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In this week’s episode of Good Landlording, Suzanne Smith and Richard Jackson discuss tips to help landlords understand what to look out for in the contract with letting agents, so they know how to strike a fair deal when signing up with them 

This is a practical episode that not only gives the perspective of letting agents, but also explores the experience that landlords have when dealing with agents, the ins and outs of the different services letting agents provide, what to look out for in the agency agreement, and what protection landlords have under the law.

It’s is the second episode in the series on letting agents, carrying on from Episode #3: Guide to selecting good letting agents.

There are golden nuggets all the way through, but there’s a particularly good one at the end.

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1. The competitive environment for letting agents

The competitive environment has become very challenging for letting agents over the past few years. The Tenant Fees Act 2019 reduced income streams for letting agents as they could no longer charge tenants fees. Landlords have baulked at the extra costs, especially as interest rates and general costs like insurance and service changes have gone up.

There are very low barriers to entry for letting agents as no minimum qualifications or licensing are required. There are unfortunately lots of agents who compete on price, at the expense of a quality service, and others who try to lock in landlords through unfair terms in contracts.

Disruption from technology is beginning to gather steam, first with OpenRent who have already become the biggest agent in the UK, albeit an online platform. There are also new entrants like Hello Neighbour with their fixed price, no lock-in property management, and recently their new self-service letting package to compete with OpenRent. (Hello Neighbour advertise on Good Landlording, but Good Landlording is not an affiliate of Hello Neighbour). The NRLA are also doing more online. This all increases the pressure on traditional “high street” agents.

The industry has been consolidating, with big players like Countrywide buying up small local firms. Some are doubling down on customer service. A prime example is Kristjan Byfield’s Base Property Specialists in London, who genuinely care about providing a quality service both for tenants and for landlords.

Unfortunately, others try to stop landlords from leaving by tying them in or charging them a high exit fee if they want to terminate property management or in rent collection. This can make it very difficult for landlords to terminate rent collection and property management contracts.

2. What packages do letting agents offer landlords?

These are the four key packages of services that letting agents typically offer landlords:

a. Let-only / Tenant Find / Introduction Service

This is the most basic level of service, and not all agents offer it. It’s popular with self-managing landlords. The agents find tenants for the landlord, and hand the baton over to the landlord once they have checked in the tenant.

The agents typically advertise and market the property, carry out viewings, and recommend a short list. Once the landlord makes a decision, the agent will carry out referencing and the right to rent checks. The landlord will usually pay extra for an inventory and the tenancy agreement. The agent handles the deposit and the first month’s rent, and checks in the tenants.

The landlord pays an upfront fee for this which can range from 3-8 weeks’ rent, including all the costs. Suzanne said that the last time she used agents for a let-only service she paid 13% of the first year’s rent up front, equal to over 5 weeks’ rent.

Nothing was payable by Suzanne after she paid the up front fee unless she chose to use the agents to review the rent and/or “renew” the agreement. Agents usually encourage landlords to “renew” the fixed term tenancy when it expires, even though this is not necessary as it will automatically become a rolling periodic tenancy, either by statute or contract, without any action needed by the landlord or agent.

It’s easy for landlords to increase the rent themselves by agreement with the tenant or by serving a Section 13 notice. They don’t need to pay agents to do this.

b. Rent Collection / Rent Managment

The next level of service, which is often the entry level for some of the bigger letting agents like Savills, Foxtons or Dexters in London, is rent collection or rent management. This is like the basic tenant-find service but the agent doesn’t hand the baton onto the landlord when the tenant moves in. Instead, the agent collects rent from the tenant and remits it onto the landlord. The agent chases tenants for late payments and provides landlords with rent schedules.

The price ranges from 11% of the gross rent for Dexters to 15% for Savills. Foxtons charge 13.2% for the initial introduction of the tenant, with a renewal commission of 12% payable for the next two years and 8.4% thereafter if the tenant remains in the property. None of these agents permit the landlords to terminate the rent collection service for so long as the tenants continue to stay in the property, locking landlords in for an indefinite period.

OpenRent on the other hand charges £10 per month for its rent collection service.

Landlords should be aware that they may be locked in to staying with the letting agent if they choose rent collection if the contract states the landlord has to pay renewal fees each year, even if they terminate. It’s very important to check whether they will be able to terminate their rent collection service in the future without having to continue paying the fees, if that is an option they wish to retain.

However, this can be less of an issue with flats where tenants don’t tend to stay as long as they do in houses. It is more of an issue for landlords with long-term tenants who may not want to be locked into using the agent’s rent collection service and paying the renewal fees.

That said, landlords should consider how much value they really get from their letting agent collecting the rent and remitting it, less the rent collection fee, especially where they have good tenants who don’t need chasing for rent. If they do sign up for rent collection, they should do it with their eyes wide open, and realise they may have to pay renewal fees to the agent for so long as the tenant stays in the property.

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