Letting agents should prepare to disclose the third-party referral fees they receive to landlords and tenants, according to PayProp.

The rental payment automation platform says that although the referral fees recommendations made to the government by Trading Standards focused on sales, guidance for the lettings sector is likely to follow.

Earlier this month, the National Trading Standards Estate and Letting Agency Team (NTSELAT) published proposals for the government on estate agents’ referral fees, while the head of NTSELAT, James Munro, writing exclusively for Property Industry Eye last week, made it clear that greater transparency around referral fees is needed.

He wrote “Home buyers have a right to know the basis of an agent’s recommendation to use a third party. A more transparent approach to referral fees ensures consumers are able to make an informed decision about a third party provider. Greater transparency means consumers will be able to choose the provider that offers the best value and service that meets their needs.”

The proposals from NTSELAT, which follow a review requested by the government, suggest that agents should be required to disclose any fees they receive when referring clients to other service providers such as conveyancers.

The NTSELAT has also called for a public awareness programme to alert consumers to hidden referral fees, as well as additional guidance for agents and increased encouragement of compliance by redress schemes and professional bodies.

Neil Cobbold, chief sales officer at PayProp, commented: “The recent report from the NTSELAT covers the sales market, but it would not be surprising if any future guidance from the government also includes the rental sector.

“Recent legislation covering the sales market, such as the new anti-money laundering rules introduced this year, has often been extended to lettings as well.”

“Agents should not assume they will be exempt from this change either and should instead start preparing for changes to the referral fees system. They can do this by disclosing the fees they receive to consumers if they are not doing so already.”

There had been speculation that Trading Standards would urge the government to ban agents from receiving referral fees entirely. However, its proposals are less strict than many feared, stopping for now at mandatory disclosure.

Cobbold suggests that if agents are quick to disclose referral fees to consumers voluntarily, Trading Standards and the government could be persuaded away from a future outright ban.

He continued: “Full disclosure and transparency from agents can allow them to keep earning important additional income from referral fees, while at the same time offering more protection to consumers.

“The NTSELAT has acknowledged that referral fees have ‘a place in business’ if they are used ‘ethically and transparently’, so it’s up to agents to make sure they follow any disclosure guidelines set by the government to avoid a stricter clampdown further down the line.”

The report on referral fees has been welcomed by housing minister Christopher Pincher, who said he will now ‘carefully consider’ Trading Standards’ recommendations.

NTSELAT is also developing further guidance for the industry and has called on consumers to report cases of agents not disclosing referral fees.

Cobbald added: “It’s unclear how long it will take for the government to review Trading Standards’ recommendations, particularly as the Covid-19 pandemic remains its top priority.

“However, there is a clear trend towards greater regulation of the industry, as evidenced by the Tenant Fees Act and the upcoming Regulation of Property Agents legislation.

“It would be prudent for letting agencies to take the necessary steps to start disclosing referral fees now so they are ready if and when the government takes action.

“Providing a transparent service is in the best interests of consumers and should already be a key objective for professional agencies. Firms taking this approach can demonstrate their commitment to customer service.”