Most letting agents are good, some are brilliant and treat their clients properly but it is also true that many others offer a poor service, no value for money and have their own best interests at heart over your own. This has lead to government proposals to introduce mandatory qualification for letting agents and regulation to the private rented sector, it has also lead to local authorities like Nottingham City Council imposing selective licensing on their on landlords in certain boroughs whilst Leicester City Council are intending on enacting similar rules for landlords under their planned licensing proposals which will see all Leicester landlords have to apply for a license which could push rents up by over £60 per month over three years after it is introduced.
We’ve put together of six things letting agents aren’t always upfront about.
1. They do not have any relevant qualifications
Beyond registration with a property redress scheme, which could cost as little as £89 and possibly (almost certainly) a £40 (previously £35) registration fee to the Information Commissioner’s Office for data processing per year (a total yearly operating cost of £129 per year) and a few laws enacted over the years in various housing acts, there is nothing to regulate the letting agent industry. There is nothing to stop anybody waking up today and downloading a £60 WordPress website theme and calling themselves a letting agent and telling you they’re a property expert. In fact, many do. Most letting agents employ staff with zero previous experience in the property market and are far from experts yet are given the job title of property expert?
Landlords are paying full management fees, relying on an agent’s expertise which they lack whilst they try to help their landlord navigate the world of consumer and housing law (of which there are more than 140 directly applicable laws to be aware of concerning being a residential landlord). It’s important agents are qualified and those in training are enrolled onto courses which would lead to their qualification. Harry Albert Lettings & Estates train their staff and enrol them onto a Technical Award Level 3 in Residential Lettings & Property Management as standard which is more than what most Leicester Letting Agents are able to say.
It will be some time before landlords are given the basic protection of qualified letting agents as a requirement of law; imagine if the healthcare sector was as lacking in qualification as the letting industry… Brain surgeons becoming brain surgeons based on a whim they had the night before…
2. They are spending your money
Letting agents are in quite the unique position that a lot of the money they handle isn’t their own. There’s no regulation for the industry to adequately protect most of this money, tenant deposits are protected by law and should be registered with a custodial or insurance backed scheme. Otherwise, your incoming rent, your money for repairs and maintenance… there’s nothing to stop them wasting this money in times of financial hardship and this has happened on numerous occasions where letting agents would go bankrupt taking their client’s money with them. This has lead to calls for mandatory client money protection, something which may push a lot of agents overboard as compliance costs mount. Instead, we feel landlords should be able to make a claim for monies owed in the same way as a contractor can make a claim against their debtor in the event of insolvency. Otherwise, like in the way pensions are protected when a company, like BHS, goes under, landlords should have some form of government compensation in the event their investment (because pensions are also an investment) isn’t paid out to them as a result of poor financial management of the company.
We’ve met agents in Belgrave who keep client money with their own and it is spent like an overdraft on their own expenses, returned to landlords only when other fees come in to cover their expenses retrospectively, like a skewed Ponzi Scheme.
As mentioned, this issue should be rectified by the introduction of Client Money Protection insurance for letting agents which is likely to come into force in April 2019 if not sooner; the government have confirmed this will be mandatory before the tenant fee ban.
3. They didn’t fully reference your tenants
Landlords, like most, aren’t big on changing suppliers of core services like gas, electric and property management like consumers aren’t big on changing suppliers of core services like gas, electric and mobile network providers. Typically, a landlord will approach a letting agent when they last tenant moves out and before their next tenant moves in because landlords expect letting agents to be able to find a good tenant. One reason letting agents exist is to be able to find the right tenant, first time, every time and adequately reference and background check the individuals to make sure they’re not going to set fire to the property or stick their two fingers up to you as payment of rent instead of the monies you crave as a landlord.
Oftentimes, poor referencing isn’t immediately realised until problems begin to start or until eviction proceedings begin. Many other landlords have also complained about this to Harry Albert Lettings & Estates who are often left to pick up the pieces after poor-quality agents have had their hands on a landlord’s property.
Poor referencing is costly to landlords but can also turn around and bite the agent who didn’t do the correct checks. One landlord was successful in obtaining £8,000 compensation through the courts after suffering heavy losses due to inadequate referencing by Foxtons. Foxtons have also been in the news lately after being convicted of failing to prove their properties are safe and previously in 2016 where Foxtons were accused by 55 of their landlord clients in court for unlawfully charging landlords commissions of as much as a third of a contractor’s fee for work done on the property by contractors without the landlords’ fully informed consent.
4. They are getting paid a commission from repairspeople and landlords
A lot of agents, like Foxtons mentioned in the last point, are charging landlords for the privilege of arranging works up to 33% of the cost of the works charged by the contractors. However, some agents also have cosy relationships with tradespeople where, not only will these tradespeople charge above the odds because they know you’re going to foot the bill as opposed to the agent but they’ll also pay the agent a commission for giving them work. So, you’re being charged three times, ultimately. Twice by the agent (the extra charge they charge you for arranging the works and the fee paid to them by the repairspeople which is incorporated into the amount you pay to the tradesperson for passing on the work) and once by the tradesperson who’s payments are disbursed from your incoming rent, of which you have little control of how much is handed over up to the value set out in your managing agreement.
Under agency law, if commission from tradesman or similar income has not been disclosed to the landlord in advance, it is considered to be a ‘secret profit’ and by law, this money belongs to the landlord but, ask yourself this; if agents were passing this money back to their landlord clients, would it be a ‘secret profit’ anymore? No. No it would not and the agent will likely want to keep this profit secret, especially from their landlord clients.
A class action case a few years ago against Foxtons, one of the UK’s largest and apparently most unreliable letting agents who were recently convicted of failing to prove their properties were safe, was on this basis but we have not heard anything further so it may have been settled or not gone ahead. I see no reason why similar claims should not be successful though.
5. They ask tenants to leave at the end of term so they can charge you to find a new one
Under agency law there are a number of principles and rules, which are in essence as follows:
- The agent must perform his contractual duties, and follow his principals (ie the landlord’s) instructions
- He must do this with ‘due care and skill’ appropriate to the type of work he is doing
- He must not delegate his duty (without the principal’s consent)
- He must not put himself in a position where his duties to the principal conflict with his own interests
- He must not take bribes
- He must not take advantage of his position or his principal’s property in order to obtain a benefit for himself, and
- He has a duty to account (ie he must keep his principal’s money separate from his own, and hand it over, together with all relevant documents and accounts when asked).
The above all falls under a fiduciary duty of the agent to act in good faith towards their clients (both landlords and tenants). however, there are still agents who will ignore this and still continue to persuade tenants to leave at the end of the initial term so they can recharge a tenant-find fee which is totally against the principles of agency law. Under agency law, the agent has a ‘duty of good faith’ to deal with his principal (in this case the landlord) in a fair and transparent manner and not put his own interests first.
Good agents will do this as a matter of course. Others, however, won’t. We recommend Harry Albert Lettings & Estates who never charge tenancy renewal fees and encourage tenants to stay on after the initial term and sign a new tenancy agreement. Harry Albert Lettings & Estates, a letting agent based in Belgrave only charge £99 per tenant find service so it really is in their interest to keep tenants on as it isn’t worth the risk of the property being empty and the Leicester letting agent losing out on their monthly management commission. Harry Albert Lettings & Estates are committed to treating landlords fairly.
6. They arrange long fixed-term tenancies to maximise their own commissions at your expense
You’ll be happy to hear your agent has secured a tenant for the next three years or more and there’s no need for you to worry about a thing during that time. However, shortly after commencement of the tenancy, you receive an invoice for the management fee as this hasn’t been recovered from incoming rent as there hasn’t been any or you may find regular complaints from neighbours resulting from your tenants’ anti-social behaviour.
You find that the tenant is less than reliable in terms of finances and paying monies owed and have to begin eviction proceedings, of which your property salesperson, ahem, we mean letting agent hasn’t a clue what they are doing and that’s if they’re ever available to assist you in such matters as dealing with the tenant they placed in your property.
You then realise, when making an application to court to evict the tenant that you can’t use a quick section 21 eviction process during the three years fixed term and unless the rent accrues to more than 2 months worth of rent (when rent is paid monthly or 8 weeks if weekly), you can’t use a section 8 either! You may be unable to get rid of them until after the end of the fixed term or until they voluntarily vacate the property.
You might be thinking “But what about the redress scheme you mentioned earlier, I’ll just complain to them” and that’s great. You may even receive a bit of compensation but the fact will remain that you’re stuck with that tenant until the local authority or police take action thereby giving you another ground under Section 8 (through a discretionary ground meaning the judge doesn’t have to evict the tenant if the tenant gives them a good enough sob story) for the full fixed term.
Is it going to get better?
Over the long term, yes. When the Tenant Fee Bill comes into force many agents will lose a substantial part of their incoming revenue, some up to 50% whilst others, at least 20%. The government are aware that this will cause a lot of agents to go out of business taking their landlord client’s money with them and spurred the government to decide to introduce mandatory client money protection ahead of the tenant fee ban.
This means more agents than before will be more likely to do the above six things discussed in this article and it’s going to get a lot worse for landlords before it gets better as agents cling desperately to the last few straws keeping them in business.
Not all agents though, agents like Harry Albert Lettings & Estates have already taken steps to mitigate any losses caused by the tenant fee ban and increased compliance costs and scorn upon the practices mentioned above. Oftentimes, they’re left to pick up the pieces after a landlord’s previous agent has absconded when the management aspect that follows the tenant find became too much to handle. This is why Harry Albert Lettings & Estates have set up a drop-in eClinic right here at Leicester Property Insight, you just have to hit the Facebook Messenger icon in the bottom right hand side of the screen to start chatting to them. Whilst the eClinic is free, availability may be limited throughout the week and drop-in sessions are at weekends where Harry Albert Lettings & Estates, Leicester‘s leading online letting agent, will be on hand to answer any questions and offer advice where necessary and possibly take over any management contract you already have in place but are dissatisfied with.
Landlords need to be on the lookout for this sort of thing and you should thoroughly check out in advance any agent you are considering using. You will find some more tips here.
The biggest takeaway here is to remember having a suit and office does not necessarily mean that someone knows what they are doing. Most letting agents are not property professionals, they are salespeople who happen to sell property and a stonesthrow away from going rogue. This is why we recommend your leading local online letting agent, Harry Albert Lettings & Estates to manage and let your property.