Fee disclosure: Are you ready for an inspection?

Earlier this week we passed the official deadline for letting agents to fully publicise their fees as well as providing evidence of which redress scheme they are a member and whether they have client money protection. 

Given that the law came into force on May 27th and local Trading Standards are as hungry as a lion in a Roman arena for resources, are you ready for an inspection in the coming weeks?

To make things easier for agents, ARLA have designed a template for their members to use but are happy for the generic elements to be widely replicated.  It is likely that this template will form part of the de facto box of measures that Trading Standards will use to enforce the legislation so it is important you look at it and also the full Government Guide. If you would like a more general summary of the rules, we have produced a leaflet on our website here where you can also access other useful guides and resources. 

There are many agents out there who are already fully transparent and I apologise to those that are fed up of hearing about this legislation. However, it is clear in my line of work that many agents do not make their fees and charges clear which can lead to complaints being raised with the scheme. 

Below are two Case Studies (based on real complaints we have received) that highlight the importance of fee transparency and emphasize why this piece of legislation has been passed. 
Hopefully these cautionary tales are a lesson in what not to do! 

Case Study 1 – Landlord Commission 

Case Details

Mr Brown raised a complaint to the Property Redress Scheme about his Agent due to a number of issues he had experienced during the time the Agent had been managing the property. 

Following investigation of the initial complaint, the PRS contacted the Agent for their rebuttal. During the 10 day period the Agent is allowed to put together their case, Mr Brown received the following correspondence from the Agent: 

“Please find enclosed an invoice correcting commission rate on our management activity for the below property from June 2013 onwards. Being, an increase from 10% to 12.5% as agreed in our management agreement. We look forward to your remittance”

The Agent gave the reason that the 10% commission was an introductory rate and only applied to the first 12 month tenancy that ended in 2013. After this, the Landlord should have been charged the standard rate of 12.5% commission but the Agent had forgotten to charge the increased rate at the time. 

Mr Brown was very distressed by this correspondence. He believed that the management agreement had only ever stated 10% commission to the Agent. He felt this was a clear attempt to offset any award that may be made to him through the PRS’ involvement with his complaint. 

Mr Brown refuted the charge but the Agent continued to harass him to pay the invoice; including employing a debt collection agency to email, call and write to him demanding the money. Feeling bullied, he asked the PRS to investigate this issue alongside his original complaint. 

Evidence 

Email correspondence, Tenancy Agreement, Bank statements, Management Agreement.  

Case Assessors Plan

• The PRS looked into the Management Agreement signed by both parties and read the following clause: “Management commission equivalent to 10% of the rental received for the first 12 months from the commencement of the tenancy or for the duration of the current tenancy (whichever is the longer) will be charged.” 

• There was nothing in the agreement to suggest that the commission would be charged at 10% for 12 months and 12.5% thereafter, as claimed by the Agent. The Case Assessor queried this with the Agent and they said that instead, this had been agreed to in an email by Mr Brown. Upon requesting evidence to support this, the Agent confirmed that it had not been possible to extract emails from the time of the referred to correspondence. 

• Though the Case Assessor noted that other terms in the agreement reverted back to the Agent’s standard rate of commission at 12.5%, they concluded that the increased rate was not made fully transparent to Mr Brown at the start of the contract.  

• In addition to other compensation payments for the original issues, the Case Assessor’s solution recommended that the Agent disregard the commission invoice – this resolution was accepted by both Agent and Mr Brown and the case was closed. 

Key Points from the Case 

• Fee transparency means that there should be no surprise costs; Landlord’s should know what they are expected to pay before they sign a contract with an Agent. 

• Agents cannot introduce a new fee further along the line unless this is agreed to in writing with their client. If the Agent does not have evidence to support that their fees were made clear from the outset, it is unlikely their case will be upheld. 

Case Study 2 – Tenant Fees

Case Details 

Three friends found a property to move into together.  After making their interest in the property clear, they felt bombarded by calls from the Agent insisting that they hand over money imminently to secure the property. 

They each paid a £150 holding deposit and were asked to sign an e-agreement relating to the terms and conditions of their holding deposit. The agreement was sent around one by one – when the document reached the 3rd Tenant she refused to sign it, having noticed a series of discrepancies in what she had read on the Agent’s website and what was stated on the documentation. 

The 3rd tenant noted that on the Agents website it stated clearly that bills would be included however the e-agreement said bills were not included. Furthermore, the website stated that ‘no bonds were to be paid in advance’ yet, having each already paid a holding deposit, the tenants had received an email requesting a further £280 refundable deposit.  

After querying with the Agent what this further £280 was for, the Agent was unable to provide a straight answer. The Agent finally relented that it was, in fact, a bond which conflicted with the website advertisement. The tenants were told that this was a special instance and if they did not pay the £280 within 7 days they would lose their holding deposit. Feeling confused and misled, the tenants decided not to proceed with the tenancy. 

The Agent refunded the 3rd Tenant’s deposit but withheld £300 based on the first two Tenants signing the agreement. The Agent claimed that the contradictions on the website had been explained to the applicants verbally at the time and that they had incurred significant costs in setting up the tenancy which justified their claim to the holding deposit monies.  

Evidence 

Email correspondence, Holding Deposit Agreement, Website Snapshots. 

Case Assessors Plan

• The Agent’s holding deposit agreement stated that the holding deposit was ‘non-refundable’. The PRS consider this term to be unfair in general, in accordance with the CMA Guidance for Lettings Professionals. Though holding deposits are there to cover an Agent’s reasonable costs if the Tenant pulls out, terms that allow an Agent to withhold a deposit without a clear justification will not be upheld by the scheme. 

• As the Tenants pulled out within 48 hours and the tenancy was not due to commence for several months, it was unlikely that any significant costs had been incurred and the Landlord would not lose any rent. It also appeared that the Tenants had felt pressured into paying the fee without being given sufficient time to make an informed choice.

• Though the Tenants had committed to the tenancy with a holding deposit, they felt obliged to pull out as there were ‘surprise’ additional costs which could not be properly explained. Even if the intention was not to deliberately hide additional costs, the Agent acknowledged that the website information was not correct. It was deemed understandable that the Tenants felt misled and did not want to proceed with the tenancy on that basis. As a result, the Case Assessor recommended that the £300 be returned to the two tenants. 

Key Points from the Case

• The Agent should be upfront about all non-optional fees that may be chargeable throughout the tenancy. This is to enable the Tenant to compare the full cost of renting one property against another.

• The Agent should not seek to mislead Tenants - this may include leaving out important information, or providing information that is unintelligible or ambiguous. 

• It is just as important that fees are accurately displayed on a website or any other advertising material as it is on an agreement or in the Agent’s office.

Of course, if you have any further queries about compliance or redress in general, do not hesitate to contact my team on 0333 321 9418 or info@theprs.co.uk. 

*Sean Hooker is Head of Redress at The Property Redress Scheme