My letting agent is charging a 'referencing guarantee fee' and a percentage on 'contract negotiation'. Are these legitimate charges under UK consumer law or can I challenge them as a landlord?
Quick Answer
Letting agents cannot charge landlords for tenant referencing or contract negotiation under the Tenant Fees Act 2019, as these are prohibited payments.
## Will I be charged for referencing or contract negotiation as a landlord?
As a landlord, you should not be charged for tenant referencing or contract negotiation by your letting agent, as these charges are generally prohibited under the Tenant Fees Act 2019. The Act specifies what payments agents can demand from tenants, but it also has implications for services provided to landlords that traditionally involved passing costs to tenants. The agent's fee structure with the landlord should cover services like referencing and contract drafting.
## What are prohibited payments under the Tenant Fees Act 2019?
The Tenant Fees Act 2019 prohibits most fees charged to tenants beyond rent, a refundable tenancy deposit (capped at five weeks' rent for properties with annual rent under £50,000), a refundable holding deposit (capped at one week's rent), and payments for defaults (like lost keys or late rent). Significantly, the Act also clarifies what constitutes a prohibited payment for landlords. A letting agent effectively acts on behalf of the landlord, and the fees for these services, such as setting up the tenancy, drafting agreements, and verifying tenants, should be covered by the agreed management or letting fee paid by the landlord to the agent. Government guidance confirms agents cannot create new fees for landlords to cover the shortfall from tenant fees. Councils can charge up to 100% Council Tax premium on furnished second homes from April 2025, but this is distinct from agent fees.
## Does this affect landlords with existing agency agreements?
Yes, the Tenant Fees Act 2019 applies to all new and existing tenancies and agency agreements from its implementation date. Any clauses in agency agreements signed after 1 June 2019 that attempt to introduce charges like a 'referencing guarantee fee' or a percentage on 'contract negotiation' are likely unenforceable. For example, if your agent charges a 5% 'contract negotiation' fee on a £1,000 monthly rent property, this would add £50 per month, which should be challenged. Similarly, a 'referencing guarantee fee' for a tenant that passes referencing is likely not legitimate.
## How can landlords challenge illegitimate charges?
Landlords should first review their current agency agreement to identify all listed fees and compare them against the Tenant Fees Act 2019 guidance on gov.uk/tenant-fees-act. Next, contact your letting agent in writing, citing the relevant sections of the Act and requesting clarification on the legitimacy of the charges. If the agent does not comply, landlords can report the agent to their local Trading Standards office or approach a property redress scheme of which the agent should be a member (e.g., The Property Ombudsman or Property Redress Scheme). For instance, if an agent levied a £300 'referencing guarantee fee', disputing this legally could save you the cost.
## What should landlords consider when choosing an agent?
When appointing a new letting agent or reviewing an existing contract, landlords should request a transparent breakdown of all fees and charges upfront. Ensure the agency agreement clearly states what the agent's service fee covers. Scrutinise clauses related to tenant acquisition, such as marketing, referencing, and tenancy agreement preparation. Explicitly ask about any charges disguised as 'admin fees' or 'guarantee fees'. For a typical BTL property generating £1,200/month, a 10% management fee means the agent receives £120/month, which should encompass these services. Understanding these fees upfront is crucial for calculating accurate landlord profit margins and BTL investment returns.
Steven's Take
Many letting agents adjusted their fee structures after the Tenant Fees Act 2019 came into force. It's not uncommon for some to try and pass on costs in new ways, but the spirit and letter of the law are clear: the landlord pays the agent for their services. Charges like a 'referencing guarantee fee' or percentage-based contract negotiation are red flags. My advice is to challenge these immediately. Always ensure your agency agreement is explicit about what your management fee covers, otherwise, you'll see your landlord profit margins eroded by fees that shouldn't exist.
What You Can Do Next
Review your existing letting agency agreement: Locate the signed contract with your letting agent and carefully read all clauses related to fees and charges, specifically looking for 'referencing' or 'negotiation' terms.
Consult government guidance on the Tenant Fees Act 2019: Visit gov.uk/government/publications/tenant-fees-act-2019-guidance for landlords and agents to understand what charges are prohibited and permitted.
Formally challenge the charges with your agent: Write to your letting agent, referencing the specific charges and the relevant sections of the Tenant Fees Act 2019, requesting removal or refund. Document all communications.
Escalate to a property redress scheme: If the agent refuses to comply, identify which government-approved redress scheme your agent belongs to (e.g., The Property Ombudsman or Property Redress Scheme) and file a formal complaint.
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