Letting Fees Ban Transforms Cost into 'Owner Letting Fees'

December 4, 2018

Earlier this year the government decided to undertake a broad review of the Residential Tenancies Act 1986 and a bill was introduced to parliament to prohibit charging renters letting fees. The goal of the bill was to promote fairness in the rental market by allowing more rental properties to be accessible to a larger number of tenants who might otherwise not be able to afford the services of a property manager. You can get the full lowdown on letting fees and what they covered in our recent blog post, here.

The review resulted in the Residential Tenancies (Prohibiting Letting Fees) Amendment Act being passed and as of 12 December 2018 we can no longer charge a letting fee to tenants.

To recap — a letting fee (currently one week of rent + GST) covers the extensive behind-the-scenes work and out-of-pocket expenses that are required to put a tenancy in place. These include showing the property a number of times to secure the right tenant, vetting the prospective tenants, processing the tenancy application, preparing tenancy agreements, conducting the initial inspection and creating a detailed report with photos, personally inducting the tenant to the lease plus setting all the right expectations for a favourable tenancy. A letting fee can be considered as a guarantee of top-quality service which often surpasses that which tenants typically obtain from private landlords.

Regretfully, we are unable to absorb this cost into our business and, as this fee cannot legally be recovered in any other way from tenants, we have made the decision to pass this cost onto our property owners. A recent Tenancy.co.nz survey of 500 property managers indicates we are not alone in our approach. The survey showed 70% of NZ property managers will charge the letting fee to property owners, while the remaining companies surveyed indicated they would increase their management fees (or implement a combination of both). The tax-deductible fee our property owners will incur will be charged at one week’s rent + GST from the legislation change date — 12 December 2018.

The Residential Tenancies Act (RTA) reform has caused us to think about the industry changes that have occurred over the last ten years, resulting in additional work for us, while our management fees remained unchanged:

  • Smoke alarm requirements.
  • Insulation requirements.
  • Health and Safety Standards — Asbestos.
  • Methamphetamine contamination requirements.
  • Fibre Broadband.
  • EQ damages, assessments and repairs.
  • Email and demands for faster enquiry response times — tenants used to write a letter, now they send text messages or emails, 24/7.
  • New technology investments and the costs to operate and support the applications.

Although this new fee may be a surprise to some of our owners, we do believe that in the instance that you have a wonderful tenant who doesn’t have plans to move, you will enjoy long periods of not needing to pay a letting fee. As always, it’s in everyone’s best interest to have a happy landlord and tenant to reduce costs. Rest assured the team at First Avenue Property will continue to provide property owners and tenants with experienced property managers and support staff for prompt, reliable communication and advice to best protect everyone’s asset(s) and interests.

Images:
Deadline Stopwatch Clock Time Pressure Watch’ by Pixabay

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