Last week the chancellor announced in his Autumn Statement that they would be introducing a ban on letting agent fees to tenants ‘as soon as possible’.
This post looks at why this is actually a good thing for some agents (ie those who do not charge these excessive fees) and why, if you’re one of those agents, you should have nothing to fear.
You can still charge fees
Some of the reactions I have seen from agents make it look as if they are being banned from charging any fees at all! All the ban is doing is saying that agents can’t charge fees to tenants. You can still charge your LANDLORDS!
Which when you think about it is right and proper – as tenants are not your clients. Landlords are. So landlords should pay the fees.
You could be breaking the law by charging tenants
No-one thinks about the law of agency but the lawyers. To quote Giles Peaker on Nearly Legal
As one agent put it to me on twitter
“In practice an agent a person who acts on behalf of the landlord. The customer is still the tenant”.
Well… No. If you are the landlord’s agent, you are the landlord’s proxy. You are entitled to charge the landlord for that service, but technically, legally, you should then account to the landlord for any profit that you, as agent, make from charging the landlord’s tenant.
One big element of agency law is that an agent is in a ‘fiduciary position’ and therefore cannot make a profit out of his agency work unless this is known of and approved by their principal – in this case, the landlord. If the agent makes a ‘secret profit’ which the principal has not authorised – the principal can claim it back through the courts.
Do you think most landlords know that their agents ZXY Ltd are charging £350 to their tenants as well as to them for drawing up a tenancy agreement (total fee haul for one ‘fill in the blanks’ document – £700)? Me neither.
If that landlord finds out, arguably he could bring a claim to recover the £350. Under agency law – it’s his. This is the basis of the case being brought against Foxtons which I discussed here.
If you don’t charge any fees to tenants, you will not be vulnerable to this sort of claim.
Think – what would it do to your business if all your landlords clubbed together and sued you for the recovery of all the fees you had charged to tenants without their knowledge? Remember, they have a six year limitation period in which to do this.
NB Some agents try to justify their tenant fees by saying that they provide a service to tenants and may even fight for their rights against the landlord. That may be so but if you are the landlord’s agent, that work is still a function of your service to the landlord. In law, the tenant is not your customer. Period.
Good agents will have the last laugh when the ban comes in
Some agents (the ‘good’ agents) only charge very modest fees (or sometimes no fees at all) to tenants. Others charge massive fees of up to £700 or more.
But I would be interested to know whether the agents who charge the high tenant fees charge a correspondingly low fee to their landlords. I suspect not.
If they under charge their landlords (ie give their landlords the benefit of the tenant fees) – then when the ban comes in they could maybe get away with increasing their landlord fees to make up. For new customers that is – they will be tied into their agency agreement fees for existing customers.
If they are charging eye-popping fees to tenants AND to landlords, though – when the ban comes in, they are going to lose half their income. Which will probably make their business unsustainable.
However, if you just charge, say, £60 for credit referencing – you are going to be a lot better placed. You should survive the ban easily.
I have been reading in the press that there is a bit of an oversupply of agents in the marketplace just now. Maybe this is how the problem is going to resolve itself …
(Note for the purpose of this article, I have referred above to agents who don’t charge tenant fees as ‘good’ agents. I realise this is not a complete definition of agent goodness …)