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Letting Agent’s Renewal Fees

August 23, 2007 on 4:07 pm | In Landlord & Tenant |

Rookie Landlords are often caught out by a short clause in their Letting Agent’s terms and conditions. It will look something like this:

“A fee of x % plus VAT will be charged for a tenancy renewal/extension for a second year or further period”

The fee is normally between 60% and 100% of that charged for the original let. The clause is usually tucked away on the last page of the document and many first time Landlords only become aware of it when they receive an invoice from their letting agent following a renewal. Their reaction is normally disbelief that an agent could charge such a large amount for what they see as re-typing a Tenancy Agreement.

Renewal fees are a long standing convention in the industry. Was the Government to pass a new law today making them illegal I suspect that we would see an immediate increase in the initial commission rate charged of between 20% and 30% as without renewal fees agents would need to take all of the commission upfront rather than on a pro-rata basis. The losers in such an arrangement would be those unlucky Landlords whose tenants only stay for one year and then move on.

Ruses pulled by Landlords to avoid the renewal fee include arranging for the tenant to move out for a single day, claiming to have sold the property to another family member or the most common; arranging the renewal directly with the tenant and then writing to the agent informing them that they no longer require their services. None of these tactics work.

I’ve seen Landlords ask excellent tenants to leave rather than pay the agent’s renewal fee and it is a classic example of false economics. The Landlord ends up paying a higher fee for what will probably be a less reliable tenant. Landlords can ease the pain of the renewal fee by addressing it at the start of their agreement with that agent.

Agents will be far more amenable to negotiate when they are not already holding your signed agreement to the fee. Getting the fee waived is perhaps too much to expect but you should certainly aim for a 50% reduction on the initial fee. I would estimate the less than 50% of tenants stay past their initial term agents will not want to jeopordise a let by playing hardball over a renewal fee that may never materialise.

Furthermore when the time comes to renew the tenancy make your agent work for their fee. You are quite entitled to ask for an increase in rent after 12 months and your agent should negotiate this on your behalf. An increase of 3% is normally acceptable to tenants that don�t want the hassle of moving and would offset a large chunk of the renewal fee. If the property is looking dirty ask the agent to make a major clean-up a condition of the renewal and get them to check that it has been done.

Finally, while renegotiating the renewal fee you may also want to take a look at the other clause in the agreement that is often overlooked by Landlords; the sale clause:

“Should a sale be effected with the same tenant or an associated party, a sale commission fee calculated at 1.5% of the purchase price, plus VAT, will become payable at the time that the sale is completed”.

After all, if you were instructing an agent just to sell the property you would try and keep the commission to a minimum. The type of property that a previous tenant looks for when they decide to buy is often similar to the last place that they rented so it is not that unusual for them to buy their last rental property.

Written by Justin Burns MRICS, owner of a busy North London Lettings Agents and a practising Chartered Surveyor.

This article has been supplied to LandlordZONE by Caroline Wheeler at
www.mypropertyguide.co.uk

8 Comments »

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Hi Justin,
This is precisely the problem i am having right now with an agent who is demanding a renewal fee for absolutely no work done.

It was absolutely not explained to us that we’d have to pay a renewals fee if we kept the tenant on regardless.

We feel we have been mislead and that somehow the problem needs to be corrected. We were dealing with an agent for the first time.

Is there anything that can be done?

Comment by Anonymous — 29/8/2007 #
If you have signed the agent’s terms and conditions there is nothing that you can do at this stage. The post was trying to bring the clause to the attention of Landlords so that they have the opportunity to try and negotiate the renewal fee down prior to signing up.

Try and look on the bright side; at least the tenants that the agent found for you are staying on, so you won’t have to pay a new let fee (which would probably have been higher) for another year.

Comment by Justin Burns — 5/9/2007 #
Having read a number of posts on this and other websites, I concluded it was safe and legal to inform my letting agent I no longer required their services (after renewing for 2 years already and the agent doing virtually nothing). The letting agreement had no date on it, or anything about cancelling it and I was advised it was unenforceable. In the event the agent did not persue it- perhaps because one year they had even forgotten to renew the contract until I reminded them and even then the tenant never signed! I am still with the same tenant and no problem at all renewing leases myself. I feel the above article falls rather heavily on the side of the letting agent- do more research before giving in!

Comment by Lawrence — 22/10/2007 #
We are having the same problem with renewal fees even though the letting agent at time of finding the tenant verbally told us he would waive this fee in the 2nd year - we are being threatened with small claims court as we have refused to pay it - the agent has not even made contact with the tenant to see if he wishes to remain, has not asked for a rental increase and has not even produced a renewed contract. The original contract after the first year transpired last July. We are due to go to court in a months time - any advise would be apreciated. Thanks

Comment by Bradley Read — 5/3/2008 #
The landlord should always read and sign the agreements. If you are not bothered reading it in the first place then why moan now?

Comment by alex — 26/4/2008 #
Surely the issue is not whether or not the agent has done any work at the time of the renewal, but at the intial introduction of the tenant.

The agent collects a percentage of monies earned by the landlord, if the landlords earns more money from a deal, albeit after the fact, then the agent should be paid accordingly.

and yes I am an agent

Comment by b — 20/5/2008 #
Agree with b (20-5). The agent finds a tenant for a year. The Landlord pays the agent for finding a tenant for that year. The tenant stays on for a further year - hey presto, the agent should be paid a percentage for that further period. Most agents would reduce the renewal by around 50% if asked anyway. Agents who manage properties do not reduce their fees for a second or third year, so why do Landlords only complain when it is Let Only service renewal fee? A good agent would however offer betterment to the Landlord (increase rent, contact tenants and Landlord after 6 mths, then 10 months etc etc) and merit the fee.

Comment by E_ — 22/5/2008 #
If you have a tenant who wants to remain in the rental accomodation for 1-2 years more and your agreement with your agent is rent collection only,on what basis would you have grounds to come out of your arrangement and deal directly with your tenant. My agent is charging me the equivalent of almost a year’s commission to opt out of the agreement. I accept that they found the tenant in the first instance but they have reaped the benefit of a year’s commission from this for doing virtually nothing else. The contract terminates in August.

Comment by julie — 1/7/2008 #

See news story archives older than August 2007 here

Letting Agent’s Renewal Fees

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