Lettings fees could double

Letting agents fees could double.

For the past six months a squabble between the Office of Fair Trading and London agents Foxtons has been bubbling away. The detail turns out to be quite complicated but the implications for landlords could be significant. The case comes to the High Court at the end of the month and the lettings industry is holding it’s breath.

The basic argument is that the OFT thinks that consumers (landlords) have been unfairly treated by letting agents who have charged a fee for a tenant who decides to continue to rent a property after the first period or tenancy has finished. Letting agents typically charge 11% of the first years rent in return for a number of services – finding the tenant, collecting rent, arranging inventories, liaising with both landlord and tenant and holding a deposit. Foxtons charged their clients a fee for each subsequent year – even if they hadn’t been doing much in the way of ongoing work or if a new tenant hadn’t moved in.

The OFT were also concerned that agents were claiming a fee from the landlord if the tenant decided to buy the property after having lived in the property. Agents argued that they had introduced a buyer and were therefore entitled to a fee even if it was something of a ‘captive audience’ as some clients had suggested.

On the face of it this is another example of an estate agency own goal. Already the subject of an OFT enquiry into the housing market and the butt of Tv and newspaper exposés, the last thing that the agency market needed was a claim that they were grabbing money for doing nothing.

In fact, as most landlords know, agents time and effort is mostly loaded at the front of a tenancy and if their time and effort are fairly costed then a fee of 11% of the rent each year isn’t usually begrudged. What the landlord wants is a long term tenant who will look after their property, pay the rent on time and cause as little inconvenience as possible. If the High Court decides that fees can only be charged on the first period of a tenancy then there will be two main results;-

Lettings agents will have to raise their fees to over 20% of the rent. This will make a significant difference to most landlords and a huge change to all buy-to-let landlords who have budgeted on half that amount. The other possibility is that tenancies that are usually for 12 months will become two or three year terms. Both these could be a major inconvenience to the rental market and a significant change to the costs of letting a property.

One final consequence could be that if the OFT wins and the practice of charging is found to be unlawful an action might be brought against an agent by a landlord looking for the return of fees paid over the past six years. If enough were to do this we could see a significant number of agents going to the wall!

Whilst Foxtons are the firm in the dock, this is an issue for all letting agents. Foxtons are not members of ARLA (the Association of Residential Letting Agents) and are often fingered as ‘the unacceptable face of estate agency’. However, tens of thousands of Londoners are happy to use their services each year, pay above the average for their services and no complaint to the Ombudsman for Estate Agents has been upheld.

Watch this space!