HOW TO SET UP AND RUN A LETTING AGENCY Disclaimer: The information contained in this document has been well researched, however all readers should seek legal advice before commencing any business. This is good practice for any entrepreneur and I take no responsibility for the legal accuracy of this document.
How a letting agency works page 1
Introduction Letting property calls for time and effort. You have to find and select tenants you need to collect the rent, administer the letting and manage the property, including arranging all repairs and renewals. Letting property can be an extremely profitable business. It can bring you a very quick income but you must be prepared to work for your living. Not all property owners wishing to let their property can handle all the work. In general they do not have the knowledge required and most want to hand this responsibility to someone else. This is where you come in. You are the middle man. You act for both the Landlord and the Tenant. You will need to successfully market to both of these groups in order to succeed. We will show you how to do this. As a letting agent you will do some or all of the following: 1. Advertise for Properties/landlords 2. Make sure the property to be let is suitable 3. Advertise for tenants 4. Arrange and carry out viewings. 5. Interview and select suitable tenants. 6. Administer the letting. 7. Collect the rent. 8. Manage the property
How a letting agency works page 2
Points to consider when setting up your agency: What Is The Competition Doing Before setting up any business it is always a good idea to carry out some local market research. This will allow you to understand your customers, your competition, and also tailor your business to the needs of the local market. Local competition is the first thing to explore. Purchase all the local newspapers and see how many letting agents are advertising. This may not always be straightforward, as not all ‘property for rent’ advertisements will state they are placed by agents. A useful tip is to look for recurring telephone numbers, which will tend to ‘expose’ a letting agent - or if not a very large landlord who you certainly need to know about! If there are a lot of agents advertising locally on a regular basis then this is a very good sign. It shows that there is a healthy local letting market - and it is also profitable. Otherwise, there would not be so many agents operating in your area. Contact the competition! posing as a landlord (which you may already be). Also pose (or get a friend or colleague to do this) as a prospective tenant. F out what services they are offering, what types of proper ties they can handle, how much they charge landlords - and what sort of property they have available for tenants. Also obtain copies of any sales literature which they issue to both landlords and tenants. Look at ways in which you can improve upon the service currently offered in your area. Setting Your Base You can run this business from home in the early days, working from a spare bedroom, or dining table. Since neither landlords nor tenants will need to visit you it is not necessary to have an office or shop. In those cases where you do need to meet a landlord or a tenant it will usually be at the property to be let. Although many letting agents do work from an office or shop, and you may wish to do this eventually, it is certainly not essential to start. Use the saving on these overheads to offer a more cost effective service, thus allowing you to gain a valuable toe-hold in the local letting market. Most of the business of a letting agency can be conducted by telephone. You need to be contactable at all times, so if you are not in all day use an answering machine, divert calls to a mobile, or use an answering service. It is also a good Idea to have a 24 hour contact number, in case of emergencies such as a burst pipe or storm damage to a property. This is a good selling point with both landlords and ten ants. A letting agency business does require the preparation of an amount of written material. So it is useful to have a PC with word processing facilities and a good printer. If you do not have such facilities, find a local secretarial service who can handle this for you. You will need some professional business stationery including letter heads and business cards. This should be purpose-designed and printed for your letting agency, rather than your other property activities a letting agency business also requires certain forms and template documents. Sample documents are provided later in this lesson.
How a letting agency works page 3
Banking For The Letting Agent You should keep your bank account for this business entirely separate from your other business activities, and also from your personal banking. You should also have two separate business accounts for your letting agency business: Account One - An Operating Account. This should be used for paying your bills, advertising, printing, wages etc. Account Two - A Client Account. This should be used for receiving rent payments from tenants and paying the rent over to landlords, after you have deducted your commission. The reason for this two-tier arrangement is that it will mean you never get your own business money mixed up with your client’s money, which could cause cash flow problems. It also looks much more professional and landlords can see that you are not using ‘their’ rental income to fund your business! Each month, pay your commission from the client’s account into your operating account, so that you can cover your bills, as well as your own wages. Staffing Your Letting Agency A letting agency can be started on an owner-operator basis, and is ideal for part time operation. Since most of the work is carried out by telephone and is administrative you won’t need to hire any specialist staff. It is always an advantage to deal with landlords personally and this is an extra way in which you can gain an advantage over large, existing agencies where landlords do not receive such personal attention. Conducting viewings with prospective tenants can be a time consuming business. For this reason, you may wish to consider employing part time ‘accompanied viewers’ whose job it is to conduct viewings for you. Each viewer is employed to handle viewings in their own local area (i.e. their suburb, or surrounding streets) and they are paid on an hourly basis as and when you need them. The relatively small cost of paying accompanied viewers can save you a great deal of travelling time whether you live in a town or country area.
How a letting agency works page 4
How Much Can You Make...? Although you will not be buying and selling property as such, a letting agency can still be extremely profitable. Most letting agents provide three distinct levels of service, which will be discussed later Here is an indication of the turnover achievable from even a small part time and home based agency: Service 1: 30 clients per year @ £303 each. Total income: £9 .090 Service 2: 20 clients per year £511 each. Total income: £10,220 Service 3: 6 clients per year £1,090 each. Total income: £6,540 If your agency achieved the same level of business with 56 clients in your first year (Just over one per week) you would turn over; £25 850 in fees CHECKLIST Key Points Covered A letting agency expertly matches supply and demand in the rental property market. It serves the thousands of landlords who do not wish to or are unable to handle their own lettings. • Professionalism is the key. The more professional your agency looks, the more clients you will attract.
How a letting agency works page 5
MARKETING YOUR LETTING AGENCY The success of ally business depends on how well you market it. However, with a letting agency there are two distinct markets; land lords and tenants - and so two distinct marketing approaches are necessary. Remember that while, at the end of the day, the landlords effectively pay your wages and tenants pay you nothing, marketing to prospective tenants is equally important since the more tenants you attract the more landlords you can serve - and the happier they will be. Promoting Your Service To Landlords There are many different types of landlords and each has a slightly different motivation for wanting to use a letting agency service. Some of them may be seasoned property investors with many properties to let, while others may just own one property. Some may be expatriates who are working abroad, while others may turn to letting because they are unable to sell their own home. Whatever their situation, you must actively promote your service to them. These methods are all suitable: 1. Press Releases and Editorials Local newspapers are always interested in the launch of a new business. So send them a press release and tell them about your business. You will get some free publicity. Also, if you decide to advertise with the newspaper you will almost certainly get much more free press release publicity in the future. 2. Recommendations and Referrals Most landlords and people in the property business know other land lords and others who make their living from the properties market. Once you are established in the business you will automatically benefit from this word of mouth’ advertising. However, make a conscious effort to use it, simply by mentioning to everyone you come into con tact with in your property business that you also offer a professional letting service. 3. Local Advertising This is the most effective form of advertising, especially for a new agency. It is also probably the most effective way of reaching the ‘non professional’ landlord, i.e. those who have just one property they wish to rent out - perhaps because they do not wish to sell it, which is the Ideal type of business for the new agency. This is also a good way of attracting customers who perhaps had not thought of renting their property through an agency. Once they realise you are available, they may decide to do so. You do not need a series of expensive, full page advertisements to establish your agency. The best policy to adopt is one of ‘little and often.’ Simple lineage adverts are effective, but make sure you place them every day or week. Here are some examples: LANDLORDS! All types of property required for waiting tenants. Full Management or Basic Letting Service. For FREE details Tel. 01234 567890. EMPTY PROPERTY? Specialist Letting Agency requires all types of property. Tenants waiting. For free details telephone: 01234 567890.
How a letting agency works page 6
Specialist Letting Agency requires all types of property for waiting tenants. Telephone 01234 567890 for free details. Always point out that you have tenants waiting (by the time you place your advertisements you probably will have!). Landlords will always be attracted more quickly if they know that their property can be filled quickly. It is also worth stressing that you are a specialist letting agency. I.e. not just an estate agency that does letting on the side.’ Again, landlords will be attracted if they feel you specialise in letting and their property won’t be treated as a lower priority than property for sale, which is the case with many estate agents. 4. Your Competition It makes good sense to get to know other people and companies in your area who are running a letting service. Rather than being fierce competitors you can actually help each other to work more productively and profitably. It is often the case that other letting agencies may have a glut of a particular type of properties to let, while you may have a shortage. You may have properties which you find hard to let, while other agencies could fill them in days. By working together you can match supply and demand even more effectively over a wider area. In eases where you co-operate with another letting agency it is usual to share the fee income 50-50. 5. Direct Contact With The Landlord Build up your own personal contact list of landlords in your area. You can do this by making enquiries with other letting agencies, as well as scouring the property ‘small ads.’ You may also find some landlords listed in the ‘Yellow Pages’ under ‘Accommodation.’ Do some detective work with the aim of matching together known landlords with their properties and then finding a telephone or address contact for them. It is well worth contacting these people direct to establish a relation ship. There is no need for any hard sell. Just introduce yourself. This method is suitable: Make a preliminary phone call “Hello, could I speak to Mr. Brown please. Good morning Mr. Brown. My name is Mike B from Mike Black Associates. We operate a specialist property letting service in the Anytown area. I understand that you let your properties from time to time and I would like to send you some details of the service we offer to landlords in your area. Would that be OK? With this sort of approach the landlord has nothing to lose and so is unlikely to object. Simply confirm the address to send the literature to. • Send out some basic information This is where you can gain advantage over many of your competitors. Many agents do not have any formal sales literature, relying instead on a verbal description of their services. However, in this business image is very important. By sending out descriptive and well presented literature you will be one step ahead. Although a brochure is ideal you can prepare simple sales literature by writing a description of your services, adding a list of charges and sending it with a sales letter. Print this up on your business letterheads. How a letting agency works page 7
A sample sales letter and brochure copy is provided at the end of this lesson. Make a follow up phone call Hello Mr Brown? This Mike Black from Mike Black Associates. I’m just calling to make sure that you received the information on our property letting service that I promised you. You did. That’s great can I ask you f you use a letting agent at the moment?’ From here you can go on to find all the information about the landlord, i.e. whether they use an agent, whether they would consider using one, how many properties they have, how often they come up for let, and whether they have any properties at the current time. Not every contact will necessarily result in immediate business of course. However, if you have made a professional approach your agency is highly likely to be remembered for the future. 6. Direct Contact With Householders You should also consider making a direct approach to private individuals who have their houses up for sale and Identified by ‘For Sale’ signs in the garden. This approach works best of all in a sluggish housing market, or at times of the year when it is more difficult to sell property, i.e. during the winter. If these sellers have lined up a new property but cannot sell their own they risk losing the new property. By renting and then selling at their leisure it solves their problem quickly. These people may not have thought about renting or using an agency so your approach could be very welcome. Promoting Your Service To Tenants While every good letting agent provides a first class service to landlords, don’t forget that it also offers considerable advantages for tenants. Instead of responding to dozens of small ads for property to rent (many of which are taken by the time they reply), tenants can find the right property for them through one single point of contact, and at no cost to them. In short, as a letting agent, you will have an instant, ready-made customer network with no hard selling. Very few businesses can boast those advantages. When promoting your service to tenants remember that all tenants are looking for one thing - a place to live which is just right for them. Whether that place is rented direct from a commercial landlord, estate agent, householder or letting agent is largely irrelevant to the tenant. However, you can encourage them to let through you if: a) You make it easy for them to find and view suitable properties b) The whole letting process is made as simple and straight forward as possible. In this regard remember that your tenant is in some ways a client’ of your business! albeit an unpaid one. As such, you need to promote arid sell your service effectively to them. Here are the best ways to reach prospective tenants: 1. Press Releases and Editorials
How a letting agency works page 8
These can be used to attract tenants as well as landlords. When preparing a press release or editorial for the purpose of attracting tenants, remember that it must stress the benefits to the tenant, rather than to the landlord. 2. Local Advertising Local advertising is very much the lifeblood of the letting agency business, so far as finding tenants is concerned. Every local paper has a ‘Property To Let’ section. It is essential to advertise there and this is where you should concentrate the bulk of your advertising campaign. You can adopt two approaches to local advertising: • You can advertise that you have properties to let without naming specific properties, and offer tenants a ‘free search/location’ service. • You can advertise specific properties to let, and simply wait for tenants to contact you about the property they are interested in. If you are advertising specific properties then the aim should be to achieve maximum response at minimum cost. Newspaper advertising is always expensive. Try to include only the most appealing points and write a small ad round those factors. For example: XYZ Area - two bedroomed flat - fully furnished - £75 per week. One Bed Flat - Close City Centre - Well appointed - £250 pcm. Fully furnished four bedroom luxury detached - Anytown - £500 pcm. When prospective tenants enquire you can then provide them with further details. Once your agency becomes established try to cover several properties with one generalised description. This means that several properties can be let from one small ad! 3. Direct To Local Companies Large companies frequently move employees in and out of a given area. Some will be moving into an area with a view to buying there eventually, and others will be only on short contracts or visits. While you can help these people direct you can also offer your service direct to the companies, as they frequently help their employees to find accommodation, or even rent it for them on a company let. Contact the personnel department at the following institutions to introduce your service. Do this by telephone, letter or fax. They’ll be glad to have their employee location problems solved, or at least made simpler. • local businesses • hospitals
• local authorities
• emergency and armed services
• universities/colleges • construction companies
4. Posters and Window Cards Putting up a poster or sign on properties to advertise the fact that they are available costs very little, and is also a good way of getting free advertising for your letting agency in general! However, it is usually insufficient in itself as a way of letting a property and should only be used a sideline to other methods. Also, as an extra to your promotional activities you should consider placing cards/posters detailing your service in places such as shop windows, company, How a letting agency works page 9
college and hospital notice boards. This kind of advertising is most effective when used to promote specific properties in the immediate local area. 5. Publishing Property Listings A brochure listing all the properties you have available is a useful marketing tool. You may not wish to do this when you are relatively new and have few properties, but you should certainly consider it long term. The listing may give either brief or lengthy descriptions of the properties involved. However, it should never give the actual addresses of the properties. This may result in unwelcome, unexpected visits from prospective tenants - or burglars! For the very best results, update your listing on a daily basis. This is easy to do if you have a PC with a word processor.
Update the list as a property comes onto your books or is let, then print out a copy every lime it is requested. Make it known to clients that your list is right up to date. and that it is more accurate than expensive, printed brochures. A good tip is to pay for your listings by selling advertising to those who offer services to people wishing to move home. Removal companies, decorators, home furnishing suppliers etc. may want to advertise and just six adverts a month costing ÂŁ50 each would pay all your stationery costs and maybe even turn a small profit! 6. Set Up A Website Once you are established and have a good selection of properties to let, you may wish to set up a website giving details of your service. This could list all your properties, together with a description and a photo graph. As well as being a good way to promote your service to tenants (and also to landlords) a website can enable prospective tenants to search online for suitable properties, thus reducing the time and work involved in handling enquiries and searching your database yourself.
How a letting agency works page 10
WORKING WITH YOUR TARGET MARKETS As a letting agent you have two target markets: landlords and tenants. Each target market has its own requirements and we will study the requirements of each in this section. Working With Landlords Landlords can come from a number of different sources and back grounds, as we have already covered. However, despite their different reasons for being in the letting business, they all have very similar aims and objectives in letting their property: • They want a tenant who will pay the rent on time. • They want a tenant who will act responsibly and care for the property. • They want an agent who is thorough and efficient. • They want an agent who charges reasonable fees. Landlords often go to agencies because they have experienced bad episodes with previous tenants they have handled. For example, perhaps the tenant didn’t pay the rent or did a ‘moonlight flit. The fact that you will take care of all of this for them is a very important sales point of this type of service. It is also important to note that some landlords may have suffered poor service from other letting agents in the past. such as the agent didn’t find enough tenants, or didn’t deal with any problems that arose. Again, emphasising the personal nature of your service is a very good selling point for your agency. Most letting agents provide landlords with some or all of three types of letting service. These are usually as follows: Service one: Finding tenants for a property, arranging the tenancy and supervising the moving-in process. Service two: As service one, but also providing a rent collection ser vice, collecting the rent from the tenant and paying it to the landlord each month. Service three: As Service one and two, but also managing the property. This includes inspecting it periodically, arranging for any repairs and dealing with any problems. As a new agency, you do not have to offer all these services. Simply offer as many or as few services as you feel confident about offering, and have the time for. If you decide to offer services two and three it is also a good idea to allow landlords to choose which level of service they require.
How a letting agency works page 11
Offering A Rent Assessment and Advisory Service In most cases your landlord will usually have a general idea of what rent they wish to charge for their property. However, this is often very much a ‘guesstimate’ and one reason landlords will use your service is to obtain a professional assessment as to how much rent is realistically achievable. Deciding on the most appropriate rent is very much a balancing act. If you can show a landlord that their suggested rent is too low they will be delighted. But they will also be pleased if you can show it is too high and, by reducing it slightly, can fill the property immediately rather than waiting several weeks to find a tenant. The rental value of any given property depends partly on: a) The type, size and quality of the property b) The area in which it is located. However it depends mainly on: The market level of rents actually being achieved for similar properties in that area. You can advise your landlords on the most appropriate rent by keeping a close eye on the levels of rent being achieved in your area and making direct comparisons where possible. The important figure to bear in mind is the rents being asked for properties which are actually let, i.e. not those which stand empty.
How a letting agency works page 12
Working With Tenants On the face of it, the requirements of the tenant are very simple - they require accommodation. However, it is important that you match the tenant with the type of accommodation most suitable to them. Not only does this keep the tenant and the landlord happy, but makes the whole process much simpler for you too. A good way of matching up tenants with properties effectively is to fill out a tenant profile sheet for every prospective tenant who registers with you. This not only looks very professional when the tenant first contacts you, but allows you to do the matching as quickly as possible. Remember tenants will no doubt be contacting other agencies at the same time, so it is important to do the job promptly with minimum fuss A sample Tenant Profile Sheet is given at the end of this course. Be Professional. Always answer the telephone in a professional manner, i.e. “Good morning ABC Lettings. How can I help your If you are operating from home don’t let any ‘home’ noises like children or dogs be heard, since this will give a poor impression. When you have taken the tenant’s details tell them that you will search your database or listing of available properties for the most suitable one. Aim to get back to them the same day with details of the proper ties that are available. This will minimise competition from properties offered by other letting agents. CHECKLIST Key Points Covered Landlords and tenants have different reasons for doing business with you, and are sold’ by different benefits arid features of your service. You can offer some or all of three distinct letting services. Three Letting Agency Services To Offer As we have already covered, most letting agencies offer one or more of three distinct services. In this section we will study more details of exactly what service you offer at each level. Service One: Basic Letting Service This service includes finding tenants, arranging the tenancy and supervising the move. 1. The first task to undertake with this service is to visit and inspect the property. When approached by a prospective landlord, make an appointment to meet them at the property to be let. 2. Ensure that the property is in a ready-to-let condition, i.e. it is habitable, no repair work is required and it is furnished to an appropriate standard (where the landlord wishes to let part or fully furnished). Discuss the rent required, and the type of tenants preferred. If the landlord is a firsttime landlord, ask if he or she has any questions or queries about letting their property. There is no charge for this service, and no hard sell should be used.
How a letting agency works page 13
3. Complete a property survey sheet. This records details of the property and can be used to match it with the most suitable tenant. A sample property survey sheet is provided at the end of this lesson. 4. Assuming that the prospective landlord decides to go ahead with the letting through your agency complete a management agreement document. This explains on what basis you will be handling the letting. A sample management agreement document is provided at the end of this lesson. Give a copy of this to your new client. 5. Advertise the property, using the methods we have already studied. This should produce a number of enquiries. You can then match ten ants and properties and make appointments for them to view the premises. NB. Viewings must be by appointment only, and you should always be accompanied. 6. When a prospective tenant expresses a firm interest in a property their suitability should be checked. Ask for references and verify them. The subject of taking and processing references was studied in lesson five. 7. Draw up the tenancy and have it signed by the landlord and the tenant. 8. Compile an inventory for the property, and have it checked and signed by the tenant at the time they move in. Refer to lesson five for more information on inventories. 9. Collect a bond from the tenant. This guards against non-payment of rent or any damage to the property. The amount of a bond should be agreed with the landlord and paid over to them. 10. Notify gas, electricity, telephone and water companies, and the local authority, that a new tenant is moving in. This can be done by letter or by telephone. Note that it is the tenants responsibility to contact the companies of their choice to arrange for the new services they require to be provided. Charges For Service One The usual charge for this service would be 50 per cent of the first month’s rent or £200, whichever is the greatest. Example: Finding tenants for a 4 bed house rented at £606.00 pan. 50 per cent of £606 = £303. Service Two: Rent Collection Service For this service you will usually be carrying out the service provided in service one but also providing a rent collection service. However, you may be approached by some landlords who only require you to collect their rent. This is a good service to offer to landlords who do not wish to be seen as a ‘rent collector.’ It is also ideal for landlords who live out of the area or abroad. Whatever the situation, rents are collected each month and forwarded to the landlord, less your commission payable. If possible your tenants should pay their rent by standing order, direct from their bank account. M you have to do then is check to ensure that it is paid each month.
How a letting agency works page 14
However, some tenants who do not have bank accounts or who have their rent paid as housing benefit may pay in cash, which you can collect door to door. Housing Benefit: Where a tenant’s rent is covered by housing benefit you can arrange to have this paid directly to you. In this case you should request a pre-tenancy determination from the local authority. This W show how much the local authority will pay for the tenant. The balance (if any) is payable by the tenant themselves Rental Accounts: When you forward the rents to the landlord you should prepare a rental account for all their properties showing what has been paid, what has been deducted (commission etc.) and any amounts that are overdue. A sample rental account form is provided at the end of this course. Problems: If the tenant cannot/will not pay the rent then you should report the matter to the landlord. With this service you are not required to enforce payment of the rent unless the landlord wishes you to do so. This would be charged at extra cost. See later in the lesson for details. Charges For Service Two A reasonable charge for this service would be the set up fee as in service one, plus 7.5 per cent of all the monthly or annual rents collected. Example: Finding tenants for a two bedroom fiat rented at £346.00 pcm. 50 per cent of = £173, therefore a minimum of £200 charged. 7.5 per cent of monthly rentals collected is £25.95. Setup fee is £200+ (12 x £25.95) = £511.40. Service Three: Full Management Service As well as the duties carried out in service models one and two, a full management service requires you to look after’ the property much the same as you would your own let property. With a full management service you should make regular inspections of the property on an agreed schedule (normally every 3 or 6 months) and report back to the landlord on the condition of the property and any maintenance or repairs needed to keep the property in good order. Then, If the landlord requires you to do so you should instruct appropriate tradesmen to carry them out (it is usual for letting agents to be able to organise minor but urgent repairs under approx. £1O0/ in value without consulting the landlord at all). Alternatively, some landlords will prefer you to simply inform them of what needs to be done and have them make the arrangements. In all cases the landlord pays for any work that is required. In the event of an emergency, such as a burst pipe or storm damage, the agent is usually authorised to carry out essential repairs to ‘make good’ the property, again at the landlord’s expense. When offering a full management service you may find it useful to build up a contact list of local tradesmen to help with property maintenance, i.e. builders, plumbers, roofing contractors, locksmiths etc.
How a letting agency works page 15
Charges For Service Three A full maintenance service would normally cost the landlord 10-15 per cent of the annual rental charge, plus £200 for a re-letting charge as necessary. This is for providing the service and not carrying out the work. Example: Providing tenants for a 4 bed house with a rental of per calendar month. £606 x 15 per cent = £90.90. Annual fees are therefore £90.90 x 12 = £1 .090.80. All of these charging methods are attractive and acceptable to landlords because you only get paid when you find them a tenant. NB. These fee levels are based on instructions being given on ONE property. You may wish to give discounts to landlords who let several properties through you. Charges To Tenants As a letting agent you should note that under the Accommodation Agencies Act 1953, it is illegal to charge tenants simply for registering their requirements or Just showing them lists of accommodation, In addition to this it is, of course, a good selling point for your service that it is totally free to tenants, Tenants may be charged certain amounts In connection with preparing the lease and administering the tenancy. However, in most cases a let ting agent derives all their Income from the landlord, not the tenant. Property Letting: Administrative Procedures Use this checklist to help ensure that all tasks are completed when letting each new property. • Take full details of the tenant on the tenant profile sheet, if not already done. • Take references from the referees given by the tenant and process them. • If the references are satisfactory tell the landlord that you have obtained a suitable tenant and obtain his or her agreement to the letting. • When the landlord has agreed to the tenancy, make an official written offer, offering the tenancy to the tenant and outlining the terms. A sample letter which can be used for this purpose is provided at the end of this course. Also, obtain a deposit from them, this could be equivalent to the bond payable on the property. • Agree a date to transfer the property which suits the tenant, you and the landlord. Bear In mind when the current tenancy ends, if appropriate. • Inform local council and utilities that the occupant has changed as soon as you know the completion date (The new tenant must still contact them to take out a contract for service of the utilities they require). • On the day of the transfer: - Complete, sign and witness the tenancy agreement. - Obtain a month’s rent in advance (this is in addition to the deposit). - Ensure utility meters are read where appropriate.
How a letting agency works page 16
- Supply new tenant with an inventory and have them check/sign it. - Transfer keys to the property. • Send tenancy agreement to the Stamp Duty Office for stamping, where relevant, together with appropriate fee if any (See later for details). • Send the landlord a completion pack containing the following information: - A copy of your correspondence with the tenant, If any. - Their copy of the tenancy agreement. - Copies of references. - Details of the date when they will receive the rent, - An invoice for your service. • Pay the deposit/bond and the rentals (less your commission) to the landlord, ideally within seven days of them being received by you. Make sure payments are made promptly and keep the landlord informed at all times. This way they win continue to use your letting agency for many years to come.
How a letting agency works page 17
IMPORTANT CONSIDERATIONS FOR THE LETTING AGENT Creating A Tenancy Creating a tenancy may seem complicated but, as we studied in the last lesson, it is not. You do not need a solicitor. Most properties will be let on an Assured Shorthold Tenancy agreement although there are other types. See lesson five for details. If the landlord has, or wishes to have, their own tenancy agreement created specifically for them then they can do this. However, the extra cost would be payable by them. Two copies of the tenancy agreement are required. One stays with the tenant. The other should go to the landlord. It is, however, useful to keep a copy for yourself. This should be a photocopy and not a third original Student Lets: If it is agreed that the property should be let on a shared house’ basis to students then it Is usual for rent to be charged at 100 per cent for nine months of the year and at 50 per cent for the summer vacation period U. e. July 1 to September 30), in cases where the tenants take a 12 month tenancy. In this case, you would receive only 50 per cent of your usual fee in those months. This should not be considered a problem, since the rents for these properties are frequently higher than similar properties not occupied by students, and this compensates for any shortfall. Landlord Responsibilities Just as you must be fair and honest with landlords then it is important that landlords are always fair and honest with you. Stress to them the importance of this at your first meeting. The landlord must provide clear and correct information regard- big the owners or joint owners of the property to the agent. This has important implications for the security of tenure enjoyed by the client, i.e. you should ensure that no joint owners have a right of residence in the property. • If the landlord has a mortgage secured on the property then they must obtain permission from the bank or building society who holds the mortgage in order to let it. The only exception is if they have a buy to let mortgage, which by definition infers that the property will be let. • The landlord is responsible for the buildings insurance of the property. They should advise their insurance company that the property is to be let as this may affect the Insurance. To clarify these points, ask the landlord to sign a landlord’s declaration. A sample wording for this document is given later. • The landlord is required to keep the exterior and structure of the premises in good repair, and also keep the utilities in good repair. The exact nature of what must be done is normally stipulated in the lease, and not decided by the agent.
How a letting agency works page 18
• Gas Safety Checks. As we studied in lesson five landlords are responsible for the annual testing of gas appliances in let property. They can either arrange this work themselves, or instruct you to arrange it. If you arrange it all costs should be passed on to them. If they arrange it, you should ask for copies of the inspection documentation, although you are not legally required to have them. Whatever the arrangements, this work is always the landlord’s responsibility legally, although as a responsible agent you should always ensure it is done. Responsibilities Of The Letting Agent A letting agent should never accept responsibility, or be held responsible, for the actions of the tenant, i.e. that the tenant will care for the property properly, not cause any damage or fail to pay the rent. However, you should use your best endeavours to ensure that the property is used properly and kept in good condition, and inform the landlord immediately where this is not the case or where the rent falls into arrears. Should tenants cause damage to the fittings or fixtures, or if an item is lost or stolen, then the agent should arrange replacement and collect the cost from the tenant, but should advise the landlord of the situation and agree the cost with them before doing so. If the tenant leaves the property in a condition where it needs to be cleaned before it is re-let, then the agent should arrange this with a professional cleaning service and charge the cost to the tenant. Normally this can be deducted from their deposit. An agent does not normally agree to arrange repairs or rectify damage made before the agreement takes effect, or once the agreement has terminated. This includes after the last tenant has left if it is not intended to re-let the property. Repossession Of The Property Unless the landlord specifies that they require repossession of the property on a certain date, it is normally assumed that the agent will continue letting and re-letting the property on a continuous basis. In most situations, the tenant will rent the property on a shorthold tenancy basis (see lesson five). This entitles the landlord to legal repossession of the property at the end of the tenancy agreement. The landlord should state at the outset of the arrangement either: (i) When they win require repossession of the property, or (ii) The maximum period of tenancy to be granted at any one time. Should the tenant refuse to hand back the property at the end of the tenancy, fail to pay the rent or do anything else which causes the land lord to wish to terminate the tenancy then a court order must be sought to evict them, as studied in lesson five. The landlord may decide to handle this themselves, or they may wish the agency to handle it for them. If they wish you to handle this procedure for them then they will still be liable for all court fees, solicitor’s fees and your fees for handling the procedure. It is possible to arrange insurance for landlords against the costs of obtaining repossession of a property in these cases. Being able to arrange such insurance can be an extra selling point for your agency.
How a letting agency works page 19
For details of such insurance contact: Letsure, Hargrave House, Belmont Road, Maidenhead, Berkshire SL5 6TB; Tel: 01628 581500 Income Tax And Overseas Landlords A number of properties are let by landlords who are resident overseas (eg. expatriates, armed forces members, tax exiles etc.). You should always check whether the landlord is a resident overseas for tax purposes, as this has an important implication for income tax and for your agency. NB. Some landlords to whom this applies may spend considerable periods in the UK but may still be officially resident overseas for tax purposes so always check. If you know or suspect that the landlord is an overseas resident you must abide by the rules of the Non Resident Landlord’s Tax Scheme. This scheme is operated by the Inland Revenue to ensure that non resident landlords pay any income tax which they are due to pay. In these circumstances, a landlord has two options: (i) He or she can either register Ms/her Interest as a landlord with the Inland Revenue and pay tax on his/her rental income direct to them. In this case, you can pay them their rental income gross. (ii) If he/she does not wish to do this then the letting agent must deduct a sum equal to the current basic rate of income tax, less deductible expenses, from any payments made to them and pay this to the Inland Revenue. If your agency deals with any non resident landlords then you should register to operate the Non Resident Landlord’s Tax Scheme within 30 days of making your first payment to a non resident landlord. This is done by applying to The Centre for NonResidents using application form NRL4. You should note that it is an offence to handle lettings for a landlord who is either not registered with the Inland Revenue or where tax is not deducted from their payments and the Inland Revenue may hold the agent liable for payment of the tax even where they have not collected it. Exception: If you do not collect the rent or any other fees you do not need to operate this scheme. For more information and to register, contact: The Centre for Non- Residents, Unit 367k St. John House, Merton Road, Bootle, Mersey-side L69 9BB; Tel: 0151 472 6208; E-mail: non-residents@lnlandrevenue.gov.uk Stamp Duty & Leases When a tenancy is created, a copy of the lease must be stamped by the Stamp Duty Office of the Inland Revenue and a stamp duty or government tax paid on it where relevant. If this is not done, its provisions cannot be enforced in law should it be necessary, although the tenancy is still valid. As part of your service you should send off a copy of the tenancy to the relevant Stamp Duty Office within 30 days to be stamped, before forwarding the tenancy to the landlord.
How a letting agency works page 20
As is the case for stamp duty on property purchase, stamp duty on leases varies according to the amount of rent payable and is subject to periodic review. If a premium has been paid for the lease this is also taken into account when calculating the stamp duty. Most short and medium term lettings for domestic properties will qualify for stamp duty at zero per cent, one per cent or a fixed duty of ÂŁ5 depending on the length of the tenancy and the average rent. This expense can be passed on to the tenant. For more information on stamp duty, and to find the relevant office for your area, call 0845 603 0135. Website: www.inlandrevenue.gov.uk/so
How a letting agency works page 21
Extra Profits For The Letting Agent When you set up a letting agency a number of other opportunities will be available, enabling you to offer extra services and generate extra profits. Here are some of the services you can offer: Management Of Communal Areas If you are handling the letting of property which comprises several flats within one building all owned by the same landlord, then you can provide management of the communal areas and generate an extra income. You can also offer this service to blocks of flats for which you do not act as the letting agent. This work involves the management and running of the communal areas such as any car park, gardens, corridors and stairways. It includes jobs such as parking control, gardening and grass cutting, cleaning, decorating and maintenance, such as painting or changing light bulbs, and being on hand to deal with emergencies, such as breakins or lift repairs. Such a service is very easy to provide. Simply engage some suitable contractors, eg. gardeners or contract cleaners to carry out the work as necessary. Charge the cost of these services, plus extra for your time in organising them. A sum of £30- per hour is typical for such services. These charges are usually levied on tenants. However, they may be included in the rent in which case you will be paid by the landlord. • Guaranteed Letting Schemes Guaranteed letting schemes can be very profitable for the letting agent. Guaranteed letting schemes operate on the basis that a landlord letting their own property cannot necessarily expect a property to be occupied by a paying tenant all the time. As tenants move in and out, there are bound to be periods when the property is not earning an income for the landlord. This can be a problem where the landlord is dependent on this income, I.e. to repay a mortgage! or if they are just small scale landlords. You can offer a guaranteed letting scheme to your landlords which promises that they will receive a minimum monthly income throughout the period you are handling the letting whether the property is occupied or not. This guaranteed income would normally be around 75 per cent of the annual rent achievable if the property was permanently occupied. Thus, if a flat can be let for £400 a month the annual rent would be £4,800. You might offer to pay the landlord £3,600 per year regardless of whether the flat is occupied or not. Many smaller landlords will find such a guarantee attractive. As a letting agent you make your profit from a guaranteed letting scheme by using your resources to ensure that the property is actually let for a period exceeding 75 per cent of the year This way, you stand to pocket 25 per cent of the annual rental (in the example given above, that’s £1,200) as extra profit. Offering a guaranteed letting scheme involves an element of risk and may not be something which you wish to offer when you first start. However, once you are established and are confident that you can find plenty of tenants to rent particular types of property it can be very profitable.
How a letting agency works page 22
• Commercial Lettings You can offer a letting agency for commercial property. eg. offices, shops and factory units. This operates in exactly the same way as for residential lettings. • Buying Agency Services A buying agency not only lets property for landlords but locates and arranges the purchase of property which is suitable for letting too. This service is ideal for offering to large scale landlords and serious investors who do not have the lime to locate and purchase suitable properties. For more information on the work of a buying agent refer to lesson two.
How a letting agency works page 23
SAMPLE DOCUMENTS This section includes the sample documents referred to in this course. Feel free to make use of the text for your own use.
How a letting agency works page 24
Agency Sales Literature - Letter Superior Lettings Unlimited Professional Letting Agents, P0 BOX 9999, Anytown AY I ILL Telephone/Fax: 01234 567890 Mr A Prospect Lord House Lord Street nytown AY5 lAB 28th May 2002 Dear Mr. Prospect, Many thanks for your enquiry regarding our property letting and management service. I have enclosed full details of the range of services which we provide. Whether you simply wish us to find the best tenants for your property, or you require full management of your property including rent collection and property maintenance, then we can help Cur service includes a personal interview with every prospective tenant. In the unlikely event that we are unable to find you a suitable tenant then there will be absolutely no charge to you. If you require any further information please do not hesitate to contact me on the above number. I look forward to hearing from you in the near future. Yours sincerely, Superior Lettings Unlimited.
How a letting agency works page 25
Agency sates Literature - Brochure Superior Lettings Unlimited THE PROFESSIONAL LETTING AGENT At Superior Lettings we aim to make the letting process as simple, trouble free and cost effective as possible by providing a high quality service to Land lords. Whether you are an experienced professional landlord or are letting your own property for the first time we offer a range of services that are second to none. Superior Lettings offer three distinct letting services: SERVICE ONE - FINDING TENANTS The Visit Finding the ideal tenant for your property has to be high on your list of priorities. We will arrange a convenient time to visit the property and discuss with you the type of tenant required, a suitable rent for the property - and answer any questions you might have. There is absolutely no charge for initial advice and consultation - and no obligation to proceed. It will cost you nothing to find out what we can do for you! While we are with you, we will undertake a FREE property survey identifying the main features and benefits of the property. If you then decide to use us, we could find your first tenant within days! Letting Once you have decided to let the property through us we will draw up an agreement detailing the rent and terms agreed. Next we will set out finding the perfect tenant for your property! We can handle everything, including: • Advertising • Viewings • Taking up references • All legal and administration work • Rent negotiation • Supply of utilities • Inventory • Collection of advance rent and deposit • Transfer of keys We will keep you informed every step of the way! When using this service we will have your next ten ant in residence - without the need for you to do anything yourself Fees: 50 per cent of the first month’s rent or £200 (whichever is the greater). SERVICE TWO - FINDING TENANTS & RENT COLLECTION Using service one you take over management of the property once the tenant moves in.
How a letting agency works page 26
Service two offers air the benefits of service one, but in addition we will collect the rent for you and pay it into your bank account promptly every month. This is the ideal service if you will be away for long periods - or simply don’t want the hassle of collecting the rent! With this service, you will derive a regular income from your property without any fuss what so ever. Fees: 7.5 per cent 0 the rent for the property (in addition to the charge for ser vice one). SERVICE THREE - FULL MANAGEMENT Service three incorporates services one and two, plus total management of your property! We will carry out periodic inspections of the property in order to spot any potential problems - in advance. We’ll also deal with any minor maintenance/repair problems as and when necessary. At the end of the tenancy we will also carry out an inventory, and deal with all the administration. We will also carry out any necessary cleaning and repairs. Then we’ll find the next tenant for you too! The Full Management Service will make the period of tenancy completely trouble free from start to finish. It’s ideal if you want to generate an income from your property with almost zero involvement! Fees: 15 per cent of Full Rental Charge.
How a letting agency works page 27
TENANT PROFILE SHEET • Tenants Name: • Current Address: • Telephone Nos: Work Home: • Requirements: • Where does the tenant wish to live? • How much rent do they wish to pay per month? • How many people do they require accommodation for? Adults: Children:
Ages:
• No. of bedrooms required: Car requirements: •
Details of any pets:
•
Which of the following is required?
Detached/Semi Detached/Terraced/Cottage/Flat/Garden/Garage •
What is the required date of the tenancy?
•
Why does the tenant wish to move?
REFERENCES Employer: Previous landlord: Character reference: Tenant Profile Sheet (template) Mobile: Unfurnished? Y/N Furnished?
Y/N
Part Furnished?
Y/N
Garage/Off Road Parking/Street Parking
How a letting agency works page 28
Property Survey Sheet (template) PROPERTY SURVEY SHEET • Property Address: •
Tel: Y/N
Number:
Connected: Y/N
• Landlord’s Name & Address: • Landlords Tel: • Type of Property: Detached/Semi Detached/Terraced/Cottage Garden/Garage • Number of Rooms: Lounge
Kitchen
Bedrooms Dining Room
Bathrooms
Shower
Utility
Sep. WC
• Furnished/Unfurnished/Part Furnished? • Is the accommodation shared? Y/N • How many people could occupy the property? • Central Heating? Y/N Gas/Electricity/Oil/Economy • Coin Meters? Y/N • Is smoking allowed? Y/N • Are pets allowed? Y/N • Are children allowed? Y/N • Rental required £ pcm • Bond required £ • Service Required? Letting Only/Letting & Rent Collection Management • Comments/Further Information/Specific Requirements:
How a letting agency works page 29
Rental Account Form (template) Landlord: Month: RENTAL ACCOUNT FORM Tenant:
Property Address: Rent pcnipcm
TOTALS:
—
Rent Received Rent Outstanding
Total Rent Received For Month: MINUS Maintenance/Repairs: MINUS Agent’s Fees: MINUS Tax Deducted (Non Resident Landlords): TOTAL PAYABLE THIS MONTH: LESSON SIX £ Management Agreement (Template) MANAGEMENT AGREEMENT Between: Hereafter referred to as ‘The Agent.’ And Hereafter referred to as The Landlord.’ The landlord agrees to appoint the agent to act for him/her in renting out the property situated at: Hereafter referred to as The Property.’ This agreement is in affect from
for a minimum period of 12 months and
adheres to the terms and conditions herein. The initial rent sought will be £ per calendar month. This rent includes/excludes water rates. The tenants will be responsible for electricity/gas/water rates. The rent sought will not be reduced without the prior consent of the landlord. The landlord authorises the agent to carry out such emergency repairs which might be necessary for the upkeep of the property and its contents up to a limit of £100 (one hundred pounds) per repair (exclusive of VAT) without prior consent. The landlord agrees to provide two sets of keys to the property prior to the commencement date of the agreement and to ensure that the property is vacated by that date in order that an inventory of the contents can be carried out by the agent. Either party may terminate this agreement by giving notice in writing to the other party. However! in the event of termination by the landlord within twelve months of the starting date of the agreement then the management charge based on the agreed
How a letting agency works page 30
starting rent (or actual rent if greater) shall be payable to the agent for the first twelve months, or until the end of the current tenants lease whichever is the later. If the agreement is terminated by the landlord later than twelve months after the starting date of the agreement then the management charge on the actual rent shall be payable until the end of the lease still in force on the property. Signed: For the Agent: Date: For the Landlord:
Date:
How a letting agency works page 31
Formal Offer Letter (template) Superior Lettings Unlimited Professional Letting Agents, P0 BOX 9999, Anytown AYI ILL. Telephone/Fax: 01234 567890 1 June 2002 Miss May B Tennant Flat A 1 The Close nytown 1 AY2 3CD Dear Miss Tenant, Flat B, Letts Court, Anytow I am pleased to inform you that the landlord has accepted your offer of rent of £390 pcm for the above property. The tenancy is to comence on 1 July 2002 and is initially for a period of 6 months. I will prepare the Assured Shorthold Tenancy agreement for signing on the handover date. To accept this offer please forward a deposit equal to one and a half month’s rent, i.e. £585. Once the agreement is signed this will act as your deposit on the property. I look forward to hearing from you. Yours sincerely, 9v04 Vd4an Superior Lettings Unlimited.
How a letting agency works page 32
Landlord’s Declaration (template) LANDLORD’S DECLARATION I
_________________ declare that:
• I am the sole legal owner of the freehold/leasehold interest in the property, or • I am the joint owner of the freehold/leasehold interest in the property with: on whose behalf I am authorised to give instructions to the agent detailed in the attached agreement I make this declaration. (Delete as appropriate.) I have notified the mortgagee of my intention to let the property and I have obtained approval for the same. 2. I have notified the insurance company of my intention to let the property and have obtained their agreement to extend the insurance cover of the property to suit the changed circumstances. 3. I have read and accept the terms and conditions of this agreement and agree to pay the commission rates and other charges detailed. I agree that the agent may deduct the proper commission and other charges from any sums it may be holding at any time on my behalf. Signed: Landlord: _______________________
Date: ____________
Agent Date: ___________Landlord’s Address: ___________________________________ Accountant ____________ _________________ Solicitor: ___________________________________________________ Insurance Co. (Buildings): ____________________________________ Emergency Contact No: _________________________________ Payment Method?
Cheque/Bank Transfer/Other
BANK DETAILS FOR PAYMENT OF RENT: Name: ____________________________________________________________ Address: _________________________________________________________ Sort Code: ______________________________________ Account Name: _________________________________________Account Number: _______________________________________ Date repossession required (if specified):——-- - - -
How a letting agency works page 33
Notification To Utility Companies (template) Superior Lettings Unlimited Professional Letting Agents, P0 BOX 9999, Anytown AY I ILL Telephone/Fax: 01234 567890 1 June 2002 XYZ Gas/water/Electricity/Telephone Co Customer Services PC Box 1 Anytown AY1 2WN Dear Sirs, Account No. 123412341234 Flat B, Letts Court, Anytown We wish to inform you that the current occupier of the property will be leaving the premises on 30 June 2002. We would be grateful if you would make arrangements for the reading of the meter on the above date and ensure that any outstanding accounts are directed to and settled by the current occupant Please note that new a tenant will be occupying the property from 1 July 2002. Yours faithfully, Superior Lettings Unlimited.
How a letting agency works page 34