The Lowdown on Letting Fees

October 3, 2018

You may be privy to the government’s recent decision to undertake a broad review of the Residential Tenancies Act 1986 with the key goal of improving tenant security and stability while protecting landlords’ interests. While the review is currently in the consultative phase, the introduction of a bill to prohibit the charging of letting fees has been brought forward and is currently before parliament. We thought this was a prime opportunity to answer a few FAQs on just exactly what a letting fee is, what it covers and how this fee benefits tenants.

What is a letting fee?

A letting fee is a cost that a tenant may need to pay if they use a letting agent.

What is a letting agent?

A letting agent is someone who has the authority to act as an agent of a landlord when establishing/managing a tenancy. This could be a landlord’s solicitor, or it could be a property management company — such as First Avenue Property.

Who can charge a letting fee?

Under current tenancy law, a letting agent  (read property manager) or a landlord’s solicitor are the only people that can charge a letting fee. Private landlords are not allowed to charge this fee. 

What does the fee cover?

The fee covers the behind-the-scenes work and out-of-pocket expenses that are required to put a tenancy in place and includes advertising a property for rent, arranging/holding open homes, reviewing tenancy applications, vetting prospective tenants, preparing tenancy agreements and conducting initial property inspections.

How much is the letting fee?

This can vary but standard practice is to charge the equivalent of one week’s rent (+GST).

What are the benefits to tenants?

Here at First Avenue Property we like to think of the letting fee as a guarantee of a top-quality service. Managing Director, Melissa Benge explains, “We have found that tenants are generally happy to pay letting fees in return for the better standard of service they get from a Property Manager, as it often surpasses that of what they can rely on from a private landlord. Some examples of improved services are:

  • Thorough understanding of the legislation. 
  • Better knowledge of legal processes for property access and serving notice. 
  • Plenty of documentation and clarity for the tenancy agreement and supporting documentation.
  • Clarity around obligations of both the landlord and the tenant e.g. How the property should be presented at the start of the tenancy.
  • Photos and details provided in an ingoing inspection report for the property that not only acts in the landlord’s interest but also protects the tenant’s bond with regard to any damage that existed at the property prior to their tenancy start date.
  • Communication and easy access to a property management company.
  • Improved speed to remedy maintenance and repairs.
  • Reliable bond lodgements and bond refund processing.”

Why does the government want to prohibit the charging of a letting fee?

Tenants already face significant costs when establishing a tenancy including bond, rent in advance and moving costs. The government believes that abolishing this fee will result in more rental properties being accessible for a larger number of tenants.

They also wish to remove inconsistencies and promote fairness in the rental market, by making sure that tenants face equivalent costs when choosing to use either a property management company or dealing directly with a landlord.

Will the abolition of the letting fee mean an increase in rents?

There is concern that if the letting fee is abolished, that letting agents will need to pass the costs, to establish the tenancy, back to the landlord resulting in a hike in rental prices. Although this is a risk, we don’t believe this will happen because market pressures will force landlords to keep their rental prices competitive.  Bindi Norwell, Real Estate Institute Chief Executive, stated that “We hope that they [landlords] are OK with paying for a service, because ultimately that's better for them and they will benefit.” And a Regulatory Impact Statement published by Treasury states “...experience in other countries shows no clear evidence that banning letting fees will lead to increased rents.”

There is also concern that property managers may simply transfer the cost of establishing a tenancy into a general administration fee, however the Residential Tenancies (Prohibiting Letting Fees) Amendment Bill clearly prohibits the levying of any other fee in relation to a tenancy.

How likely is it that the change will happen?

The removal of the current letting fee model looks likely to happen, but we’re eager to hear the outcome of the government’s consultations.

At First Avenue Property we always act in the best interests of both our tenants and our landlords. We will continue to offer our second-to-none service that people have come to expect regardless of the outcome of the bill. Please do get in touch with us today if you’d like more information.

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