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What to look out for in the small print of letting agent contracts

contract with small print and a magnifying glass to symbolise why it's important to study contracts with letting agents

I receive more emails and messages about what landlords should to do about unfair terms and fees in agreements with letting agents than any other topic.

Landlords have typically signed a standard contract with a letting agent, without reading it thoroughly, or understanding the implications of the terms or what is included in the basic free. They trust the agent, think it’s all standard. However, they may be shocked at being charged for all the extras. And if they want to exit the agreement in the future, discover they are tied in by high exit fees, continuing renewal fees or even a prohibition on terminating for so long as the current tenants stay in the property.

Landlords must understand what services they are agreeing to buy from the agent, and how they will be charged. This means reading the list of fees and the agreement, before signing.

Agents don’t always include their standard terms of business on their websites, as it’s only a legal requirement to set out their fees. When I’ve used agents in the past, they’ve sent the terms at the last minute asking me to sign them electronically straight away. As I’m a lawyer, I read everything before signing, and refused to be hurried. This meant I was able to spot a few unfair terms and managed to successfully change the terms of the agreements.

It is worth mentioning that The Property Ombudsman Code of Practice states: “The landlord must be given sufficient time to read your Terms of Business before agreeing to instruct you”. Landlords should remind agents of this, especially if the agent is a member of The Property Ombudsman or Propertymark, whose members must follow this Code of Practice.

I would welcome it becoming standard practice for letting agents to put their terms of business on their websites.

Although it’s true that all landlords must read the agency agreements thoroughly, it’s even more important for landlords who use a limited company as they don’t benefit from consumer protection legislation.

It’s far easier to negotiate terms up front, before signing, when the agent is competing with other agents for the business. Also, agreements vary so much that landlords should not be lulled into thinking the fees and the methods of charging are all “standard”.

However, not everyone is a lawyer, and it can be difficult to know what to look out for in contracts with letting agents if you don’t know what the common problem areas are.

So, in this blog post I use my experience as a lawyer (and a landlord) to flag what landlords should look for in letting agent contracts before clicking “accept” on the electronic agreement. Then landlords will know whether to negotiate the terms, or walk away.

If you’re a letting agent, have a think about whether your terms are fair. If they’re not, what do the unfair terms say about your agency and their approach to their customers?

>> Related Post: How landlords can get the best from letting agents

>> Good Landlording podcast: Tips for signing up with letting agents

12 things to look out for in the small print of contracts with letting agents

Landlords must read the terms and conditions in contracts with agents before signing up, as they often include horrors, which may be possible to change before the agent’s appointment.

If you do manage to negotiate a change to the terms, do ask for it to be confirmed in writing. In the event of a dispute at a later date, if you don’t have evidence in the event of a dispute, it’s as if it didn’t happen.

As a general point, a good letting agent can bring a lot of value to a landlord who doesn’t have the time or inclination to find tenants or manage the property. Landlords shouldn’t just focus on who charges the least, otherwise it’s a race to the bottom, in the same way it has been with conveyancing. Look for agents that provide a high quality service, and have staff who have received at least a Level 3 qualification, such as Propertymark’s Award in residential letting and property management.

But landlords must take care to look through the agreement so you know what they are committing to, and that they can serve reasonable notice to terminate without penalty if they want to in the future, after the initial fixed term expires.

>> Related Post: What landlords need to know about full property management services

Here are a dozen things I would look out for when reviewing agreements with letting agents.

1. Is the termination clause fair?

The very first clause a landlord should check is the termination clause. Things change, and the landlord may wish to take over management in the future, or move to another agent. This is their right. Make sure this right is not subject to a penalty.

A fair notice clause would be for the landlord to be able to terminate the agreement by serving a reasonable amount of notice, say 1-3 months’ notice, at any time after the expiry of the first fixed term period.

Here are two common examples of unfair termination provisions that landlords should look out for in their contracts with letting agents:

  • A statement that the landlord cannot terminate for so long as the tenants placed by the agent remain in the property.
  • A termination penalty (say 2 months’ gross rent, which is what Leaders have in their contract), sometimes called a “Withdrawal Fee” or an “Exit Fee”, which effectively ties the landlord in until the tenant moves out.

If the agent will not remove these clauses, walk away. It shows they want to compel landlords to stay with them, rather than rely on landlords wanting to stay because of the excellent service. If they don’t have the experience of their customers at the heart of their businesses, find an agent who does. There are plenty of them out there.

They are also unfair terms and are unenforceable against consumer landlords (see below for more details).

2. Is there a charge for supervising repairs and maintenance?

Letting agents providing full management services are usually responsible for arranging for repairs and maintenance reported by the tenants, or which are noted during inspections. However, increasingly agents add a percentage fee to contractors’ invoices without making clear what the landlord is getting in return.

Some agents also receive a referral fee from the trades person for using them. This increases costs to landlords.

Let’s look at the mark-ups of two of the biggest letting agencies in their full management agreements (as accessed on 22 March 2024). I’m not saying these mark-ups are unfair. I‘m sharing what questions I would ask to clarify what the landlord gets in return, so the landlord can make an informed decision as to whether they want to arrange any works themselves, or negotiate a different fee. 10% might not be much on a small repair, but it would mount up on a new boiler or replacement windows.

  • Connells
    • They charge a fee of 10% on the net cost of works which exceeds £750, in return for: “Arranging access and assessing costs with contractor; Ensuring work has been carried out in accordance with the specification of works; Retaining any warranty or guarantee as a result of any works.”
    • The agreement doesn’t say how they will ensure work has been carried out satisfactorily, for instance by a site visit. I would ask them to clarify what this means in practice.
  • Leaders
    • Leaders charge landlords a fee of 12% of the contractor’s invoice to “project manage” any “major works” exceeding £500 + VAT on behalf of the Landlord.
    • The threshold is £250 lower than Connells’, and therefore will include some maintenance that doesn’t in reality constitute “major” works.
    • The contract doesn’t don’t define what “project management” means, for instance, do they inspect the work in person. It also doesn’t specify if the 12% is levied on the contractor’s net invoice, or whether they charge 12% on the gross amount which includes VAT.
    • These are the sorts of questions to clarify with the letting agent, and ask them to send you an email to confirm the conversation so you can rely on the email in the event of a dispute.

3. What works can an agent carry out without the landlord’s approval?

Do check when the landlord needs to approve works. Usually agents will have authority to carry out work without getting prior approval up to a monetary amount per job, eg up to £250 + VAT. However, there may be more than one job in a month, which can end up amounting to more than the balance ordinarily paid to the landlord.

4. How many inspections are included?

Inspections are very important to make sure the property is in good repair and there are no signs of unauthorised subletting.

Check how many inspections the basic fee includes. Some agents only include one inspection every 12 months, which is not enough. It should be at least every 6 months to check the property in summer and winter and to keep any eye on the condition of the property. A lot can go wrong in 12 months.

That said, agents will usually do additional inspections for a further fee.

5. Is there a compliance fee?

Some large letting agencies have started to charge a fee for “compliance” on top of the basic management fee. For Leaders, this is £13.20 inc VAT. It’s not entirely clear what this covers, but if the landlord doesn’t pay it throughout the tenancy, the agent excludes liability for any fines or penalties that the landlord is required to pay that arise from the “agent’s failure to ensure compliance”. In other words, landlords need to pay this compliance fee if they’re to have any recourse against the agent for losses that are due to the agent’s failure to (say) advise the landlord they need a selective licence.

Compliance should be an integral part of full management services, and not an extra. Landlords should consider asking for the compliance fee to be removed, and to strike out any clause that says the agent’s liability to indemnify the landlord is subject to the landlord’s payment of the compliance fee.

6. What happens to rent paid as a lump sum?

If the tenant pays a lump sum in advance (eg 6 months’ rent, when rent is due monthly), check whether the agent keep the rent (and the interest) in their account, and transmit it onto the landlord each month less any fees.

If the landlord does not have a mortgage, negotiate for the advance rent to be paid to the landlord, less the estimated management fee and a float for maintenance (say 10% of the rent) for the period.

If the landlord does have a mortgage, the letting agent could be liable to repay the rent if the property is seized by the lender for non-payment of mortgage. In this case, it would seem fair for the landlord to receive the interest on the rent paid upfront.

7. Is there a term that enables the agent to increase the fees or impose new fees?

A clause which reserves the agent the right to increase fees or impose additional fees by notice is an “unfair term” from a legal point of view, unless the landlord is given the opportunity to terminate the agreement after having been given appropriate notice of the change. See below for more details.

If the contract includes a clause allowing the agent to increase fees without the landlord being able to terminate, then ask for the clause to be amended so that it says the landlord may refuse to accept the increase in fees and terminate the contract.

Remember that if you operate through a limited company, you won’t benefit from consumer protection law. This means won’t have protection from a clause that allows an agent to impose higher fees, which wouldn’t be binding on consumer landlords.

8. Is commission payable on sale of property to tenant?

Is there a clause that entitles the agent to commission if the landlord sells the property to the tenant? If so, ask for this to be removed, as it would be a windfall for the agent who the landlord has already paid for managing the property.

This type of clause is likely to be unenforceable against consumer landlords as it’s an unfair contract term (see below).

9. Are the renewal fees unfair or excessive?

If you’re looking to appoint an agent for a one-off tenant find, without management services, the number one thing to look for is whether the “renewal” fees are excessive.

The standard low value renewal fee of (say) £250 for an agent to arrange another AST for a further fixed term is fair and reasonable, even for “consumer landlords”.

I believe that a “renewal fee” where no work is needed (eg a “renewal” for a periodic tenancy) is an unfair term, as the agent doesn’t do anything for it. However, if it includes a rent review and negotiation, then it is fair.

Some agents such as Foxtons charge a high renewal fee if a landlord has used them for a tenant-find with on-going rent collection, and not full management.

Foxton’s current terms state the fee is 12% to renew for the first two years, and 8.4% for subsequent renewals. Even if they don’t do anything. This is not much less than their initial tenant find fee of 13.2%. Clearly, Foxtons want to encourage landlords to use their full management services, which are cheaper!

To Foxton’s credit, they don’t bury the fee in the small print of their agreement, as it’s clearly stated in the fees on their website, in accordance with section 83 Consumer Rights Act 2015, and their fees are easy to find on their website.

However, if you’re looking for an agent to find a tenant for you, after which you will self-manage, then don’t choose an agent that will charge you a high renewal fee for the rest of the tenancy. To be on the safe side, ask the agent to confirm in writing how much you will be charged if the tenant stays for a second, third and fourth year. If they charge a renewal fee, walk away (unless of course you’re happy to keep paying them for the tenant find for years to come). There are plenty of agents who don’t charge them.

>> Related Resource: Hello Neighbour’s campaign to stop renewal fees

10. What are the extras?

When comparing agents, print off a list of the fees and make sure you’re comparing apples with apples. Some agents may have a low basic fee, but charge a lot of extras. The converse is also true.

There’s no point thinking you’ve got a bargain on an “all-inclusive” holiday if you then have to pay for things that come as standard for a supposedly more expensive package holiday. Dealing with agents is no different.

Here’s a list of common “extras” that some agents include in the basic fee, and others changes as extras. The list is courtesy of Hello Neighbour, the London-based letting agency (this is not an affiliate link). So you can compare apples with apples when choosing agents, check with each agent if they charge for any of the following, over and above the basic fee:

  • Creating a tenancy agreement.
  • Referencing tenants.
  • Carrying out right to rent checks.
  • Inventory.
  • Checking-in a tenant.
  • Registering the tenant’s deposit (and even an annual charge for “maintaining” the deposit).
  • Sending the prescribed information for the deposit to the tenants.
  • Checking smoke and carbon monoxide alarms (even though the inventory clerk does this).
man pointing out clause in contract fine print

11. How long is the sole agency period with the letting agent?

Letting agents often include a term such as the following from Leaders:

Sole Agency means that the Agent shall have sole and exclusive rights to market the Property for sale or letting for the period of the Sole Agency and upon the sale or letting of the Property the Agent shall be entitled to the Sole Agency Commission in accordance with the terms set out in these Terms of Business.
Leader’s Terms of Business (Reference – Leaders_11_1221)

Ask the agent to confirm duration of the “period of the Sole Agency”, as this is the period during which the landlord is not permitted to use another agent to find a tenant, without paying commission to the agent. It is a lock-in period.

This sole agency period can range from 4 weeks to 6 months. Landlords should not agree to more than 6 weeks as if a letting agent has not found a suitable tenant within 6 weeks, then the landlord should either try to find one themselves or appoint an agents.

>> Related Post: How to find tenants without letting agents

12. What happens if the agent doesn’t find a suitable tenant during the sole agency period?

Sometimes when a landlord instructs an agent to find tenants on a standalone Letting Introduction/Tenant-find/Let-only service, or even as part of full management, the agent doesn’t find a suitable tenant within a reasonable time. For instance, the tenant may not pass the affordability or referencing checks and a guarantor is needed.

Landlords have the ultimate decision over choosing a tenant; the agent merely proposes candidates.

Landlords should ask the agent what happens if they don’t find a suitable tenant. This is linked to the sole agency period, and if the landlord is locked in for 6 months, the commission still might be payable, even if the landlord uses another agent to find a tenant. The longer the sole agency period, the unfairer it is to the landlord to have to pay commission even if the original agent doesn’t introduce the tenant.

Ask the agent to confirm in writing answers to the following questions:

  • What happens if the agent does not find a tenant that meets the landlord’s criteria within 6 weeks?
  • Can the landlord go elsewhere or find a tenant themselves? If so, is the tenant-find fee still payable to the agent?
  • What is the earliest date when the landlord can go elsewhere if the agent does not find a suitable tenant, without commission still being payable under the sole agency terms.

>> Related Post: How to choose good tenants

What protection do landlords have under consumer rights laws?

The Consumer Rights Act 2015 gives some protection against “unfair terms” in letting agent agreements to “consumer landlords“. Unfair terms in contracts with consumers are not binding, which means that a letting agent can’t enforce an unfair term in an agency agreement if the landlord is a consumer.

What is an unfair term?

According to section 62 Consumer Rights Act 2015, and an unfair term is one where “if, “contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.”

Examples of unfair terms in letting agent agreements

Schedule 2 of the Consumer Rights Act 2015 gives examples of unfair terms which include the following:

  • Disproportionately high termination fees
    • The relevant provisions in Schedule 2 are:
      • Paragraph 5: A term which has the object or effect of requiring that, where the consumer decides not to conclude or perform the contract, the consumer must pay the trader a disproportionately high sum in compensation or for services which have not been supplied.”
      • Paragraph 6A: “A term which has the object or effect of requiring a consumer who fails to fulfil his obligations under the contract to pay a disproportionately high sum in compensation.”
    • These would cover the case where a consumer landlord wishes terminate the contract (ie they decide not to perform the contract), and the letting agent imposes a “disproportionately high sum” to terminate full management services.
  • Ability to increase prices without agreement from landlord
    • Paragraph 15: “A term which has the object or effect of permitting a trader to increase the price of […] services without giving the consumer the right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded.”
    • This means that consumer landlords have the right to terminate an agency agreement if the agent increases the fees or adds additional fees
  • Terms hidden in small print or not shown to landlord before signing
    • Paragraph 10: “A term which has the object or effect of irrevocably binding the consumer to terms with which the consumer has had no real opportunity of becoming acquainted before the conclusion of the contract.
  • Changing the scope of the services after the landlord has signed up
    • Paragraph 12: “A term which has the object or effect of permitting the trader to determine the characteristics of the subject matter of the contract after the consumer has become bound by it.”
    • If the letting agent reduces the scope of what is included under full management without the agreement of the landlord, it’s an unfair term.

What is a “consumer landlord” under the Consumer Rights Act 2015?

Section 2(3) Consumer Rights Act 2015 defines a consumer as “an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession”.

Note the reference to “an individual”, which means an unincorporated landlord who owns the property in their own name (or jointly with another individual).

It’s likely that an unincorporated landlord will be a consumer if they have another job or profession. On the other hand, they won’t be a consumer if they’re a full-time landlord running a business providing rental properties. The number of properties they have is not important; it’s whether being a landlord is their main business.

Do landlords with limited companies have consumer protection in dealings with letting agents?

In a word, no. Only “individuals” can benefit from consumer protection, and an individual must be a human being, and not a legal entity, such as a limited company or a limited liability partnership.

This means that landlords operate through a limited company have no legal protection against unfair contract terms in contracts with letting agents. This is even the case where they have another job or only own one buy to let. The fact they used a limited company to buy the property disqualifies them from consumer protection.

So, if you’re a landlord who doesn’t hold your properties in your own name, you have no legal protection from unfair contract terms. As you’re a business, you’re deemed capable of fending for yourself in the negotiation of contracts.

Before you sign up, ask for the agent to send you the contract, and go through it with a fine-tooth comb. Caveat emptor (the buyer beware).

>> Related Post: How to resolve problems with letting agents

Final thoughts

Choosing a letting agent is an important decision for a landlord. All the more so if it’s going to be very difficult or costly to extricate yourself from the contract if your circumstances change. You need to go into any commitment with your eyes open and check you’re happy with every term.

My advice is to avoid agents who include unfair terms in their contracts. Why is this? They are not fair and reasonable to deal with, and would rather force unhappy customers to stay with them because of the exit penalty, rather than be customer-focused and genuinely try to understand why landlords might want to leave, and thereby improve their service.

Having unfair terms shows a mindset that is not focused on delivery of a high-quality service. It is not a sustainable business model, and does not create a happy workplace when you require your staff to enforce terms they know are unfair.

Landlords need to remember that they have a genuine choice of letting agent. Even small towns have a multitude of agents. We should all vote with our feet and only sign up with agents who do offer fair terms. They do exist, and it’s a question of making sure your chosen agent is fair and reasonable, and dedicated to providing you and your tenants with a wonderful service.

I think it’s time to start a “fair contract terms” movement in the PRS. Let me know in the comments below what you think.

>> Related Post: How to self-manage your buy to let

>> Related Post: What landlords need to know about full property management services

What to look out for in the small print of letting agent contracts

5 thoughts on “What to look out for in the small print of letting agent contracts”

  1. Bruce Haagensen

    I could not agree more with your comments. Many Landlords fail to realise that if the Agent does not do something correctly then it is still the Landlord who will be taken to court or have to provide the missing Deposit! There is still a belief I find at meetings, from many Landlords, that because they employ an Agent to run the Letting they are absolved from any responsibility or Liability!

    As an Agent who has been involved with training and supporting Landlords for many years now, it has always annoyed me how some of the other Agents are so devious and fail to respect their Landlord customers and treat them as cash cows!

    The rise in complaints to the PRS about Agents highlighted in their Annual Report backs up the dissatisfaction with their services and practices out there.

    This is compounded by the rise generally in SME’s facing financial difficulties and in particular it appears affecting Letting Agents and Estate Agents, some of which have closed suddenly, is a big concern for Landlords who can be left in a very difficult position and no form of recourse.

    It is ironic that this is exactly the topic I am covering when I speak at the free to attend GB Landlords meeting in Canary Wharfe next Wednesday evening (27th).

    I can never stress enough to Landlords that choosing your Agent and understanding how the relationship will work and what you can expect from them, is as important as choosing the right Tenant!

    1. Such good points! Thank you for taking the time to add your thoughts to the post and good luck with your meeting of the GB Landlords on 27th March. I’m pleased you’re discussing it and it definitely shows that GB Landlords are on the side of landlords.

  2. Julian Thorneloe

    I have been trying let out my property for a very long time. I have found another agent, [*****] who seem good, but they have amalgamated with other agents, one whom I know, and will charge £300 exit fee, and also they want me to use them as a sole agency. The extra costs are: an Inventory or inspection for £120, Repairs maximum of 20% inc VAT on any repairs. Anything outside the scope £60 per hour inc VAT (£50 plus VAT) the management agreement.
    They do an option scheme, and I would want Option D Full management which is expensive.12% of monthly rent plus VAT 14.4% inc VAT subject to a minimum of £48 inc VAT (£40 plus VAT). They charge a lot for other services. Mid-term inspection is £54 inc VAT. Move out report £54 inc VAT. Tenancy Renewal £75 inc VAT.
    They will charge the same as the exit fee if I appoint another agent as well as themselves. They say they have the right to charge me if I appoint another agent as a multiple agency.
    If there is a dispute that arises between the Landlord and the Tenant concerning the deposit, then they charge a cost of £120 inc VAT or £30 inc VAT per hour.
    There are other charges for various services that are additional only.
    Please let me know your thoughts on these agents, or if there is anything else about them I should know. Thank you.

    1. I redacted the name of the letting agents. On the plus side, they lay out their fees clearly, but I’ve never seen £120 hourly rates for handling deposit disputes – that’s almost the level that law firms charge for qualified solicitors. A 20% mark up on repairs is the highest I’ve seen.

      Have you done a “mystery shop”, posing to be a tenant responding to an ad. Are they efficient and pleasant with potential customers? Are the agents trained, with Level 3 qualifications? How often do they do inspections? Are they good? Also, why has it been difficult to find tenants for your property, bearing in mind demand is high. Have you been trying to charge a rent that’s higher than the market? Is there something wrong with the property?

  3. My Lettings agent sold off their business in Scotland without consultation with their clients stating they were bound by a non-disclosure clause during sale.

    They basically sent an email to Landlords then 2 hours later Tenants informing them they had sold their business to another company, and they would be managing the properties from now on.

    Whilst trying to engage with them the MD he attached a cut and paste of a generic T&Cs stating they were mine saying they were within their right to sell. I have no doubt they do, but to sell off my assets, tenants and details without consultation is a huge concern to me as I did not know who they were sold too.

    He then would take nothing to do with an ongoing issue I had at one of my properties and told me to speak with the new owners. Surly this is bad business!

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