Already well documented in the press, rising rents in the private rented sector combined with cuts to housing benefits following the introduction of Universal Credit, have made letting to councils a less attractive proposition for private landlords.
However, as councils face mounting pressure to house a growing number of people, it has become common in some areas, in particular those with higher property prices, for local councils to offer financial incentives to landlords offering rented accommodation to tenants with defined housing needs.
In circumstances like this, some letting agents have enquired whether they are entitled to keep that incentive payment as part of their fee.
The simple answer is yes, a letting agent may be able to include an incentive payment to the landlord as part of their fee, but only as long as they are very clear and up front with the landlord that that is what they intend to do and the landlord agrees.
Primary Authority Assured Advice 33, which takes into consideration Consumer Protection from Unfair Trading Regulations 2008 (CPRs) and Business Protection from Misleading Marketing Regulations 2008, was obtained from Warwickshire County Council and is applicable to all TPO member agents.
It provides further detail on this question and addresses letting agents’ duties and how their fees may be defined.
The CMA Guidance has this to say about a letting agent’s duty of loyalty:
“The agent’s responsibility is to represent the interests of their principal, and not to allow any other interest (their own, or someone else’s) to conflict with this.
“If a potential conflict of interest arises, the agent must make full and frank disclosure of this to their principal.
“This duty also restrains agents from making ‘secret profits’, meaning money the agent is paid in addition to their agreed commission from the landlord client, and which the landlord client does not know about.
“So, for example, you should disclose any commissions or other benefits you receive from workmen for passing work to them.”
This advice fits with the CPRs in relation to consumer landlords (as defined in Assured Advice no. 3, making reference to the OFT v Foxtons) and also, to a lesser extent, the BPRs in relation to professional landlords.
As a basic principle, landlords and their agents are of course free to contract as they wish, and this includes the calculation of fees.
If a contract is agreed whereby the agent’s fee will include a sum equal to that paid by the council as incentive for taking tenants in receipt of housing benefit, then that is permitted.
However, as set out above, agents must not make “secret profits”.
If such a sum is to be charged (or kept), then failure to tell a landlord about this could constitute a misleading action or omission likely to affect their transactional decision, and could therefore be an offence under the CPRs.
In this context, “failure to tell” includes “telling in an unclear way”, for example by means of a poorly-worded clause buried in the small print.