Are Renewal Fees Fair?
What are tenancy renewal fees?
A tenancy renewal fee is ostensibly the charges made by the letting agent when they renew a fixed term tenancy agreement. For instance if a letting agent starts sensibly by letting to a new tenant with a 6 month fixed term tenancy contract (to see what they are like). Then, at the end of the period if they are happy with their tenant a landlord can allow the tenancy to become a statutory periodic tenancy with exactly the same terms and rent running from period to period. However many letting agents automatically get the tenant to sign a new tenancy agreement at the expiry of the fixed term. At this point they charge the landlord or the tenant or sometimes both a tenancy renewal fee to cover the costs of creating the new fixed term tenancy. In practice this just means all they have to do is print off a new tenancy agreement and get both landlord and tenant to sign it. For most landlords this action is totally unnecessary as providing they are happy with the terms of the tenancy they can just let it become a statutory periodic tenancy. Do remember it is entirely possible to avoid fees altogether if a landlord decides to manage their own property and not to use a letting agent.
How much will a landlord be charged?
The exact amount a landlord is charged by the letting agent for renewing a fixed term tenancy will depend on what is stated in the fees and charges section of the agency agreement between letting agent and landlord. In the case of the big London based estate and letting agents charges can be significant. For instance Savills charge 15% inc VAT of the rent taken for its ‘Letting, Renewal & Rent Receipt’. This fee is payable each time the tenancy is renewed. For most ASTs on a 6 month contract this fee could be payable twice over a 12 month period. London based Foxtons charges a mere 10.8 per cent inc VAT. For a start the whole approach of charging a percentage of the rent seems strange. Surely, the cost of printing a tenancy agreement is the same whether the rent is £5000 per year or the maximum chargeable under an AST of £100,000. The Mirror recently reported that some landlords were charged as much of £300 for a tenancy renewal fee altough the average was thought to be nearer £75 the Tenants Voice suggested that a reasonable figure for the work regardless of the rent paid would be £25. This to me sounds a little on the low side.
There is no standard fee structure for letting agents
The problem with tenancy renewal fees are with much of the letting agent world is that there is no standard fee or fee structure. This means that letting agents can charge what the market will bare. On one hand this seems fair in the sense that it is a free market and there is plenty of competition out there amongst letting agent. The problem is that many small landlords are not experienced businessmen or women and are unaware of what contract they are getting into when they sign the agency agreement. Mistakenly they act under the assumption that a letting agent has their best interest at heart in the same way as a doctor or lawyer should. This is not necessarily so.
Making tenancy renewal fees more visible
The government has stepped into the breach and tried to make sure that landlords are not misled and are fully aware of the charges levied when they sign their agency agreements. In 2008 it brought in the Consumer Protection from Unfair Trading Regulations (2008). This replaced lots of other laws. It was supposed to introduce “a general duty not to trade unfairly and seek to ensure that traders act honestly and fairly towards their customers.”
What the law means in practice
The Consumer Protection from Unfair Trading Regulations (2008) made little difference to Letting Agents. Good and bad letting agents continued as before. In 2013 the Advertising Standards Authority (ASA) criticised letting agents and told them to display compulsory fees and charges. The ASA came to the conclusion that unscrupulous agencies were misleading tenants and landlords a like by hiding their charges. Unfortunately the ASA has no influence outside the world of advertising. Whilst there is no overarching statutory regulation of private sector letting or managing agents regulation of the letting agent industry there is now an independent Property Ombudsman. This allows landlords to complain about a letting agent if they feel that they have been unfairly treated over charging of renewal fees or any other aspect of their contractual relationship.
How can landlords avoid paying tenancy renewal fees?
The easiest way landlords can avoid paying tenancy renewal fees is to make sure that their letting agent doesn’t renew the tenancy unecessarily and stipulate that you are happy for the tenancy to become a statutory periodic tenancy at the expiry of the fixed term. You should remember not all agents charge landlords a renewal fee. Some will just charge the tenant others may charge both the landlord and the tenant (you need to read the agency agreement carefully). If the contract is not clear about charging these tenancy renewal fees and then the letting agent comes along and tries to slap you with a fee then the legislation has now been clarified so that a landlord has rights to argue that they do not need to pay as a result of the Consumer Protection from Unfair Trading Regulations (2008)
The website Tenants Voice gives a few good examples of the ways unscrupulous letting agents make extra cash from tenants but it also applies to landlords too as many charge both for the same things:
• A penalty payment if you don’t pay the rent by standing order
• A reservation fee to hold a property while you get a reference or deposit
• A moving in charge
• A moving out charge
• Cleaning charges when you move out leaving the place spotless
• Unnecessary letters or form letters, such as ones telling you that your rent is going up
• A fee for signing up with the agency
• A fee for a tenancy agreement
• Any admin which is inevitable
Can landlords claim back their tenancy renewal fees?
The Foxton case outline below raised the issue of whether landlords could potentially reclaim tenancy renewal fees that they had already paid to their letting agent. In many cases landlords were completely unaware of what they were paying for or the fact that these fees were totally avoidable.
LITIGATION – The Foxtons case
We did explore in detail the original Foxtons Renewal Fees case and raised the question of whether landlords could reclaim these renewal fees where Foxtons were taken to court by the Office of Fair Trading for hiding away conditions relating to the charging of renewal fees in their contracts. The Office of Fair Trading (OFT) challenged in the High Court Foxtons’ standard terms and conditions for letting properties. The OFT believed that the Unfair Terms in Consumer Contract Regulations 1999 mean that some charges made by the agent are actually unlawful. The case mainly involves the right for the agent to claim a renewal fee from the landlord if a tenant renews at end of the original letting period. But the challenge also covers commissions payable where a tenant buys the property. Foxtons subsequently lost the case.
However, there is a series of cases launched by various groups to see whether they are able to reclaim fees already paid. When it comes to tenancy renewal fees that have been charged over many years then these fees could amount to many thousands of pounds paid unnecessarily by a landlord. The latest case relates to efforts by class action being brought by law firm Casehub on behalf of a number of landlords to reclaim up to £80m of fees from Foxtons.
The case is on going.
Previously we looked at renewal fees
Writer and BTL consultant David Lawrenson underlines the importance of reading the small print and asks are letting agent renewal fees fair?
“A reader of my blog in which in which I give landlord advice recently contacted me with a query which I’m seeing all too often right now. She had rented out a flat for the last four years to a tenant who was found by a big London Letting Agency. The landlord managed the tenancy herself.
The landlady paid the agent 10% for the first year of the tenancy and unfortunately had signed a contract to pay 8% for each year of renewal thereafter. (As you will know from other blogs posts my advice is to pay a generous up front fee and strike out any clauses requiring you to pay renewal fees where the tenancy is simply extended to become a “monthly periodic” tenancy because in these cases the letting agent does no real work to extend the tenancy!)
In this particular case, the tenant is now buying the flat – a result of a private agreement between the landlady and the tenant. However, when the landlady informed the agent of this, they pointed out a clause in the tenancy contract which says, “In the event that a tenant or a third party connected with the tenant introduced by us, subsequently purchases the property, we will be entitled to a fee of 1.5% of the purchase price plus VAT.” The landlady wanted to know if there was any way she could get out of paying this fee, or at least some of it. She was shocked that it’s so much when they have done nothing apart from securing the tenant four years ago.
LITIGATION – The Foxtons case
The answer lies in litigation which is ongoing at present. In the case of Foxtons Ltd v Pelkey Bicknell this year, the Court of Appeal said that it is not sufficient for an agent to introduce a purchaser to earn a sales commission. The agent has to be the effective cause of the sale. The Office of Fair Trading (OFT) is also challenging, in the High Court, the agency, Foxtons’ standard terms and conditions for letting properties.
The OFT believes that the Unfair Terms in Consumer Contract Regulations 1999 mean that some charges made by the agent are actually unlawful. The case mainly involves the right for the agent to claim a renewal fee from the landlord if a tenant renews at end of the original letting period. But the challenge also covers commissions payable where a tenant buys the property.
This case seems to have been pending for ages and the outcome of the trial and any appeals may not be known for some time yet. Some solicitors in the north west of England have issued county court claims for landlords for repayment of fees paid to agents in similar cases.
It may also be possible for landlords to issue proceedings in court for repayment of cash previously paid unlawfully on these grounds and claim interest from the agent too. However, it may be better to wait until the result of the OFT case is known and don’t forget that you have up to six years to issue any claim in court.
According to my friend and legal expert Tessa Shepperson at the website LandlordLaw, another option could be to draw the letting agency’s attention to the Foxtons case and offer to pay any monies in dispute into a separate interest paying account to show good faith. Then, if Foxtons wins the test case then the money would then be paid out to them. If they lose, you get to keep it.
Please note we are not lawyers and this is a rough guide of the situation only and should not be relied on as definitive advice. We advise you to always take legal advice from a solicitor experienced in these matters.”
Have you been subject to unfair letting agent fees?
David Lawrenson provides landlords advice and help with property issues at www.LettingFocus.com