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Letting options – Means of Managing Property

1.2 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 have advantages and disadvantages but careful
consideration should be given to ascertain which option is best to meet any
particular circumstances:

1.2.1 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 a 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.

1.2.2 Use of Letting and Managing Agents

If help is required to manage the property, there are at least three potential
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. Fees vary widely and it
is important to compare the local market rates for doing this before making
a selection. 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) [see
section 3.1.2] must be protected in one of the three government approved
tenancy deposit protection (TDP) schemes. It is the landlord’s legal
responsibility to ensure their tenants receive the relevant scheme’s terms
and conditions (known as the prescribed information) and that the tenant
also receives a notification from the scheme provider which proves 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 on-going management of the property.

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, to make sure
that the tenant are absolutely clear about who is responsible for which
areas of management.

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% to 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 there will be between the owner and the manager: making
it clear who is suppose 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.

1.2.3 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.

1.2.4 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 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
damage deposit, whether it is a deposit taken before 6th 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 protects their interests as well as their agents and should
take care to consider any clauses that exclude or limit agent’s liability for
negligence.

1.2.5 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 Notice to Quit

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 to quit served on a landlord’s agent by a tenant will normally be
considered validly served if service to 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.

1.2.6 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. Areas of concern or disagreement
should be resolved before signing the agreement. Any contract should also
state what the agent’s termination arrangements are if the landlord 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 landlords’ 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:

• The Association of Residential Letting Agents (ARLA);
• UK Association of Letting Agents (UKALA);
• The National Association of Estate Agents (NAEA);
• Royal Institution 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 out the
associations’ requirements when considering which agent to use.

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.