Lesley Henderson has been a landlord all her adult life and now runs a family business. She is also the author of the Landlord's Survival Guide.
Ah, the agents! Some landlords swear by them. Some landlords swear about them.
Despite recent landlord investment running into billions of pounds, agency services remain effectively accountable to no one.
Who uses managing agents?
A minority of all landlords – mainly those new to the business. But far more of us manage very nicely without them. The vast majority of landlords simply won’t pay such high costs. Here’s a salutary tale.
So, where was I – before I made your hair stand on end? Ah, yes. So, despite only servicing a fraction of the nation’s rentals, agents make all that money from a minority of investors.
Should landlords use agents or not?
That’s a personal choice. Personally, I cannot see the logic in paying for what are simple tasks that take a matter of hours a year to manage. Most landlords prefer to retain both the profit and control.
Why do some landlords use agents?
Usually it’s nervousness and a lack of information about what’s actually involved. But this knowledge gap is costly. It is cheaper to read a guide or join a small landlords association and learn the ropes.
Why do agents charge so much?
Because they can.
But don’t agents offer guarantees?
Organising a system that protects the tenant’s deposit or maybe the landlord’s rent from outright fraud and offering access to expensive ‘rent guarantee schemes’ that generate them extra commission just isn’t a sufficient improvement in trading conduct to justify their costs, I’m sorry to say. Besides which, much of this ‘guarantee’ is superseded by the 2007 legislation on deposits anyway.
What’s the best way to manage my agent then?
All I can say with confidence is that landlords who know what they are doing first then employ an agent to do it on their behalf second, will always be better prepared to tackle some of the worst excesses of some lettings agents. Here’s a flavour of the trade.
One of London’s most reputable agents charged cleaning costs from a tenant’s deposit at almost £125 an hour (£495 for four man hours to be precise). Then, when the landlord challenged the agents, they promptly offered her a discount – simultaneously refusing to pay it by insisting that the balance of more than £80 was used up completing a tax return they insisted was necessary. For a short let, this agent was charging the landlord a walloping 26 per cent plus VAT. The agency excuse – this is the going rate for the cleaning company they use.
Well, less than eight miles away – my cleaner earns £7 per hour.
This is related to a neat landlord scam and can be found in Lesson 9 on selecting tenants, so read on.
So what do I need to know about letting agents to
protect my and my tenant’s interests?
This lesson is telling you what an agent can offer, ie what they should do for their considerable slice of your risk-loaded income, and what they can and often do charge landlords and tenants.
The downside to using agencies
Some landlords have tight budgets too and need to weigh up carefully the choices between paying an agency the entire likely monthly difference between rent and costs – or rolling up their own sleeves to save money – sometimes literally. These practical people I refer to as ‘independents’. Many tenants simply won’t rent through agents because their fees are so high.
How agents can negatively affects tenant’s preconceptions of
Tenants whose only contact with their landlord is via some very expensive office with fancy cars parked outside can draw the wrong conclusion entirely. There’s a great deal of psychology involved in good landlord/tenant relationships. That posh office implies (however subconsciously) that you, the landlord, are de facto wealthy, and if the rent is a bit late or infrequent, it won’t necessarily matter. Outrageous – of course it is. But don’t kid yourself – we all make value judgements every day and tenants are people too.
By way of balance
In all fairness, because tenants are subjected to a great deal of financial sharp practice, some prefer the services of an agent who’ll act as an intermediary following a bad landlord experience.
Similarly, some landlords find it almost impossible to strike the right balance with tenants. Either they become too friendly – or they are too autocratic. Neither of these works well, which is why landlords struggling with their tempers can come to such repeated grief. If you really feel incapable of maintaining a reasonable, firm but fair approach, or finding solutions to rent arrears that don’t involve shouting, your best bet may well be to use an agent who can offer you the distance that you may well need. But it’s cheaper to learn some people skills.
Don’t tenants resent the landlord turning up?
Not good ones with nothing to hide. Some welcome the monthly or even weekly contact to, say, report minor issues about the unit. Not complaints – just small things like dripping taps – or sometimes more personal issues like a potential conflict with other tenants in the building they’d prefer you dealt with. I couldn’t count the Christmas cards I’ve opened with December’s rent tucked inside. For almost 40 years, my mother had to have a driver on the final rent day before Christmas because she always came home tipsy – too many celebratory sherries. Yes it can be like this. It really can.
So, use an agent if you want or need to – but not because you don’t know what should be happening.
What types of agency services are out there and
where are they?
Agents of every type are everywhere. What you decide to purchase depends on your appetite for costs. My strong advice is to ask around – before signing up to anything on the high street. And watch yourself for tie-in clauses and up-front fees running into hundreds of pounds with no guarantee of decent service.
Examine how your agency service is structured
Lettings agencies tend to have nice front offices with amicable staff on targets who earn commission per rental.
However, the Cinderella service of property management will probably be run in a back office somewhere else (and often many miles away) and be staffed by a completely different group of backroom staff. By splitting their service into commission-driven salespeople and backroom staff, agents have created a mismatch between immediate gain and long-term management. The person anxious to get a name on the lease will not be the poor person endlessly on the phone or writing letters, chasing rent, organising endless repairs or worse.
Beware of agents who want contractual consent to repair
without your authorisation
Be especially wary of signing any contractual consent, which allows any agent to authorise repairs below a certain fixed value of, say £250. Most agents have in-house and highly profitable sidelines in maintenance and repair and an authority like that can allow them to run up astronomical costs over the course of a year (which always somehow stay below the benchmark £250). This is an unnecessary degree of freedom to decide about what you pay out, without some kind of veto. Avoid this term or set a more savvy level of, say, £50.
If you sign up – let them earn their fees
Avoid responding to an ongoing stream of unnecessary calls from an agent to whom you’re paying full management fees – except for issues that could cost you money. They’re being paid to do a job and should get on with it. Here’s a good rule of thumb.
If the sink was working perfectly when tenants moved in and it’s now blocked – the tenants blocked it and they get the bill.
If, on the other hand, you left them with a washing machine on its last legs that died, that’s your bill.
And to quote Lord Denning, ‘a tenant must do the little jobs around the place that a reasonable tenant should do’ – so don’t get stung at top price by the agent’s maintenance department for every door handle that needs a screwdriver – or for fuses. And if your agent doesn’t know or understand how to apply this most famous legal judgement – how good are they?
Your appetite for costs
Broadly speaking, how much you’re prepared to pay for agency services and what type to use is entirely down to your own budget and your aptitude for managing third parties with access to your money.
Rent payment guarantees
Some agents also will try to sell you ‘unpaid rent insurance’ and call it a ‘rent guarantee scheme’. It’s really a costly item that landlords with good tenant management simply don’t need. The fairly large premiums will eat up yet another hefty slice of rent. And, naturally, the agent gets a commission for selling these policies.
Remember no business ever guarantees that everything will run without a hitch. Don’t take problems personally. If, frankly, your number crunching is so tight that you can’t afford a couple of month’s unpaid rent while you get a Possession Order, your margins are squeezed too tight for this business.
Agency contracts – caveat emptor (buyer beware!)
As with everything else I’ve warned you to check thoroughly, read even the most reputable, nationwide agency contracts very carefully before signing. You might like to try asking more than one agency for specimen contracts and take them to take home to read. You are the customer here – so act the part. Never be afraid to negotiate – this is a tough old business.
What to check contracts for
- How long you’re committing yourself for.
- How to get out of contracts if no tenants are found.
- The little ‘extras’ that no one mentions – for example – if your first tenant signs a six-month lease then decides to stay for a year – are the agency going to charge you as well as your tenant for that unnecessary lease extension? If so – why, when a statutory periodic gives the landlord more ready access to possession (see Lesson 5: Assured Shorthold leases)?
- Who gets charged – what if the tenant is not a good choice and needs to be evicted (legal costs are usually extras)?
- Are there set-up fees for landlords as well as tenants?
- Are they re-applied if the unit needs re-letting quickly?
- Do they have a repair fee limit? Ask where your veto starts.
- Ask what proportion of their tenants obtain a full deposit refund.
- Ask how disagreements about damage are managed between landlord and tenant.
- Check out individual tenancy set-up costs – additional charges for leases and fees for lease signing, inventory costs, reference costs and add them all up.
- Make a list of everything you see and take it to your agent to get a price – then file the price list safely.
- Then finally, mark up your personal diary and make sure that, for example, if part of their service includes a quarterly inspection of your tenanted unit and feedback to the landlord, you get what you’re paying for.
The list is endless but you get the picture.
What kinds of agencies are there, what kind of money
are they charging and what do they actually do?
Broadly, agencies come in three shapes.
Tenant finding services
These agents specialise in just finding tenants. They charge the landlord (and theoretically only the landlord, though believe it or not I have, however, heard salutary tales from tenants who’ve been charged an £80 fee for the privilege of being chauffeured to view a property!). But they cost. Near to me a tenant find service alone can charge eight per cent of the entire contract.
These agents should do all the background checks you require. Some will even instruct an independent inventory service for you. Ask about costs to you and the tenant. (For comprehensive advice on how to compile legally binding inventories for nothing see Lesson 7: Inventories.)
These middlemen do not run tenancies but can act as powerful magnets for tenants, especially in large cities. Given that they do their own advertising, you can offset some of the saved advertising costs against what they’ll charge. Some will carry out initial viewings and allow landlords an ultimate veto. None should hold tenants’ deposits (see Lesson 10: Deposits, for new rules) unless they offer the end of contract services to make this effective.
These services save time/effort on the day-to-day issues of advertising, discussing matters on the phone with prospective tenants and of course, viewings. If you’re happy to let someone else choose your tenants for you, or can find someone who’ll provide you with referenced options, but are uncomfortable about handing over full management to a third party, this service can be worth exploring.
Tenant find plus management
Cheaper than their more common colleagues of full management, these rarer agencies charge around ten per cent plus VAT of the rent yielded by each contract – and are the most likely to snatch a full fee up-front. They should find you a suitable tenant and carry out the necessary background checks. Sometimes they offer a lease of their own. Others take no responsibility and expect you to sign the lease with your tenant – that way you’ll be liable if you forget to arrange something obligatory like an annual Gas Safety Certificate or if furniture doesn’t comply. They should provide an inventory check both in and out (there will be additional charges for this). And they’ll often set up the arrangements for rent collection – usually by direct debit via their accounts department. They do not always offer repairs services or 24-hour repair lines, but act more as middlemen (during office hours) between the landlord and tenant; cutting out the hassle on the phone as landlord and tenant blame one another for a problem drain. They may be able to suggest tradespeople to carry out repairs.
Full management services
The Sexy Sadie of them all (in fact you’ll be tripping over them on most high streets) and at between 15 and 20 per cent plus VAT they give all the above, plus the following.
- An initial rental valuation (which you should already know).
- Provision of a legally binding lease (available elsewhere for about £2 – see Lesson 5: Assured shorthold leases).
- Rent collection – usually by direct debit.
- Repairs (charged as additions and deducted at source from your rent).
- Inventories (some charge both landlord and tenant).
- Checking your unit to ensure that all statutory regulations are met (see the Lesson 12: The serious responsibilities).
- Holding spare keys for emergencies.
Full management should also include routine quarterly inspections of the unit. Agents should notify the utilities and local authorities of who’s moving in and out and also take moving in and moving out meter/utilities readings and notifying the companies/authorities appropriately. They should also ensure they have forwarding addresses for tenants to submit final accounts to and should hold onto deposit releases until they are sure the final bills have been settled by the vacating tenant. Final inspections and arrangements for repairs/cleaning – which you can do yourself in little more than one full day in total – spread across a six-month let.
Between those things lay a never-ending list of chargeable items for landlords and tenants. Watch this doesn’t amount to a regular extra charge for endless small jobs which may quite reasonably have waited until the tenancy ended or could constitute improvements.
A decent agent should have the expertise to offer qualified advice on:
- Building Regulations.
- Solid information on Houses in Multiple Occupation.
- Consumer protection and legal requirements.
- Fire regulations and furniture requirements.
- General housing law and landlord and tenant legal advice.
But none of the above necessarily fall into the free category. Many agents do engage a qualified RICS surveyor who genuinely is in a position to give you high quality advice on Building Regulations. Some have in-house qualified accountants whose advice you may wish to buy. However, unqualified advice is as much use as a chocolate teapot for Building Regulations, planning, the law or tax because it won’t carry legal indemnity for error. Remember my initial advice to move liability, wherever possible to a recognised professional.
Deducting your tax at source
Something you need to know is that any managing agent is legally obliged to deduct tax from the rents before forwarding the balance to landlords who reside abroad and the agent is obliged to ensure these payments reach HMRC. Unbelievably, the same tax law obliges tenants to make similar deductions and forward them where no agency is used.