fees to find at the start. But the tenants often don’t know this until it’s too late.
Plus it is easier to absorb an overall higher charge if it is spread over 12 months – as opposed to having to find it all at the start.
Let the good agents shine
I also think (and if I am wrong no doubt they will correct me) that this would, on the whole, be good for the good agents. The ones that either don’t charge tenant fees at all or if they do, only make a modest charge.
They would be revealed as being considerably better value for their customers, the landlords. At the moment they are at a disadvantage as their less scrupulous competitors are able to appear more attractive to landlords because they get part of their income from tenants (often without landlord’s express knowledge or permission).
Conclusion
I am therefore largely on the side of those who would wish to ban tenant fees.
I suspect that this will happen eventually – although it is unlikely to be via the Renters Rights bill – unless this does considerably better than expected.
Answer(reason) very simple – the tenant seeks the property and has to prove their worthiness to have it. So reference checks are needed – why should the Landlord pay when the tenant has to prove they are financially and morally viable as tenants.
The problem is the level of fees, not that they should be charged at all.
In terms of impact on rents just look at what has happened in Scotland
By the way if it is the tenant’s alleged behaviour etc at a property that necessitates an extra visit and additional work for the agent why should the Landlord (or agent) bear those costs?
The main issue is business model, I and many other agents operate their business based on an accepted model as to where the income comes from. Take an income stream away and many businesses become unsustainable unless the income stream is recovered from elsewhere.
I cannot imagine my commercial landlord coming to me and reducing the rent that I pay on the basis that my income might be reduced! I cannot imagine that Government will stop the relentless piling on of legislation just because my income might be reduced.
What people have to understand is that being a letting agent is running a business which is guided by market forces; a bit like a bar that buys beer and sells it at a £figure to cover the costs of running their business, it would be ludicrous to suggest to a bar owner that he/she should sell the beer at cost!
Every business has overheads, as I sit here today, I am paying rent for my office, business rates, heat light & power costs, staff costs, printing costs, stationery costs, telephone costs, hardware & software costs, advertising costs (do tenants realise that agents are paying north of £600 a month to advertise the property that they want on Rightmove?)
Whether my office lets 4 properties a month or 10, most costs remain the same and that cost was in my business plan when I opened 15 years ago, they will not go away just because someone who is not in the business wants to change the way that I work – unless of course that person can accept that if my turnover drops by 15% a year then that means I lay off a member of staff that I can no longer afford?
I’m not suggesting agents charge less overall. Just that they charge it to their customers, the landlords, rather than to the tenants (save as set out in the article).
The charge will be passed on to the tenants by way of extra rent (of course) but at least they will have a clearer idea of where they stand.
Agents can keep up to date with legal changes by signing up to my (free) critical information mailings https://landlordlaw.leadpages.co/landlord-law-critical-information/
Tessa,
Charges should be aligned with costs – i.e. the tenant should pay. If the tenant stays for a long and successful tenancy the cost is negligible. If (for whatever reason) the tenant leaves before the end of the tenancy they pay for the cost rather than the next tenant.
And what if the tenant leaves earlier because the landlord demands it? Why should the tenant pay then? I think tenant fees should be banned. After all, tenant don’t have any profit from paying the rent. He/she is only giving money away, while it’s quite the contrary for landlords and estate agencies….
If the landlord demands that the tenant leave early the tenant can tell the landlord to get stuffed!
A landlord cannot force a tenant to move out during the fixed term unless either (a) there is a break clause (and the landlord serves a s21 notice and then gets a court order) or (b) if the landlord gets a court order for possession based on rent arrears.
The landlord has no power to force a tenant to leave without getting a court order first.
Jeremy you miss the point.
This is an argument I have been hearing for the past 20 years when I have been advising and warning agents to wean themselves off excessive tenant charges, and to gradually shift those fees over to the landlord. I for one am astonished that the Scottish model of no fees to tenants for anything connected to the preparation of a lease, always existed but legally reinforced a few years ago, has not yet come to pass in England and Wales.
In Wales it soon will do, and England will then have to follow.
No-one is doubting business costs, the work involved etc. A shop charges its customers, not people simply looking in the window. Your customer is the Landlord, or at least very much your primary customer, and your primary Duty of Care.
Charge accordingly. If all agents did so where is the commercial risk?
At the moment most agents cannot be arsed to display their fees. If all displayed their full fees then perhaps that would be a start ing point for deciding who is charging an excessive fee. The idea of going to a landlord with an uncommitted tenant who hasn’t paid any fees is just wrong and bad practice. We have tried it on a few occasions when a property has been sticking on the market and ended up wasting more time chasing the applicants, when applicants pay a fee they are less likely to dick us/landlords around.
Back in 1970 I set up an accomodation agency as they were called in them days. It was the Norm that the tenant paid our one-off fee which was in effect to source and introduce them to the landlord. Payable once both parties were happy.Creation of inventories was a nominal extra charge. One day someone produced evidence that under the 1954 landlord and tenancy act it was illegal to charge the tenant any fees whatsoever.this must be covered by the landlord. I can’t recall the protocol on reference checks but they were not so beauracratic then. The information on this important issue got buried in the passage of time, and agents were genuinely not aware of this situation. But it stood firm and agents were from then on not able to charge fees. I suspect subsequent generations of agents would.reintroduce fees to tenants as it gave them a competitive edge.and there was nobody to advise them they were in face breaking the law.
This is a solution looking for a problem.
At the end of the day, it is the landlord who charges the tenant, and whether to charge fees is a commercial decision.
Charging application, registration, or admin fees is a common commercial practice across many industries.
Tessa the thread and timing of posts is all over the place in this one, making it difficult to follow.
Nick – try telling a tenant that a £300+ fee is negligible when they have no idea how long they will stay beyond 6 months. Indeed what if the Landlord then serves notice, are the tenants entitled to a refund because they were not there long enough to make it negligible?
Playing devil’s advocate the tenant knows if he has been a good tenant/borrower previously, knows if his credit rating is good, knows if he earns what he says he does on his application form. So who is it that wants all this verified – the Landlord.
So why should the tenant pay for the Landlord’s peace of mind?
I still think the whole point is being missed in this discussion, which is if fees are to be charged at what level should they be and who should pay them, above all at what level.
I have been around 25 years in this business, and when I started a typical tenant application fee was £50 single, £75 a couple. Is anyone seriously trying to tell me that the costs specifically associated with setting up a tenancy and paid by the tenant have increased over six fold over those 25 years?
If so I wish my hourly rate had!!!
Dear Industry,
I think that it is very reasonable to describe £10/month (£300 over 30 months) as negligible, and in truth it won’t even come close to the actual costs.
Yes the costs of changing tenancy have increased by much more than 6-fold in 25 years. There are good reasons why dealing with tenants has increased so much, but the wait for Bailiffs in the Central London County Court is 12 weeks, it takes the Court 30 days to open it’s post, and my average administration costs are around £3000 per tenancy, whilst 20 years ago there were closer to £30, as you rightly say.
Those dramatic costs are totally due to a rare bad tenant (<10%) and the tragedy is that the way that the law has set up our tenancy system is that the good tenants are the ones who pay the costs of the bad tenants.
One issue is that even those tenants who “know” that they have good credit and “know” what they earn are found lacking when a credit check comes back with an undisclosed ccj or when an employer reference confirms a lower salary and a reliance on commission. Why should the landlord take on this risk and cost?
@Jeremy I agree with that.
If you read the post you will see that I suggest that this is one of the three types of fee which I think should be paid by the tenant even if fees to tenants are banned. (under the heading ‘exceptions’)
I am a retired solicitor. I was a landlady in a small way for many years (but now do not rent out flats). Formerly I handled all the advertising, showing, drawing agreements myself – it isn’t difficult.
I worked in an unrelated area of law. I got the agreements off the shelf from Oyez and now I see an excellent government guide with pro formas.
When agencies sprang up in great number (out of the commercial and high end market) they were not allowed to charge tenants. I am shocked that they are now.
My son seeking a student let in a university town was charged £250 on the spot for an ‘agency’ fee (the agency received double that as he has a flat share). The students have not yet taken up residency, but are on course, having signed everything, provided background information and supplied deposit and first month’s rent.
However, the documentation was faulty and I spent hours correcting and corresponding with the co-tenant and agency. The material is a pro forma – too easily churned out by incompetent people without proper checks.
They have not supplied an agency agreement despite the payment (taken on the first visit because flats were ‘running out’). I know we can complain, but are reluctant because of the unspoken threat of withdrawal of the tenancy if their ‘conditions’ are not met.
Landlords also pay a proportion of the rent as a fee – although I would not know if that is the case here. So the cost to tenants is hiked up when the benefit to landlords is immense – depending on the fees charged to them.
This is led to part of the inflation in the housing market and therefore to inflation generally.
Because it is non-productive, ie the housing it self is not enhanced or increased, these inflated payments and rents represent a waste in an economy that is begging for more resources for housing production.
In the microclimate of Tory obsession of helping ‘businesses’ make profit we’re forgetting the public interest, and the disastrous economic impact on family incomes and wider economic stability of allowing the property bubble to siphon resources away from productive capacity and a decent educational opportunities.
I think these comments are drifting off topic. This post is not about landlords charging fees to tenants or about agents charging fees to landlords for their work. It is about whether agents should be entitled to make direct charges to tenants, often without the landlord’s knowledge or consent.
Obviously, the costs of managing a property and so on will ultimately be paid by the tenants, either through their rent or by way of extra fees. However, there is a question mark over the very high fees which some agents charge to tenants directly for the cost of their work.
What I am saying in the article is that as an agent’s customer is the landlord, these items should be billed to the landlord rather than the tenant.
Obviously, the cost of this will be passed on to tenants through the rent that they pay. But in my opinion, this is the fairest way for it to be dealt with. It puts everyone on a level playing field.
This article is NOT about landlords charging fees direct to tenants. Whether they can do this or not will depend first on whether it is set out in the tenancy agreement, and then, if it is, whether that tenancy agreement term is fair under the consumer regs.
But I would prefer it if discussion could keep to the topic of agents fees. Thanks.
“Obviously, the cost of this will be passed on to tenants through the rent that they pay. But in my opinion, this is the fairest way for it to be dealt with. It puts everyone on a level playing field.”
Why should everyone be on a level playing field?
Why should the good tenants pay for the bad tenants?
Banning fees completely is not the fairest way at all, it is very unfair for the vast majority of decent tenants who pay their way through life.
To throw something different into this….what if both the L/L and agent (depending of course if the property has an agent and if it who it is managed by), also have to pay a deposit just like the tenant.Then the tenant can make a claim against this according to how either have performed their duties and can evidence the costs involved in regards their fees for example.
If fees are still charged to tenants by agents, then I imagine the good ones will have no trouble getting this back…it is the ones which bring the trade down that will lose out surely by having deductions.
This may equally have some positive effect on cases needing to go to Court if decided by the same ADR of the deposit scheme?
Just a thought ¦)
As an agent we charge modest fees of £69 for referencing and at the end of the tenancy a £60 checkout fee on a per tenant basis. In addition to this if a guarantor is required there is an additional charge of £39.00 unless the guarantor is processed at the same time as the tenant, then there is no charge.
We still have tenant applicants that don’t take rooms, even when they have already passed referencing. It could be that their circumstances have changed. So they have spent their money and walk away.
Its unfair to ask landlords to cover the cost of referencing when effectively the tenants have to prove that they are capable to take on the tenancy. There is the possibility that many will just apply for rooms, knowing they have no chance of getting them, if fees are not charged. Perhaps a fairer way is to get the tenants to pay it initially and then when they take the tenancy, the fee is refunded from the first months rent.
We do see a lot of applicants being forced into making a payment to their previous agents to give a reference. This fee has ranged from £25.00-£40.00. To my mind this is holding the tenant to ransom when they want to move.
We declare all our fees in our adverts and on our website. Which we and all other agents are required to do. So it seems odd that landlords are not aware of what their agents are charging. Unless of course the agents aren’t complying with their legal obligations.
“and at the end of the tenancy a £60 checkout fee on a per tenant basis.”
Classic example of why this fees issue comes up at all. Can you explain Sandra why you would charge a husband and wife £120 for looking at the same cooker both of them have used? Or assessing whether cleaning is needed, or establishing a cup has been broken, or a light bulb hasn’t been changed?
Why per tenant when it is one appointment, one lot of travelling?
Given the majority of comments in this article, which having re-read it Tessa seems to go way beyond just secret profits and charges to tenants unknown to Landlords (who as long as they aren’t paying don’t want to know), may I advise agents as I have been for 20 years to get ready for a cap on their tenant fees. It will come, so start adjusting the business stream flows now (or trade down from Mercedes to Audi!!)
“Classic example of why this fees issue comes up at all. Can you explain Sandra why you would charge a husband and wife £120 for looking at the same cooker both of them have used? Or assessing whether cleaning is needed, or establishing a cup has been broken, or a light bulb hasn’t been changed?
Why per tenant when it is one appointment, one lot of travelling?”
Happy to explain – the majority of our tenants are individuals occupying premises on their own. However a 2 bedroom apartment takes twice as long and usually occupied by two individuals. We do make adjustments based on the size of the property if we feel the charge isn’t warranted. That is a business decision for us to make.
I think Sandra’s fees are a good example of fees that are fair – a modest reference fee (so tenants don’t recklessly run up checking fees for landlords by making inappropriate applications) and a checkout fee (with the landlord paying the check-in fee).
If all agents just charged that there wouldn’t be any problem.
Interesting article, thanks for sharing and I mostly agree with your views.
It has brought to mind a query – my estate agents charge the inventory check in fee to the landlord and the check out fee to the tenant. This sounds fair in principle, but the check in fee is £50+VAT and the check out is £182+VAT – in your opinion is that still fair?
Probably not. In which case the tenant could refuse to pay and, if the landlord deducts it from the deposit, refer it to adjudication.
@Jeremy
I repeat, because it is the Landlord that wants the certainty
@NRM
Just a thought – just. Given the poor quality of decisions I have seen from redress schemes where agents have acted appallingly, very few tenants would win in such disputes.
Hi all, interesting discussion. I have another issue to throw into the mix.
Let’s assume that I’m okay with the idea of Letting Agents charging £420 as a set up fee (I’m not). This would include referencing, drawing up tenancy agreement, check in report, etc.
I have a letting agent who didn’t charge a fixed amount, but charged a week and a half of rent (£750) as the set up fee? You might be able to claim that the admin required has a cost of £420 but how could one argue that the cost varies depending on the value of the property?
This is surely proof that the “admin fees” are nothing to do with actual cost, but just another way of Agencies padding their bottom line.
In the current climate, the landlord has much more influence and power than the tenant. By ensuring that the landlord is responsible for all administrative costs*, you encourage them to be much more discerning in the Agency that they choose. In this climate, tenants are a dime a dozen, we have no influence at all.
* This would apply for all administrative charges other than exceptional costs, but all exceptional costs should, by law, be able to be carried out by an authorised third party, creating true competition, and removing the pricing from the LAs hands. Giving tenants the right to choose who provides the reference or check-in is key to keeping the costs for these exceptional costs down.
Thoughts?
Agents are by law required to publish fees on their website and in their offices, in a prominent place. This is to allow applicants to see how much they will be required to pay. If the fee is variable, it must be shown how this fee is calculated so that an applicant can work it out.
I would suggest that the agents fees you mention are perhaps not complying with this and could be reported to the trading standards