1.3 Letting Options – Means of Managing Property
There are a number of options that can be considered for managing a property, depending on the owner’s own experience, skills and the amount of time that is available to be spent on the management process. Each of the options given below has advantages and disadvantages but careful consideration should be given to ascertain which option is best to meet any particular circumstances:
1.3.1 Self-managing Landlords
This option is for landlords who are confident that they know their responsibilities and what constitutes best practice in managing properties. This option saves the cost of an agent, but can require considerable investment in time. Self-management may not be suitable for landlords who do not live close to their properties or who are away from home for significant periods of time.
If problems arise, self-managing landlords might require advice from a professional adviser such as a lawyer or accountant, which will come at a cost. Landlord associations are a good source of advice and assistance and can provide much of the information that a self-managing landlord requires.
Self-managing landlords also have to promote their own properties and this may entail paying a fee for advertising properties.
All self-managing landlords must be registered and have a licence to carry out letting or property management activities.
1.3.2 Use of Letting and Managing Agents
If help is required to manage the property, there are at least three options:
a) Letting only
This is where an agent markets the property, advises on rent levels, finds a tenant, undertakes reference checks (if required), provides a tenancy agreement and moves the tenant in. The agent charges the landlord a one-off fee for this, often equivalent to one month’s rent. The agent may also charge the tenant an administration fee.
Landlords using a letting agent need to agree if they wish to charge a deposit, what it is for, how much the deposit is to be and if the agent is to collect it. Any deposit taken for an assured shorthold tenancy (AST) must be protected in one of the three Government-approved tenancy deposit protection (TDP) schemes. In addition, tenants must have received the prescribed information, including the relevant scheme’s terms and conditions. which shows that the deposit is protected by that scheme.
Once the tenancy has started, the letting agent’s job is done and the landlord then undertakes the ongoing management of the property.
An agent carrying out letting work must have a licence and it is an offence for a landlord to appoint an unlicensed agent.
b) Letting and Rent Collection
This is where the agent finds a tenant (as in a) above) but also collects the rent on behalf of the landlord during the tenancy. Other management functions such as repairs (and arranging to get possession of the property at the end of a tenancy if needed) are dealt with by the landlord.
The agent is likely to charge a one-off letting fee and then a monthly fee (often a percentage of the rent – perhaps 5%) for collecting the rent. With this type of arrangement, it is important to avoid confusion and to make sure that the tenant is absolutely clear about who is responsible for which areas of management.
An agent carrying out letting work and rent collection must have a licence and it is an offence for a landlord to appoint an unlicensed agent.
c) Full Management
This is where the agent acts as a full letting and managing agent. The agent deals with all management issues: letting and starting the tenancy, rent collection and repairs.
The managing agent will also take some steps towards ending the tenancy, for example, they may serve notice but not take court action. This service is obviously more expensive than the previous options (perhaps costing between 10-15% of the rent), but it is probably worthwhile if the property owner either does not have the time to manage the property or lacks the expertise. It is important that the owner agrees with the agent what type and cost of repairs they are authorised to carry out without seeking further authorisation, and what the division of repair responsibilities will be between the owner and the manager: making it clear who is supposed to do what.
The agent will usually agree to use the rent they collect to pay for repairs, but if repair costs exceed income, then the agent is not a bank and the owner will have to pay any shortfall at that time.
An agent carrying out property management work must have a licence and it is an offence for a landlord to appoint an unlicensed agent.
1.3.3 The Relationship Between the Landlord and Agent
The term ‘agency’ is used in law to describe the relationship between the principal (in housing this is the landlord) and the agent. The principal agrees that the agent should act on their behalf in legal relations with third parties (in housing this is the tenant and any other party that the agent needs to deal with in managing a property, for example workers undertaking repairs). The agent also agrees to act on the landlord’s behalf. The agreement of the agent and principal may be set out explicitly in a document, or may be inferred from the way they do business together.
1.3.4 Guaranteed Rent ‘Agents’
In recent years there has been an increase in the availability of companies offering a guaranteed rent to landlords, irrespective of whether the property is rented out or not. In many cases these are not normal landlord-agent relationships. The landlord assigns (transfers) the property and all the rights over the property, subject to the terms of the contract, to a company or individual who pays an agreed fee for the duration of the agreement. Any tenant renting the property is the tenant of the company and not of the ‘landlord’ who becomes the superior leaseholder. There is normally no legal relationship between the original landlord and any tenant. Because of the variety of schemes it is very important that landlords carefully read the contract with the ‘agent’ – expert advice may be needed. In this section we have used the word ‘agent’ in inverted commas as in law the ‘agent’ is not actually an agent, as they are working for their own benefit and not the benefit of the landlord.
1.3.5 The Liability of the Landlord Where an Agent Is Used
Where an agent is used, actions carried out by the agent on the landlord’s behalf are generally treated in law as if they had been done by the landlord. Landlords are bound by any agreement or contract made by their agent on their behalf with a third party (i.e. a tenant), providing the agent is acting within the authority they have been given.
If the agent agrees to something which the landlord has not authorised, the agent will be liable to the landlord and tenant for any losses. The landlord may not be bound by the agent’s action, and the tenant might therefore seek compensation from the agent.
If the agent is acting as managing agent for the property and fails to carry out a statutory duty, such as ensuring that an annual gas safety inspection is carried out, the landlord may be held liable for the failure as well. Such responsibilities should be clearly defined in the Terms of Business between landlord and agent.
A landlord will also be ultimately liable to the tenant for the return of the deposit, whether it is a deposit taken before 6 April 2007 or where the deposit is protected using an insurance-based scheme.
In view of this, landlords should be very careful when choosing an agent, making sure they choose one who will carry out their responsibilities properly. The landlord should also be very clear when giving agents any special instructions (such as ‘no pets’) to ensure that these are put in writing. Landlords should consider whether an agent’s standard Terms of Business protect their interests as well as the agent’s and should take care to consider any clauses that exclude or limit an agent’s liability for negligence.
1.3.6 The Liability of the Agent in Agency Agreements
If the agent has acted properly and in accordance with the agreement with the landlord, an agent will not be liable for a contract entered into on behalf of his landlord.
If the agent has acted contrary to instructions (for example allowing pets where the landlord specifically said ‘no pets’) it is likely that the agent will be liable to the landlord and/or the tenant for any losses which may flow from this. Liability may depend, amongst other things, on the precise instructions from the landlord and subsequent correspondence or conversations. The agent is presumed to be authorised to do things that agents ordinarily do, unless the landlord instructs the agent otherwise.
Agents and Possession Notices
Agents can validly serve possession and other notices on behalf of their landlords. [See Chapter 5 for more detail on possession notices.] Also a notice of intention to seek possession served on a tenant by a landlord’s agent will normally be considered validly served if service by the agent is stipulated in the tenancy agreement.
Agents and Court Claims
Although agents can deal with the notice element of recovering possession, agents are not legally entitled to initiate legal proceedings on behalf of landlords [see Chapter 5]. Only claimants or their solicitors are able to sign the statement of truth on the court forms. The fact that a claim form for possession is signed by a letting agent is a common reason for the rejection of possession claims by the County Court.
Frequently, agents will offer landlords the opportunity to take out legal expenses insurance. If a decision is made not to buy this or this option is not offered, then it is generally best for the landlord themselves to deal with any court proceedings which may arise, instructing solicitors directly, if needed. Although the agent may assist by recommending and liaising with suitable solicitors, and even if much of the work related to any claim is delegated to the agent to deal with, it is prudent, as the landlord, to keep involved and remain aware of what is happening.
1.3.7 Defining Responsibilities in the Contract
When a landlord enters into an agreement with an agent, a written contract should be drawn up indicating what level of service the agent is offering, and the agent’s agreed fees. It is important to read the whole contract and discuss any points that are unclear or where there is disagreement before signing, so it can either be varied or an alternative agent sought. The contract should also state how it can be terminated and for what reasons, including what happens if the landlords wants to take over the management of the property themselves.
As in many businesses, a small proportion of agents can go out of business owing both the landlord and tenant money. As the agent may be acting in the landlord’s name, it is important to know that the agent is reliable and experienced. Investigate the agent: it is worth trying to get a personal recommendation (the local landlord association may be helpful here). Check how long the agent has been in business, how many premises they manage, what training their staff have received, and whether they are a member of a professional or trade organisation such as:
- Private Rented Sector Professionals (PRSP)
- The Association of Residential Letting Agents (ARLA)
- UK Association of Letting Agents (UKALA)
- The National Association of Estate Agents (NAEA)
- Royal Institute of Chartered Surveyors (RICS)
- National Approved Lettings Scheme (NALS).
For student lets, the local college, university or their students’ union may also run a lettings or management service.
Some associations require funds belonging to the landlord and tenant to be protected in the event that the agent’s business fails. Check the associations’ requirements when considering which agent to use. In most cases, conditions of the agent licence will require client money protection to be in place.
Fees and costs for services will vary and the cheapest is not always best if the agent is not an expert in good management practice and housing law. If the agent does not do the job well, this will reflect on the landlord, and it can have potentially serious implications.
It is also important to choose an agent who is familiar with the type of property (and that section of the market) that is being let or managed, so take a look at the other properties the agent has on their books. A friend could be pressed into service to contact them and make enquiries about renting a property from them to see how the agent treats a potential tenant.