Letting fees, which usually equate to one week’s rent, are the fees charged to tenants by letting agents to cover their costs involved in finding a tenant. Letting fees can currently only be charged by letting agents (which most property managers are), and some solicitors, but not by private landlords. If this new bill passes, letting fees will be a thing of the past entirely. Other countries like Australia have similar laws in effect, where landlords pay fees to their property managers rather than tenants, and a bill was introduced in Parliament this week to make similar changes to the letting fees in England.
Why the change?
The government is introducing this law to reduce the burden these fees place on tenants. At the time of renting a new property, tenants have to cover costs for bond and typically two weeks rent. Having a letting fee on top of these other costs can create an unfair ecosystem in the rental world where some tenants simply cannot compete to secure a property.
How will property managers seek to recover these fees?
While at first glance this may seem like a victory for tenants, these costs will have to be recuperated by property managers somewhere. Property managers will have a couple of alternatives on how to recover these fees absorb the fee increase management fees and/or charge landlords the fee.
Absorbing the fee
In this case the property managers would lose out on whatever percentage of their revenue letting fees previously made up. This option isn’t likely to be a popular choice as it could create stresses in a business which would make operation more difficult. It’s more likely that the property managers are going to find a way to pass these fees on to the landlord.
Increased management fees
With a loss of revenue from letting fees, management companies will seek the more likely alternative passing this expense directly on to you, the landlords they work with. This could come in the form of an increase in management fees by at least 1%, or it could be a direct charge of one week’s rent as it was previously for tenants.
How can landlords come out on top?
As a landlord you’ll have to consider what the best move for you will be once letting fees are banned. For some, this increase in fees may encourage landlords to go solo and manage their properties themselves. You can advertise and find tenants yourself without using letting agents.
This involves creating an ad and running viewings which is a bit more work, but no one is better at selecting tenants than the landlord themself. Being a private landlord however, as noted, begets more work than most are eager to take on. A great option of course is transitioning to a digital property management solution.
Digital property management
Services like myRent.co.nz are an affordable alternative to traditional property management. myRent makes use of technology to make renting a property more convenient and cheaper than ever before. At myRent we have a forward thinking Tenant Find model that works for both tenants and landlords. We never charge letting fees to tenants, and provide a cost effective way for private landlords to advertise their property on New Zealand’s largest property portals Trade Me, realestate.co.nz, OneRoof and Homes.co.nz. Landlords conduct the viewings, and myRent takes care of the rest. Changes to letting fee laws don’t affect our offerings because we’ve always been ahead of the curve with a strong opinion against charging tenant fees.
With property management at myRent costing 1% compared to a standard 7.5%, myRent’s digital services are worth considering. Coupled with the increased fees landlords are likely to see pushed on to them when this bill passes into law, traditional property management isn’t going to be meeting the expectations landlords have anymore. The chart below maps out how digital property management like myRent has the potential to benefit landlords who are thinking of changing to self-management or a digital service compared to using a property manager.
Like it or not these big changes to letting fees are coming soon which means more expenses for everyone. Take some time to evaluate how your properties are managed, and what kind of fee increases you’re willing to take on. If you decide increased fees won’t work for you, explore how digital property management can benefit you and your investment properties.
The information contained in this article is exclusively for promotional purposes. It does not in any way constitute legal advice and should not be relied upon as the basis for any legal action or contractual dealings. The information is not, and does not attempt to be, a comprehensive account of the relevant law in New Zealand. If you require legal advice you should seek independent legal counsel. myRent.co.nz does not accept any liability that may arise from the use of this information.