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Letting Agency fees for tenants – Unfair, Immoral but not yet illegal

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This post originally appeared on lets renters rate and review their accommodation and responsiveness of their landlord, giving it an overall score. It has thousands of properties rated by tenants across the UK. On their reviews tenants have also mentioned exorbitant administration fees charged by letting agents has made it expensive for them to switch from a poorly maintained rental property.

In this blog we will cover what are the Letting agent fees charged to tenants, why they are unfair, immoral but yet legal in England and Wales.

What are letting agent Fees charged to tenants?

Letting agents in England and Wales can charge tenants for drawing up a contract, doing inventory of the property, credit checks, getting references, admin cost for things like phone calls and postage. Tenants can also be charged guarantor fees where applicable, additional person fee where there are more than one applicants. Tenants may also be charged for a right to rent immigration check

During tenancy a tenant can be charged amendment fees where amendment is required part way through the tenancy contract, tenancy renewal fees and check out fees.

These fees could add up to £600 and are at a time where most tenants need to shell out 10 weeks’ worth of rent (6 weeks of security deposit and 4 weeks of rent in advance). A two bed 550 sq. ft. greater London flat at £2,000 pcm could mean tenants shelling out up to £5,400 in total before they could even put their feet in the property.

Letting agency fees for things like ‘administration’ or ‘reference checks’ are illegal in Scotland since 2012. So renters in Scotland do not have to pay the charges renters in England and Wales pay.

Why are they unfair? believe that charging tenants for administration fees is unfair as letting agents are already charging Landlords on an average 10% of annual rent as fees. Obviously landlords are in business of renting to a make a profit and these fees are built into monthly rent paid by tenants. So tenants end up paying the fees both ways. At a time of housing crises where rents are up to 75% of income the lettings fees on tenants are painful.

These fees were hard to find till last year, however thanks to recent The Consumer Rights Act Section 83 which has made it a legal requirement for all lettings agents to display details of all fees and charges on websites and in offices from 27 May 2015. Breach of the above requirements by a letting agent can result in the agent being issued with a penalty charge notice. The financial penalty imposed cane up to £5,000 (CRA section 87(7)).

We have taken the opportunity offered by Section 83 to sniff around lettings fees of leading estate agents and here are highlights.

Foxtons –

Administration Fees is fixed cost of £420/- per tenancy, Tenancy renewals can cost £96/-, late payment letter would cost £35/-, end of tenancy inventory checkout with Foxtons would cost £165/-. (All charges include VAT).

Dexters –

Upfront fees for processing and registering holding deposit £180/, Tenant reference fees – £60/- per tenant, End of tenancy check-out fee £144/-, Tenancy renewals fee £144/-, Landlord reference fee £24/- (All charges include VAT)

Savills –

Set up fee for one tenant £235/-, Additional reference checks for more than one tenant £36/-, Check out fees £72/- to £582/- dependent on size of property, Renewal fees £120/-, Last minute cancellation of pre-arranged visits £120/-, Reinstating fixtures and fittings to original position prior to check-in £60/- per hour (All charges include VAT).

Hamptons –

Preliminary charge – £250/-, Referencing charge £60/- per person, Right to rent charge £25/- for anyone over 18 living in the property and not named as tenant, Inventory check cost £130/-, Renewal fees £150/-, Late payment fees £30/-

We dived deep into how much each of these activities actually costs the Letting agencies.

Administration – Administration on behalf of tenants involves potentially making few phone calls to tenants and arranging viewings. Lettings agents are paid handsomely by Landlords. These fees average 10% of annual rent and there is no rationale to charge tenants here. £2,000 pcm rent will mean your lettings agent makes £2,400/- in Landlord fees from a single transaction.

Registering holding deposit – Most common deposit protection service is offered free of charge. Read more about it here It takes few minutes to fill up forms to protect your deposit.

Drawing up tenancy agreement (tenants share) – Drawing up tenancy agreement does not cost anywhere near what is charged. There are many websites which offer FREE set up tenancy agreements. Check this website and you would be surprised how easy (and FREE) it is to draw up legally compliant tenancy agreement. We called up Residential Landlord Association, who offer tenancy agreement set up for £9.50.

Referencing & Right to Rent – We rang up number of agencies who offer tenant referencing services, tenant referencing starts from £8.00 + VAT per tenant for basic referencing going up to £28.00 + VAT for most comprehensive referencing. Here is one example of prices from what appears to be a very reputed tenant referencing service. In cases where a Landlord is unsure about tenants right to rent based on documents provided, there are services available costing £10.00 + VAT per tenant. So even the best of referencing would cost £38.00 + VAT which includes right to rent check backed by legal certificate.

Renewal Fees – The agents don’t even have to do any extra work the second time round- so what actually are they charging for? Your guess is as good as ours. As long as Landlord and tenant agree it’s matter of pressing a button and getting prints. FREE services which we mentioned to draw up tenancy agreements can be used for renewal as well.

Inventory checkout Fees – We have looked at number of providers, average inventory checkout cost is about £95 including VAT for furnished 2 bed properties. These are the prices for a one-off call this morning, imagine what the big lettings agents would be able to negotiate. See full prices offered by one of the provider. It’s very common for Check In fees to be paid by Landlord and Check Out fees paid by tenant or vice versa. Your tenancy agreement would have more details on who pays for Check In and Check Out.

So adding everything together it costs £150/- including check out fees for new tenancy agreement and around a tenner to draw up renewal tenancy agreement. Compare this to the fees Lettings agents are charging i.e. Foxtons £585/-, Dexters £444/- (for 2 tenants), Hamptons £525/- (for 2 tenants).

So leading lettings agents seem to charge 3 times the cost as Letting fees.

Why they are immoral?

Foxtons made a profit £41mm in 2015 and Savills made a profit of £121mm in 2015. Other letting agencies are not doing too badly either.

Landlords in England and Wales made average returns of 9.6% on buy-to-let properties in the year to the end of March, and 16.5% if they bought in London – better than almost any other major class of investment

Private tenants financial results are not as attractive. Tenants are paying up to 75% of their income in rents, borrow up to £1billion a year from parents to pay rents and lettings fees, Londoners have been forced into smaller and stranger accommodation, from bedroom sharing to living on boats to property guardianship. Forget 1-2 bedroom flats even rooms are unaffordable. The average weekly income on the London Living Wage is £292.69 after tax, says the research, while the average weekly room rent has risen by 6% in the past 12 months to £164.31 — or 56% of their net income.

Why they are not illegal and what can we do about this?

Even though these charges are unfair and immoral they are yet legal in England and Wales. Like Scotland, law needs to change to make them illegal or at least CAP them to a reasonable level. London Mayor during his campaign termed these charges as exorbitant. we are yet to see how these words turn into action.

A petition has now been signed by more than 250,000 people calling for the government to ‘make renting fair’ by scrapping the fees. Please sign and support this petition to reach its goal of 300,000 signatures.

Lib Dem peer Baroness Olly Grender who’s Renters’ Rights Bill is currently going through the House of Lords also supports banning Letting agency fees for tenants.

The legislation needs to change and reflect the reality of our society now – we are becoming not just a generation, but a nation of renters, and the system is stacked against us. Renting is the new normal but the market in England is broken. While scrapping unfair letting agency fees will not fix the rental market it is a step in the right direction and provides much needed relief to financially overstretched tenants.

Hope you found this blog informative, please keep rating your rental property on and help us together create TripAdvisor for tenants, two minutes you spend reviewing your rental property keeps us motivated to research and write about issues you face. Together we can make renting better.