Is a ‘compliance fee’ charged by a letting agent consistent with the agent’s fiduciary duty?

One of our Landlord Law landlords, who I will call Mr X,  has asked, on our Members Forum, about a ‘compliance fee’ charged by his letting agent.  This is on top, apparently, to the 12% commission he already pays.

He was a bit startled to be charged this additional fee and has now discovered a clause buried in his agency agreement which says:

In consideration of the Landlord paying the Compliance Fee the Agent will indemnify the Landlord for a fine or penalty that arises from the Agent’s failure to ensure compliance with the Landlord’s statutory responsibilities (your “Compliance Requirements”) as discussed below. This indemnity does not extend to any tax, interest thereon or other penalties levied either on the Landlord or the Agent as a result of letting the Property and is provided subject to the Landlord doing the following:

The agreement then goes on to list a number of conditions on the landlord, which include

• Instructing the agent
• Complying with their (the landlord’s) legal responsibilities (including getting any necessary permission to let and any HMO or other licenses)
• Providing the agent with clear and accurate instructions
• Not preventing the agent from carrying out their duties
• Paying the agents compliance fee throughout the tenancy in addition to other fees
• Giving immediate instructions and providing any necessary funding in cleared funds

Going on to say that ‘A Compliance Fee Indemnity will not be provided where a liability arises when the Tenant has been in any way obstructive.’

So, the implication seems to be that if the compliance fee is not paid, the landlord has no redress if the agent ignores all relevant legislation and lets the landlord in for substantial fines and penalties.

Likewise (even if the compliance fee has been paid) if the tenant (chosen by THEM) proves to be obstructive.

What this could mean

So, for example, if the agent took a deposit from the tenant and failed to protect it within the 30-day period, could the agent use the landlord’s non-payment of a compliance fee to defend any claim that the landlord might make against the agent if they are sued by the tenant for the penalty?

Or if the agent failed to obtain a Gas Safety certificate and the landlord is prosecuted by the HSE?

Mr X is resident abroad and so is totally dependent on this agency.  So, if the agents allow five sharers to rent the property and then fail to obtain an HMO license – would they be able to claim that he cannot pass on any fines that might be imposed on him by the Council?  Even if Mr X has paid the compliance fee?  Even if he had no idea that five unrelated tenants were renting the property?

An unfair clause?

Mr X owns this property in his own name (i.e. not through a company), and so, as a ‘consumer’, he can claim that this clause is unfair under the Consumer Rights Act 2015.

However, what about landlords who cannot claim the protection of the Unfair Terms rules?

Under agency law, agents are subject to a fiduciary duty.  This is described in the case of Bristol & West Building Society v. Mothew in 1998 as follows;

A Fiduciary will have the highest duty of care. He is expected to be loyal to his  Principal and not put his own interests first. He must not profit from his position as a Fiduciary unless his Principal consents, and must not put himself in a position where he has a conflict of interest.

Is this consistent with a clause effectively making the agent’s liability for negligence under the contract conditional upon the payment of a fee?

Your comments, please?

Have any readers seen any similar clauses in letting agent contracts (this agency told Mr X that this sort of fee was normal and charged by all agents). Have YOU got this clause in your agency agreement?

I would be very interested to hear from anyone with a view on this.  You will find our comment box below (note that comments close after 3 months).