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What landlords need to know about full property management services

Property manager to visit properties

It sounds so compelling: “let and forget”. With the business of landlording being so highly regulated, isn’t it easier for landlords to use letting agents to provide professional property management services to look after both the tenants and the property? The answer is “it depends”. It depends on finding the right agents who will provide you and your tenants with a high quality service for a reasonable fee.

In this blog post, I share lots of tips to help landlords understand how letting agents and property managers charge for full management, and what to look out for in the pricing structure and the terms and conditions. Set off on the right foot by negotiating fair terms at the start, instead of trying to do it when you’ve already got a tenant in place.

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What services do property managers actually provide landlords?

property manager holding a folder and smiling

Section 84 of the Enterprise and Regulatory Reform Act 2013 defines “property management work” as (and I paraphrase) things done by a property manager in the course of a business in response to instructions from a landlord who wants to arrange services, repairs, maintenance, improvement, or insurance or to deal with any other aspect of the management of residential premises.

Property management work can be done by a letting agent or a standalone property management company.

Often, it’s bundled with letting agency work and priced under a “full property management service”. However, property management starts once the renters move in. The lettings department will usually hand over responsibility for the relationship with the renter is handed over to the management team. This is because the skills are different.

The property management team might be based centrally at a call centre and deal with properties across the country, and won’t personally know the local trades people who will carry out repairs and maintenance. It’s worth checking, as it’s better to have a local property manager who can easily go round if there’s a problem.

Property managers are responsible for managing the relationship with the renters on a day to day basis. Here are the key responsibilities of property managers:

  1. Repairs and maintenance
    • Property managers will have a method to enable the renters to report maintenance issues. It’s the norm to have portals. However, there are some laggards who rely on renters calling into the property management office or sending an email when something goes wrong.
    • It’s the responsibility of the manager to arrange for the repair or maintenance to be done eg ask a plumber to see why the hot water isn’t working and fix it.
    • Normally the agent will agree a figure above which they will need to consult first with the landlord. This is usually £100-250. Costly items such as a new boiler will need the approval of the landlord.
    • After the repair has been done, the agent will invoice the landlord. Some agents add a mark-up on the cost of the repair. Since Covid, agents have mostly stopped checking the work in person, and will ask for the trades person to send before and after photos. Check what the policy of your proposed property manager.
  2. Safety compliance
    • Property managers agents take responsibility for making sure the property remains compliant with safety rules.
    • This means renewing Gas Safety Certificate and other certificates (eg EPC and EICR) when due for renewal, testing the smoke and carbon monoxide alarms once a year.
    • It also means ensuring the property has the relevant licences, eg if it’s in a selective licensing area (although this remains the landlord’s responsibility) or if it’s a relevant HMO.
  3. Relationship management
    • Rent collection and chasing late payments.
    • Property inspections (usually once or twice a year).
    • Assisting with disputes and complaints as a go-between.
  4. Tenancy renewals and rent increases
    • At the end of the fixed term period, the tenancy will automatically become a rolling periodic tenancy which the tenant can terminate with one month’s notice, unless they enter into another fixed term contract, called a ‘renewal’.
    • Letting agents normally try to arrange for the renter to enter a renewal. Some management services include this, but most charge extra for the renewal.
    • Agents will usually handle negotiations for a rent increase if they manage the property, but some charge extra. Do ask them to check with you first before proposing an increase to the renters. Agents normally push for the highest increase, whereas a more moderate one might be more appropriate for good tenants.
  5. End of tenancy
    • The managing agent will usually check out the tenant. However, a check out inventory report will be an optional extra.
    • Make sure it’s clear who is responsible for taking meter readings and informing the utility companies of the change of tenant. Some agents do it, but not all.
    • Managing agents will usually be able to serve a section 21 notice on behalf of the landlord for a fee. However, if there are rent arrears and you need a section 8 notice, it may be better to get specialist help.

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How much are full property management service fees for landlords?

team of managing agents working for landlord
Your friendly but expensive managing agents

First of all, property managers must provide full details of their fees on their website. The description of the fees must be sufficiently detailed so that the landlord can understand the service and cost covered by the fee. If the amount can’t “reasonably be determined in advance”, then the letting agents must describe how the fee will be calculated.

My advice is to print off the list of fees before you even talk to letting agents and property managers, and highlight those you do not consider reasonable. Negotiating fees at the start will help you avoid problems and nasty surprises later. If the fees aren’t easy to find, or if they’re not there, choose another agent as it shows that they don’t value the experience of their customers, ie landlords. It’s not a good sign.

Most agents charge landlords a basic fee to provide a full management service, although not everything is always included. The basic fee is usually a percentage of the rent and starts at around 12% + VAT (ie 14.4%) of the gross rent per calendar month, and go up to 17% + VAT (20.4%) (eg Hamptons). This means that, on average, landlords spend well over £2,000 each year per property on the management fee alone. (I use the average fee of 14.4% and the average national rent of £1,278 in Q3 2023, according to Rightmove).

Landlords pay this property management fee, even if nothing goes wrong with the property and even if there are rent arrears, for so long as these tenants rent the property. (Unless the landlord terminates). The agents deduct this fee from the monthly rent which they collect on than landlord’s behalf. If the rent goes up, the fee goes up in parallel, just like commission.

Do bear in mind, however, that the cheapest agent won’t necessarily be the best. You should look for value for money. This means a good level of service for you and your tenants, which leaves the agent with a fair profit.

What’s usually not included in the fully managed service fee?

Read the small print list of extra charges estate agents
The “extras” for Connells’ Fully Managed Service

The fully managed service is a bit like full board at a hotel. Your food and lodging are included, but you’ll need to pay for drinks and a long list of extras. It’s not all-inclusive, and the exact detail of what you get varies from agent to agent. It’s therefore really important to check what is and isn’t included, so you can avoid problems later, and maybe even negotiate a better deal with your letting agent up front.

As an example, I’ve cut and pasted the extras in the small print of an agent’s terms and conditions (Connells in Maidstone) into the graphic above. These services are considered ‘additional’ and aren’t included in the management fee. Again, it varies considerably per agent, so don’t be afraid to ask for clarification.

Often the agents add a mark-up to repairs. For instance, you can see that Connells in Maidstone add 10% if the repairs cost £750 or more, which can add a lot if they organise a new boiler. For supervising redecoration, it’s 10% of the cost of the words, plus £100 for arranging an estimate to supervise painting the exterior. The terms are vague about what “supervise” means and they’re under no obligation to try to keep costs down.

Check the small print carefully. Property managers need to publish their full fees on their website, so study it carefully.

Do try to negotiate lower rates before you sign up. It’s usually easier to do it then, as they’re keen to win your business. Just like negotiating car insurance! And do read the small print before you sign off. Make sure any agreement you reach with them that differs from their standard terms is confirmed in writing. Do bear in mind though that it’s only fair that property managers make a reasonable return, and that the cheapest agent isn’t necessarily the best.

What are compliance check fees for landlords?

Some agents charge extra for “Landlord Regulation Checks” or “Compliance Checks”. These are an additional fee for the letting agent, ostensibly to ensure the landlord is compliant with legislation.

For instance Countrywide letting agents, Tucker Gardner, charge £11.40 pcm for: “HMO Licence monitoring, Deposit/Deposit Replacement Service, Service of Notices, Legislative Horizon Scanning, Checking Smoke and CO Alarms at commencement of tenancy”. This wording is used for other Countrywide letting agents such as John Wood & Co. The fee isn’t reduced for single lets where an HMO licence isn’t relevant.

I think it is very cheeky (even outrageous) for letting agents and property managers to charge extra for compliance checks. It should be included in the basic full management service fee! Look out for this on the property manager’s fees, and ask for it to be waived. If they won’t waive it, go elsewhere. We landlords can vote with our feet.

What about choosing property managers for HMOs?

If you’re looking for a managing agent for your HMO, it’s really important to find an agent who specialises in HMOs and understands how choosing tenants for HMOs is different from choosing them for single lets. Don’t be afraid to interview them to see how they approach managing HMOs, particularly their approach to The Management of Houses in Multiple Occupation (England) Regulations 2006.

Here are a few other questions to ask potential managing agents of HMOs to get a feel for whether they have genuine experience with in the management of HMOs:

  • What experience do they have in managing HMOs?
  • What percentage of the “doors” they manage are rooms?
  • How do they manage arrears, and what information do they provide you about arrears?
  • How often do they inspect?
  • What do they recommend in terms of cleaning?
  • How long are voids in the rooms they manage?

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What should landlords look out for in the contract with property managers?

If there’s one thing to look out for in the contract, that’s the termination clause. Whilst some agents are reasonable, and will ask for (say) two months’ notice after the expiry of the initial fixed term period, others charge extortionate exit fees.

For instance, Leaders’ standard terms in December 2023 contain wording that charges two months’ gross rent plus VAT for a landlord to terminate project management, regardless of how long the tenant has lived at the property. These sorts of clauses are likely to be considered unfair contract terms for “consumer landlords”. I discuss this in more detail in the blog post below on how to terminate the management contract with agents.

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Final thoughts

Letting agents and property managers can set up shop without any formal qualifications. There are very few rules that regulate property agents beyond needing to publish fees, belonging to a redress scheme and belonging a client money protection scheme.

Although experience is important, ask whether the manager has the Level 3 ARLA Propertymark Award in residential letting and property management, as this will ensure they have an up-to-date understanding of landlords’ legal obligations.

Don’t be afraid to ask to chat to them, to see if they have the right attitude to give you and your tenants the high quality service that you’ll be paying for. A good question to ask is whether the agent regularly gathers feedback from tenants and landlords. If they do, it shows they genuinely care about the quality of the service they provide.

Above all, remember that the buck ultimately stops with the landlord, even if an agent manages the property as the landlord ultimately remains liable if the property manager doesn’t comply with the law. If a gas safety certificate isn’t renewed at the right time or the property falls into disrepair and becomes unfit for human habitation, it’s still the landlord’s responsibility. That’s why I recommend that all landlords join the NRLA Accreditation Scheme and receive the training to give them the knowledge they need to manage their property managers.

I also recommend that landlords attend a property inspection with the property management at least once a year so that they can see for themselves the condition of the property. Instead of “let and forget”, landlords should “let and check”.

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What landlords need to know about property management services

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