Letting Options - Means of Managing Property
There are several options that landlords can consider for managing property, depending on the owner's own experience, skills, and time available on the management process. Each of the options given below has advantages and disadvantages, but careful consideration should be given to ascertain which option is best to meet any particular circumstances:
This option is for landlords who are confident that they know their responsibilities and what constitutes best practices in managing properties. This option saves the cost of an agent but can require considerable investment in time. Self-management may not be suitable for landlords who do not live close to their properties or away from home for significant periods.
If problems arise, self-managing landlords might require advice from a professional adviser such as a lawyer or accountant, which will come at a cost. Landlord associations are a good source of guidance and assistance and can provide much information that a self-managing landlord requires.
Self-managing landlords also have to promote their properties, which may entail paying a fee for advertising properties.
Use of Letting and Managing Agents
If help is required to manage the property, there are at least three options:
a) Letting only
This is where an agent markets the property, advises on rent levels, finds a tenant, undertakes reference checks (if required), provides a tenancy agreement and moves the tenant in. The agent charges the landlord a one-off fee, often equivalent to one month's rent.
Landlords using a letting agent need to agree if they wish to charge a deposit, what it is for, how much the deposit is to be and if the agent is to collect it. The landlord or agent must protect any deposit taken for an assured shorthold tenancy (AST) in one of the three Government-approved tenancy deposit protection (TDP) schemes. In addition, tenants must have received the prescribed information, including the relevant scheme's terms and conditions. which shows that the deposit is protected.
Once the tenancy has started, the letting agent's job is done, and the landlord then undertakes the ongoing management of the property.
b) Letting and Rent Collection
This is where the agent finds a tenant (as in a) above) but also collects the rent on behalf of the landlord during the tenancy. The landlord deals with other management functions such as repairs (and arranging to get possession of the property at the end of a tenancy if needed).
The agent is likely to charge a one-off letting fee and then a monthly fee (often a percentage of the rent - perhaps 5%) for collecting the rent. With this type of arrangement, it is essential to avoid confusion and ensure that the tenant is clear about who is responsible for which management areas.
c) Full Management
This is where the agent acts as a complete letting and managing agent—the agent deals with all management issues: letting and starting the tenancy, rent collection and repairs.
The managing agent will also take steps towards ending the tenancy. For example, they may serve notice but not take court action. This service is more expensive than the previous options (perhaps costing between 10-15% of the rent), but it is probably worthwhile if the property owner either does not have the time to manage the property or lacks the expertise. The owner must agree with the agent what type and cost of repairs they are authorised to carry out without seeking further authorisation and the division of repair responsibilities between the owner and the manager: making it clear who is supposed to do what.
The agent will usually agree to use the rent they collect to pay for repairs, but if repair costs exceed income, the agent is not a bank, and the owner will have to pay any shortfall.
The Relationship Between the Landlord and Agent
The term 'agency' is used in law to describe the relationship between the principal (in housing, this is the landlord) and the agent. The principal agrees that the agent should act on their behalf in legal relations with third parties (in housing, this is the tenant and any other party that the agent needs to manage a property, for example, workers undertaking repairs). The agent also agrees to act on the landlord's behalf. The agreement of the agent and principal may be set out explicitly in a document or may be inferred from the way they do business together.
Guaranteed Rent 'Agents'
In recent years there has been an increase in the availability of companies offering guaranteed rent to landlords, irrespective of whether the property is rented out or not. In many cases, these are not normal landlord-agent relationships. The landlord assigns (transfers) the property and all rights over the property, subject to the terms of the contract, to a company or individual who pays an agreed fee for the duration of the agreement. Any tenant renting the property is the company's tenant, not the 'landlord,' who becomes the superior landlord. There is usually no legal relationship between the original landlord and any tenant. Because of the variety of schemes, it is imperative that landlords carefully read the contract with the 'agent' - the landlord may need expert advice. In this section, we have used the word 'agent' in inverted commas as in law, the 'agent' is not an agent, as they are working for their benefit and not the landlord's benefit.
The Liability of the Landlord Where an Agent Is Used
Where an agent is used, actions carried out by the agent on the landlord's behalf are generally treated in law as if the landlord had done them. Landlords are bound by any agreement or contract made by their agent on their behalf with a third party (i.e. a tenant), providing the agent acts within the authority given.
If the agent agrees to something the landlord has not authorised, the agent will be liable for any losses to the landlord and tenant. The agent's action may not bind the landlord, and the tenant might seek compensation from the agent.
Suppose the agent is acting as the managing agent for the property and fails to carry out a statutory duty, such as ensuring that an annual gas safety inspection is carried out. In that case, the landlord may be held liable for the failure. The terms of business should clearly define such responsibilities between landlord and agent.
A landlord will also be ultimately liable to the tenant for the return of the deposit, whether the deposit is protected using a Government scheme or not.
Because of this, landlords should be cautious when choosing an agent, making sure they choose one who will carry out their responsibilities properly. The landlord should also be very clear when giving agents any special instructions (such as 'no pets') to ensure that these are put in writing. Landlords should consider whether an agent's standard Terms of Business protect their interests and the agent's and should consider any clauses that exclude or limit an agent's liability for negligence.
The Liability of the Agent in Agency Agreements
If the agent has acted correctly per the agreement with the landlord, an agent will not be liable for a contract entered into on behalf of his landlord.
Suppose the agent has acted contrary to instructions (for example, allowing pets where the landlord specifically said 'no pets'). In that case, the agent will likely be liable for any losses which may flow from this. Liability may depend, amongst other things, on the precise instructions from the landlord and subsequent correspondence or conversations. The agent is presumed to be authorised to do something that agents ordinarily do unless the landlord instructs the agent otherwise.
Agents and Possession Notices
Agents can validly serve possession and other notices on behalf of their landlords. [See Chapter 5 for more detail on possession notices.] Also, a notice of intention to seek possession served on a tenant by a landlord's agent will generally be considered validly served if service by the agent is stipulated in the tenancy agreement.
Agents and Court Claims
Although agents can deal with the notice element of recovering possession, agents are not legally entitled to initiate legal proceedings on behalf of landlords [see Chapter 5]. Only claimants or their solicitors can sign the statement of truth on the court forms. The fact that a letting agent signs a claim form for possession is a common reason for rejecting possession claims by the County Court.
Frequently, agents will offer landlords the opportunity to take out legal expenses insurance. Suppose a decision is made not to buy this or this option is not provided. In that case, it is generally best for the landlord to deal with any court proceedings that may arise, instructing solicitors directly, if needed. Although the agent may assist by recommending and liaising with suitable solicitors, and even if much of the work related to any claim is delegated to the agent, it is prudent, as the landlord, to keep involved and remain aware of what is happening.
Defining Responsibilities in the Contract
When a landlord agrees with an agent, the agent should draw up a written contract indicating the agent's level of service and the agent's agreed fees. It is essential to read the whole agreement and discuss any unclear points or where there is disagreement before signing, so it can be varied, or the landlord can seek an alternative agent. The contract should also state how it can be terminated and why, including what happens if the landlord wants to take over the property management.
As in many businesses, a small proportion of agents can go out of business owing both the landlord and tenant money. As the agent may be acting in the landlord's name, it is essential to know that the agent is reliable and experienced. Investigate the agent: it is worth trying to get a personal recommendation (the local landlord association may be helpful here). Check how long the agent has been in business, how many premises they manage, what training their staff have received, and whether they are a member of a professional or trade organisation such as:
- Private Rented Sector Professionals (PRSP)
- The Association of Residential Letting Agents (ARLA)
- UK Association of Letting Agents (UKALA)
- The National Association of Estate Agents (NAEA)
- Royal Institute of Chartered Surveyors (RICS)
The local college, university, or students' union may also run a letting or management service for student lets.
Fees and costs for services will vary, and the cheapest is not always best if the agent is not an expert in good management practice and housing law. If the agent does not do the job well, this will reflect on the landlord, and it can have potentially serious implications.
It is also essential to choose an agent who is familiar with the type of property (and that section of the market) that is being let or managed, so take a look at the other properties the agent has on their books. The landlord could press a friend into service to contact them and inquire about renting a property from them to see how the agent treats a potential tenant.
Client Money Protection
A letting or managing agent who holds client money must join a client money protection scheme since 1 April 2019.
You should check with your agent that they do indeed have client money protection.
For more information and a list of approved schemes, see the government guidance: Protecting clients' money if you're a property agent.
All letting and managing agents in England must be a member of a redress scheme. There are currently two schemes available for agents to join:
Property Redress Scheme - http://www.theprs.co.uk/
The Property Ombudsman - http://www.tpos.co.uk/index.htm
The schemes offer a complaints procedure for both landlord clients and tenants about the behaviour of their member agencies. The schemes have powers to order the agent to rectify any wrongdoing, pay compensation or make apologies (among other powers).
A failure to join a scheme is an offence and liable to a fine of up to £5,000.
All letting and managing agents must display their fees at each agent's premises, where the agent deals face-to-face with landlords or tenants. The list must be in a position where it's likely to be seen.
The agent must also display the list of fees on any website if the agent has one and on third party websites where the agent or commercial landlord advertises properties or services.
The list must describe each fee so that the service and cost can be easily understood and must include all the fees, charges or penalties (however expressed) payable to the agent by a landlord or tenant.
Where the agent holds money on behalf of clients, such as a managing agent who collects rent on behalf of landlords, the list of fees must also include a statement that the agent is a member of a client money protection scheme and to give the name of the scheme.
If the agent is required to be a member of a redress scheme, the list of fees must also indicate that the agent is a member of such a scheme and the scheme's name.
The Consumer Rights Act 2015 requires all property letting and managing agents to display their fees both on their website and prominently in their offices. This template contains three pages of sample text that might be used to display the fees