Letting fee ban – A better plan?

by Readers Question

10:29 AM, 1st October 2018
About 2 months ago

Letting fee ban – A better plan?

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Letting fee ban – A better plan?

I run a small letting agency and am almost certain to exit the market when the fee ban comes in as it is income we cannot in all good conscience replace. I plan to go into commercial property and sales instead, run my own portfolio and get a life!

It occurred to me that since Landlords will take the brunt of the fee ban and in consequence need to charge higher rents to offset this, there may be a better way of dealing with the issue.

We charge inbound tenants for the referencing at cost plus an admin fee per property. This usually equates to around £250 – £300 per letting.

If we let a property at £695 PCM initially with an option to continue at £650 PCM after six months of good behaviour, rent paid on time and a favourable inspection, would this be seen as a ‘fee by the back door’ or simply recognition and reward for good behaviour?

Some of the items where charges are now being outlawed are crazy in my view.

Many thanks

Jon



Comments

Neil Patterson

10:32 AM, 1st October 2018
About 2 months ago

Hi Jon,

If the agency took the difference between the £695 and £650 I think that would then be seen as a fee again.

Mike

11:24 AM, 1st October 2018
About 2 months ago

Have to agree with Neil , since the landlord would not be getting the difference, however, one can say Lettings agents need to run their business within the percentage commission they charge, which should factor all expenses and their profit margin.

Of course that also means rents would go up for tenants since why would the landlords settle for any less? in other words if agents were forced to stop charging tenants any setting up fees, then that would mean agents will increase their commission to landlords, who in turn will increase their rent, and it is likely that tenants would come out even worst.

There are things that I do not agree with lettings agents when they charge setting up fee upfront and charge commission to landlords and then like any other business who have to write to their customers for any reason like chasing invoices, suppliers etc they do not charge for writing letters and additional fees for reminders, this is the problem, lettings agency should not have to charge their tenants any additional fees for sending them reminders for late rent etc, it should be part of their business profit loss strategy. I have seen agents charging £25.00 for sending half a reminder letter to tenants which is gross like the banks used to charge their customers silly amounts for someone just running into overdrawn balance even by a penny.

Hedley

11:36 AM, 1st October 2018
About 2 months ago

I ran my own Chartered Surveying business for over 30 years. Although this was mainly commercial management, It did include residential and we never charged tenants a letting fee. I am firmly of the opinion that agents should charge the landlord, not the tenant (indeed this is the norm for commercial property in my area of the North West).

John Walker

12:43 PM, 1st October 2018
About 2 months ago

If letting agents have been charging both LLs and tenants for the same service, then I have little sympathy for them. How many LLs are aware this has been the practise of their agents? Has it been widespread, or just a few avaricious agents taking advantage of tenants?

Luke P

13:02 PM, 1st October 2018
About 2 months ago

Reply to the comment left by John Walker at 01/10/2018 - 12:43
Where have you gotten that idea from. I don't think there will be very many at all that charge both sides.

Annie Landlord

14:41 PM, 1st October 2018
About 2 months ago

Its been my experience, when I used to use Lettings Agents that they did indeed charge both landlord and tenant. The landlord was charged for a tenant-find service - which is fair enough, but then the tenant was charged also for referencing, compilation of the inventory, check in process etc. The banning of fees paid by the tenant seems to have been predicated on the myth that the landlord paid no fees. In practice the ban means landlords will pay more and are likely to pass on part of the cost in increased rent

James Nelson

15:14 PM, 1st October 2018
About 2 months ago

I m afraid as a landlord fees infuritate me. They do not help with transparency at all. They make comparison between options more difficult. If there was simply a service provided and a %ge of rent charged, everyone would know where they stood ...

It's the same with mortgages .. it's pointless comparing interest rates when you have to take fees into account as well.

Graham Bowcock

19:05 PM, 1st October 2018
About 2 months ago

With an agent's hat on I do have concerns about some charges which are levied on tenants; bluntly some are just unfair. Nevertheless we live in a commercial world and few tenants are in a position to object to fees. I do think, however, that passing on some charges to tenants gives them a better buy-in.

I remember when I first started out, many moons ago, when properties were in more plentiful supply and agents didn't charge tenants. We found that some tenants would make several applications, then take the one that they liked the best to who got back to them first. The landlord has then lost 10 days of marketing; making an application fee does prevent this.

In terms of rents going up then this cannot be directly correlated to fees (i.e. charging a landlord an extra £100 does not mean the rent goes up £100); what will happen though is that some landlords will retreat from the sector, meaning less supply and higher rents - although this will be area specific. With my landlord's hat on I would not be unduly concerned about some modest rise in fees. My tenants tend to stay quite long term, so any extra fees to cover the application fee will be easily recovered.

There is a legal obligation for fees to be transparent, so a landlord should know how much a tenant is being charged. It is, however, surprising that some agents still do not show fees on their websites or even on property particulars.

Graham

Michael Barnes

21:45 PM, 2nd October 2018
About 2 months ago

If we let a property at £695 PCM initially with an option to continue at £650 PCM after six months of good behaviour, rent paid on time and a favourable inspection, would this be seen as a ‘fee by the back door’ or simply recognition and reward for good behaviour?
The proposal is:
"1 (1) A payment of rent under a tenancy is a permitted payment.
(2) But, subject as follows, if the amount of rent payable in respect of any relevant period (“P1”) is more than the amount of rent payable in respect of any later relevant period (“P2”), the additional amount payable in respect of
P1 is a prohibited payment. "

Gromit

23:03 PM, 2nd October 2018
About 2 months ago

Reply to the comment left by Michael Barnes at 02/10/2018 - 21:45
What's the definition of a "relavent period"?

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