OpenRent Community

Can agent pass on loss of tenant fees to landlord?

My sister and I co-own three properties: two residential and one commercial. We have a managing agent who finds new tenants and handles leases and rents.

The recent Tenant Fee Ban has obviously affected the managing agent but they are now trying to pass off what is essentially a 3% rent increase as a Tenant Admin Fee. Isn’t that illegal? They claim it is cost-neutral to us but I don’t see how. It seems cost-neutral to the agent, not the landlord.

I have cut-and-pasted below an edited version of an email we received from the agent about it.

I’d appreciate any advice about what other landlords have done when faced with this situation. Thank you.

"Currently we charge tenants a fee to cover the initial administration at the start of the tenancy…
It is completely unrealistic to expect agents to simply pass on these costs to their landlords without increasing rents.

"Our proposal to accommodate the pending ban is to implement a fee into the monthly rent of each property. This will show on your statement as a tenant administration fee separate to your management fee so it is clear what the fee is for.

“Your rent will be increased by 3% at the same time as a 3% (inclusive of VAT) fee is implemented therefore it will be cost neutral to you. We will be staging this in two increments to soften the blow to tenants, the first increase of 3% will happen on the next tenancy renewal due after 01/04/2018 and the second will happen on the next renewal due after 01/04/2019.”

Hi Jane, I think you’re right to be suspicious here — for a number of reasons!

Firstly, I totally agree with you. If the agent is putting the rent up but they are getting all the extra money, then they are effectively charging you more money for the same services. That’s your rent! Why should they get to keep more of it without offering you a better service?

Secondly, as you’ll know being an experienced landlord, agents can’t just increase the rent during a tenancy. They have to wait until the fixed term expires and then propose a rent rise that is in line with market rates in their area. The tenants can challenge the rise and they may leave the property if they refuse to pay, leaving them (and you) with a vacant property. Raising the rent isn’t a sure-fire solution.

Thirdly:

  • If these changes are occurring on a tenancy that is being signed before 1st June, as the email suggests, then the new Tenant Fee Act does not even apply. It applies only to new tenancies starting on or after 1st June 2019 and then to all existing tenancies from 1st June 2020. In other words, your agent will still be able to charge your tenants the same tenancy creation charges they always have done. It sounds like they are being flexible with the truth in order to get at extra 3% of your rental income while also being able to charge tenants the usual range of ad hoc charges.

  • Even if the new agreement is signed after 1st June 2019, agents won’t be allowed to charge tenants any fees except the ones listed here. If they are charging tenants a prohibited charge, then they are liable for a fine of up to £30,000. If they are admitting the rent increase is a fee, which they are clearly doing in the email you quoted, then it seems clear they’ll be breaking the the new rules.

Some of the points raised in that email are also suspect.

Agents do not actually face many true costs from tenants. Agents’ customers are their landlords.

What they will be passing on isn’t a cost, but a loss of easy income in unregulated tenant fees. They have been able to charge tenants a lot of money for doing not very much in the past, and soon they won’t be able to. They are passing the unfair fees tenants are charged to you in the form of a higher % of your rental income.

As you know, OpenRent don’t charge tenants any admin/agency fees. I’d recommend asking your agent exactly what services that money they were charging tenants actually covers. See how many of these are legitimate when scrutinised.

Tenants were forced to pay these fees because they can’t shop around. They have to deal with the agent the landlord chooses. But you can shop around, meaning you can negotiate lower costs. If the agent tries to ‘pass the costs on to you’ you with no additional service level, then you could tell them you’ll be assessing your options.

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Hi, Sam,
Thank you for your detailed response. At the moment due to family circumstances, we can’t switch letting agents but it’s definitely something I want to do in the near future.
I have a feeling, however, that we may be locked into the current agent until the tenants leave each of the properties.
My sister and I aren’t experienced landlords and took over responsibility for the flats and shops when our father died in 2014.
When we signed a lease with the current agent, we didn’t know what to look out for, and seem to have saddled ourselves with this clause prohibiting us from changing agents whenever we want. I don’t think we can even switch at the end of a lease, only when a tenant leaves.
As for the tenant fees business I posted about originally, I will sort that out. I only hope that if the letting agent is illegally passing on fees, only he will be liable to fines.

I say it a lot Join the NLA. Find another agent. Show your contract with the agent to a solicitor. You will have to learn how to be a landlord quick!!!