I wrote last year about letting agent fees and gave my opinion that, save for a few exceptions, agents should not be entitled to charge fees to tenants.
That was then. I have since come to the view that, although I still agree with what I said, the situation is more complicated than I set out in that article.
Why agents should not charge fees to tenants
The reason I gave in my article against agents fees to tenants, is that letting agents act for landlords.
Landlords are their clients, their agreement is with the landlords, and they take a commission from landlords as payment for finding and signing up a tenant for their property.
So it follows that the person who should pay their fee is the landlord.
Indeed under agency law, any fee they take from anyone else is, unless it is fully disclosed to their principal (ie the landlord), the property of the landlord and the landlord is fully entitled to claim it from the agents (along with any income they may have earned from investing it). This is the basis of the legal action being brought against Foxtons which is discussed here.
So what is the justification for charging fees to tenants?
The case for letting agent fees to tenants
The reason many agents believe they are entitled to charge fees to tenants is because they consider they are acting on the tenants’ behalf.
Usually, when tenants come to them wishing to rent a property there are things that need sorting out. For example
- They may want to keep a pet, so the landlord needs to be approached about this and, if the landlord agrees, a suitable clause added to the tenancy agreement.
- Sometimes tenants will want to have their own furniture or will need other furniture to be provided by the landlord
- Or maybe the tenant is seeking housing benefit and need the agents help with the paperwork.
- In all cases, there will need to be discussions about the dates the tenancy starts and ends
Many agents, generally the better agents, will spend a lot of time with the tenants, helping them and sorting things out so that the tenancy proceeds smoothly. Naturally, they feel that this is something they are entitled to be paid for.
However, it isn’t. Not by the tenant, anyway.
The Conflict of Interest Issue
The problem is that, if the agents are acting for the landlord, they cannot be acting for the tenant too.
The situation is analogous to the purchase of a property. Here the parties each have their own solicitor looking after their interests. It is not possible (save for a few exceptions) for one solicitor to act for both vendor and purchaser and it is considered professional misconduct if a solicitor does so.
In fact, it is professional misconduct if a solicitor acts for both parties in ANY contractual situation (save for a few exceptions). The reason behind this is that if you are representing client A, you cannot at the same time properly represent client B – if they are a separate party to the same contract. Their interests are opposed.
Taking on a tenancy is not such a serious matter as buying a house, but it is still important, particularly for the tenant. No solicitor would agree to represent both sides in these circumstances. The only reason letting agents ‘get away with it’ is because they are unregulated.
The big problem
The big problem is that if the letting agents are not allowed to help the tenants and put their case to the landlord – who will?
There is no system in property lettings for separate representation for tenants (as happens when buying a property) – plus it is generally the tenants least able to afford professional help who need it most.
If letting agents are not allowed to help them, if acting in such a conflict of interest situation were to be made professional misconduct (as it would be for solicitors) then this could be bad for tenants.
At the recent ARLA conference, this issue was raised and it was suggested that tenants should represent themselves. The suggestion raised a huge hollow laugh from the room. Obviously, the negotiations leading up to the signing of a tenancy will be unworkable if agents are not allowed to help tenants.
How then can this issue be resolved?
Thoughts and suggestions
The private rented sector is now huge. There are more private than social tenants, and the sector seems set to grow further. Few young people are able to buy their own home, as they did 20, 30 years ago.
The role of agents has always been unregulated, save for the recent requirement that they join a Property Redress Scheme. This is why this situation has been allowed to develop.
In view of the increasing importance of the private rented sector, there needs to be a total re-think about how it operates and the role of letting agents within it needs to be regularised.
There may be a role for agents to act as an intermediary between landlord and tenant, but in my view, this should be reserved for agents who are properly trained and authorised to do this.
Alternatively, there may be scope for a new profession of tenant agents, who can act on the tenant’s behalf, and who are paid similar fees to those charged now to tenants by the landlord’s agent.
The present situation is grossly unfair and should not be allowed to continue. Many agents behave honourably charging modest fees to tenants and providing a proper service to them (albeit often against the interests of their true clients, the landlord). However, others appear to be taking advantage of the tenants urgent need for accommodation and charging inflated fees not just to tenants but to their landlords too.
Hopefully, the forthcoming consultation on letting agents fees will be an opportunity for these issues to be raised and considered.
What do you think?