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Landlords hit with hidden fees and commissions


02-08-2014

 

Estate agents are taking a huge cut for arranging work through contractors and are not disclosing it to landlords

Property Club - lettings agents
Agents are adding markups to third party bills and demanding a cut from contractors for the work they do. Photo: Alamy

Landlords are being stung with hidden charges and inflated costs by estate agents that arrange property servicing and maintenance work through contractors, according to industry insiders.

Buy-to-let investors who use an estate agent to manage their properties typically pay a monthly fee of around 15pc of their rental income. This buys a service which includes finding tenants, drawing up rental agreements and maintaining the property.

However on top of this charge, estate agents are adding markups of up to 20pc to contractors’ bills to boost their profits, plus demanding a cut of up to 60pc from contractors for the work they do. These charges are not clearly disclosed to landlords, who ultimately foot the bill.

The Happy Tenant Company, a property management service, said agents routinely add a markup to contractors’ bills before invoicing landlords. A recent mystery shopping exercise revealed estate agents were charging landlords six times the cost price for basic services such as gas safety checks, tenant referencing and deposit protection.

Jonathan Monjack, a lawyer and chief executive of The Happy Tenant Company, said the more serious problem is that agents also take a “secret commission” from the contractor.

He said some agents are more focused on finding contractors that will agree to high commissions – up to 60pc in some cases – in exchange for large volumes of work, than finding quality tradespeople for landlords.

“We have seen cases where a contractor provided a service for £100 and the agent billed the landlord for £120 and took a 60pc cut from the contractor. Essentially the agent received £80 for arranging a job that cost £100. This type of practice drives up contractors’ prices, and landlords are forced to foot the bill.”

Will Davies, who heads property maintenance and refurbishment company aspect.co.uk, said the practice is standard across the industry but said some agents are especially aggressive when demanding commissions for maintenance work they booked on behalf of landlords.

“We stopped working with one very well-known lettings agency when they wanted to increase their commission from 15pc to 20pc,” Mr Davies said.

“Landlords pay their monthly fee and they expect their agent to find contractors with their best interests in mind. In reality agents are not concerned about quality, they will sign up the contractor who will pay the best commission.”

Mr Monjack said the fact that agents do not notify landlords that they are taking these commissions is “questionably fraudulent”. He said agents should have a duty to act in the best interest of landlords. Featherstone Leigh, an estate agent in south-west London, is one of the agents that have spoken out against hidden commissions.

Joanna Hamilton, a director at the firm, said it is time that the payments – which have historically been seen as a “nice little earner” for the industry – are wiped out.

The Trading Standards Institute said it is aware of the allegations, but it has not seen any “hard, written evidence” that commissions are passing from contractors to agents. A spokesman said the institute is not aware of any convictions or prosecutions within trading standards.

However, it urged landlords to complain to The Property Ombudsman if they think their estate agent is taking kickbacks.

Estate agents are not regulated but the Government is looking at introducing compulsory regulation. Until then, look for an agent that is a member of a professional body such as the National Approved Letting Scheme, Residential Landlords Association, UK Association of Letting Agents or the Royal Institution of Chartered Surveyors.

These bodies operate a code of conduct that requires members to meet customer service standards, but be aware that membership does not guarantee agents do not add additional charges or take commissions from contractors.

Before employing an agent, ask for a full list of fees and a detailed explanation of what these cover. Also ask whether the agent takes any fees or commissions from contractors. It is worth requesting that the agent includes a line in its contract guaranteeing it will disclose all charges and commissions.

Ask to see original invoices from contractors after any work is done. Make sure there is a breakdown of the total cost. The typical price of standard maintenance work such as gas safety checks is readily available online for comparison. Alternatively call a local trade company if you want to check a price.

If you have a local tradesperson that you trust, insist the agent uses them for any work that’s required. They are less likely to be pressured into commission agreements than contractors who carry out regular work for an agent.

If you think you’ve been overcharged, complain to your agent and ask to see an explanation of all costs. If you are not satisfied with the response, refer your complaint to The Property Ombudsman. The ombudsman provides a free and independent dispute resolution service – but the agent has to be a signatory to the scheme. Christopher Hamer, the ombudsman, can award financial compensation.

Mr Hamer said: “While there’s nothing illegal about a letting agent receiving a commission or referral fee for arranging contractor work at a property, you have to ask if it is fair for an agent to charge the landlord a premium on top of the actual cost for contractor work when the landlord is already paying a management fee to the agent.

“TPO’s Lettings Code of Practice clearly states that there must be complete transparency when it comes to fees so we would advise landlords to always ask agents to provide a full breakdown of contractor costs, including any commission arrangement.

“If an agent wants to charge a commission or referral fee to the contractor for introducing the work, this kind of practice is not illegal and quite common in other sectors but the financial arrangement must be disclosed to the landlord so they are fully informed about any financial gain the agent will make.”

Tell us your story: nicole.blackmore@telegraph.co.uk

Typical fees

Landlords face a range of charges depending on the type of property they own, the type of tenancy and whether they employ the services of a letting agent.

The following list gives an indication of typical landlord costs, according to the National Landlords Association (NLA). These are based on a £175,000 property, with a monthly rental income of £750, or £9,000 a year.

The NLA said landlords should budget 10pc of their rental income for maintenance on top of these charges.

Letting agent fees fall into two categories. There is a “let-only service”, where the agent finds and vets a tenant, which usually costs 10pc, or £900. Full management – where the tenants calls the agent if there is a problem – comes with a 15pc annual fee or £1,350.

Other costs include credit checking, £20; referencing, up to £150; deposit protection, £24; Gas Safety Certificate, £50; landlord insurance, £200 (per year).

Some agents charge a renewal fee when an existing tenant renews their contract, so it’s worth trying to negotiate a lower fee for long-term tenants

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