Landlords urged to check contracts – or pay the price

AFS Team·10 April 2014·4 min read
Landlords urged to check contracts – or pay the price
Landlords are being warned that the failure to check the contract from a letting agent could cost them thousands of pounds and seriously reduce returns.

An investigation by a national newspaper reveals that landlords who use a letting agency should check the small print in the contract or face being liable for huge unexpected costs.

Landlords could rack-up losses should their agent enforce the contract’s terms and conditions though agents themselves argue that the clauses themselves are rarely imposed and are merely in place to protect the business.

Letting agents also say that landlords should endeavour to understand the contract’s fine print to help avoid future disputes.

Among the clauses that landlords should take great care over include:

Change of ownership

Landlords face the prospect of paying letting agents fee for years after they may have sold a property with the tenant in place.

This clause will also extend to the tenant taking up a new tenancy agreement with a new owner.

The clause may be difficult to enforce in practice but a landlord should be aware that having severed their ties with the property, the contract with the letting agent will still be valid.

Selling the property to a tenant

The investigation by the Daily Telegraph into letting agents' contracts also highlights an issue of the landlord selling the property to the tenant. If the tenant was found and signed-up by the agent then the agent will expect a slice of the selling price - even if they play no role in the sale itself.

Agents argue that they are entitled to a 'finder’s fee' and may charge between 1% and 2% plus VAT.

The Telegraph says that on an average priced home of £254,000, a landlord could be faced with forking out £5,000 plus VAT.

Sub-letting and maintenance fees

There may also be an issue of a letting agency agreeing to rent the property under their business name at a discounted price and then subletting to a tenant at a higher rent.

The attraction for a landlord is they will not have any decisions to make about the property but the Association of Residential Letting Agents says that landlords should be aware that they cannot sever their legal responsibilities to the property and the tenant ultimately.

In addition, many mortgage providers do not allow subletting because they need to be aware of who is living in the property should it need to be repossessed.

The issue of maintenance fees is also a problem and landlords need to be aware of what an agency can claim for under their contract with many opting to add their own mark-up to a contractor’s invoice to boost profits.

To read more about what landlords should be aware of when agreeing to a letting agency contract, read the full Daily Telegraph report.