Communities and Local Government CommitteeWritten evidence submitted by the Letting Training Centre
We work primarily in the Private Rented Sector and provide the following services:
Advice Line Support on all matters relating to the Private Rented Sector predominantly landlord & Tenant issues. All clients using this service are letting agents and managing agents.
Training on specific topic areas relating to letting of property, management of rented property, dealing with breaches, inventories, dispute resolution, advanced property management, block management.
We provide publications and legal stationery.
The Guild of Letting & management is an accredited BTEC centre and we offer 3 levels of BTEC all related to residential letting & Management.
The submission draws its evidence from the information we have obtained through the advice line and through training courses.
1. The Letting Agent and Property Managers
The clients that come to us for training are doing so voluntarily. The letting agent does NOT have to trained or qualified, so the client base we have is very much wishing to differentiate themselves from their competitors. They want to be professional & the majority feel there is a need to raise standards.
The role is diverse and they are bound contractually to ensure that they fulfil their duty to the landlord. The role ranges from administrative to dealing with in-depth legal issues—this is not as simple as the consumer or even some agents new to the industry realise.
One asks why a consumer would put their largest investment in the hands of an unregulated, unqualified person.
2. Service Provision
The level of service provided by the agent very much depends on the contract.
The services offered are as follows:
(a)
(b)
(c)
Fees
The fee structure depends on the service provided and the terms of the contract but more importantly the Geographical Location of the agent.
The agents we deal with are based in England & Wales.
The rents our clients deal with range from £300.00 per calendar month (Gateshead) to £5,000.00 per week (Mayfair).
The fees are structured as follows:
Tenant Find Only—Average fee 8% of the rent for the whole of fixed term (Paid by the landlord once the tenant has been secured)
Rent Collection—Average fee 10% of the monthly rent (Paid by the landlord on a monthly basis)
Fully Managed—Average fee 12% of the monthly rent ((Paid by the landlord on a monthly basis)
I have a Starbucks comparison—the rent = £600.00 per calendar month.
If the commission = 10% for full managed, therefore the fee paid to the agent on a monthly basis is £60.00 (£2.00 per day).
The competition is fierce on the high street and there are agents who are offering fully managed at 5%. This is NOT sustainable if the agent is professional, invests in training, joins a professional body, joins the Property Ombudsman Service, has insurance etc.
There are other fees which are charged. I have collated 5 pages of fees which are charged by agents across England & Wales or not as the case may be.
FEES COLLATED
|
Letting only |
10% (minimum fee £450) |
|
Letting and rent collection |
12.5% (monthly min fee based on rent of £450) |
|
Management service (dealing with all property related issues—tax deductible) |
15% (monthly min fee based on rent of £450) |
|
Landlord cancellation (after tenant found and referenced but before start of tenancy) |
Withdrawal fee of £300 |
|
Rent/legal protection |
admin fee |
|
Tenancy Agreement (fixed term) |
Landlord fee £50 £100 |
|
Extension Agreement (renewal of fixed term) |
Landlord fee £30 -£50 |
|
Original inventory |
From £30–£150 |
|
Inventory updates (amendments to original) |
From £30–£80 |
|
Rent appraisal (valuation for buy to let & investment landlords) |
£50–£100 (refundable if let through your company) |
|
Tax Service (statements and assistance) |
Annual rental statements £10–£50 |
|
NRL tax service (Non—resident landlords) |
£20 per quarter or £15 per quarter if an approved NRL |
|
Check In |
Landlord or tenant fee £30–£60 |
|
Check out |
Landlord or tenant fee £30–£60 |
|
Additional property visit |
£30–£45 per visit |
|
Empty Property Care (weekly visits, general property maintenance and report) |
£20–£40 per visit (dependent on distance) min float of £100 |
|
Court attendance |
£125 per day |
|
Landlord selling to tenant |
1–2% of property value |
|
Change of ownership (original Landlord continues to pay commission until expiry or one year from sale date) |
Commission up to 10% |
|
Tenancy Deposit Protection |
To charge or not to charge |
|
Tenant Admin fees |
£50–£80 per let |
|
Tenant referencing fees |
£30–£50 per person |
|
Providing references to other agents |
Min of £20 |
|
Tenant breaches (written) |
£20–£35 per letter |
|
Returned cheques |
£20–£35 per bounced cheque |
|
Non cancellation of rent standing orders (after expiry of tenancy) |
£20 per return of overpayment |
|
Tenant mortgage referral (to a broker) |
To be agreed with broker |
|
Estate agent referral |
20% of estate agents selling fee |
|
Advertising |
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For let boards |
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Market Appraisals |
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Viewing |
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Tenant Deposit Protection |
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Using office transport |
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Other free services |
The key fact here is that the agent is not paid until a tenant is found and a common scenario is that the agent does the work he has been contracted to do and the landlord then changes his mind.
Effectively the agent is starting off on a minus figure and carrying out different services even before he has been paid. Depending on where the agent is located, the agent spends approximately £450.00 per property before having found a tenant or received any monies from the landlord. (Please note this fee is higher in London).
It is also important to be aware that the agent who if the tenant does not pay rent and the service offered is fully managed, the agent will not be paid his fee. (The fee is deducted from the rent and the balance passed to the landlord.)
3. The Landlord
The landlords our clients deal with are generally quite professional and have employed an agent because they cannot deal with the responsibility and everything involved in managing a rental property.
The biggest issue the agent faces is the landlord who does not want to maintain or repair the property, the landlord who cannot afford to maintain or repair the property, the landlord that has been repossessed by the mortgage lender (Our figures show this increased in 2012), the landlord that does not understand the legal system and therefore wishes to unlawfully evict if the tenant is in breach.
We are told of unscrupulous landlords, but the agents we deal with do not want to deal with landlords who will cause problems for them and the tenant.
We were working with Gateshead Private Landlords who have a licensing scheme in place—their system has worked effectively for five years and it was interesting to watch a local authority work in partnership with landlords. They were provided with support and training and penalties were imposed if the landlord was not compliant.
The Select Committee should investigate the good work that has been carried out by Gateshead Local Authority.
4. The Tenant
The demand for rented property has increased. Apart from London where the market appears to be quite fluid, our clients are finding that the minute stock becomes available it is snapped up. Tenants are staying out longer, on average 18 months to 24 months which is very unusual. This is due to increasing costs not only removal costs.
Rents have increased—our figures show that rents began increasing in 2011 and have continued to do so throughout 2012. Landlords request increases of approximately £25.00 per calendar month; however, this figure is a lot higher in London.
The biggest issue faced by tenants (and this may be due to changes in circumstance) is that they are unable to pay rent (some unwilling to pay rent).
The agent is therefore faced with an increasing rent arrears list.
Whilst the agent understands the processes involved, often the landlord does not.
The agent communicates this to the landlord who does not understand that if a tenant is in arrears and notices have been served, the next option is to go through the courts. The most common question on our advice line relates to this matter.
The tenant seeks guidance and support from the local authority or the Citizens Advice Bureau and is advised that even if they are in arrears, they can only be re-housed if they are vulnerable. If they leave the property of their own free will they tenant will not be rehoused, so they are told to sit tight and wait to be evicted.
This is the most common scenario that we deal with on a daily basis throughout England and Wales.
This leaves the landlord frustrated and out of pocket. This situation provides challenges for everyone concerned.
The worst scenario we have witnessed is relates to a landlord who used an unqualified, inexperienced agent. The tenants moved into a property where the rent was £3,500 per calendar month. The tenant paid one month’s rent in advance plus the equivalent of one month’s rent as a deposit. In month two of the tenancy the tenant did not pay the rent and so on. Ten months later the tenants were evicted owing £35,000; they were known for committing benefit fraud, they were known to Border Control, yet the landlord’s property was repossessed and the tenants were not prosecuted by any of the authorities involved. The tenants understood the system and played the system.
The example above is an exception in terms of the monies involved, yet the circumstances described are very common.
5. Housing Benefit
A small percentage of our clients work with landlords who are willing to take tenants who are in receipt of housing benefit.
Many agents will not because their client landlord does not wish to deal with tenants on housing benefit, more so because of the restructuring of benefits.
Many landlords are restricted by the mortgage lender who will not allow the landlord to let to tenants who are in receipt of housing benefit.
Many of the issues we come across relate to the benefits being paid direct to a tenant who does not pay the agent/landlord, the tenant who commits fraud, the tenant whose payments have been suspended as the claim is being reassessed.
6. The Industry
The Private Rented Sector is a growth industry. It is vibrant, challenging not at all as one thinks about property, it is a people industry and there is a consensus amongst our clients that some sort of regulation is required. However, these are agents who pay for training, who are members of professional organisations, who have insurance, who are members of the Ombudsman.
There are a large number of agents who do not adhere to codes of practice, who appear on the high street and who disappear within a year of opening having taken all the client monies. This is very common and of 17 cases of Misappropriation of Funds that I am aware of only 3 were prosecuted and sentenced. No one knows what the other 14 are doing.
Statute for the landlord is in place—we deal with approximately 300 different pieces of Statute and regulations.
Apart from consumer law, contract law, the Accommodation Agencies Act 1953, there is very little which is directly related to the letting agent and property manager. The Consumers, Estate Agents and Redress Act 2007 would have been an excellent platform to work with but this only relates to estate agents.
January 2013