Third party letting?

Robert Arthur asks:
(updated on Tuesday, May 28th 2013)

My investment property is vacant and is managed by a property management company. I have a signed agreement with the property management company. My wife is a landlord of her own investment property and acquired a tenant via a casual tenancy agreement through a rental agency. I understand other rental agencies can find tenants for my property but would not let their prospective tenant sign the tenancy agreement with my property manager. My wife seems to think that I can use the casual tenancy agreement of the third party agent and incorporate the conditions of the property managers into the agreement and yet the property manager manages the property and collects the rent. Is my wife right or has she misunderstood the way casual letting works. I understand casual letting works with a person who is a landlord and has no property manager involved.

Our Experts Answer:

You’re describing here two different types of activity in the residential rental market. A property management company’s core business is the ongoing management of your property throughout the tenancy, whereas a letting agent provides a service to a tenant (or to a landlord) in putting the tenant and the landlord together. There the responsibility of the letting agent ends, and a letting fee is charged for the work that the agent has done. Letting fees vary, but an amount equivalent to a week’s rent or more is not uncommon. A property manager’s focus, as I have mentioned, is on the ongoing management, for which the manager charges the property owner a fee. This management fee is usually a percentage of the received rent. It is sensible for the property manager have the task of checking, approving and finalising any tenant applications, since the manager knows the property and needs to find a tenant who is appropriate for the property, not just one who pays an upfront letting fee. The property manager is going to be responsible for dealing with the tenant throughout the tenancy. The letting agent may be using the tenancy agreement as a means of binding the tenant into a commitment to pay the letting fee. There may be, however, no commitment to the property owner beyond supply of the tenant. If that is the case, a separate contract between letting agent and prospective tenant is all that is required. It doesn’t have to be specific to the ongoing tenancy. There should be no need for a letting agent to vet or approve a tenant – that is a property management function. The contract that a tenant signs with a letting agent should not necessitate a fee until the tenant’s application has been approved. The fee should be dependent upon success in locating the right tenant/property mix. The final say in the engagement of a tenant must lie with the landlord (or property manager acting for the landlord). I suggest that you scrutinise closely the tenancy agreement that your third party letting agent wants to sign, and compare it with your property manager’s tenancy agreement. If there are material differences, you may be getting a lesser service from one or the other. Make sure that you don’t settle for less than you deserve simply because a letting agent wants to ring-fence a prospective tenant. If the property manager is to manage the property, don’t be hamstrung by the wording of the letting agent’s agreements. I know many professional property managers have a means of receiving payment of the letting agent’s fee from a successful tenant and passing the fee straight through to the letting agent. These arrangements do not require the letting agent to be a signatory to the tenancy agreement.

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