What is a Tenancy Renewal Fee?
If you’ve used a high-street letting agent to source a tenant, the chances are you’re going to be inflicted with a tenancy renewal fee if you wish to renew the tenancy with the tenant after the fixed term expires (typically, it’s after 12 months).
Most letting agents charge landlords approximately 10% of the annual rental return (which can stack up to a large amount), for keeping the tenant they sourced. That fee is what is known as a “Tenancy Renewal Fee” Some letting agents even have the audacity to charge the tenant with an admin fee to renew the tenancy (as well as the landlord).
Renewal Fees are unfair
Unfortunately, I have a major problem with tenancy renewal fees, and I believe good letting agents won’t enforce them (there are plenty out there that don’t).
The agents don’t even have to do any extra work the second time round- so what actually are they charging for? Your guess is as good as mine. I refuse to believe that paying 10% for every year that I keep a tenant is acceptable by any stretch of the imagination. Do they still expect me to pay 10 years down the line for keeping the same tenant? Dream on. Cowboys.
My belief is, once you pay through the nose for a high-street letting agent to find a tenant, that tenant should then belongs to the landlord, not the agent. After all, what the hell did we actually pay for otherwise? But most agents consider the tenant their client indefinitely, so essentially we’re just “renting” the tenant from the agent. It’s ridiculous.
How I Avoided renewal Fees
I’ve actually been in that situation where a letting agent wanted to charge me a renewal fee- it felt like they were charging me for a service I had already paid for. For the sake of protecting myself, I won’t name the letting agent involved, because my method of avoiding the fee wasn’t exactly “legit”, so I’m told.
A while back I used a local letting agent to find me a tenant and fully-manage the tenancy. Eleven months later, the fixed term in the tenancy was due to expire, consequently the Tenancy Agreement needed to be renewed (i.e. new contracts needed to written and signed), unless I want the tenancy to become a Periodic Tenancy.
I wanted my tenant to renew so she was tied down for a set period, but at the same time I didn’t want the tenancy fully-managed by the agency anymore. I contacted my tenant and told her I wanted to manage the letting privately, without the use of a letting agent. She was fine with that because we had a good relationship, so cutting out the middleman made sense.
One month prior the expiration of the contract, my letting agent contacted me, and this was how the conversation went:
Agent: “hey, the tenancy agreement with your tenant is nearly up, would you like it renewed?”
Me: “Yes, but I’d like to handle it privately from now on”
Agent: “I’m sorry you can’t do that. Your tenant is our client, so if you want to go private you will have to find a new tenant”
Me: “What do you mean? I paid you XXXX amount to find me a tenant, and you did. Thank you, but I can take it from here”
Agent: “Ok, but you’re not allowed to do that. You can keep our client if we set the new contract up for you”
Me: “How much will that cost?”
Me: “What? £400, just to set up a contract? I can download one from the internet for free”
Agent: “haha, no you can’t sir”
Me: “I assure you, I can. If not, I can just photocopy the existing Tenancy Agreement and reuse it. It seems as though you just want money out of me for nothing. This is ridiculous”
We argued for about 30mins, going around in circles aimlessly. By the end of the conversation we were both pretty pissed off. I eventually made it clear that there was no way in hell I was going to give them another penny for doing no extra work, especially after our conversation. At the end up it, she threatened me with legal action. I knew there was no way she was going to bother doing that (I called her bluff). In conclusion, I kept my tenant, avoided all fees, and didn’t hear from the agent again.
In retrospect, calling her bluff and refusing to pay the renewal fee probably wasn’t the best way to handle the situation. I’m still not sure how far she could have legally taken it, I’m just glad there were no repercussions from my actions. However, there are better ways to avoid renewal fees.
Just to clarify, while I was having the conversation with the letting agent, I wasn’t sure whether there was any mention of a tenancy renewal fee in the contract I signed with them or not. But it was the first I had heard of it, so I just assumed I never agreed to any such thing.
How to avoid Tenancy Renewal fees
Method 1: Use an online letting agent
It might be too late for this, because the presumption is that if you’re reading this blog post, you’re already on the verge of being shafted with a renewal fee. But for future reference, you may want to take a look at using online letting agents to source your tenants.
Notice that I’ve referred to the letting agents that charge a renewal fee as “High-street letting agents”, and that’s because ‘Online Letting Agents’ (which are distinctively different than high-street agents) typically don’t charge additional fees beyond a fixed “tenant-find” fee. That’s just one of the reasons why they’re freaking awesome.
Method 2: Ask your letting agent whether they charge Tenancy Renewal Fees
Not ALL high-street letting agents charge a tenancy renewal fee. So rest assured, even in this snake filled industry, there are still a few good men standing.
Before agreeing to use the service of a letting agent, ensure to enquire whether the agent charges the fee or not. If they do, find out how much, and whether they’re willing to waiver the fee. Depending on how business is, they may be prepared to drop the fee. I would get it in writing though :)
Method 3: Allow the tenancy to roll onto a Periodic Tenancy
The tenancy renewal fee is usually only chargeable if the tenancy is “renewed” i.e. new contracts are signed, and the tenant is tied in for a new fixed term. However, if you don’t sign new contracts, the tenancy becomes what is known as a Periodic Tenancy Agreement. If you allow this to happen, most agents can’t charge you a “Tenancy renewal Fee”
With a Periodic Tenancy, the same terms and conditions apply to what’s stipulated in the existing Tenancy Agreement, but the contract becomes “periodic”, which is dependent on how often the rent is paid. For example, if the rent is paid monthly under the original fixed term, this will become a monthly periodic tenancy, or a weekly periodic tenancy if that’s the payment schedule.
So, if the agent tries to charge you with a tenancy renewal fee, just say, you’d like the tenancy to roll onto a periodic tenancy. That may avoid the fee, depending on what is written in the contract you signed with the letting agent.
Method 4: Is the Tenancy Renewal Fee clearly stated in the contract?
When using a letting agent, you’re usually required to sign a contract with them. In the contract, there should be a clause which refers to a renewal fee (that is, if they charge the fee, of course). If the tenancy renewal fee is NOT in a contract you signed or not stated clearly, then there’s a good chance you won’t be liable to pay. There was case that went to court a few years ago, which involved Foxtons Letting Agents. The judge ruled that because the fee wasn’t stated clearly in the contract, it wasn’t enforceable. You can read more about that case here, High Court rules against Foxtons.
Method 5: Talk to your tenant
I wouldn’t advise following the rules of method 4, because I’m not sure how legal/illegal it is, or what the implications would be you got caught doing it, but I’ve heard of other landlords doing it :)
If your letting agent is adamant on extracting the renewal fee from out of your pocket, then you could simply tell the agent that you no longer want to renew the contract with the tenant(s). Simultaneously, make arrangements with the tenant to go along with the story, and tell them to in form the agency that they would no longer require rented accommodation.
At this point, landlord and tenant can continue with the arrangement they’ve always had. And if they wish to rearrange a new Tenancy Agreement between them, they can do so.