Agent's Renewal Fees

There are few things that rankle more with Landlords than renewal fees. These are fees charged by Letting Agents, usually between 50% and 100% of the original commission, when a tenant decides to renew or extend their original Tenancy. It amounts to a fee of several hundred pounds for drawing up a new Tenancy Agreement.

I may be on shaky ground here, but before I give you advice on how to limit these fees I will attempt to justify them.

Lettings is a competitive market, there are no shortage of agents offering to find you a tenant, so we can safely say that their fees are set by market forces. If one agent tried to charge more you would just go to one of his competitors. It follows from this that if there were no such thing as renewal fees the commission rate on new lets would increase.

If there were no renewal fees all Landlords would pay a one off fee regardless of how long their tenant stayed for. Fine if you’re lucky and get a tenant that stays for a few years but expensive if you have a series of tenants that just stay for 1 year. So renewal fees spread over the length of the tenancy are a fairer way to charge Landlords, agreed? Well, I said I was on shaky ground.

Like any contract the time for negotiation is before you sign it and this is certainly true of a letting agent’s terms and conditions. The renewal fee tends to be buried in a single paragraph in the body of the agreement. Check the percentage rate and address it before you instruct the agent. If you wait until the tenant is due to move in the agent is likely to take a harder line as he knows that you won’t want to lose the tenant and if you wait until it is time for renewal it is too late.

By addressing the issue before the agent is instructed you have two things on your side. The agent won’t want to waste time playing hardball on a renewal fee he may never earn while his competitors are showing prospective tenants around your property. He will also know from experience that there’s a good chance that the tenant won’t renew anyway, so why not reduce by a couple of percent.

It would be too much to expect to have the renewal fee waived entirely. All the most well established agents charge them so even if you do find an agent that charges a very small or no renewal fee your property is not likely to get the exposure that it will require for a quick let. Remember even a short void is likely to wipe out any saving in the renewal fee. So choose the agents that you think will do the best job and negotiate their renewal commission down to what you would consider a fair percentage rate. I would aim for not more than half the initial commission

The other figure that you should look for in a letting agent’s terms and conditions is the sell on commission rate. This is in most agreements these days and states that if the tenant, or any associated party, goes on to buy the property a sales commission will be due to the agent. Agents normally insert their standard sales commission rate (the one that they rarely actually charge) in here. The same set of rules used for re-negotiating the renewal fee apply.

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