The rental market, contrary to parts of the purchase market, has performed strongly over the last year, with more people than ever seeking to rent a property. Rent prices are on the up therefore and many property owners are looking to profit from tenancy agreements. We outline ten things you should be aware of before letting your property, with or without an agent.
1. Which type of agreement should I be considering?
There are four common types of letting agreement. These are Periodic Tenancy, Tenancy at Will, Licence to Occupy and a Commercial or Residential Lease.
A full breakdown of these agreements and when they might be suitable can be found at this link.
2. Should I use a letting Agent?
Some Estate Agents will handle your landlord duties for you, allowing you to sign away the responsibility of managing the property and the tenants, whilst still accruing most of the rent. Two services are typically offered, a ‘let only’ service where the Agent will find a tenant and vet them for you, but leave you to handle the rest, and a ‘Full Management Service’ where the Agent will handle all aspects from certificates for electricity, gas etc. to legal insurance.
The full management service can be extremely useful, particularly, but not exclusively, for first-time-buyers. It allows you to familiarise yourself with the process, without the responsibility of wading through difficult legal documents, arranging inspections and collecting the rent, amongst other things.
3. What should I be wary of?
The letting industry is not regulated in the same way as, for example, surveyors. To become a Chartered Surveyor, candidates must pass a vigorous regime of competence testing. Letting agents do not and, although some are regulated by groups such as the Association of Residential Letting Agents (ARLA), some letting agents actually have no relevant qualifications and thus no assurance of a professional service and a route to redress should things go wrong.
4. What will the Agent do with my money?
Generally speaking, a letting agent should handle the rent money responsibly, in a client account. That said, as the industry isn’t formally regulated, there is no assurance of this in many firms. Some agents might end up putting it into the firm’s general bank account along with their own funds, using it towards their own expenses. Unfortunately, the Estate Agents Act 1979 only specifies the proper handling of client deposits.
It is extremely important therefore to choose an agent that is voluntarily regulated by a body like the ARLA mentioned above or by the ‘Safe Agent’ scheme.
5. What is ‘Safe Agent’?
Any firm with the mark ‘SAFE’ has been granted that term as recognition that they are a ‘Safe Agent Full Endorsed’ company. This means that they are voluntarily regulated by a group like the RICS, ARLA or NALS (National Approved Letting Scheme) and are required to use a client bank account where your money is held separate from the company’s operating funds.
6. Is it worth referencing a potential tenant thoroughly?
This is the reason many potential landlords go to an agent, who have the expertise and personnel to find and properly vet potential tenants. When it comes to evicting a tenant at the end of the agreement, having found a good one in the first place can avoid unnecessary trouble.
Even going to an agent, however, is no assurance that referencing has been carried out thoroughly. In some cases, landlords do not see any details about their tenants until they are already installed into the property and requests for information are rebuffed by the agent citing the Data Protection Act.
7. What is the real legal position with referencing?
This effectively comes down to what is written in the contractual agreement between the Landlord and the Agent. Officially, the agent can pass on references to the landlord as long as, when the reference is asked for, they make clear to the tenant and the referee that this will happen.
If there is nothing written in the agreement, agents may decline to offer the references citing the Data Protection Act. It is therefore important that you make sure access to references is explicitly granted in the contractual agreement. Doing so is the only way to check that the agent actually has carried out a full and responsible referencing process.
8. How much might a ‘Full Management Service’ cost?
Fees vary on the letting agent. Some charge a fee based on a multiple of the weekly rate, commonly two weeks + VAT. More common is a fee based on a percentage of the rent due over the contract period. This is frequently around 10% + VAT and is deducted from the rent as it comes in. Increasingly, agents are charging a fixed fee which can amount to less than the options above, particularly for high rent value properties.
9. Who handles repairs to the property?
Using a letting agent generally means that they will handle carrying out any repairs necessary, and deduct the cost from your rent. It is worth bearing in mind that the agents could have cosy arrangements with local traders and you could end up being charged over the odds. If serious repairs are necessary, and you suspect foul play, it can be worth while to gain an idea of what they should be costing from an experienced professional (local Chartered Surveyors may be able to help with this and can be found at this link).
10. Should I use a letting agent?
A detailed analysis of the costs would indicate that it is considerably cheaper, on average, to manage letting your property yourself. Even things like advertising can be done at a fairly low cost.
That said, for people with busy lives, managing a property can be quite time consuming. Most particularly it means being on call day and night to attend the property and address leaks and other minor issues, which can be extremely inconvenient. It also means conducting viewings, although having perhaps lived in the property can give you the edge when it comes to convincing prospective buyers.
First-timers with little property experience will find managing a property themselves fairly overwhelming. Instructing an agent will enable the landlord to ‘learn the ropes’ without the responsibilities of getting things done.
Letting Agents’ management services can therefore be extremely useful. Landlords should be careful, however, to instruct only a reputable letting agent regulated by a major body to ensure that their interests are handled carefully and responsibly in line with the ‘duty of good faith’ outlined in Agency Law.
Find out about the decline of homeownership in Britain in this month’s newsletter article here.