Letting Options - Means of Managing Property
Although much of this content is about how the landlord can choose the agent, it is helpful for the agent to understand the process a landlord may go through in selecting the agent so that the agent can meet the landlord's requirements.
You can consider many options for managing property, depending on the owner's own experience, skills, and the amount of time 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:
This option is for landlords who are confident that they know their responsibilities and what constitutes best practices 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 away from home for significant periods.
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 guidance and assistance and can provide much information that a self-managing landlord requires.
Self-managing landlords also have to promote their properties, which may entail paying a fee for advertising properties.
All self-managing landlords must be registered and licensed with Rent Smart Wales to carry out letting or property management activities.
Use of Letting and Managing Agents
If help is required to find tenants or manage the property. Whatever level of service you use below, it is a requirement that the agent is licensed with Rent Smart Wales as it is an offence of a landlord to appoint an unlicensed agent. There are at least three options:
a) Letting only
This is where an agent markets the property, advises on rent levels, finds an occupier, undertakes reference checks (if required), provides a suitable agreement and moves the occupier in. The agent charges the landlord a one-off fee, often equivalent to one month's rent.
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 occupation contract must be protected in one of the Government-approved deposit protection schemes. In addition, occupation contract holders must have received the required information, including the relevant scheme's terms and conditions, which shows that that scheme protects the deposit.
Once the agreement has started, the letting agent's job is done, and the landlord then undertakes the ongoing management of the property.
b) Letting and Rent Collection
This is where the agent finds an occupier (as in a) above) but also collects the rent on behalf of the landlord during the agreement. The landlord deals with other management functions such as repairs and arranging to get possession of the property at the end of the contract if needed.
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 essential to avoid confusion and ensure that the occupier is clear about who is responsible for which management areas.
c) Full Management
This is where the agent acts as a complete letting and managing agent—the agent deals with all management issues: letting and starting the agreement, rent collection and repairs.
The managing agent will also take steps towards ending the agreement; for example, they may serve notice, but letting agents may not ordinarily take any part in a court action on the landlord's behalf.
This service is 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. The owner must agree with the agent what type and cost of repairs they are authorised to carry out without seeking further authorisation and the division of repair responsibilities 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, the agent is not a bank, and the owner will have to pay any shortfall.
The Relationship Between the Landlord and Agent
The term 'agency' is used in law to describe the relationship between the principal (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 occupier 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 should be set out explicitly in a document but may be inferred from the way they do business together.
Guaranteed Rent 'Agents'
In recent years, there has been an increase in companies offering guaranteed rent to landlords, regardless of whether the property is rented out. In many cases, these are not normal landlord-agent relationships. The landlord lets the property to the company or individual who pays rent for the duration of the agreement. Any occupier renting the property is typically the company's occupier and not the property owner, who becomes the superior landlord. There is usually no direct legal relationship between the superior landlord and any occupier. There are a variety of schemes, so it is imperative that landlords carefully read the contract with the 'agent' - you may need expert advice. In this section, the word 'agent' is in inverted commas as in law; the 'agent' is not an agent, as they are working for their benefit and not the landlord's benefit.
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 the landlord had done them. Landlords are bound by any agreement or contract made by their agent on their behalf with a third party (e.g. an occupier), providing the agent is acting within the authority given.
If the agent agrees to something the landlord has not authorised, the agent will be liable to the landlord and occupier for any losses. The agent's action may not bind the landlord, and the occupier might seek compensation from the agent.
Suppose the agent acts as the 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. In that case, the landlord may also be held liable for the failure. The terms of business should clearly define such responsibilities between landlord and agent.
A landlord will also be ultimately liable to the occupier for the return of the deposit, whether the deposit is protected using a Government scheme or not.
Because of this, landlords should be cautious 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 business terms protect their interests and the agent's and should consider any clauses that exclude or limit an agent's liability for negligence.
The Liability of the Agent in Agency Agreements
If the agent has acted correctly and followed the agreement with the landlord, they will not be liable for a contract entered into on behalf of the landlord.
Suppose the agent has acted contrary to instructions (for example, allowing pets where the landlord specifically said 'no pets'). In that case, the agent will likely be liable to the landlord or occupier for losses. 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 something 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, but different agents may or may not offer this service. Also, a notice of intention to seek possession served on an occupier by a landlord's agent will typically be considered validly served.
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. Only claimants or their solicitors can sign the statement of truth on the court forms. The fact that a letting agent signs a claim form for possession is a common reason for rejecting possession claims by the County Court.
Frequently, agents will offer landlords the opportunity to take out legal expenses insurance. Suppose a decision is made not to buy this or this option is not provided. In that case, it is generally best for the landlord to deal with any court proceedings that 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 is delegated to the agent, it is prudent to keep involved and remain aware of what is happening.
Defining Responsibilities in the contract
When a landlord agrees with an agent, a written contract should be drawn up indicating the agent's level of service and the agent's agreed fees. Before signing, it is essential to read the entire agreement and discuss any unclear points or where there is disagreement so that it can be varied or you can seek an alternative agent. The contract should also state how it can be terminated by the landlord or agent and for what reasons, including what happens if the landlord wants to take over the property management.
As in many businesses, a small proportion of agents can go out of business owing both the landlord and occupier money. As the agent may be acting in the landlord's name, it is essential to know that the agent is reliable and experienced. Investigate the agent: it is worth trying to get a personal recommendation. 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)
- UK Association of Letting Agents (UKALA)
- Royal Institution of Chartered Surveyors (RICS)
The local college, university, or their students' union may also run a letting or management service for student lets.
Some associations require funds belonging to the landlord and occupiers to be protected if the agent's business fails. Check the associations' requirements when considering which agent to use. In most cases, conditions of the agent's Rent Smart Wales 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 essential to choose an agent 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. You could press a friend into service to contact them and inquire about renting a property from them to see how the agent treats a potential occupier.
Landlords should check whether the agent is registered with an online search or by phoning the organisation to confirm the registration is valid.
Landlords have many reasons for working with letting agents. Lack of time often heads the list, along with a reluctance to deal with tenants, a lack of knowledge about how a property business works and concerns about property law, HMO licensing and other regulations that might apply to letting homes.
The Consumer Rights Act 2015 requires all property letting and managing agents to display their fees both on their website and prominently in their offices. This template contains three pages of sample text that might be used to display the fees