Landlords who employ a property management agent could be held liable for thousands of pounds of unexpected costs due to small print in the contract.
An investigation by The Telegraph has uncovered terms and conditions in a large number of contracts that, if enforced, could eat into their returns.
Although agents argue that the terms in question exist to cover the business and are rarely imposed in practice, landlords should ensure they understand all of the fine print provided by management firms.
Here are just a few of the clauses.
Change of ownership
This clause, seen in many different firms’ contracts, gives the letting agent the right to continue charging full tenancy fees for years after the landlord has sold the property.
The clause states that if a property is sold with a tenant in place, the original owner must continue paying fees for as long as the tenant lives there. This applies even after the original tenancy term has ended, should the tenant renew or extend with the new owner.
If enforced, the original landlord could be liable to pay fees for many years, even despite having broken all other ties with the property and tenant.
Jeremy Raj, a partner in residential property at law firm Wedlake Bell, said the clause could be difficult to enforce, and should be challenged.
“You can’t normally bind someone in a contract that doesn't concern them at all,” he said.
Selling to a tenant
This common term allows the management firm to take a percentage of the sale price if the landlord sells the property to a tenant that was originally sourced and secured by the agent. It applies even if the agent had no involvement whatsoever in the sale.
Agents argue that finding the tenant indicates an entitlement to a fee, regardless of whether their firm was involved in the sale negotiations. The fee is typically set at between 1pc and 2pc plus VAT.
Based on the average UK house price of £254,000, as recorded by the Office for National Statistics in January, a 2pc fee could typically amount to £5,080 plus VAT.
Some companies offer to rent, under the company’s name, from the landlord at a discount. The agent then sub-lets the property to a tenant at a higher price.
This might prove an attractive option to a landlord who does not want any involvement in, or to make any decisions on, the management of the property.
But Sally Lawson, chief executive of Concentric Lettings, who also represents the Association of Residential Letting Agents, said landlords must be aware that even in these situations they are ultimately responsible for some aspects of the “end” tenancy agreed between the agent and the actual resident.
“Giving up all control over who is in the property and the contract with the end tenant could cause problems down the line,” she said.
Mr Raj agreed, adding landlords should always maintain a direct link to, and some control over, their end tenant.
Ms Lawson said some types of sub-let agreements could also breach landlords’ contracts with their mortgage or insurance companies.
“Many mortgage lenders do not allow owners to sub-let because they need to know who is living in the property in case of repossession,” she said. “Some insurance companies also don’t allow sub-letting because they restrict some types of tenants such as students or DSS tenants.”
Estate agents have faced strong criticism for failing to disclose all fees and charges.
In February The Daily Telegraph detailed the hidden charges and inflated costs levied by estate agents which arrange property servicing and maintenance work through contractors.
On top of the usual management charge, estate agents are adding mark-ups of up to 20pc to contractors’ bills to boost their profits, plus demanding a cut of up to 60pc from contractors for work on the building. These charges are not clearly disclosed to landlords.
Adam Long is a landlord who owns a number of buy-to-let properties in the North West. He became so disillusioned with high fees and complex terms and conditions that he set up his own lettings company, Propeller.
“Last year I received a bill from my letting agent for £260 to replace a toilet seat. Just for clarity I mean only the bit you sit directly on, not the whole thing. I went to see the tenant who was irate as it had taken the lettings company nine months to achieve. The industry is in serious need of a shake-up.”
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