An agents guarantee for rent.
David, a loyal Landlord Law Blog reader, told me yesterday about an unusual agency agreement he had learned of. Apparantly the agent had guaranteed a rent of £650 to the landlord of a property.
However the property was actually let at a rent of £1,100 and the agent kept the difference of £450 presumably as his fee.
In view of the substantial difference between the actual rent and that paid to the landlord, which is far in excess of the cost of rent guarantee insurance, how, asked David, does this fit in with an agents duty to act in the best interests of his principal?
An agents duty of good faith
How indeed? I suppose if it is crucial for the landlord to have his £650 pm and impossible to find a tenant who insurers would accept for a rent guarantee policy AND the agent had discussed the options available to the landlord with him in detail, such an arrangement might be just about be acceptable.
However even so, 40% of the rent seems excessive to me. Particularly as, in this time of property shortages, it cannot be hard to find a decent tenant who would satisfy insurers.
If the agent has failed to advise the landlord about the true cost of rent guarantee insurance then it is arguable that this sort of arrangement would be in breach of the agents duty of good faith. In which case the landlord would probably be entitled to end the agency agreement and claim back the £450 difference retained by the agent per month less the cost of rent guarantee insurance.
A common situation?
David indicated that this sort of arrangement is not uncommon between landlords and agents, although generally with a smaller proportion of the rent retained by the agent. What do readers think of this?
Can this sort of arrangement ever be compatible with an agents duty to act in the best interests of his principal, and not take advantage of his position to obtain an advantage for himself? And if it can, where do you draw the line?