Don't cover up the cracks
In part 1, we discussed three important clauses that are likely to be missing from the contract template you downloaded from the internet to use as your terms of business (aka agency) agreement. As the agreement which authorises a letting agency to act on behalf of a landlord, it is crucial you get it right. Here are three more reasons, or rather three clauses, which from studying some popular and freely available templates on offer, are probably missing from your agency agreement.
- Sole letting rights
Sole letting rights refer to the letting agency’s right to be the only agent representing the landlord. In other words, the landlord agrees not to appoint another agent to find a tenant or manage the property during the term of their agreement with the initial agent. If the landlord breaches this, they may be liable to pay a penalty fee.
Many of the most popular agency agreement contract templates do not address sole letting rights, or even give an agent the opportunity to select whether or not they intend to be the landlord's sole agent. This means that the parties miss out on the opportunity to include the following standard contractual term: a restriction period where another agent cannot be appointed to act on behalf of the landlord for the property in question. The downside of not contemplating this clause, or altogether not addressing sole letting rights, is that a landlord can find themselves contractually obliged to pay commission and agency fees to more than one letting agency.
- Housing benefits
When renting to tenants on housing benefits, there is a possibility that claims may be made to a landlord or letting agency by the provider of the benefits (usually the local authority). These claims may be made on the basis of overpayment, if there is a discrepancy in the benefits provided and the rent payable under the terms of the lease.
The issue of who, between the landlord or the letting agent, will be liable to pay these claims is not tackled in most freely available letting agency terms of business templates. This creates the potential of a dispute arising in the future. A good agency agreement with therefore identify which party will be liable for such claims, as well as how long this liability is intended to last for.
- Council tax
Council tax is a fee payable to local councils in England and Wales by the occupiers of domestic property. It is used for various services such as road maintenance and social care for vulnerable groups in the community.
When using a letting agent, especially if the agent’s service is a full management one, it is plausible that landlords will expect them to pay this tax. This is why the agency agreement should specify who is responsible for council tax: the tenant, landlord, or the agent? This issue is especially important if the property classifies as an HMO which we discuss in detail here. Many free templates of agency agreements do not identify which party is responsible for paying council tax, creating the possibility of confusion. In the case of non-payment, this could even result in court action being taken by the local authority.
If you are looking for a thorough and legally valid terms of business agreement for your letting agency, Legislate is a contracting platform which lets you negotiate and create such agreements on your own terms. You can read how to create your first Legislate agreements in our tutorial and watch a short demo. If you would like to try Legislate, please book an introductory call.
The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.