Letting Agents' Commissions on repairs/purchases on behalf of Landlord

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    Letting Agents' Commissions on repairs/purchases on behalf of Landlord

    My management agreement with the letting agents states that "Any commission earned by us while acting on your behalf will be retained to cover costs". One could reasonably expect that the 'costs' of replying to one or two emails & placing an order was already covered by the management fee, which itself runs to several thousand pounds pa. It appears that the agent has arrangements in place with various suppliers & contractors in the area whereby the net selling prices required by the supplier/contractor are increased by a % which is then retained by the agent as 'commission'.
    My queries are:
    (1) is this legal?
    (2) if it is legal, surely there must be a limit on the uplifted price charged to the Landlord? For example, is a 12.5% uplift justifiable?

    #2
    It's legal, especially if they tell you they are doing it.

    If the contract is treated as a consumer one, and for some strange reason some small landlords are, apparently, considered consumers, a very high one might be an unfair contract term.

    Most businesses tend to reserve about 10% for incentives, so 12.5% is may be slightly high, but not exceedingly so.

    Generally self regulation concentrates on transparency. You should be able to see where the money is coming from, but the split between direct fee and commission is not so important.

    Comment


      #3
      This is really something that you should have queried before signing the contract (being prepared to walk away and find a different managing agent if you didn't like the answers).

      Comment


        #4
        Leaseholder64 - Thanks for that. It's difficult to see how this is controlled and clearly, in the wrong hands it could be subject to abuse. Although it's in the management agreement that, in general, they can retain commission, the LEVEL of that commission or even a LIMIT to that commission is not covered by the agreement. It's difficult to see how it could be an unfair contract term because the landlord is not party to the arrangements between the agent & the suppliers/contractors. So, how does one control it and what action can one take if the level of commission seems unreasonable?

        Comment


          #5
          Originally posted by M Clavell View Post
          It's difficult to see how it could be an unfair contract term because the landlord is not party to the arrangements between the agent & the suppliers/contractors.
          The fact that the landlord is not party to the arrangements between the agent and suppliers/contractors, and no upper limit to the amount of commission has been agreed by the landlord, is precisely why this could potentially be considered to be an unfair contract term.

          Hypothetically the agent could arrange commissions that double the cost that the landlord has to pay for any work that the agents arrange, and despite having no part in agreeing that 'commission', the landlord is expected to pay it.

          Comment


            #6
            Who actually bills you for the work?
            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

            Comment


              #7
              jpkeates - in answer to your query, it is the agent who bills me.

              Comment


                #8
                I think if an agent doesn't stitch you up one way, it will be another.

                Comment


                  #9
                  Originally posted by M Clavell View Post
                  jpkeates - in answer to your query, it is the agent who bills me.
                  In which case, the issue is likely to be whether the duty owed by an agent allows them to make money in this way (which is far from black and white).

                  In essence, the agent is charging you for a service and making a profit from you (which is fundamentally what they do).
                  They quote you (say) £75 to fix a leak, you agree, they fix the leak and charge £50 - same as any tradesman.

                  The issue is that they (probably) owe you a fiduciary duty to act only in your interest with regard to your property business, which means they should get the work done as cheaply as they can.

                  My practical view is that as long as the price I'm quoted is reasonable, what happens behind the scenes doesn't bother me that much.
                  I feel (broadly) that the work is generally cheaper and done quicker than I'd pay anyway if I started phoning round tradesmen - I don't have as many properties requiring work as my agent does.

                  This isn't always the case https://www.propertyindustryeye.com/...ainst-foxtons/
                  I would be really interested to know where that claim went...
                  When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                  Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                  Comment


                    #10
                    Originally posted by jpkeates View Post
                    This isn't always the case https://www.propertyindustryeye.com/...ainst-foxtons/
                    I would be really interested to know where that claim went...
                    That came to my mind as well.

                    I have a recollection that one issue was that the agent charged the LL more if the cost of the work was more than a stated amount, and the cost of the work was below the limit, but the kick-back took it over the limit.

                    Rumour I heard (possibly Nearly Legal) was that it has likely been settled out of court with NDA included.

                    Comment


                      #11
                      Our agent just put their foot in it in this regard because they use a contractor for our properties and are unaware that he's a personal friend of ours. He just told us that they had recently started asking him to add 5% on to his invoices which they then take as a commission.

                      They started putting pressure on him to do this in the last few months so my guess is that they're trying to find out where they can make up for fees lost from the 1st of June.

                      Good thing we've just come back from overseas to take over management of all our properties from them!

                      Comment


                        #12
                        Originally posted by jpkeates View Post
                        In essence, the agent is charging you for a service and making a profit from you (which is fundamentally what they do).
                        They quote you (say) £75 to fix a leak, you agree, they fix the leak and charge £50 - same as any tradesman.
                        That's obviously a stupid typo.
                        The second sentence should say...

                        They quote you (say) £75 to fix a leak, you agree, they fix the leak and charge £75 - same as any tradesman.
                        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                        Comment


                          #13
                          Legal issues aside, I can't see how any agents are going to survive unless they do such things. Its a problem if its underhand but the principle of a set fee and then further costs based on the level of activity seems quite fair to me. The alternative would be a higher fee for everyone, which wouldn't be fair to those with properties in good repair, (following this example).

                          Comment


                            #14
                            There's going to have to be some kind of change in the agent's revenue model isn't there.

                            The problem with charging commission as a solution is that it means that a) there's an element of mistrust baked into the mechanism and b) the agent earns more the higher the bill, which is a conflict of interest.
                            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                            Comment


                              #15
                              Originally posted by DPT57 View Post
                              Its a problem if its underhand
                              It is my understanding that if it was not agreed, then then the money (commission/kickback) belongs to the LL

                              Comment

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