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?
H Tessa, You said “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)”
Does this mean that the common practice of agents registering deposits with the TDS and keeping the sum in their account earning them interest should actually be given to the landlord? The interest earned I mean.
An interesting thought. It may be arguable but I think probably not.
First, because the way deposits are treated is governed by statute. And secondly, because the deposit money is not a fee and does not belong to the landlord but to the tenant.
However, just in case, agents should be very transparent about keeping the interest and should disclose this in their agency agreement with the landlord and also in the tenancy agreement with the tenant.
“What do you think?”
A ban on fees will put upward pressure on rents.
Good tenants pay for bad tenants.
Long term tenants pay for short term tenants.
(I don’t use a letting agent, so a ban on fees is good for me as a landlord.)
“A ban on fees will put upward pressure on rents.”
Do tell us how you’ve reached this conclusion, won’t you. Merely stating it as fact does not make it fact you see.
It was not stated as a fact but in response to the question “What do you think?”
Which coincidentally is a finding of this report;
http://www.arla.co.uk/media/1045728/letting-the-market-down-assessing-the-economic-impacts-of-the-proposed-ban-on-letting-agents-fees.pdf
It is in Letting Agents’ interests to look after their Client (Landlord) and the Client’s customer (Tenant) to ensure a smooth running tenancy, regular payment to the Landlord, Tenants behaving in a Tenant like manner, maintenance issues being managed, and preserving the fabric of the property for Landlord and Tenant. The Letting Agent receives payment from the Landlord (fixed fees or commissions) for this consideration and everyone is generally happy.
Negotating between Landlord and Tenant can be time-consuming but a ‘win-win’ situation is generally the best outcome for both parties. Conflict of interest? Not in my book. Tenants paying for their own ‘agent’? I doubt it. If anything, split all the costs of the Letting Agent 50:50. Let’s KISS!
Just pondering…but why is it that everytime a suggestion is put forward to either protect or support tenants rights, that the response of the landlord community is to immediately say that this will have a completely unavoidable and obvious adverse knock on effect to tenants?
Why is possible regulation immediately turned around to saying, “If you impose more regulation on me then I will have no alternative but to punch the tenant in the face and its YOUR fault”?
We are seeing this attitude in the current Brexit argument. “You want out? Then we will make you pay”. But the same logic transfers over to landlord tenant issues.
I have spent years trying to be a bridge between the two positions of landlord and tenant, understanding the needs of each in the relationship but I have to say, I am rapidly running out of patience or interest in trying to find a median line to keep dialogues open in the wake of the stock, inflexible responses of the landlord community.
I think it is a reaction to the refusal of the anti landlord community to foresee likely consequences.
The attitude of Bad for landlords = Good for tenants.
But it doesn’t work like that, there will be winners and losers.
It is highly likely that ‘some’ of the costs of banning letting fees will be passed on to tenants in higher rents.
Longer term tenants (likely to be lower income families) will pay the most.
If referencing fees are included in this ban, good tenants will pay for bad tenants.
(As said, I don’t use a letting agent so a ban on letting fees is good for me.)
Longer-term tenants shouldn’t be paying more. If they are, then it is greedy landlords.
Yes, it may be necessary to seek a higher rent to recoups additional costs over the initial term of the tenancy, but this should then be offset by any reasonable landlord by not increasing the rent for “a while”, or by reducing the rent when the costs have been recouped.
(I am a landlord)
From the point of view of the tennant, if they are paying their rent they don’t want to have to pay any extra fees, and I can totally understand that. I think as lettings agents it is our responsibility to look after the tennants but to pass any associated costs over to the landlord.
I’m late to the party, but…
In the article, Tessa lists examples of what agents might do.
However, all but one of these (housing benefit paperwork) is part of normal contract negotiations and is not a service to the tenant; the agent is conducting the contract negotiations on behalf of the landlord. Therefore the tenant should not be charged.