Letting options: means of managing a property

There are a number of options you might consider for managing the property, depending on your experience, skills and time. Each option has advantages and disadvantages but you should carefully consider which option is best for your particular circumstances:

>> Self-managing landlords

This option is for landlords who are confident that they know their responsibilities and best practice in managing properties. This option saves you the cost of an agent, but can require a considerable investment in time. If problems arise, you may require advice from a professional such as a lawyer or accountant, which may come at a cost. Landlord associations are a good source of advice and assistance and can provide most of the information that a self-managing landlord would require.

>> Letting and use of managing agents

If you decide to get help with managing your property, there are three potential options:

a. Letting only

This is where an agent markets the property, advises on rent levels, finds a tenant, undertakes reference checks if required, and provides a tenancy agreement. Once the tenancy has started, the owner (landlord) undertakes all management of the property.

The agent charges the landlord a one-off fee for this. The amount will vary but is usually based on the rent, often it will be one month’s rent.

They may also charge the tenant an administration fee. You need to agree what deposit is to be collected, and ensure it is held in accordance with statutory tenancy deposit protection measures if it was taken after 06 April 2007.

b. Letting and rent collection

The second option is where the agent finds a tenant but also collects the rent during the tenancy. Other management functions such as repairs and arranging to get possession of the property at the end of a tenancy, if needed, are still dealt with by the landlord.

The agent is likely to charge a one-off fee and then a monthly fee (a percentage of the rent, perhaps 5%) for collecting the rent. This arrangement may be confusing for the tenant as it is not clear who is responsible for which areas of management.

c. Full management

The third option is for the agent to act as a full managing agent. They deal with all management issues, repairs, rent collection, starting the tenancy and some steps towards ending the tenancy. For example, they may serve notice but not take court action. This is obviously more expensive (perhaps 10% to 15% of the rent), but it is worthwhile if the property owner either does not have the time to manage the property, or lacks the expertise. You need to agree with the agent what repairs they can do without asking you, and what repairs you want to get involved in. You will have to pay for the repairs, hopefully out of the proceeds of the letting.

>> The relationship between the landlord and 'agent'

The term ‘agency’ is used in law to describe the relationship between the principal, (in housing this is the landlord) and the agent. The principal agrees (expressly or impliedly consents) that the agent should act on their behalf in legal relations with third parties (in housing this is the tenant, and any other party that the agent needs to deal with in managing a property, for example workers undertaking repairs). The agent also agrees to act on the landlord’s behalf.

>> The liability of the landlord where an agent is used

Where an agent is used, actions carried out by the agent on the landlords behalf are treated in law as if they had been done by the landlord. Landlords are bound by any agreement or contract made by their agent on their behalf with a third party (i.e. a tenant).

If the agent agrees to something which the landlord had not authorised, the landlord is still bound by the agent’s action, unless it is something obviously outside the authority of a normal agent in these circumstances.

This means, for example, that if the agent is acting as managing agent for the property and fails to carry out a statutory duty, such as ensuring an annual gas safety inspection is carried out, the landlord will be held liable for the failure as well. A landlord will also be ultimately liable to the tenant for the return of the damage deposit (in situations where tenancy deposit protection does not apply) and will be obliged to pay this to the tenant, for example if the agent were to go bankrupt or abscond with the money.

In view of this, you should be very careful when choosing an agent, and choose one who will carry out their responsibilities properly.

You should also be very clear when giving agents any special instructions (such as ‘no pets’) preferably putting these in writing.

>> The liability of the agent in agency agreements

If the agent has acted properly and in accordance with the agreement with the landlord, an agent will not be liable for a contract entered into on behalf of his landlord.

If the agent has acted contrary to instructions (for example allowing pets where the landlord specifically said ‘no pets’) it is likely that the agent will be liable to the landlord for any losses which may follow from this. Liability may depend on, amongst other things, the precise instructions from the landlord and subsequent correspondence or conversations.

An agent may be personally liable to the tenant if the agent has not told the tenant that they are acting for a third party and the tenant believes the agent to be the landlord. The agent is also liable in respect of claims for the damage deposit money where the agent has held this as ‘stakeholder’.

Agents and notice to quit: Agents can validly serve possession and other notices on behalf of their landlords. [See Grounds for possession] for more detail on possession notices.

Also a notice to quit served on a landlord’s agent by a tenant will normally be considered validly served.

Agents and court claims: Although they can deal with the notice element of recovering possession, agents should not initiate legal proceedings on behalf of landlords without their knowledge. Also, agents are not entitled to sign claim forms for possession proceedings [see Grounds for possession] even if they hold power of attorney. Only litigants or their solicitors are able to sign these. The fact that a claim form is signed by a letting agent is a common reason for the rejection of claims by the county court.

Frequently, agents will offer landlords the opportunity to take out legal expenses insurance. If you decide not to take advantage of this or if it is not offered, then although your agent may assist you by recommending and liaising with suitable solicitors, it is generally best for you to deal with any court proceedings which may arise yourself. Even if you wish to delegate much of this to the agent to deal with, it is prudent to keep aware of what is happening as you will be potentially liable to the other party, for example for costs, if the claim is not successful.

>> Defining responsibilities in the contract

If you enter into an agreement with an agent, you should get a written contract with them indicating what level of service they are offering, and their agreed fees. It is important to read the whole contract and discuss any points you are not satisfied with before signing, so it can be varied or an alternative agent sought.

You also need to agree how you can terminate the contract for any reason, including if you want to take over management yourself. As in many businesses, a small proportion of agents may not make a reasonable profit and can go out of business owing both the landlord and tenant money.

Investigate the agent. It is worth trying to get a personal recommendation (your local landlords association may be helpful here). Check how long the company has been in business, how many premises they manage, what training their staff have received, and whether they are a member of a professional or trade organisation such as:

The Association of Residential Letting Agents (ARLA)
National Approved Lettings Scheme (NALS)
The National Association of Estate Agents (NAEA)
Royal Institute of Chartered Surveyors (RICS)
The Housing Ombudsman Service (HOS).
The Bristol Association of Letting and Managing Agents (BALMA)

Fees and costs will vary, and cheapest is not always best if the agent is not an expert in good management practice and housing law.

It is also important to choose an agent who is familiar with the type of property you are letting, so take a look at the other properties they are dealing with. You could also get someone you know to contact them with enquiries about renting a property to see how they treat potential tenants.

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