Tenants as cashcows
Most landlords see the relationship between tenant and landlord as pretty straight forward & passive. You the landlord provide the tenant with four walls and sometimes a bed to sleep on. In return they pay you an agreed rent. Occasionally if you are lucky you can put the rent up and that is about as complicated as it gets.
The main job for you the landlord is to manage the costs such as your buy-to-let mortgage costs and maintenance costs as this will in turn maximise your net rent. The net rent being the bit left over after a landlord’s costs have been paid each month generally referred to as your cashflow.
Additional revenues from tenants
However, recently and prompted by the credit crunch I’ve been seeing more and more landlords using their relationship with their tenants to make additional revenues. This is only sensible and reflects what many companies and businesses do in the wider economy.
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Once a business has a customer, their next step is to see how they can retain that customer but then see if there are any way that they can make additional revenue from that customer by selling them additional services. In business parlance it’s all about increasing the average spend. Property Hawk has therefore examined where it is possible for a landlord to look to make additional income from their tenant in perfectly legitimate and legal ways in order to help landlords cope with their rising costs.
Letting services
Firstly, the main area where some landlords have for some time being legitimately charging a tenant money is in connection with the management costs of setting up and ending a tenancy.
For years landlords have accepted the whole vetting, letting and moving out of tenants as just part of the process of renting their investment property. However, increasing demands by government in terms of additional regulations such as the Tenancy Deposit Scheme (TDS) and HMO licensing and the soon to be introduced Energy Performance Certificates (EPCs) all increases the time burdens on landlords. These regulatory burdens often come with extra financial costs but most importantly they all take additional time without producing any additional revenue.
These administrative tasks are what in the service sector would class as professional services. For years many letting agents have been ‘making hay’ out of charging large fees to carry out these basic tasks. Residential landlords on the other hand being largely small amateur outfits have largely chosen to absorb these costs within their overall costs to their business. Given that landlords carry them out themselves and it mainly involves their own time and therefore does not involve incurring any direct financial cost; landlords have generally seen it as just part of the letting process. However, closer research amongst letting agent shows that many of these tasks are charged for. Some individually or otherwise collectively as part of the initial letting fee. A breakdown of these costs produces the following as legitimate fees that a landlord could charge their tenant for their professional services as part of the setting up and management of the tenancy.
Possible letting services & possible charges
Credit check £20
Interview charge £20
Tenancy Agreement £20
Setting up DD £20
TDS (guarantor fee) £50
Check in / inventory £50
Check out £50
TOTAL £230
Toby Hone of the website the-home-place in his book on surviving the credit crunch urges landlords to not ignore the potential revenue benefits of charging. He makes the simple point that:
“why don’t you as the landlord charge your prospective tenant a fee. In most cases the letting agent would do this as a matter of course anyway. “
His view is that a landlord could charge between £150-250 each time they let a property. Given that the average tenancy last 9 months then this could equate to £200-£330+ each tenant each year. Where a landlord has a multi let where each room is rented out then this could equate to many hundreds if not thousands of pounds each year.
Another example of charging your tenants a fee is where landlords shun the TDS in favour of using a guarantor. This is particularly popular in student letting and our student landlord expert Bee in the bonnet shows how this can be done. In this case it is perfectly legitimate for a landlord to make an admin charge for this.
Once the tenants moves out the landlord also needs to carry out a ‘check out’ for which it is also reasonable to charge a fee for.
Non performance tenancy charges
There are other charges that the landlord should have set up automatically as part of the tenancy. These are more penalties in respect of non performance of the agreement but nevertheless they should be in place. In the Property Hawk’s FREE tenancy agreement there is a provision with the Assured Shorthold Tenancy agreement that includes a £35 admin charge for any late payment along with an interest charge payable by the tenant on any overdue amounts of 5% above the Bank of England base rate.
Additional services
Landlords should be aware of the possibilities of charging their tenants for additional services. Just as today consumer is always looking to ease the burden of everyday humdrum chores so tenants are often quite often happy to pay for extra services. For instance many busy professional tenants would be happy to splash out a few extra quid in rent in order to benefit from a wireless computer network or satellite TV. Once installed, these things will generate small but tangible additional revenue for a landlord.
Other services that could be charged for are a laundry & ironing service, together with a cleaner. These are all services that could potentially be attractive to your tenant and which could provide you with valuable additional revenue.
When the tenant leaves
Even when the tenant leaves this could be an additional source of revenue for a landlord. This is because if the tenant fails to clear there rubbish then a landlord is quite within their rights to make a reasonable charge for the disposal of this. Not only is there the disposal of these items but with the advent of E-bay frequently one person’s junk is another person’s lucky find. An enterprising landlord can often find a use or value out of a previous tenants cast offs.
For a more in depth look at the legal position that a landlord is in relating to items recovered from one of their tenanted houses have a look at Hawkeye’s forthcoming post in the blog on the disposal of uncollected goods.
Disclaimer – The information and services provided by the Property Hawk website ("Website") does not constitute legal, financial, investment or tax advice. The Website is intended to provide general information only and does not attempt to give you advice that relates to your specific circumstances. You are advised to discuss your specific requirements with an independent financial adviser prior to entering into any binding contracts.
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