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Is letting agent renewal commission payable if the tenancy continues as a periodic?

November 21, 2018 by Tessa Shepperson

Renewal commissionHere is a question to the blog clinic from Mary (not her real name) who is a landlord

My tenant and I have agreed on continuing a tenancy on a periodic basis. Letitng agents originally found the tenant and did a 2-year contract. They have received over £4000 in commission for that.

They are now saying if I continue the tenancy, even on a periodic basis, I need to pay them 2 years’ commission upfront. (Another £4000 for literally doing no admin or anything). Please, can you advise?

I did not realise this at all as their contract does not mention periodic contracts but uses another term. I feel this is to confuse the landlord and they pushed me into a 2-year contract originally – I now see why as THEY benefit! Any advice would be really appreciated.

Answer

One of the reasons why agents are often very keen for landlords to sign a long fixed term with their tenants is so they can take a large amount of commission from the initial rent payments.

Whether they are entitled to any further commission after the fixed term has ended where they are not doing any work for it is debatable.

The 2010 Foxtons litigation

There was a case against Foxtons in about 2010 on continuing commission which you can read about here.

This was on the basis that a clause providing for future commission was (as drafted in that agreement) unfair under the Unfair Terms in Consumer Contracts Regulations (now part of the Consumer Rights Sct 2015).

Sadly that case never went to the Court of Appeal as Foxtons decided not to proceed on the basis of an informal agreement with the Office of Fair Trading (now no longer in existence) which you can read about here.

That agreement was on the basis of a renewal commission for two years only and at a lower rate than the initial commission paid.  It is often assumed therefore that this is a ‘fair’ way of dealing with renewal commission where no work is being done.

The unfairness argument

It is arguable though that the whole concept of renewal commission for letting agents when they do no work is essentially unfair as it is one-sided.

The agent is claiming that they are entitled to the renewal commission because they have found a good tenant who renews multiple times and that they are entitled to be rewarded for that.

However, there is no corresponding penalty if the tenant they find is a bad tenant and the landlord loses money over it. So the agent is rewarded for the good tenants but not penalised for the bad tenants.

This is a clip of a workshop by David Smith some years ago where he explains this in more detail (apologies for the poor sound).

Dealing with a claim

If you refuse to pay and the agents sue you, these basic principles could form part of your defence.

However, a large part of the case would also be about the actual clause in your agency agreement, what it says, how prominent it was on the agreement document, whether it was explained to you etc, which I can’t comment on as I don’t have any information on those aspects.

So you would need to take legal advice.

Although it is always possible that if you just refuse to pay and challenge the agents to sue, they may decide not to do this as they will not want to risk an adverse precedent.

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IMPORTANT: Please check the date of the post above - remember, if it is an old post, the law may have changed since it was written.

You should always get independent legal advice before taking any action.

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About Tessa Shepperson

Tessa is a specialist landlord & tenant lawyer and the creator of this site! She is a director of Landlord Law Services which now hosts Landlord Law and other services for landlords and property professionals.

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Comments

  1. Ben Reeve-Lewis says

    November 21, 2018 at 9:59 AM

    Mary should complain to National Trading Standards. Just because Foxtons came to an informal arrangement doesnt mean that these jokers will.

    And people wonder why agents are so often not trusted!

    • Tessa Shepperson says

      November 21, 2018 at 10:32 AM

      Plus the OFT no longer exists! So arguably any agreement they may have made may be redundant anyway.

      The Competition and Markets Authority (CMA) which has taken over many of its functions may or may not consider themselves bound by it.

  2. Ben Reeve-Lewis says

    November 21, 2018 at 10:50 AM

    Legislation aside I cant see how a fee for doing nothing can ever be lawful, just in terms of natural justice but I know law can be troublesome with its wording and I shouldnt be so naively outraged at my time of life.

    • Tessa Shepperson says

      November 21, 2018 at 10:55 AM

      Renewal commission and fees from tenants form a fairly chunky part of many agents’ income.

      It looks as if a lot of agents will be struggling after they lose the tenant fees. If they lose all renewal commission as well it could be the nail in the coffin for many (if indeed they are not already nailed down …)

  3. Ben Reeve Lewis says

    November 21, 2018 at 2:02 PM

    But Housing Minister James Brokenshire has it all in hand. In the intro to the new PRS access fund announced this week he says:-

    “Through the Tenant Fees Bill we are seeking to save tenants’money by banning unfair letting fees”

    When the perceived wisdom is agents will put up fees to landlords in order to recoup and landlords will raise rents to cover excess costs. Nice to know government has it all covered, or as Mr B also says in the intro “I am looking forward to seeing how the schemes funded through the project develop, which will grow our evidence base to effectively tackle homelessness and rough sleeping, for good, whilst continuing to support those in need”

    Er how about building more homes mate?.

    • Kate Pearson says

      November 21, 2018 at 4:44 PM

      Or ensuring the ones they have are still occupied by the council tenant on the lease…

    • Adam says

      November 21, 2018 at 6:10 PM

      In the comments on Property Eye, I have already seen agents saying they have started raising fees already.

      £20 million isn’t enough to get more tenants into PRS accommodation, at least in Oxford. It might help keep some housed for a short period of time but when the money runs out, the situation will be the same as it is now. The Council have approached me to put some of my HMOs into their guaranteed rent scheme. The problem is they only offer me £1100 pcm whereas market rent is at least £2000 pcm.

      One of the reasons I don’t use an agent is because they expect me to keep paying commission through the lifetime of the tenancy (as well as new contract fees etc every year). The only time I used an agent was because I managed to get a fixed price one-off fee. They still tried to charge me extra fees, such as the check-out fee, which I had to threaten court action to get repaid to me.

  4. Ben Reeve-Lewis says

    November 21, 2018 at 6:30 PM

    A landlord who I regard as a good friend (Yes believe it or not, not every landlord hates me haha) once said, quite accurately, that the interests of landlords and agent are diametrically opposed. She said where a landlord wants a good tenant who pays rent on time and looks after the property, an agent makes their money from churn, sourcing new tenants and renewing tenancies.

    I’d never thought of it in those terms before but I can see her point, the business interests do seem at odds, as is the built in clauses in Mary’s contract in this argument.

    I once started a letting agency believe it or not, to champion good practice, better to influence from the inside than throw stones from the outside but then I found that that wasnt the business ethics of the people I was dealing with.

    Personally I have a lot of time for the small agents, Daisy Lets, Apple in Tauntn, once things get into big money the wankers move in

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