Landlords urged to check for secret maintenance mark-ups - Jonathan Morgan
Up until 2019, letting agents were able to charge tenants fees for providing services in relation to the letting of a property.
Most honourable agents took a fair and transparent approach to charging fees, whilst the rogue minority made a profitable enterprise out of layering often undisclosed costs on unsuspecting tenants.
Since the imposition of the Tenant Fees Act, it is illegal to charge all but a few specific fees to tenants for renting a property. However, some agents have created new income streams to replace this.
One of the most surprising and counter-intuitive consequences of the search for new revenue resulted in agents charging landlord clients commission on maintenance works they organise on their behalf.
Traditionally, letting agents charge their clients a management commission, being a fixed percentage of collected rents, plus a limited number of stated fees, such as a tenant find fee, a renewal fee or a marketing fee.
Implicit in the base duties of an agent in our view, is the professional and diligent management of client monies, alongside a duty to ensure that a property is duly maintained to an acceptable standard.
In the vast majority of cases, the costs associated with managing maintenance calls and organising repairs fall within the scope of the agent's duties, which are largely covered by the monthly management commission.
It is reasonable for a landlord to assume that the provision of maintenance services is a fundamental element of an agent's duties and that there should be no additional cost to the landlord for this.
Regrettably, and unacceptably in our view, it has become increasingly common for agents to charge their landlords an additional commission, being a percentage of the cost of all maintenance works.
Fifteen per cent is not uncommon and we have come across some agents charging commissions as high as 20 per cent.
On this basis, a repair which has a true cost of £100 is billed to the landlord at £120 and in some cases, the percentage mark-up is applied to the post VAT total.
There are many reasons why this practice should not be adopted by reputable and transparent agents. Firstly, it is effectively a double charge - agents are already paid for delivering maintenance services by way of the contracted management commission.
Secondly, an agent’s job is to effectively act for the landlord in ensuring that only necessary repairs are carried out, whilst also ensuring that a tenant is fulfilling their responsibilities as a householder to ensure that a property is kept in good condition.
Any commission or mark up on maintenance has to be seen as an incentive for agents to organise such works and we have heard of one scenario where property managers have been incentivised by their employer to go in search of maintenance works to boost income.
On top of the fact that commission on maintenance creates a clear conflict of interest, it is also the case that tradespeople deeply dislike their jobs being marked up as it makes them appear uncompetitive.
Good relations, trust and fair value are at the heart of best practice in the agent/landlord relationship and any mechanism which threatens this will, by definition, erode the relationship over time. Some agents don’t even declare their mark up or commission to their clients and we would urge landlords to double check and find an agent with a written commitment never to charge such fees.