My letting agent just sent me a renewal invoice with a 'marketing fee' for finding a new tenant, even though the current ones are staying. Is this even legal after the Tenant Fees Act, or are they just trying it on?
Quick Answer
Under the Tenant Fees Act 2019, agents cannot charge tenants renewal fees. However, agency agreements between landlords and agents often include renewal fees, which are legal if explicitly stated in the contract.
## Reviewing Agent Charges: Understanding Your Contract
The legality of a 'marketing fee' for finding a new tenant when current tenants are staying depends entirely on the specific terms of your letting agent contract. From June 2019, the Tenant Fees Act made it illegal for agents to charge *tenants* renewal fees. However, this act does not regulate charges between landlords and letting agents. Therefore, if your contract states a fee for tenancy renewal, regardless of whether a new tenant is sourced or marketing is conducted, it is likely enforceable. Typical fees can range from £100 to £300 for a renewal. Understanding the fine print of these agreements is crucial for any Buy-to-Let investment returns.
### What does the Tenant Fees Act 2019 prevent?
* **Tenant-facing charges:** The Act primarily prevents letting agents and landlords from charging tenants for various fees, including tenancy renewal fees. This ensures that tenants are not burdened with charges beyond rent, deposit, and utilities.
* **Holding Deposits:** It limits holding deposits to a maximum of one week's rent.
* **Security Deposits:** Security deposits are capped at five weeks' rent if the annual rent is less than £50,000, or six weeks' rent if it's £50,000 or more.
## Potential Charges for Landlords Post-Tenant Fees Act
While the Tenant Fees Act protects tenants from certain charges, it does not restrict what letting agents can charge landlords. Letting agents commonly include clauses in their agreements that permit them to charge landlords for various services, even if no new tenant is explicitly found or marketed. This is often framed as a 'renewal fee' or a 're-letting fee' or even a 'marketing fee' for the ongoing management of the tenancy. Such fees can vary significantly, often representing a percentage of the annual rent or a flat fee, for example, 5% of the annual rent or a fixed £250. This affects landlord profit margins.
### Scenarios where agents might charge landlords
* **Tenancy Renewal Fee:** Many contracts stipulate a fee for managing the renewal process, even if the existing tenants remain. This covers the agent's administrative time, drafting new agreements, and ensuring compliance, impacting your rental yield calculations.
* **Commission on Rents:** Some agents charge ongoing commission for the tenancy duration, which automatically includes renewals unless specified otherwise.
* **Pre-emptive Marketing Clause:** Less common, but some contracts may include a fee related to the *potential* need for marketing services, regardless of actual execution, as a retainer for ensuring continuous occupancy.
## Investor Rule of Thumb
Always scrutinise your letting agency agreement before signing; what is not explicitly excluded as a charge, particularly for renewals, can be charged to the landlord, regardless of the Tenant Fees Act.
## What This Means For You
Most landlords focus heavily on purchase costs and rental income, overlooking the long-term impact of agent fees. The specific wording in your letting agent agreement dictates what they can legally charge you for services like tenancy renewals. If you want to understand how each clause within your agent contract impacts your long-term profitability and learn how to negotiate these terms effectively, this is exactly what we analyse inside Property Legacy Education.
## Common Pitfalls to Avoid with Letting Agent Agreements
* **Not reviewing the contract thoroughly:** Many landlords sign without fully understanding all the fees and charges outlined for different scenarios, leading to unexpected costs impacting BTL investment returns.
* **Assuming 'marketing fee' implies actual marketing:** Do not assume that a 'marketing fee' must correspond to active marketing if your tenants are staying. The contract wording will define the service.
* **Ignoring the contract's termination clauses:** Understand the notice period required to switch agents and any fees associated with early termination or transferring a managed property, as these can be substantial.
* **Not clarifying renewal fee triggers:** Ensure you understand exactly what triggers a renewal fee. Is it for drafting a new AST, or for finding a new tenant? Clarify if it applies if the tenancy simply rolls onto a periodic contract.
## Strategies for Mitigating Agent Fees
* **Negotiate upfront:** When engaging a new agent, negotiate all potential fees, including renewal fees, commissions, and exit fees. Can you cap renewal fees or remove them if no new marketing is needed?
* **Seek an agency with transparent pricing:** Look for agents who provide a clear, itemised list of all potential charges for landlords upfront, without hidden clauses. This helps with managing landlord profit margins.
* **Self-manage renewals:** If your agent charges high renewal fees for existing tenants, consider taking over the renewal process yourself, if permitted by your agreement, once the initial fixed term moves to a periodic tenancy. Ensure you understand your legal responsibilities.
* **Reference checking prior to contracts:** If using an agent for tenant sourcing, define exactly what is covered in their' finding a tenant' fee, including credit checks and right to rent checks, to avoid 'hidden' add-ons.
* **Review annually:** As part of assessing your rental yield calculations, review your agent agreement and fees annually. If dissatisfied, explore other local agents offering better terms for property management, especially for passive landlords focusing on a hands-off approach through services like 'fully managed' rentals.
Steven's Take
The Tenant Fees Act was a great step for tenants, but it didn't solve everything for landlords. Many agents saw it as an opportunity to shift those costs from tenants to landlords through renewal fees. It comes down to what you signed in your agency agreement. I've seen 'renewal fees' ranging from a token £50 to a percentage of the new annual rent, which can be several hundred quid. When you’re building a portfolio, every £100 counts. Dig out that contract and read it carefully; it'll tell you what's legit and what's not.
What You Can Do Next
1. **Locate and review your current letting agent agreement:** Find the signed contract; search for terms like 'renewal fee', 're-letting fee', 'extension fee', 'marketing fee', or clauses related to tenancy extensions to understand your obligations.
2. **Contact your letting agent for clarification:** Politely request a detailed breakdown of the 'marketing fee' and ask them to reference the specific clause in your agreement that permits this charge. Ask if any actual marketing activities were undertaken.
3. **Research comparable agent fees in your area:** Check local letting agents' websites or call competitors to understand prevailing market rates for renewal services for landlords in your specific postcode. This gives you leverage for future negotiations.
4. **Consider negotiating the fee or future terms:** If the fee seems disproportionate or isn't clearly defined, attempt to negotiate. For your next renewal or when the contract ends, negotiate a new agreement that clearly outlines all charges, reducing unexpected costs.
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