Rental property letting fees banned

The Government is banning the charging of letting fees to tenants. My initial thought was that this ban would just move the costs, and it will, but it may be a reasonable change – letting fees are incurred by the landlord so are best paid by the landlord. Whether they recover those though increased rentals is up to them, and the best way to do it.

Stuff:  Parliament bans letting fees on rentals

Tenants will no longer have to pay letting fees to agents and landlords, after Parliament voted to ban the practice.

Housing and Urban Development Minister Phil Twyford estimated the change, which comes into force on December 12, could prevent the handover of up to $47 million in payments he said were “unfair” and had “no economic rationale”.

“This will make a real difference to struggling families. There are significant costs associated with moving to a new rental property, which many families are now forced to do every year.

“When moving into a new rental property, tenants can face up to four weeks’ bond, two weeks’ rent in advance – and one weeks’ rent as a letting fee – in addition to moving costs,” he said.

“Letting fees are unfair. They have no economic rationale and there is no relationship between the amount of the charge and cost of the services provided.

“Banning the charging of letting fees to tenants is a good first step in improving the life of renters, while we continue our broader review of the Residential Tenancies Act.”

I don’t agree with all of that, but even if the cost of letting is covered by higher rental charges it may be easier for some to pay a little bit extra a week or month rather than a lump sum up front.

This would work fine for fixed term rentals, which are common for student accommodation. But it could be to the detriment of longer term renters, unless rental charges were lowered (or not raised as much) after the letting costs had been recovered.

But while the law change will now come as no surprise to the industry, it’s unlikely to be welcomed. The Real Estate Institute of New Zealand (REINZ) said in August, it would like to see tighter regulation in the market but had concerns about how the costs of letting fees would be covered if they were abolished.

“Letting fees covered  property inspections, advertising, viewings, background checks on tenants, liaison with landlords and processing the tenancy agreement,” Bindi Norwell, REINZ chief executive, said.

“So actually, they do quite a lot of work. So someone has got to pay for that.”

But as a cost to the landlord it should initially at least be paid by the landlord.

peterwn at Kiwiblog:

I disagree with most of Phil Twyford’s proposals for residential tenancies, but I do concur with his plan for abolishing letting fees paid by the tenant.

My reason is, the letting agent is chosen by the landlord and works for the landlord so it is anomalous that the tenant should pay the fee. The landlord should and is given an incentive to either negotiate fees or dispense with the agent altogether. Some agents structure things to extract a fee each year. Naturally, letting agents and property managers are squealing like stuck pigs over this as if it is the end of the world as they know it.

They say it will cause rents to increase. Rents may well increase – slightly but the amount is small and in any case increases due to shortage of flats etc would be far higher. Tenants would no doubt prefer a slight rent increase rather than having to fork out the fee in addition to initial rent payment and bond. A few landlords could leave the game over this but are more likely to leave because of the other proposals affecting residential landlords which will have far greater adverse effects. My heart bleeds for them.

 

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9 Comments

  1. David

     /  November 3, 2018

    As a landlord I have no problem at all getting rid of the letting fee, I welcome it.
    Property managers typically earn 7-8% plus gst management fee so earn more than enough to cover letting costs. If the manager cant charge a letting fee and its a cost to them to start a tenancy they will be incentivised to pick a good long term stable tenant.

    Reply
    • Pink David

       /  November 3, 2018

      Agree. The letting fee creates an incentive for property managers to churn tenants for cashflow. Not sorry to see it go at all.

      Reply
    • Corky

       /  November 3, 2018

      Ever had a rental thrashed, David?

      Reply
      • Kitty Catkin

         /  November 3, 2018

        Like Basil Fawlty’s car when it wouldn’t start and he gave it a damned good thrashing with a branch ?

        Reply
      • Corky

         /  November 3, 2018

        Oh, boy! 🙄

        Reply
      • David

         /  November 3, 2018

        Once, oddly the guy was late with his rent etc and I bent over backwards for him, he shat on the floor, blocked the plugs and turned all the water on then left and it was 2 days before I knew. Its a funny thing but you do someone a favour and it bites you in the arse.
        I use a property manager now that way everything is to the letter of the law and I only have above average homes..mutually beneficial. I house 45 Filipinos as well which brings a different element, nice guys but perhaps a little untidy so I pay for weekly cleaners.

        Reply
        • Kitty Catkin

           /  November 3, 2018

          A gay man was accused of sexual harassment/assault when he hadn’t touched the tenant (the one who considered that he had no right to be in ‘her house’ although she was well behind with the rent.) He was a first time landlord and made the basic error of being too nice and letting things slide. When he finally got her out, he and his husband sold the house and said ‘Never again.’ She was silly enough to make the accusation in front of witnesses and even her sister didn’t back her up. He had taken a step in her direction…

          Reply
  2. Alan Wilkinson

     /  November 3, 2018

    The problem with abolishing letting fees is that it creates a risk that has to be paid for. Whereas the letting fee is payable when the costs of letting are known and payable, rents will now have to cover the unknown risk of letting and allowing for that uncertainty has additional costs which will have to be paid by tenants.

    Reply
    • David

       /  November 3, 2018

      The cost of vetting a tenant is perhaps $50 including time Alan and if the property manager doesn’t vet properly they will be fired and they have to deal with perhaps a rubbish tenant. I imagine my property manager will notify me of her new charges to cover this and I tell you this I wont be paying her a weeks rent.

      Reply

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