From next year, probably April of next year (2019), when the Tenant Fees Bill is made law, letting agents will no longer be able to charge fees to tenants for their services.
Letting agents are understandably upset about this as fees from tenants are believed to form around 20% of their total income, if not more.
So this new rule is going to cause them some considerable hardship (and may even put some agents out of business).
Contracts and the conflict of interest
However, from a strictly legal point of view, it is entirely correct that agents should not charge fees to tenants.
In law, their clients are their landlords. Charging fees to both parties to a contract, strictly speaking, puts them in a position of conflict. Indeed it is considered professional misconduct for solicitors to do this, for example by acting (in an analogous situation) for both sides in the sale of a property.
Agents have always justified the fees charged to tenants on the basis that they help the tenants for example by negotiating on their behalf with the landlord – such as about the dates of the tenancy or approaching the landlord to obtain permission for them to keep a pet.
What then will happen about these things after the tenant fee ban? Will agents take the view that, as clearly they are acting for the landlord rather than the agent, they are going to stop helping tenants and leave them to sink or swim on their own?
Letting agent negative attitudes
It looks from some of the comments on this post on Property Industry Eye that some agents will be taking this view. For example ‘Smile please’ said
Sorry. If I cannot charge a tenant a single penny but do charge a landlord, I think it’s pretty obvious who I work for.
I will be doing the bare minimum for tenants.
All the things we do for free will be stopped.
We will always side with the landlord as they are our client.
And ‘CountryLass had this to say:
I can see situations like the police face. “I pay your wages!”
Actually, no. The Landlord pays my wages. You pay me nothing, yet expect me to drop everything when a lightbulb goes, or a tap drips. You AREN’T my client, you are NOT my priority and whilst I will do everything I can to make sure that the property you rent is safe and suitable, I will always side with my client, as they are the ones I act for.
“But… I pay rent! I’m your Tenant!”
Yes, you pay rent to the Landlord, we take a percentage of that FROM THEM! The Landlord paid for my time, knowledge, experience and loyalty. You paid sweet FA.
“Well, fine! I’ll hand my notice in!
No skin off my nose mate, off you pop. Make sure the place is tip-top though, as the Inventory I did FOR THE LANDLORD shows the property was a show-home, so it you have even dented the carpet above fair wear and tear then you are in for it.
The Ombudsman’s view
The Eye post was reporting on the comments of Katrine Sporle, from The Property Ombudsman, who made it clear that they would be accepting complaints from tenants and would award them redress in suitable cases.
Which was not received particularly well. “Why” a common view went “do you claim to be entitled to make an award against me in respect of someone who is clearly not my client?”
It is an important part of agency law that the agent is not directly liable to the third party (in this case the tenant).
Peter in the comments to the Eye post explained it thus:
The law of agency should apply, more so if we cannot charge fees to tenants. So if a complaint is made to the ombudsman and an award is made, it should be the landlord who pays as what the agent did was done in the landlord’s name. The landlord will then need to see if what the agent did breached the T&C’s to see if there is recourse with the agent.
But is it the case that someone is only liable where there is a direct contractual relationship?
Are you only ever liable under contract?
Actually, the answer is “no”. There is a huge body of law, which is largely ‘Judge made’ (meaning that it developed through cases and is not found in any act of Parliament), which covers this.
This is the law of negligence which stems from a famous case, Donoghue v. Stevenson in 1932 which developed the concept that someone may owe a ‘duty of care’ and be liable to pay compensation in certain circumstances, even if there is no contractual liability.
So when does someone owe a duty of care to someone with whom they are not in a direct contractual relationship?
The ‘neighbour’ principle
The case of Donoghue v. Stevenson was about a lady who became ill after drinking some ginger beer from a bottle containing a decomposing snail.
She claimed that she was entitled to compensation despite the fact that she was not the person who had actually purchased the ginger beer. And her claim was not against the shopkeeper who sold the bottle but against the manufacturers.
The leading judgment, in that case, was given by Lord Atkin who put forward the ‘neighbour’ principle as a basis for working out whether or not someone owes a duty of care, saying:
You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law, is my neighbour? The answer seems to be – persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question.
Negligence and the law of Tort
The law of negligence and the duty of care have been developing ever since, coming within a category of law known as ‘tort’ which is where someone, a ‘tortfeasor’, commits a ‘civil wrong’ which entitles the wronged party to claim against them.
Negligence is now the most important area of tort (others include trespass, defamation and the law of ‘nuisance’). For example, it is the legal basis for all road traffic claims for personal injury.
There is a tendency for the courts to prefer liability for physical injury rather than ‘economic loss’, and the courts have also developed certain situations where someone will owe a duty of care.
So there will be a duty of care between:
- A manufacturer and the ultimate user of the manufactured goods
- A driver and other road users
- A doctor and his patient, and
- A teacher and his pupil
But is there a duty of care between a letting agent and his landlord client’s tenants?
Letting agents duty of care
I think it is arguable that they do. For a start, it underpins the whole of the property redress scheme legislation. This does not actually say that a letting agent owes a duty of care to tenants, but Parliament would not have set up a scheme had it not believed that this existed.
There are also the various ‘tests’ that have been developed by the Courts when considering whether or not a duty of care applies in any given situation.
The most recent of these seems to be the test from the 1990 case of Caparo Industries plc v Dickman which suggested that there will be a duty of case where
- The harm which occurred is a reasonably foreseeable result of the defendant’s conduct
- A sufficient relationship of proximity or neighbourhood exists between the alleged wrongdoer and the person who has suffered damage, and
- It is fair, just and reasonable to impose liability.
Letting agents and tenants seem to fall squarely within this test and so it seems clear to me that agents will have a duty of care towards the tenants they deal with.
It is also a pretty general duty and is not linked to any duty they may have towards tenants as customers of their contractual client, the landlord.
Good Practice is good business
The Property Industry Eye post quoted above was reporting on the ARLA Conference 2018.
At that same conference was a ‘headline speech’ from Justin King CBE, the former CEO of Sainsbury’s.
Throughout his talk, he referred to tenants as an agent’s ‘customers’ and you could see across the room the thought, particularly in view of what had been discussed earlier in the day “they are not my customers, I act for the landlord”.
Towards the end of the talk King revealed that he knew about the strict contractual situation, but despite this, his view was that tenants are, in reality, a letting agent’s customers.
Their entire business is about dealing with tenants. Tenants are the people who came in through the door and sign up for their ‘product’ ie tenancies. If they manage the property they probably have more contact with the tenants than they do with the landlords. And finally, tenants consider that they are their customers, as the letting agents are the people they deal with on a day to day basis.
So although there may, strictly speaking, be no contractual liability between them, in reality, letting agents sell themselves to tenants and having a good reputation for treating tenants well is good business.
So in summary:
- The tenant fee ban is justified, because letting agents clients are their landlords, and so landlords are the people who should be responsible for the letting agents’ fees
- However, it is also right that letting agents should be liable to tenants for any poor service and wrongs done to them as letting agents will almost certainly owe them a ‘duty of care’
- There is also the point that it is good business to do well by tenants as they are the true customers of the ‘service’ they offer and
- It is to their long-term advantage to have a good reputation among tenants as this will encourage more business with them. This should both help the letting agents’ bottom line and allow them to provide a better service to their contractual customers, their landlords.
But what do YOU think?