Selling to tenants – Letting agent wants 2% commission!

by Readers Question

10:46 AM, 22nd May 2014
About 4 years ago

Selling to tenants – Letting agent wants 2% commission!

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Selling to tenants – Letting agent wants 2% commission!

I have let my property for the past three years to the same tenants. My situation has now changed and I have decided to sell the property, giving my tenants notice to vacate explaining that I am selling the property.

My tenants have now shown an interest in purchasing the property, and I have also had an offer from a completely independent party before the property has even gone on the market with any agent.

The offer from the tenants is slightly higher, but having looked at my letting agreement with my letting agent it mentions that I would have to pay 2% plus VAT to the agent if the tenants decided to purchase even though the discussion has been between me and the tenant without the agents involvement at all.

This then makes the tenants offer less and not viable. I would prefer to sell to my tenants as I know they love the house and do not wish to move but unfortunately I do need to think of the finances.

The wording in the agreement is:
“In the event that a tenant or any person granted the benefit of the tenancy i.e an occupant introduced to you by the agent which he/she has been renting or had been renting for the previous six months, where the agent has been involved in the negotiations for the sale of the property we will charge a commission of 2% of the negotiated purchase price. The fee is payable on completion or on exchange of contracts if completion is more than six months after. all fees are subject to VAT at the prevailing rate”

My question is, Legally do these charges have to paid, as I think it is very unfair that the agent would receive thousands of pounds for doing nothing, when they have had a monthly fee for basically doing nothing except collecting the rent of the tenant for 3 years.

Thanks in advance for your help!

Maxtwo



Comments

Simon Topple

12:31 PM, 22nd May 2014
About 4 years ago

Probably not, but you may have to fight your corner and get a solicitor involved.

http://www.landlordzone.co.uk/forums/showthread.php?21505-Selling-property-to-tenant-letting-agency-commission

Neil Patterson

12:56 PM, 22nd May 2014
About 4 years ago

Hi Max,

The key phrase I think here is "where the agent has been involved in the negotiations for the sale of the property we will charge a commission of 2% of the negotiated purchase price."

Although you have not said what the agents have done for you yet, were they involved in giving the tenants notice and told them about your intention to sell thus putting the purchase in their minds?

Michael Barnes

13:52 PM, 22nd May 2014
About 4 years ago

Reply to the comment left by "Neil Patterson" at "22/05/2014 - 12:56":

I agree with Neil on the key phrase.

If they have done nothing, then they (probably) are not entitled to anything; if they have done work, then they may be.

I would suggest talking to your agent re that clause in this situation. The options are then
A. They say you owe them nothing. Go away happy.
B. They say they are owed money if you sell to tenant. Negotiate.

Negotiate on the basis that you have another buyer. If you sell to him, then they get nothing. A reasonable position might be to take the difference between the two offers and split it 50-50 between the two of you.

Steve From Leicester

15:34 PM, 22nd May 2014
About 4 years ago

I'm an agent and if I was in the same position as your agent here's what I'd think.

My starting point would be that you signed a commercial agreement with me - one in which I agreed to manage your property, taking the rough with the smooth in terms of how much work would be involved.

As things have turned out I seem to have done very well from it. After my initial hard work marketing the property, finding good tenants, and verifying this through my reference process it's turned out that I've been able to collect a management fee and possibly now a sale fee for doing little more than collecting the rent and showing due diligence through management visits etc.

However - and its a big "however". If it hadn't gone swimmingly - if the tenants had lost their job / split up, whatever and I'd had to do endless chasing of the rent, and / or there had been loads of maintenance issues, or a fire, or a flood at the property that I'd needed to manage, or I'd gone round to do a management visit and found the tenant dead in his bed (this actually happened to one of my staff) I wouldn't have charged you a penny extra.

So I'd be a bit miffed that - now that its turned out well for both of us - you object to paying me the fees you agreed to at the start.

However - another big "however". I'm a reasonable bloke and I'm also a business man. If you offered me a deal of say 1% on the sale price I'd probably take it.

And if I'd genuinely played no part whatsoever in the sale to your tenant I'd accept that I probably wasn't entitled to a fee at all.

How's that for an honest answer?

Carol Thomas

16:29 PM, 22nd May 2014
About 4 years ago

I had a situation like this many years ago and the chap who was collecting the rent for two properties (won't call him an agency because he wasn't officially) found out that one of my tenants wanted to buy the property they were in. I refused to deal with him as there wasn't even a written contract telling me that I had to give him a fee. This was in my very early days of renting and I was somewhat naive, to say the least! Anyway, I sold the property to the tenants and gave him nothing. Subsequently, I stopped getting rent for the other property - rang the agent - told tenant hadn't paid due to waiting to get benefits. This happened the next month too. I finally spoke to the tenant who told me he had paid the rent and he gave me notice. He moved out without paying the last months rent saying "you've got the deposit". When I spoke to the agent he said sorry, nothing I can do and I won't be dealing with you anymore! Upshot - I lost three months rent which he used to reimburse himself for my not having paid him commission on the other property!!!! Lesson learnt - the hard way!

Paul Shears

20:25 PM, 22nd May 2014
About 4 years ago

I had a agent try to pull this one on me.
After a few requests she finally sent me the terms of the proposed contract just before she left her office to inspect the property prior to marketing it.
The deal was tenant find only, but it still had the finders fee clause in the event of a sale.
She was quite shocked when I confronted her at the house having already read the contract terms in the few minutes it took her to arrive.
I told her that the clause was outrageous and that If I employed her it would not be in any way to find me a buyer. It was to find some tenants. If one of the tenants subsequently turned into a buyer that was a totally separate matter for which she would not have been employed. She was embarrassed and weakly argued that it was very unlikely that a tenant would buy the house. I stood my ground and she readily agreed to remove the clause. I still did not employ her based on my first very bad impression.
You really do need to read the small print as no "agent" is going to point this sort of thing out.
The agent that I subsequently employed tried to pull their own scam of trying to charge several hundred pounds to change the name on the contract when one of the tenants moved out and a new one wanted to move in. The agent would have contributed nothing except some minor bureaucracy. They thought that as I was not financially affected I would let them get away with this. I immediately sacked the agent and have repeatedly done the job myself at no charge to the tenants.
If I ever had any cause to doubt my decision, it was eradicated when it took over two months to get the deposit money held by the agent returned to the tenants and then to myself.

Simon Topple

10:16 AM, 2nd June 2014
About 4 years ago

Paul - I'd say to not use them based on that is a little premature.

Many management agreements include such a clause. The agents did, and they agreed to remove it, yet you still didn't use them based on this.

There is a very, very good argument that the agent has done nothing and not earned a percentage. However in pure business terms, selling to a tenant is a great solution and good business.

You know they have a vested interest. If the sale does fall through, you still receive rental income. You have rental income up to the point of exchange and completion. You have no void. It would be very easy to have a property empty two, three, four, five, six months. During this period you will have no rental income, and unless you market the property yourself and save agency costs, will still have to fork out 1 or 2% on commission. And don't forget if you do market it yourself, there is still a cost - your time.

So on reflection, if I sold to a tenant and my letting agency wants a commission, as long as they are up front about it and approach it the right way, I'd have no problem with it.

Paul Shears

10:27 AM, 2nd June 2014
About 4 years ago

I was employing the agent as a tenant find and nothing else. To try to seek in a clause like that in the small print is absolutely outrageous and they shot them selves in the foot with me in even trying it on. The fact that many such contracts may contain such a clause is irrelevant. Once they had found a tenant and I had paid then, the relationship would have been over.

Simon Topple

10:29 AM, 2nd June 2014
About 4 years ago

For a tenant find you are spot on - I would also refuse to sign an agreement for TF services with that in.

Mike Sosner

10:22 AM, 29th July 2014
About 4 years ago

I agree with the above that it is down to:
1. What you did sign to
2. What the agent did or did not do, and
3. Subject to the above - negotiation...
So if it DOES turn out that you have a liability why not take it to the tenants? And tell them that you wish to prefer their offer but the agent fee is posing an obstacle.
So you put a condition in the offer acceptance that the tenant will take care of the agent liability. You will encourage the tenant to negotiate hard, of course. And you will have two motivated parties to the negotiation. The tenant risks losing their home and the agent risks losing both the rental and a sum for the sale.
You can then tell the other applicant that acceptance or otherwise of their offer is awaiting the outcome of a negotiation between the tenant and the agent.
How secure are both offers, by the way? Is one of them cash? Or are the two offers awaiting mortgage qualification? Etc.

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