Reservation Fees, Letting Agents and Avoiding the Void Periods

LettingFocus has found some letting agents to be very frit* about taking reservation fees from tenants – and posits some reasons why.

Landlords who set out to minimise periods when a property is empty (or “void periods” in the landlord vernacular) always market the property as soon as the current tenants have given notice of their intention to leave. (Of course, it helps to have this written into the tenancy agreement).

These landlords will also be familiar with the situation where they have fully referenced checked a potential new tenant and want to let a property to them. However, the new tenancy sometimes cannot commence for say 3 or 4 weeks because the existing tenants have not moved out yet.

In these circumstances and to ensure the new tenant is not “flaky”, the landlord will reasonably want the new applicant tenants to sign a Reservation Agreement confirming their intentions and, as a sign of good faith, to hand over a “reservation fee” of say 2 to 3 weeks, which the would-be tenant will lose if they change their mind for any reason and fail to take up the tenancy.

This seems reasonable to us because a landlord will want to protect his losses should the applicant tenant change their minds resulting in the landlord having to face the costs of remarketing the property and the inevitable void period whilst he looks for another new and hopefully less flaky tenant.

What Reservation Agreements Should Say

Of course, for fairness the Reservation Agreement should also say:

1. In the unusual event that the existing tenant does not vacate and the incoming tenant therefore cannot take up the tenancy, then the incoming tenant will get their reservation fee back in full.

2. Providing the incoming tenant takes up the tenancy, the Reservation Fee is then deducted from the first months’ rent on move in date, leaving just the balance to pay.

Letting Agency Attitudes

But some letting agents we have dealt with are very reluctant to take reservation fees at all.

We asked the Association of Residential Letting Agents (ARLA) about this and they gave us this statement:

“ARLA advises their member to make sure that the potential tenant is fully aware of the obligations and liability to such a penalty and along with all other fees it is clear and transparent. They also remind their members of the risk of executing a tenancy if there is any doubt that the existing tenant does not move out.”

This statement seems clear enough but it doesn’t deal with the case where the property is already occupied by someone else who is due to move out soon.

Looking after the Landlord Should be the Agents Priority

Perhaps many letting agents, having already taken lots of other fees from the tenant (to help their own business cover its costs) are nervous about also asking tenants to pay a reservation fee (which, of course, goes to protect the landlord whom they are supposed to represent).

This type of letting agent behaviour could partly explain why it seems that many professional landlords (who often do most of the reference check and check-in work themselves) experience less void periods than those using a full service letting agency for the same tasks.

On Line Letting Agents

Could it also partly explain the growth of the online letting agencies, the bulk of whose business is usually heavily focused on getting landlords’ adverts uploaded onto Rightmove et al, thus allowing the experienced landlord to do the rest of the “on boarding” work (which used to be performed by full service agencies).

Disclaimer: Before I get lots of angry text and emails from letting agents, I am fully aware that not all agents act in this way. Most, still put the landlord (their client) at the heart of their business, alongside due and ongoing recognition of the rights of tenants.

* “Frit” – a word once famously used by Margaret Thatcher in the House of Commons in one notable tirade in which she used this particular piece of  Lincolnshire slang.

Stop Press: This article produced a very heated debate in favour and against my position at many sites, especially “Letting Agent Today”. Some letting agents still think a reservation fee of this type would count as a tenant deposit – with all the ramifications involved with this.

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